It’s not just a luxury, but a necessity. On October, World Bank published a report named “Digitalizing SMEs to Boost Competitiveness” focus on Malaysia. Here, we will filter out the important points from the report.
The reports talks about the digitalizing small enterprises (SMEs) in Malaysia and analyzes opportunities and challenges for Malaysian SMEs to better leverage digital tools and platforms to increase their productivity and competitiveness.
97.4 percent of Malaysia’s businesses are MSMEs, with these businesses accounting for 48.0 percent of the country’s employment and 38.2 percent of its GDP. In the context of the pandemic, increased access to digital platforms, including e-commerce, has enabled many businesses of all sizes to mitigate the crisis’ adverse impacts. Malaysia’s digital economy has grown at a rapid rate over the past decade. The recent period has seen the growth of many digital businesses and the emergence of new ones, including digital platforms. Few SMEs than large firms have been able to turn to digital solutions to cope with the COVID-19 crisis.
Digital Economy in Malaysia
Malaysia’s digital economy has expanded rapidly in recent years. Digital businesses provide a critical foundation to enable traditional businesses to digitalize. Digital platforms, most of which have emerged over the past decade, now account for about 13 percent of digital businesses in Malaysia, almost double the EAP average. Malaysia’s businesses’ use of ICT is expected to increase by a factor of almost 6.1 in Southeast Asia and by 6.3 in Malaysia, relative to 2019. Prior to the pandemic, most SMEs in Malaysia were still at the earliest stages of digitalization. While the country made substantial investment in its internet infrastructure, infrastructure and connectivity issues remain.
How Malaysian SEMs can do better
Malaysian SMEs are enthused about digital technology, but they lack the resources necessary to fully utilize them.
The COVID-19 issue in Malaysia has had a significant impact on small and medium-sized businesses (SMEs), although many have been able to lessen these effects by utilizing digital technology, particularly through connecting with clients and conducting business on online marketplaces. Although there are differences among industries and areas, the majority of Malaysian businesses now frequently use ICT and the internet. The improvement in connectivity as well as the quick growth of Malaysia’s ecosystem of digital firms allowed for this noticeably higher utilization.
However, most SMEs only use digital technologies sparingly, mostly for customer-facing tasks (e.g. social media presence). Few businesses have transformed their company operations using more complex productivity-enhancing solutions, and even fewer are able to complete end-to-end digital transactions. The depth and breadth of SME digitization are still hindered by a number of
factors, including the restricted capacities of business operators, their ignorance of digital technology, their limited access to financing, market frictions, and elements of the institutional and regulatory environment. At a time when digitalization is becoming increasingly essential to remain competitive, this increases the risk of a rising digital gap.
The Malaysian government is dedicated to the digitalization of SME, but a more comprehensive policy framework will increase the effectiveness of its support.
Since the start of the epidemic, the government has significantly expanded the amount of direct support it provides to businesses. Over the past ten years, it has actively encouraged SMEs to utilize digital technology. According to business surveys, the majority of companies continue to look for support to advance digitization. This support has typically been in accordance with SMEs’ interest in reaching online marketplaces.
The government’s goals and tactics for SME digitization have been outlined in a number of recent initiatives, but a more comprehensive strategy would be advantageous. In addition, over 100 separate governmental agencies have recently supported businesses in this sector through more than 100 distinct programs, raising concerns about the hazards of dispersed resources and inconsistent and duplicative approaches. Therefore, ongoing efforts to improve interagency collaboration should be continued and supplemented by increased program oversight.
To make sure the public resources deployed have significant and lasting beneficial impacts on a broad number of businesses, public agencies supporting SME digitization should also gather and publish more monitoring and evaluation (M&E) data on their program. Other ways public support programs could be improved are to I support the digitalization of backend business processes and skills development programs in addition to the e-commerce focus, and (ii) enhance the public’s access to information about available support and streamline the application process.
Additional legislative changes could enhance the efficiency of Malaysia’s digital markets and support the survival of SMEs there.
With crucial laws in place, the regulatory framework is usually supportive of the digital economy. Few businesses believe that regulations relating to e-transactions are a significant barrier to their greater use of digital tools and platforms. Malaysia does well in terms of international benchmarks related to the quality of enabling regulation for the digital economy.
However, by boosting vendors’ and consumers’ trust in online transactions, the current laws governing safety measures (such as cybersecurity and personal data protection) could be strengthened. In order to reflect new trends in the digital economy and provide fair playing conditions for SMEs, other important regulatory frameworks, such those governing competition and the gig economy, may also need to be modified.
The fact that the law is being reviewed and various adjustments are being explored to close gaps and better align it with worldwide norms is encouraging. For smaller businesses, regulatory restrictions should be modified such that they are not overly burdensome and do not stifle innovation.
