How ASEAN SMEs are reshaping their businesses for the future

As we headed into 2022, many organisations were gearing up for a rocky year ahead – and that expectation has definitely proven itself to be true. Just as economies across Southeast Asia were looking to turn the corner from two years of pandemic-driven disruption, the world was plunged into fresh geopolitical crisis. And today, companies continue to grapple with high inflation, supply chain pressures and workforce disruptions.

Yet, despite these headwinds, more than half of the region’s small and medium-sized enterprises (SMEs) remain upbeat about their economic prospects. A further 45% of firms feel the need to transform their business models to better respond to shifting circumstances and priorities.

These are two key findings from the ASEAN SME Transformation Study 2022, produced by UOB, Accenture and Dun & Bradstreet. For the third edition, researchers surveyed 1,500 SMEs from Singapore, Indonesia, Malaysia, Thailand and Vietnam to understand business sentiments and strategic priorities across these core ASEAN markets.

From their responses, it’s clear that SMEs are prioritising investments in digitalisation, technology, sustainability and talent as prime opportunities for growth. They’re also sending clear signals about the need for stronger support from their partners: banks, governments, and tech providers. Let’s dive deeper into some of the most interesting insights revealed by the study.

Digital transformation is gaining pace

With consumer behaviour, market trends and wider economic conditions in flux, SMEs are forging ahead with digital transformation as a way of remaining relevant and resilient. Three in five businesses say they will continue digitalising their companies and tapping digital economy opportunities to gain a competitive advantage.

SMEs also believe that digital technologies have a vital role to play in shaping better customer experiences. 44% of survey respondents singled out customer engagement as a pressing concern for their business, while many others confirmed that they are enhancing the customer experience through digitalisation in order to retain existing customers and attract new ones.

Employees aren’t being left out of this digital transformation either. 60% of SMEs have rolled out digital immersion programmes for their workforce. The aim is to empower employees to build digital skillsets, and help the business to adapt to changes driven by digitalisation.

Doubling down on tech investments

ASEAN SMEs also seem keen to get in on the ongoing tech revolution. A majority of businesses plan to double down on technology investments to lift efficiency, enhance the customer experience and future-proof their operations.

While in the 2020 ASEAN SME study, more than half of respondents (56%) expected their technology investment to decrease or remain the same, that trend has now reversed. In fact, 33% of SMEs expect tech spend to grow by up to 10%, and 26% believe it will rise by more than 10% in 2021.

Where are companies planning to direct their spending? For the most part, it looks to be evenly distributed over four key areas: digital marketing and social media; technology and network management; operational processes; and digital sales and servicing.

Sustainability moves into the spotlight

Alongside digital transformation and technology, sustainability has emerged as a megatrend among ASEAN SMEs. 65% of enterprises confirm that sustainability is currently an area of importance and concern for their business. Key focus areas include developing new business models, products and services, followed by improving energy, water and resource efficiency.

However, while enterprises across the region are paying more attention to sustainability, a significant proportion of SMEs (35%) remain in experimentation mode, where they introduce only limited changes across their business. That could be because SMEs face particularly steep barriers to realizing their environmental, social and governance (ESG) goals.

Indeed, 60% of SMEs cite high initial costs, around investment in new talent, training, research and technology, as the biggest challenge in adopting sustainable practices. Other obstacles include a lack of dedicated resources and time (51%), plus a lack of expertise and know-how (48%).

Tapping talent’s full potential

Talent development stands out as another strategic priority for enterprises. As companies press ahead with digitalising their operations, they need to equip employees to work with new technologies. For most SMEs (64%), reskilling and redeploying employees is the top measure to build a resilient workforce and adapt their business models.

At the same time, people are demanding more from the organisations that they work for and with. To access, create and unlock talent, SMEs recognise that they need to adapt their hiring and organisational strategies. That includes using digital technology and new media to reach candidates in creative ways, as well as tailoring the experience to improve engagement and inclusion for all employees.

Securing the right support

While there is clear appetite for strategic transformation among the region’s SMEs, they still have to contend with a number of immediate concerns. High among them is maintaining a healthy cash flow, which 44% of respondents singled out as a pressing challenge. More than half of businesses (54%) also revealed that their existing cash flow can only sustain their operations for less than six months. In light of this, four out of five SMEs noted that they require more financing from their banks. That’s especially true for SMEs in Thailand (88%) and Vietnam (91%).

It’s not just banks that businesses are turning to for financial support. In fact, government financing schemes have taken the top spot on the list of SMEs’ preferred funding sources. 74% of survey respondents highlighted government schemes as their preferred source of funding – that’s up 40% on our 2020 survey.

At the same time, SMEs seem keen to get more holistic support from government. How do they think government can better a better partner to business? The top answer was building better mentorship and peer support networks (56%), followed closely by establishing shared national-level advisory portals (48%). The latter would ideally carry information about different government support initiatives and advice on accessing these schemes, in real-time.

Ready for the new

Businesses across the ASEAN region have weathered a great deal of change over the past few years. SMEs have likely felt this most sharply, as their businesses are especially sensitive to fluctuations in capital flows, consumer sentiment, trade and labour dynamics.

In an environment like this, SMEs can’t afford to sit still. They must meet the change head-on, with agility and decisiveness, to lead their businesses into the new.

Get the full picture

In this blog, we’ve covered just a handful of the insights from the ASEAN SME Transformation Study 2022. To go deeper, download the full report or take a look at the infographic.