MSME Digitalization in the Time of COVID-19

Singapore, 27 July 2020
  • By Andre Wirjo

The ongoing COVID-19 pandemic has brought the world to a halt, with most people forced to stay and work in their homes due to government-enforced quarantines and lockdowns. In no other time in modern history has access to the internet been as important a form of communication to the average person. Platforms like Microsoft Teams, Zoom and Tencent Meeting are now household names, proving that digital technology is at the forefront of the so-called “new normal.”

Even as we look ahead, it is certain that digital tools will shape the global economy in the wake of COVID-19, beyond the need for optimized systems of communication. The online food industry, for example, is seeing a boom with the expected rise of delivery platforms for both meals and groceries, such as Deliveroo, Meituan Waimai and Amazon.

The impact of digital tools, of course, transcends the household. Governments everywhere are turning to these for needed policy work even as businesses are maximizing them to facilitate online operations. But at the heart of digital technology is its increased role in dealing with COVID-19, from tracking disease-related developments and contact-tracing to providing timely updates and monitoring. The pandemic has also made telehealth and online consultation the norm. As hospitals struggle with strained capacities, migrating to online solutions eases the burden on healthcare systems. 3D printing technology has also proven its practical value, with companies in the industry utilizing the tech to make face shields and other PPEs that are now being used both by health workers and the general population.

Despite all the aforementioned benefits of technology during these times, it is important to recognize that the onset of COVID-19 has also brought to fore certain digital-related issues and shortcomings that clearly need addressing.  For example, fake news and misinformation on the disease continue to propagate via social media, which could spell the difference between a safe reopening and a protracted pandemic. Hackers are also exploiting people’s increased use of video-conferencing tools to disrupt ongoing calls and programs.

Certain automated data analytics software use algorithms that have mistakenly categorized some goods as non-essential, resulting in pushed-back delivery dates with detrimental implications on merchants and potentially consumers. Also, there are delivery platforms that are arguably taking advantage of the situation by charging steep commission rates for their services, eating away at the already-thin margins of restaurants and food outlets.

Most of these foreseen and emerging technology-related concerns have been brought up in the 2019 APEC Economic Policy Report (AEPR) on Structural Reform and the Digital Economy. The ongoing pandemic makes it apparent that instituting measures to address them is crucial as we move forward. Steps should be taken, for example, to provide better social protection to workers in the gig economy, or to extend unemployment insurance to people affected by widespread business stagnation.

While scientists and medical professionals continue their quest for a vaccine, the impact of COVID-19 on APEC economies will continue to be felt for some time. We therefore need to make the necessary adjustments.

A particularly important recommendation in the latest policy brief by the APEC Policy Support Unit with support from the Asia Foundation is that micro, small, and medium enterprises (MSMEs) bring their businesses online. Even as consumers are changing their behaviors and flocking online, small businesses likewise need to migrate online if they are to keep afloat.

These small businesses will certainly benefit from government assistance. Our policymakers need to support and reinforce the move by facilitating the adoption of optimized digital solutions which will make it easier for small businesses to operate online. Doing so is both urgent and vital now, with many MSMEs already facing imminent closure. We must keep in mind that small businesses play an extremely significant role in the APEC region, contributing between 40 and 60 percent to the GDP of most economies while employing around 60 percent of all workers across APEC’s 21 members. Moreover, nearly 150 million businesses are considered small businesses in the region.

These MSMEs are most vulnerable to economic shocks such as this health crisis, given that they generally have fewer assets, limited cash reserves, and lower levels of productivity compared to their larger counterparts.  They likewise must deal with a number of expenses such as insurance, debt payment, rent, and employee wages, which put pressure on their resources. Targeting these businesses for relief should remain a critical component of actions by APEC economies.  But the key move now is to assist them in going online and allowing them to maintain liquidity to remain competitive.

For this support to be realized, policymakers must develop—in coordination and dialogue with the private sector—a series of interventions that include:  

  • Promoting digital literacy
  • Facilitating access for MSMEs to devices that enable access to the internet
  • Onboarding them to relevant online platforms to optimize their services
  • Promoting lower data cost for internet access
  • Helping MSMEs gain better access to both mobile money and fintech
  • Developing their trust in digital solutions
  • Addressing competition issues
  • APEC-wide, fostering regional cooperation and public-private partnerships

Among others, these measures will aid MSMEs in engaging with customers, managing transactions from safe distances as well as delivering goods and services efficiently, hence allowing them to tap into new revenue streams and address various pain points including cost reduction. However, policymakers should recognize that the initiative must be a two-pronged system of intervention: 1) allowing small businesses to ease themselves into the digital world while 2) helping them adjust to and overcome the challenges of digitalization.

The experience of the COVID-19 pandemic has shown the world that digital technology is key to keeping economies running during a health crisis. And that much depends on our small businesses’ ability to cope with the times. The entire APEC region needs to support the initiative to have MSMEs go digital while making sure that this digitalization remains people-centered. The time is now to initiate such a much-needed and much-welcome reform.

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Andre Wirjo is an analyst at the APEC Policy Support Unit (PSU). He is co-author of the policy brief “Supporting MSMEs' Digitalization Amid COVID-19,” with support from the Asia Foundation.