Digital Transformation for SME Manufacturers in Malaysia
Malaysia’s Small and Medium Enterprises (SME) landscape reveals that this segment is 98.5 percent of all business establishments, and SMEs contributed RM521.7 billion of the nation’s gross domestic product (GDP) in 2018, thus providing 5.7 million jobs to 70 percent of Malaysia’s labor force. Nonetheless, being less financially important and noticeable relative to multinationals, and therefore less prominent than some start-ups and micro-enterprises, SMEs are usually the corporate sector with the least visibility in general. And with fewer legacy baggage than their multinational counterparts, small and medium-sized companies can be more rapid in seeking change.
Figure 1: Number of Establishments and Percentage Share by Sector and Business Size
Although Malaysian companies are making progress in digital transformation because they generally see the advantages of doing so, they still face many impediments that could hamper their efforts to be completely digitized in the years to come. The country is constantly taking multiple initiatives to get companies to leverage workable solutions that could help simplify operating processes and attain digital skills.
The government has, in particular, prioritized digitization efforts among SMEs in order to retain relevance, optimize business output and increase productivity. There is also a heavy emphasis on digital payment capabilities as the country is of the opinion that allowing the service is a critical first step towards digitization. Consequently, the government works closely with banks to deliver a smooth and interoperable integration with banking systems to SMEs.
Malaysia commissioned a study of 2,033 small and medium-sized enterprises covering all sectors (services, manufacturing, construction, and agriculture) and regions with the aim of exploring the current state of ICT adoption and investigating the drivers and barriers of digital transformation through Malaysian SME lens. This study exposes the computerization pit Malaysian small and medium-sized enterprises have unwittingly fallen into and suggests many solutions to help small and medium-sized enterprises cross the digitalization chasm and unleash their maximum digital potential, with the aid of the public and private sectors.
SMEs accounted for 66.0 per cent of total jobs in 2017, but they only contributed 37.1 per cent of total GDP. The disproportionate contribution of small and medium-sized businesses to jobs and GDP suggests a question about increasing labor productivity.
The speed of change and the drive to evolve have left many companies without a change roadmap across the enterprise. The leadership agenda is driven by digital disruption, but several businesses are struggling to handle it. In line with this trend, Glodec leads to the realization of digital transformation, including smart manufacturing and smart decision taking, as well as to building a better future for our clients.
Figure 2: SMEs Stance on Technology
Digitalization Challenges Faced by SMEs:
Unfortunately, while the government has taken several measures to assist SMEs in their technological growth, the mood of the supposed recipients paints a somber picture. Digital transformation hardly touches 20% and most enterprises use less than 50 per cent of technology. In terms of digital readiness, Malaysia has always ranked amongst the highest in the world, according to global surveys. However, the drive by industry players themselves falls short. Digital transformation is not a matter of ‘if’ but ‘when’ at the pace at which software is integrated into processes. Therefore, it makes good business sense for leaders to take actionable steps to make digital transformation an automated process for operations.
Figure 3: Digitalization Challenges faced by SMEs
Steps to take in the digital transformation journey:
According to a study, following high-level steps among others should be taken in order to embark the digital transformation journey:
- Lay a solid framework for digital success: Transition starts with strong and dedicated executive support with new technology oversight and foresight to prioritize change.
- Align legacies with modern technology: 61.0 per cent of Malaysia respondents (60.9 per cent in Southeast Asia) stress that IT limitations from legacy systems impede their digital strategies. It is a widespread concern, with companies operating on old fragmented infrastructures that constrain agility in the industry.
- Mitigate new dimensions of digital risks: As part of its initial design process, SMEs will develop comprehensive risk control, enforcement, and security protocols.
- Integrate into an ecosystem-based world; do not build digital islands: Change, if performed in silos, is a major undertaking with minimal progress. Normally driving the consumer’s desire for digital transformation will make alliances necessary to lift competencies that enable more comprehensive customer experiences.
We at Glodec aim to tackle key issues faced by small and medium enterprises in embarking the digital transformation journey. We drive companies to understand and learn about affordable digital technology adoption for their businesses, with both inhouse and solution partners’ technology. Contact us today to find more about digital transformation and understand what we offer.