Digital Free Trade Zone

Progress and Challenges for Malaysian SMEs in the Digital Age

E-commerce adoption among SMEs is crucial to economic expansion in the 21st century. While Malaysia has made significant progress in this vein, challenges such as a lack of awareness of the potential benefits of an online presence, and equipping and bringing SMEs on board with the necessary skillsets, present barriers to improving e-commerce adoption among this group.

Making headway in the digital realm

Malaysia has made considerable progress in recent years in terms of its efforts to digitise its small and medium-sized enterprises (SMEs) and drive e-commerce among the segment. As of 2016, e-commerce adoption among Malaysian SMEs was 32 per cent and is projected to grow by up to 50 per cent by 2020. A driving force behind this progress is SME Corporation Malaysia (SME Corp.), the agency that formulates broad policy and strategy related to the segment and which coordinates the implementation of SME development programmes. Backed by robust partnerships, SME Corp. has successfully launched a series of programmes dedicated to digitising SMEs and facilitating their entry into the e-commerce field.

One significant programme launched by SME Corp. in this regard is the Enabling e-Payment Services Programme for SMEs, which aims to increase adoption of e-payment mechanisms among small and medium-sized enterprises by simplifying the purchasing process and lowering overall costs. Similarly, the eTrade Programme, which is overseen by the Malaysia External Trade Development Corporation, works to accelerate national exports by fostering participation of local SMEs in leading international e-marketplaces. Furthermore, #MYCYBERSALE is the country’s biggest online sales event that, in collaboration with the Malaysia Digital Economy Corporation (MDEC), CyberSecurity Malaysia and the Ministry of Domestic Trade, Cooperatives and Consumerism, seeks to encourage increased adoption of e-commerce among SMEs.

Additional programmes dedicated to enhancing SME adoption of e-commerce include the National eCommerce Strategic Roadmap being implemented by MDEC, as well as Go Global Malaysia, a public-private initiative run by the Ministry of International Trade and Industry and Google, among other partners.

Malaysia has experienced a marked increase in the adoption of information and communications technology among SMEs in recent years, particularly between 2014 and 2016. For example, in the first quarter of 2016, SME Corp. conducted a survey of 2,176 SMEs. Results show that although devices being used by respondents, including mobile phones, personal computers and laptops, had not changed significantly since the first quarter of 2014, the number of SMEs using the internet had grown considerably, from 33.3 per cent to 90.1 per cent during that period.

Furthermore, use of social media by SMEs to promote and market their products also increased significantly to 78.2 per cent in the first quarter of 2016 compared to 12.1 per cent in the same period in 2014. Moreover, the percentage of respondents with their own website rose from 11.4 per cent to almost 31 per cent. Overall, 89.1 per cent of respondents claimed to have utilised a computer for business purposes as of the first quarter 2016, compared to just 27 per cent recorded in 2010 by the Department of Statistics Malaysia.



Obstacles to e-commerce adoption

Although survey results on the adoption of online activities by Malaysian SMEs are encouraging, further challenges exist. For example, SME contribution to national GDP was 36 per cent in 2014, whereas the government target is to reach 41 per cent by 2020. Crucially, SMEs constitute over 90 per cent of all businesses in Malaysia and therefore their potential contribution to overall GDP growth is far greater.

MDEC estimates that only 20 to 25 per cent of SMEs in Malaysia have an online presence, while less than 10 per cent of local SME contribution to GDP is derived from e-commerce. Furthermore, the e-commerce share of SME revenue was reported as approximately 6 per cent in 2016, compared to around 15 per cent in developed countries where the levels of e-commerce adoption are greater.

Given the target for SMEs to contribute to 41 per cent of GDP by 2020, it is important that Malaysia identifies and prioritises the main challenges to e-commerce adoption for SMEs. This is also significant because companies that fail to adopt e-commerce may face difficulties in terms of remaining competitive in the future, which will, in turn, impair wider economic growth.

According to MDEC, there are three core obstacles the country faces related to improving SME adoption of e-commerce: awareness of its potential benefits; equipping and bringing SMEs on board with the necessary skillsets and know-how; and providing them with support during their adoption of new platforms.

Researchers have also found other key barriers to e-commerce adoption faced by SMEs in a select group of developing countries, including Malaysia. These include: security and privacy issues; lack of knowledge and understanding of e-commerce; and high maintenance and intellectual property registration costs. In addition and related to analyses of e-commerce adoption by SMEs, research highlights the importance of focusing not only on upstream issues, such as factors that facilitate or impede adoption, but also downstream elements including post-adoption aspects and benefits.

Historically, institutional involvement and the role of government have been highly influential in the adoption and diffusion of technological innovations and this remains the case with regards to e-commerce and SMEs.


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