For large firms, the rationale behind digitalization is clear: digitalization improves efficiency, competitiveness and economies of scale. Firms can use complex technologies such as the automation of production processes and data-driven quality control processes to reduce costs and increase profit margins.
However, the case for digitalization among SMEs is not as clear. Digitalization is perceived as complex, costly, and unnecessary. But digitalization does not necessarily mean expensive equipment and total automation. There are 6 areas of digitalization that benefit firms of all sizes.
Digital procurement software and inventory management systems reduce costs and streamline business operations as they reduce the manpower required to manually check and update inventory. For example, inventory restocking can be automated using analytical models that predict price fluctuations and customer demand.
Digital accounting software record transactions accurately and instantly without human intervention, significantly reducing accounting errors that are commonly associated with manual bookkeeping.
Digital campaigns can reach a wider customer base more efficiently, effectively and cheaply than traditional advertising. For example, platforms such as Facebook, Instagram or Youtube enable firms to promote their businesses via digital advertising with flexible pricing plans.
E-commerce (e.g. via platforms such as Lazada and Shoppee) helps firms overcome geographical limitations and lowers the cost of entry for entrepreneurs and SMEs, allowing them to compete with established firms.
ePos is a system that records sales, manages payments, and monitors inventory, enabling accurate, up-to-date information on business operations. The system enables businesses to engage in data analytics (e.g. by generating reports on product popularity), thus optimizing business performance.
Contactless payment systems, such as digital wallets, can reduce transaction time, increase security and improve customer experience.
Contrary to the notion that it is unnecessary for SMEs to digitalize due to their small scale, SMEs stand to benefit massively from adopting digital technologies. A study by the University Consortium of Malaysia found that the use of digital technologies would significantly improve SME productivity. SMEs that used social media experienced a 26% increase in productivity while those that engaged in e-commerce saw productivity increase by 27%. Moreover, the application of advanced digital technologies such as data management solutions could increase SME productivity by up to 60% .
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