Technology has enabled smaller businesses to compete with established players with bigger resources
Never waste a good crisis. This adage seems to fit so well with the current pandemic that the world is facing. While we should not belittle nor be insensitive to the impact that the crises have on many lives, we have to acknowledge that the crises have been quite effective in pushing decision-makers, businesses, and society at large, in their decision to adopt digitalisation and the internet. Sadly, it takes a crisis for us to react. That, however, is something for us to ponder, and probably discuss in another article.
A concerted effort to promote digital technology in Malaysia started way back on the 12th of February 1996 when the then prime minister officially inaugurated the Multimedia Super Corridor or the MSC. Since then, we have seen numerous attempts to promote the effort, but until now the results have been uneven at best. MSC was among the key components of vision 2020. It forms part of the knowledge-based society framework that would transform Malaysia into a modern state by 2020. Ironically, here we are in 2020 and we are still struggling to adopt digitalisation, and if not because of the pandemic, we would still not embrace it at the rate we are seeing now.
In some ways, we have been fortunate. Among the many developing nations, we have industrialised faster than most. Based on the records by the Registrar of Companies (ROC), there are about 1.2 million registered companies to date. Out of this, approximately 98.6% are SMI/SME, 1% mid-tiers, and 0.4% large corporations. We have a disproportionately large number of SMI/SME compared to the mid-tiers and larger organisations. Furthermore, you can safely assume that all these smaller SMI/SMEs are owned by Malaysians, and almost 80% of the 98.6% are micro SMI/SMEs with less than five employees.
The SMI/SMEs, however, are mostly in the service sector and the Food & Beverage (F&B) industry. The industries that involve high-technology such as oil & gas (O&G), machinery, electrical & electronics (E&E), and automation, are mainly dominated by the mid-tiers and larger corporations, and a significant proportion of them are made up of foreign-owned multinational organisations. This unevenness on technology adoption compounded by different ownership is where the real crux of the problem lies.
Technology adoption especially among the mid-tiers and large corporations are already quite established. Compared to the SMI/SMEs, these mid-tiers and larger corporations have the financial strength to acquire technology and train their personnel. They are required to do this to be acceptable to their foreign clients that expect a higher level of reliability, and larger capacity of production. Business digitalisation among the local mid-tiers and large corporations may not be perfect, but they are definitely ahead of the SMI/SMEs.
Government agencies have tried promoting the adoption of internet-based technology to help our businesses in the past. The mid-tiers and large corporation digitalisation may include things like integrating their business processes with the foreign MNC’s procurement and production supply-chain system. Having a tight integration can ensure a timely and efficient production schedule and a higher level of quality assurance for the customers. This is especially important for foreign buyers that demand reliability from their vendors. Our local players are also encouraged to explore using internet-enabled sensors (the Internet of Things, IoT) that would allow remote monitoring. This would enable continuous automated monitoring that can improve overall production and avoid unplanned shutdowns. There are definitely many benefits to be gained by leveraging technology in businesses, and the mid-tiers and larger corporations stand to benefit from it significantly.
The SMI/SMEs, however, have been slower at adopting new technology mainly due to their financial limitation. Furthermore, what would be the incentive to spend the limited funds available when it is cheaper to hire workers that are available at a lower cost? After all, committing your resources to capital expenditure that only depreciates over time is hard to justify against employing cheap labour that is part of the operational cost that you can retire when time is hard. This logic looks right in the short term, but can never be so wrong when looking at the bigger scheme of things.
“Businesses that are not able to reach out to customers, whether individual consumers or other businesses, miss out on the most crucial link to remain relevant.”
Modern technology has become such a game-changer that for the first time, smaller businesses can now compete with established players with bigger resources. The cost of acquiring certain technology has become so competitive that it is easily affordable by many. Digitalisation of businesses would open up opportunities for smaller businesses like never before. Acquiring assets such as computers, switches, modems, and routers are no longer a luxury. Businesses that are not able to reach out to customers, whether individual consumers or other businesses, miss out on the most crucial link to remain relevant.
Remote monitoring is now possible with internet-enabled sensors
Technology has certainly democratised the market place, and our SMI/SMEs must embrace this completely. Especially when the majority of our smaller players are in the service sector and F&B industry. Adopting digitalisation and integrating it with internet marketing channels will allow our SMI/SMEs to reach the global market. We have remained small and stuck in the middle-income trap, partly due to our complacency of being satisfied with playing only within our shores. This is understandable when going abroad was only viable for companies with larger resources. But with the Internet allowing the global market to be connected at such a low entry cost, there is really no reason to remain in the old ways. One thing is for certain, whether or not we venture out of our comfort zone, foreign businesses will venture into ours.
The adoption of digitalisation is currently the fashion of the day. We have agencies with programs and funding made available to encourage our companies to digitalise their business. Our recent budget announcement has put great emphasis and provisions on technology. This is definitely a good effort in keeping abreast with time and future-proofing our economy. We want our society to embrace the internet and social media, for our businesses to have online e-commerce channels, and for our future generations to be trained and conversant with the internet of everything. As a small nation, we must embrace technology to create our own competitive advantage.
Ir. Dr Mohd Shahreen Madros has over 30 years of working experience in various capacities. He was a lecturer in Universiti Kebangsaan Malaysia (UKM), with over 20 years experience in the Oil & Gas industry. He was also the appointed CEO of MATRADE from early 2017 until Feb 2019 during which he represented Malaysia in many international trade missions. Dr Shahreen is currently an independent advisor to industries, a board member of a public listed company, a certified coach, and an Adjunct Professor at the Graduate School of Business, UKM.
