MANILA – The Covid-19 pandemic has increased the interest of small and medium sized enterprises (SMEs) in digital technology, but numerous barriers prevent them from adopting technology needed to overcome pandemic-related challenges, according to a recent World Economic Forum (WEF) report.
A new survey conducted by WEF found that despite increased awareness of the importance of digital technology, many SMEs admitted to either suspending their digitalization plans or having no plans at all to implement them due to financial stress.
Only 23 percent of SMEs said the pandemic accelerated their digitalization goals, indicating that significant barriers continue to hamper the adoption of digital technology, the paper said.
The barriers include limited availability and access to financial resources, lack of a skilled workforce, and infrastructure barriers to support digitalization.
“In general, SMEs’ interest in digital solutions is growing. Agility and flexibility in operations have emerged as top priorities above raising productivity and minimizing costs, which used to be the primary objective for most businesses. In addition, technologies that enable remote work and collaboration topped the list of priorities for digital technology use cases,” the whitepaper added.
Challenges
The survey of 141 SMEs from six countries (Azerbaijan, Brazil, Colombia, Kazakhstan, South Africa, and Turkey) showed heightened demand among SMEs to integrate digital technology in business operations, particularly related to the industrial internet of things (IIoT), cloud computing, big data and artificial intelligence.
Most SMEs expressed interest in deploying technology to optimize processes, ensure safety and security, facilitate quality management, and manage workforce training and collaboration.
“SMEs represent more than 90 percent of all companies globally and are the primary drivers of social mobility, creating seven out of 10 jobs. Unfortunately, these companies are struggling to embrace the Fourth Industrial Revolution (Industry 4.0). Larger businesses (with more than 500 employees) are six times more likely to use the industrial internet of things than SMEs. This risks exacerbating economic inequality, stifling opportunities for social mobility and dragging down global industrial productivity,” the whitepaper released this month said.
Remote work is the most prominent change in the way of doing business due to the pandemic.
WEF said that a combination of on location and remote working is likely to become a permanent feature the longer the crisis lasts. This increases the urgency for SMEs to embrace digital technology to adapt to the new reality, while attracting talent and remaining competitive.
But most SMEs are still at the low to moderate level of technological maturity, which prevents companies from fully benefiting from digital technologies, limits the potential return on investments of digitalization, and discourages widespread digitalization, the report observed.
The most common challenge to digital transformation cited is financial constraints. Uncertainty in the business environment has led SMEs to focus more on short-term objectives and plans and on day-to-day operations and survival.
“The Covid-19 crisis has forced companies to divert funds to other areas such as health and safety, and employment protection,” the paper said.
Exacerbating this issue is a continued lack of access to financing for SMEs, as banks prefer to give loans to large enterprises due to the risk of default.
Another important barrier is the lack of skilled labor needed to support digital transformation.
Majority of respondents mentioned skill gaps in a wide range of areas, such as big data analytics, robotics technicians and information technology managers.
In addition, SMEs are facing tough competition from larger companies in attracting workers.
Infrastructure barriers noted include challenges relating to internet access and speed and a lack of availability of adequate data centers, especially in rural and remote regions.
Respondents also highlighted the lack of availability of digital solutions in the domestic market, exacerbated by the lower level of research and development and innovation compared to advanced economies.
Moreover, many SMEs are now focusing on local markets, which feature less intense competition compared to the global market. This reduces the incentives for SMEs to fully embrace innovation.
The survey also revealed SMEs’ dissatisfaction with the level of government support. When asked about the most attractive instruments of state support to increase digital adoption, respondents said they preferred tax incentives, grants and subsidies, employment support, and debt financing.
Further, an absence of industry standards increases both the actual and perceived costs of investing in digital technology and discourages SMEs from investing in digital technology.
Solutions
The report said there is plenty of potential for SMEs to use digital technology, and policy has an important role to play in promoting this uptake through a focus on providing financial support, improving labor skills and enhancing infrastructure.
For one, the government could provide financial support tools and measures to support the training and upskilling of workers.
Meanwhile, making high-speed broadband internet available at a reasonable price and focusing on cybersecurity training and policies will also provide a conducive environment for greater technological adoption among businesses.
“Building an effective ecosystem for SMEs has the potential to accelerate their adoption of digital technology. This requires key stakeholders such as industry, government, NGOs and academia to cooperate in improving the technological development of companies,” the report said. (PR)