3 Reasons Why SMEs in Singapore should Go Digital
It is no longer an option.
From 2010-2018, Enterprise Singapore launched several programmes aimed at increasing SME productivity. As the nation embarked on a major innovation drive, the Government introduced the Productivity and Innovation Credit Scheme (PIC) in Budget 2010. The scheme covered Singapore-registered business entities in six areas, such as acquisition and leasing of PIC information technology equipment, training of employees, and research activities to name a few. Businesses could claim up to 400% tax deductions (up to S$400,000) and/or 60% cash payouts yearly from years of assessment (YAs) 2011 to the last year of the Scheme in 2018. In particular, the 60% cash payout was targeted at helping small and growing businesses, who typically faced cash flow problems. These small businesses could convert their qualifying PIC expenditure into cash to invest in technology or upgrade their operations. A year into the programme, the Ministry of Finance reported a promising take up rate. One in four small and active companies with less than $10m annual turnover claimed PIC, and automation equipment was revealed as the most popular.
Further, the Government showed its continued commitment to sharpening our SMEs’ edge in the economy by announcing yet another initiative in Budget 2013. The S$51m A*STAR Technology Adoption Programme (TAP) was aimed at helping SMEs raise their productivity by increasing their access to technology. In this programme, a team of intermediaries would match companies to technology solutions in both the public and private sectors, through one-to-one consultations and large-scale outreach events conducted through the SME Centres, Productivity Centres, as well as Trade Associations and Chambers.
However, these initiatives showed limited success in sustaining our SMEs’ usage of advanced digital tools to keep their operations updated with the country’s modernising technological landscape. The Ministry of Trade and Industry ran an Economic Survey last year, which tracked the digital adoption of 1,150 firms over the period of 2014 to 2016. Of these firms, 83% are SMEs. Results showed that more than 80% of the surveyed companies had adopted basic digital tools like infocommunications security measures and had websites.
But, the good news stops here. Only one fifth of the surveyees had leveraged e-commerce platforms, which the survey categorises as Digital Platform Tools (DPT), and less than one third of them had adopted more advanced technology like artificial intelligence or data analytics, categorised as Advanced Digital Tools (ADT). Although these technological innovations are crucial in keeping businesses competitive, the chart below reveals the disparity between the adoption rates of these digital tools by SMEs and non-SMEs, making it clear that the former had been more averse to embracing technology.
It was evident that more had to be done. The Government launched the SME Go Digital initiative in April 2017 to make going digital simple for SMEs. But up until 2019, there was still a disconnect between awareness and the uptake of government support for digitalisation, as Business Times reports. Of the 65% of SMEs who were aware, more than half did not utilise these initiatives for fear of fraud or cybersecurity risks. This is an alarming statistic not because of how many small companies lag behind their bigger and more established peers, but because they have opted out despite standing to gain the most. There is so much untapped potential within the SME sector that technology can help to fulfil, yet business owners remain apprehensive and even fearful to take a chance on its promise. And for understandable reasons, no less.
COVID-19 as catalyst
But the global spread of the COVID-19 virus early this year has created in businesses an urgency to survive. The virus has resulted in not only a health but an economic crisis no one in history has ever witnessed. Considered a “black swan” event that leaves us with no past experience to learn from, even financial experts struggle to put a finger on when the global economy can return to its past glory, if at all. National governments have had to implement strict social distancing rules on its people, and companies everywhere have had to relook at ways to continue operating in a world where COVID-19 is a norm.
While acknowledging the obvious toll it has taken on everyone in the world, I choose to see the bright side of this crisis. This pandemic has presented a rare opportunity to transform Singapore’s economy and our SMEs. The Singapore Government has since announced four Budgets totalling S$93b in COVID-19 support measures. Among them is the SME Go Digital initiative again, but this time with a stronger focus. It now aims to help businesses address continuity challenges and push for them to stay connected to their consumers while being physically apart. At this point the question stands, how is this different from previous attempts to encourage the digital transformation within our SMEs?
Three apparent factors come into play
(1) Increase in consumer digital spending (2) Workers now demand digital upskilling at work (3) Digitalised companies are more cost efficient and resilient. COVID-19 has undoubtedly begun to change Singapore’s financial landscape but our SMEs are given the help they need to reboot to become tech focused.
(1) Increase in consumer digital spending
According to a February report on Singapore’s digital spending released by social insights research agency, WeAreSocial, the average Singaporean spends a total of US$3,016 per year through digital payment transactions, amounting to a total annual value of about US$12b in digitally-enabled consumer payments. This comes as no surprise because it is now easier than ever to make a purchase or send money with a few clicks and swipes on a device. With e-commerce laying the foundation for contactless shopping, more and more consumers move online to buy clothing, food, and even big-ticket items like household appliances.
Gone are the days where shopping for something becomes a two-hour trip to the shopping mall, squeezing through the crowd, and walking through aisles of products. Granted, some find joy in the physical experience but increasingly, the trend is that many consumers find value in the convenience of purchasing from the comforts of their homes – less time, less hassle, instant gratification. The nation is indeed spending with a swipe of the thumb. This phenomenon has slowly but surely seeped into modern living so much so that it concerns me to find that there are still businesses that do not enable online purchases today.
It is imperative for these businesses to hop onto the digital bandwagon because the trend of digital consumption is not declining. Compounded by public fear of the coronavirus spreading through secondhand contact when handling cash, this trend will only escalate exponentially in today’s frail health climate. Indeed, leading data and analytics company, GlobalData, attributed Singapore’s drive in electronic payments to this reason on top of the government’s push for digital transformation, in a study published this April. Nikhil Reddy, the company’s Banking and Payments Analyst, says, “The recent COVID-19 outbreak will drive the shift from cash-based payments to digital payment tools, particularly non-contact tools such as contactless cards and mobile wallets.”
This comes on the back of digitalised transit payments and P2P transactions like PayNow and PayLah! that are already part and parcel of our daily lives. As a result, the same study forecasts a 2% drop in cash payments by the end of 2020 and expects the nation’s share of cash in total payments volume to decline from 46.3% in 2020 to 39.0% by 2023. While this statistic projects the decrease in cash payments, it highlights the fact that more services will need to be driven by technology in order to remain relevant and competitive.
Usher in the rise of Singapore’s digital economy. The World Economic Forum and the Group of Twenty define “digital economy” as a broad range of economic activities that use digitised information and knowledge as key factors of production as well as infocomm technology to drive productivity growth. Think about alternative services like ride hailing, food delivery, and home sharing apps that found a gap in the market they could serve; where once the consumer had to stand by the roadside to hail a taxi or else pay a booking surcharge, walk under the hot sun and queue up at a hawker centre for lunch, or book expensive hotels piled with tourist charges, now they can enjoy these services within a few clicks and at a lower cost!
People today are enabled by technology to make money with the existing resources they have; cars and homes no longer sit idle but are optimised to generate income. With such day-to-day services upended by e-commerce and being consumed via technology, Singapore’s burgeoning digital economy is set to add as much as US$10 billion to the country’s gross domestic product (GDP) by 2021, making it clear that much of mass consumption will only become more digital. But can our workers keep up? Is our labour force equipped with the necessary skills to meet the demands of our technologically advanced workplace today? Some enterprises may hesitate overhauling their analogue ways of working because they are afraid that workers cannot keep up with change. However, statistics show the contrary.
(2) Workers now demand digital skill sets at work
The way we live and work is undisputedly more digital and more so for Millennials, born between the years 1981 and 1996. For this group who largely came of age during the Internet explosion in the early 2000s, constant connectivity on the web and technological communications are innovations they are used to. Naturally, the way in which they solve problems or access problem-solving tools will largely involve technology. With about one third of the labour force expected to comprise millennials by 2020, businesses must therefore evolve with the times as the demand for a digital environment will only intensify with millennials entering the workforce. Leading staffing firm, Manpower Group, surveyed 19,000 millennials across the globe and found that the majority of these young workers correlate skills compatibility to job security. In the same way, businesses need to ensure they are investing in upskilling their employees – not only will they remain a desirable workplace by retaining their employees, they will be able to scale the company’s growth as a result.
While employers have the duty to upskill their employees, NTUC Deputy Secretary-General and Senior Minister of State, Ministry of Trade and Industry, Dr Koh Poh Koon, emphasises that “the mindset of workers is important” in ensuring they do not render themselves obsolete. Alas, the matter of being left behind must be faced with a shift in attitude and not swept under the carpet because of a lack of capability.
In fact, Randstad’s Q2 2019 Workmonitor Survey reveals that 83% of employees in Singapore want their employers to digitally upskill them – a sign of public consensus that an onslaught of technological innovations are changing the way we work. “With new technology coming in, we need to convince our workers to learn the new skills,” Ramanathan Venkatesan, an employee in his 40s at Fong’s Engineering and Manufacturing Pte Ltd says. This is compounded by a sense of urgency because some things cannot be done physically, only virtually.
In April when Singapore began its circuit breaker, all F&B outlets had to shut their dine-in facilities as a measure to keep human contact to its minimum. The country was also encouraged to stay indoors and to avoid leaving their homes unless absolutely necessary. Basic activities like having a meal at a restaurant and socialising with other humans were forced to be conducted through screens. It is obvious that this pandemic has truly overturned the way we live and learn. But while restrictions made life uncomfortable, they are also catalysts for creativity and innovation to ensure we resume activities safely. Even essential services are moving online as evidenced by the trend of telehealth and edutech, which means that jobs now, more than ever, are powered by digital skills and knowledge.
But more than recognising the need for digital skills and transforming the company with digital tools, there needs to be adequate training so that “the company transformation takes place not only in terms of technology, but also in human capability,” as Dr Koh notes. In line with this, the Government has pledged to spend S$3.5b on information technology to support businesses battered by the pandemic, dedicating a ministerial committee to drive digital transformation and launching initiatives like the TechSkills Accelerator (TeSA) Mid-Career Advance programme. This initiative is an effort to equip workers with digital skills and place them in jobs in the ICT sector, and Singaporeans aged 40 and above can apply to the programme regardless of whether they have an information and communications technology (ICT) background.
Government aid has made it significantly easier to bridge the gap between skills and demand, allowing people to seize opportunities in the ICT sector as the pandemic makes us more acutely aware of technology as an enabler rather than a rival in our attempts to resume work in a COVID-19 world. The committee, led by Minister S. Iswaran and Mr Chan Chun Seng, will also focus on digital adoption among segments in the society which are seen as challenging in terms of digitalisation – hawkers and the elderly. Small businesses should no longer see digital transformation as an option but an imperative from which they stand to benefit.
(3) Digitalised companies are more cost efficient & resilient
Regardless of the size of the business, small and large enterprises have the same goal of continued growth and scaling profitably. However, COVID-19 has introduced more roadblocks to this path. Yet, the impact of this pandemic is undeniably more profound on SMEs by virtue of their lack of resources and channels of revenue, which is also further exacerbated by an economy expected to contract by 5.8% this year. SMEs typically have weaker balance sheets and are not quite as diversified as larger corporates so naturally, both types of businesses cannot employ the same methods to achieve growth. Large corporates have the financial capacity to hire someone in a specialised role to execute a specific task but a smaller enterprise may not.
While it is not uncommon for SMEs to have lean teams, which means their employees find themselves wearing more than one hat, it is a common refrain that employees become overstretched and experience burnout as a result. Because of this, companies may not realise their full potential. But, this does not have to be the case. The right technological tools, once employed, can complete repetitive and manual tasks, freeing employees to accomplish more strategic tasks that help to propel the company’s growth. Given Singapore’s rising labour costs from the 107 points in Q4 2019 to 112.1 points in Q1 2020, it is clear that investing in technology will help to defer some of the business’ costs while achieving productivity.
On top of evident cost savings, digital solutions are a way for SMEs to get more bang for your buck. In today’s uncertain economic climate, the benefits of being cost efficient between digitised companies and those that are not is obvious. A Mckinsey report notes that “those further along the digital journey are realising 7-plus percent more revenue growth than industry peers, and nearly 6 percent more EBITDA growth.” And the potential of this growth extends beyond Singapore. Companies like e-commerce platform Zalora and logistics giant YCH are evidence of major regional expansion with the help of technology.
In the same way, small businesses are seeing a wave of opportunities throughout the Southeast Asian region where there are larger consumer markets. Countries like Indonesia, Thailand, Vietnam, and Philippines, are among those most open and ready to embrace technologies for business growth. Industries such as the traditionally deemed “low-tech” transportation and logistics companies, whose service offerings are manual labour rather than an actual product, can gain insights into their driver behaviour and delivery times so as to optimise efficiency by leveraging technology to collect consumer data.
In Singapore, perhaps the most severely hit by COVID-19 is the services sector. Accommodation and F&B businesses saw a plunge by 23.8% in the first quarter of this year compared to a year ago, with some outlets even pulling the shutters down for good. But there is a silver lining. Among the services sector, the infocomms sector in particular is expected to grow due to the increased demand for IT and digital solutions. DBS senior economist, Irvin Seah, notes that the better performance of this segment is due to such businesses being more digitalised, therefore being empowered to cope with disruptions from restrictive measures. He also shows confidence that these segments will bounce back faster in the recovery phase. The digital divide, compounded by the likelihood of economic downturns to drive a long-term gap in performance, makes the need for SMEs to achieve productivity through automation and digitalisation ever more apparent.
It took almost a decade to integrate a country’s infrastructure with technology, but today a virus so small but so deadly is likely to catalyse a population’s acceptance of digital transformation as an ally. As Ravi Menon, managing director at MAS, said during 2019’s Singapore FinTech Awards, “The day we say we are a smart financial centre, we are finished, because that’s complacency. This is a work-in-progress, we need to continually get smarter and smarter.” This June, the Straits Times reported a 20% year-on-year increase in businesses adopting digital technology ever since the pandemic hit. This is a positive shift but we need to see the bar graph of SME digital adopters shoot up higher.
Nonetheless, for some, Singapore becoming a smart nation can feel scary or even threatening. Some fear that their jobs will be replaced or deemed unnecessary upon the introduction of automation or artificial intelligence. But this is not to say that technology should be used to replace human jobs. Rather, it frees the human to do what technology cannot – think cognitively. On top of digitising menial tasks, technology offers workers the capacity to explore creative and untapped new opportunities to serve the underserved needs in the market. As the backbone of our economy, SMEs need to jump on the digital bandwagon so that they can remain resilient against downturns, unforeseen or not.