Malaysian SMEs still lag behind in digital adoption – World Bank

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World Bank; Malaysian SMEs are lagging behind in digital adoption. (Photo by Mohd RASFAN / AFP)

  • Digital adoption among nation’s SMEs lags behind large corporations
  • Most companies are interested in government assistance to promote the adoption of digital solutions
  • SMEs are underperforming and the crisis is widening the productivity gap

In Malaysia, an overwhelming majority of 98.5% of 920,624 commercial establishments in Malaysia are small and medium enterprises (SME). Although being the the backbone of the country’s business environment, digital adoption among SMEs lags behind large companies, according to the World Bank in Malaysia.

The bank, in its Malaysia’s 24th Economic Monitor: weathering the wave report said: “The pandemic has exposed the gaps and exacerbated the vulnerabilities of the Malaysian private sector. This is particularly the case for SMEs, which have been hit hard by supply and demand shocks. In general, small firms continue to experience more severe income shocks than medium and large firms, and the same is true of non-exporters compared to exporters.

In 2019, the contribution of SMEs to the country’s overall GDP was 38.9%. That same year, SMEs employed around 7.3 million people, contributing almost half (48.4%) to the country’s employment. Malaysian SMEs are classified into three categories: micro, small and medium. Micro-enterprises make up 76.5% of Malaysian SMEs. In contrast, medium-sized companies only represent 2.3% of SMEs.

According to the World Bank, Malaysian SMEs have underperformed peer countries, both in terms of production and productivity levels. World Bank Vice President for East Asia and the Pacific Victoria Kwakwa said: “Real-time surveys have shown Malaysian businesses are more vulnerable than their regional counterparts and the pandemic is exacerbating issues that the country’s private sector was already grappling with before the pandemic. Given that a post-pandemic recovery will be driven largely by the private sector, efforts should be made to improve the resilience of this sector in the medium to long term. “

The digital divide between businesses in Malaysia

As more business establishments participate in the digital economy, businesses that are left out of this digital revolution are likely to struggle to survive, let alone thrive. The World Bank report indicated that SMEs in the nation of Southeast Asia have been underperforming and the crisis is widening the productivity gap. “Malaysia has a high number of SMEs, but they represent a small part of the activity. Digital adoption by SMEs is lagging behind those of large companies and businesses are interested in government assistance in adopting digital solutions.

OAbout one in three companies in Malaysia has implemented digital transformation strategies, while less than one in four companies have a dedicated digital strategy team. Malaysia also has “fewer businesses with websites and fewer secure servers than per capita income would suggest” compared to other countries. In 2017, only 37.8% of business establishments in Malaysia were present on the web.

The World Bank also said that “large export-oriented companies dominate the economy as they adopt e-commerce at higher rates than SMEs. According to Khazanah Research Institute, digital adoption by SMEs is mostly concentrated in front-end computing devices and connectivity (less than 85%) and least prevalent in back-end business processes such as inventory management (14%) and processing software of orders (11%). In addition, only 44% and 54% of SMBs use cloud computing and data analytics, respectively. By way of comparison, by 2014, 85% of SMEs in Singapore used cloud computing.

The way forward to harness digital adoption

In view of these challenges, policies could be developed to encourage the universal digitization of businesses and bridge the digital divide between businesses in the burgeoning digital economy. The aim of these policies is to build an inclusive digital economy so that all parties can reap the benefits of the digital age. Lack of technological knowledge, organizational silos and the costs involved, however, remain obstacles to digitization.

Thus, it is crucial that inclusive policies are put in place to encourage the digitization of businesses of all sizes and to bridge the digital divide between businesses in Malaysia. Perhaps it is time to rethink a few factors, including the right digital governance policies, reducing the costs of digitization, improving the technical skills of the workforce, as well as a combination of competition and Data protection regulations can help bridge the digital divide between businesses.






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