MSMEs (micro, small and medium enterprises) are regarded as the backbone of ASEAN’s economy given their significant contribution to the region’s employment and GDP. With at least 71 million MSMEs in Southeast Asia, experts have predicted that helping these small businesses build back better would greatly aid the region’s post-pandemic recovery.
The pandemic has only accelerated the arrival of the digital economy; the gross merchandise value of Southeast Asia’s Internet Economy is projected to hit $1 trillion by 2030. This opens up MSMEs to numerous opportunities such as reaching a wider consumer base and improving business acumen through data collection. However, MSMEs face various hurdles when accessing the digital economy; the Tech For Good Institute’s (TFGI) 2021 Southeast Asia Platform Economy report found that only 1 in 5 MSMEs are on O2O (online-to-offline) platforms due to issues such as lacking digital infrastructure and lack of traditional financial support.
TFGI’s workshop with the Asian Development Bank on 17 March 2022 opened a dialogue between industry stakeholders regarding ensuring the sustainable and inclusive growth of MSMEs in this digital age. Speakers discussed opportunities for collaboration among the public and private sectors to overcome challenges faced by MSMEs as well as to boost their growth.
- Agne Makauskaite, Head of Public Policy, Regulated Industries, APAC at Amazon Web Services (AWS)
- Foo Chi Hsia, Assistant Chief Executive, IMDA International
- Ilaria Chan, Chairperson, Tech For Good Institute
- Lim Kell Jay, Head of Grab Financial Group (Fintech)
- Linh Pham, Founder & CEO, Logivan
- Maesy Angelina, Social Systems Lead, United Nations’ Pulse Lab Jakarta
- Ming Tan, Founding Executive Director, Tech For Good Institute
- Sabine Spohn, Principal Investment Specialist, Asian Development Bank
Here are four takeaways from the dialogue:
- There is a need to improve on, and spread awareness of, capacity building programmes. To address the spectrum of MSMEs in Southeast Asia, capacity building programmes have to follow regulatory frameworks which are ideally regionally coherent. While there are numerous capacity building programmes available, they need to be made accessible to all MSMEs especially since Southeast Asia is a very diverse region. This includes ensuring that such programmes are available in the various indigenous languages of the region, and ensuring that MSMEs in rural areas are still accounted for. For instance, the Asian Development Bank collaborated with Cantilan Bank, one of the leading rural banks in the Philippines, on a pilot project to use cloud-based core banking technology.
- Identify and understand the diverse needs of various groups of MSMEs. While addressing the physical hurdles of the digital economy is important, industry stakeholders have to also assess the larger picture and how other factors may impact behavioural attitudes in adopting digital technology. This is especially important considering the diverse nature of MSMEs in such a large region. Segmentation of MSMEs allows for better understanding of their needs, and how best to serve them. An example would be how the the care economy is related to the digital economy; a study conducted by UN Women found that, during the pandemic, women spent three times as much as men on domestic chores and unpaid care work, resulting in a heavy mental load that prevented them from being able to focus on their careers. This inspired UN Pulse Lab Jakarta to use behavioural economics to analyse women necessity business owners in Indonesia. They created four archetypes of women necessity business owners to explain their current methods of adopting digital technologies, and raised tailored suggestions on how to cater to these groups.
- Use technology to streamline processes and standardise markets. Despite digital toolkits increasingly being made available, the MSME landscape still suffers from being overly fragmented, with some industries lacking standardisation, resulting in inefficiency and loss of business opportunities. For instance, Logivan, the largest truck-matching platform in Vietnam, serves its $25 billion trucking industry by enabling truck drivers and MSME trucking companies to have better access to business information and opportunities. Previously, the matching process was done via brokers and manual calling, resulting in information asymmetry that caused inefficiencies in the market, with over 70% of truck returns being empty. This led to high logistics costs in Vietnam, which is roughly 21% of its GDP. Logivan addresses this issue by standardising the trucking market and its related processes, allowing trucking companies to leverage digital tools to improve their business.
- Regional collaboration on transboundary challenges can boost overall MSME growth in ASEAN. The region faces transboundary obstacles; as the digital economy grows, issues such as data protection and cybersecurity become all the more prominent. To allow MSMEs to fully benefit from the wider consumer base as a result of the digital economy, there needs to be regional discussion regarding individual laws and policies surrounding such issues to reduce divergence without affecting sovereignty and security. These iterative processes in policy development have to be set up to allow cross-border data flows such that MSMEs can enjoy regional transactions in a standardised landscape that is easy to navigate. This can be done via regulatory sandboxes via public-private partnerships that allows for data collection and policy-level implementation.
Catch up on the workshop below: