Building SME digital resilience: What have we learned from the MCO?

What have we learned from the MCO?

IDEAS has published Brief IDEAS No.29, “Building SME digital resilience: What have we learned from the MCO?” co-authored by Dr Avvari V Mohan and Lau Zheng Zhou. The SME retail sector has seen significant changes in consumer trends and spending patterns accompanied by rapid digital adoption. Although e-commerce platforms provided an avenue for sales, retailers continued to see vulnerability in the face of twin health and economic crises. According to the Malaysian Retail Association, as a result of the Movement Control Order (MCO), 61% of retail outlets were found to have closed down with an estimated loss of RM10.9 billion in sales for the year.

The Finance Minister recently highlighted the need to help with the rakyat’s lives and livelihoods in a targeted and sustainable manner, and also urged the private sector to play a greater role in supporting Malaysia’s economic growth (New Straits Times, 4 November 2020). IDEAS urges the Government to continue building a strong foundation for long-term recovery, alongside protecting the vulnerable, so that sources for future growth can be unlocked.

SMEs are the country’s largest employer, contributing nearly 40% of the GDP, and should continue to remain as the government’s priority in Budget 2021. IDEAS calls on the government to:

  • Encourage offline retail SMEs to begin the process of digital technology adoption through Super Apps. Government agencies, Super App providers, and start-ups can form linkages to create awareness and facilitate digital capacity building as a means to increase SME digital uptake. The government should focus more on supporting the capacity building process rather than acting as a training provider, as private sector actors have better insights on market needs and can offer tailor-made solutions to SMEs.
  • Promote SME-research institute partnerships to develop a vibrant sectoral R&D and innovation system. The commercialisation of research outcomes will create new and sustainable sources of SME competitiveness. For example, a Centre for Food Innovation can be established through partnerships between public research institutes or universities, industry associations such as the Malaysian Palm Oil Board, industry players as well as SMEs to ensure the development of a commercially viable supply chain ecosystem from the get-go.
  • Enhance existing policy and regulatory framework to strengthen the role of alternative financing in supporting SMEs. Established financial institutions including even the development finance institutions have not been adequately supporting the digitalisation journey of many SMEs, especially the micro-SMEs. So instead of trying to incentivise the banking system, policymakers should consider allocating budgetary allocations to nurture and develop a healthy alternative financing ecosystem that is geared towards supporting SMEs’ financial needs, particularly during times in crisis.

Commenting on the release of the paper, IDEAS Research Manager Lau Zheng Zhou stated that “The ability for SMEs to adapt and build resilience through digitalisation sustainably is crucial not just for immediate economic survival, but also laying the foundations for unlocking new sources of competitiveness as Malaysia transitions to high-income status.”

IDEAS CEO Tricia Yeoh commented that “SMEs are the backbone of the country’s economic growth and SME digitalization is at the core of boosting Malaysia’s resilience in the post-COVID era.”

The paper, “Building SME digital resilience: What have we learned from the MCO?” can be downloaded here

The media statements is first published at IDEAS website