Singapore

FEWER than one in five small businesses in Asean are reaping the benefits of digital technology, despite keen interest, a study has found.

But bringing small and medium-sized enterprises (SMEs) on board could lift regional gross domestic product (GDP) by as much as US$1.13 trillion by 2025, a Bain & Co team concluded, estimating that the GDP could hit up to US$5.1 trillion by then.

The digital economy now makes up about 7 per cent of Asean GDP, or US$200 billion - less than China's 16 per cent, Europe's 27 per cent and the United States' 35 per cent, they noted.

Still, growth would come on better productivity, wider markets and "enabling sectors" such as infocomms technology, according to the report, which was presented at last week's Asean Economic Ministers Meeting, and released publicly on Monday.

Bain concluded that productivity improvements could contribute between US$400 billion and US$600 billion to Asean GDP over the next seven years, while the expansion of digital markets - whether through access to new markets, as in e-commerce, or the financial inclusion of those like the unbanked - could add US$300 billion to US$400 billion, and growth of underpinning sectors would put in another US$80 billion to US$130 billion.

The study, which polled 2,342 Asean SMEs, found solid benefits to digitalisation, such as an average sales uplift of 15 per cent for retailers that do e-commerce. Logistics SMEs saw productivity gains of 10 per cent to 20 per cent, and agri-businesses lifted crop yield by 5 per cent to 15 per cent.

But stumbling blocks remain, with just 16 per cent of SMEs tapping digital technology fully and some 40 per cent reporting a skills gap in the workforce, according to the Bain survey. And 45 per cent called uncertainty about digital technology a top barrier.

This regional ignorance surpasses what local lender DBS reported in a poll last month of 226 SME owners in Singapore, which found about one in five bosses here saying that they did not know enough about digital sales channels or digitalisation resources.

"Digital at a macro level obviously will cause some disruption to the economy, just like any wave of change, like the rise of computers. You will see shifts in the values generated and how companies operate, what people need to be skilled in," said Bain partner Florian Hoppe, one of the report's authors, in a briefing.

The report said that Asean members should work with the private sector in designing digital skills road maps, "building off the work that has been done in Singapore and Malaysia", as well as speed up the roll-out of such schemes in key industries.

Johnson Loh, South-east Asia research analyst at Credit Suisse, told The Business Times that "digital innovations, particularly those that help make workplaces safer and increase productivity" are set to be key growth drivers.

"In particular, the advent of the new technologies such as artificial intelligence, the Internet of Things (IoT) and blockchain should boost the global economy at a time of weak productivity growth and population ageing," he said. "That said, given South-east Asia's diverse set of digital maturity and demographics profile, a harmonised approach towards digital integration across borders will likely be necessary to harvest these benefits."

DBS senior economist Irvin Seah said on the telephone that "size doesn't matter" when it comes to digitalisation, and added that China is an example of how an emerging economy can tap e-commerce and IoT to leapfrog stages of development.

Cross-border processes could be a challenge, he noted, as "the borders are actually quite well defined" within Asean now, with each country having its own regulatory framework.

This was a problem also flagged by the Bain report, which found that 40 per cent of SMEs found navigating business regulations challenging. Meanwhile, 57 per cent chafed at logistics and export processes as barriers to cross-border trade, with question marks remaining over issues such as data localisation rules.

Lawrence Loh, head of group business banking at United Overseas Bank, who called SMEs "the backbone of local economies", told BT that regional digital initiatives "would be helpful in enabling SMEs to have a better understanding of other Asean markets and the opportunities within".

Then new business models could emerge with greater integration, said DBS' Mr Seah: "There could be synergies, there could be room for collaboration." And Association of Small and Medium Enterprises president Kurt Wee shared this view, saying that "we are in the early stages of Asean integration" and parts of the region could yet develop niche strengths.

"And if we can get those strengths and collaborations in place - plug in digital solutions, digital platforms, digital economies to make them more efficient and be able to compete better in the global economy - I have absolutely no doubt that this region is going to perform very well," he said.

But Mr Wee cautioned that this will not happen overnight: "As a regional bloc, the potential is very great; and we are looking at the next 15 to 25 years."

Additional reporting by Aw Cheng Wei