Cisco Study: SMB digitalisation could see Malaysia adding US$24 billion to its GDP by 2024

• More SMBs adopting digital transformation could add US$3.1 trillion to APAC GDP
• Shortage of talent and technologies account for top digitalisation challenges

The 2020 Asia Pacific SMB Digital Maturity Study by Cisco reveals the digitalisation challenges facing APAC businesses. 84% of SMBs (Small Medium Businesses) in the region, the study found, are struggling to execute their digitalisation goals. Almost one-third are still reactive to market changes, and have hardly made efforts to digitally transform.

There is a need, of course, to hasten these digitalisation efforts. If not for competitive reasons, then at least monetary – according to the study, if more SMBs advance their digital transformation journeys, US$3.1 trillion (RM12.8 trillion) could be added to APAC’s GDP growth by 2024.

In Malaysia alone, the digitalisation of SMBs could add between US$19 to US$24 billion (RM79 billion to RM99 billion) to the country’s GDP by 2024 – which Cisco notes can contribute to the economic recovery post Covid-19.

The study, commissioned by Cisco and conducted by International Data Corporation (IDC),  maps out the four stages of digital maturity; Digital Indifferent, Digital Observer, Digital Challenger and Digital Native, experienced by SMBs across Asia Pacific.

It found that SMBs that are more digitally mature enjoy higher benefits in revenue and productivity compared to those that have an indifferent approach to digitalisation.

The study shows that Malaysia’s SMBs have moved into the Digital Observer stage, up from Digital Indifferent in 2019.

Digital Indifferent is marked by reactive strategies, lack of digital skills and a majority of manual processes. Digital Observer, on the other hand, marks the beginnings of a digital plan albeit with still limited cloud resources, risk-averse leadership and tactical investments in digital skills. What this means is that we’re seeing improvement, but not yet enough.

Diving into Malaysia 

According to the study, 64% of SMBs in Malaysia are looking to digitally transform to bring new products and services to market, a jump from 33% last year. In addition, 59% recognise that competition is transforming, and they must keep pace, while 43% said they are transforming due to demand from customers.

These, according to Cisco, are positive and significant developments, given that SMBs account for 98.5% of all Malaysian businesses, 66.2% of the country’s total employment and contribute 38.3% to overall GDP.

“The SMB sector has been among the hardest hit by the COVID-19 pandemic. However, the country’s SMBs have shown great resilience, and have leveraged technology to continue to operate and serve their customers during the period,” says Cisco Malaysia managing director Albert Chai.

“As Malaysia continues to overcome the current situation, and consumer and business activity starts to pick up, digital transformation of SMBs will play a pivotal role in their recovery and contribute to the country’s overall economic growth. At Cisco, we are committed to work with SMBs to help them emerge stronger with the right digital solutions and strategy.”

The results of the study show that purchasing or upgrading IT hardware (18%) is the top technology investment priority for SMBs in Malaysia, followed by purchase or upgrade of IT software (14%) and cybersecurity (11%)

However, SMBs are also facing challenges in adopting digitalisation strategies. According to respondents, shortage of digitally skilled talent is the biggest hurdle they face (21%), followed by lack of budget and or commitment from management (16%). They are also found to be lacking the proper digital transformation roadmap that is critical to any organisation looking to drive substantial change (12%).

Raz Mohamad, director Small Business and Commercial for ASEAN at Cisco says that for SMBs to fully leverage technology, all stakeholders need to play a role.

“The government is already taking the lead and has introduced a range of measures to help Malaysian SMBs on their digital journey,” he says.

“At Cisco, we are proud to be playing our part. From a talent perspective, the Cisco Networking Academy has trained over 80,000 students in Malaysia in various ICT skills since its inception. On the technology front, we have launched a series of curated products and solutions specifically for the SMB sector under the Cisco Designed portfolio and introduced 0% financing for SMB customers in the country.”

Some regional learnings

The 2020 study gathered and analysed data from 1,424 SMBs across 14 markets, including Malaysia, in APAC to assess the challenges and opportunities the companies face in their digital transformation journey.

The study highlights that nearly 70% of SMBs in Asia Pacific are accelerating the digitalisation of their businesses because of Covid-19. Among the respondents, 86% say they believe digitalisation will help in developing future resilience against crises like Covid-19. Additionally, nine out of 10 SMBs are more reliant on technology to sustain their business during the pandemic.

Within the region, SMBs in Singapore, Japan, and New Zealand continue to lead the Digital Observer group, with no changes in their ranking compared to 2019. However, mainland China, Taiwan, and Thailand surpassed Korea, Hong Kong, and Malaysia, respectively. There has also been notable progress made by SMBs in Indonesia and Vietnam.

Across APAC, lack of digital skills and technologies are listed as the top two challenges for SMBs undergoing digital transformation, with Cloud being the top technology investment priority.

More SMBs (62%) compared to 2019 (38%) seek digital transformation to launch new products and services. Staying ahead of the competition remains the second most important factor driving the digital imperative for SMBs, the study notes, with 26% of respondents stating as such.

Cognisant of the challenges ahead, especially with the talent shortage, Cisco suggests the following steps for SMBs to grow into a Digital Challenger. How far they go, depends on their hunger to succeed.