SMEs that digitalised in 2020 earned more, have better 2021 outlook: UOB study

DIGITALISATION efforts amid the Covid-19 pandemic in 2020 paid off in the form of stronger revenue growth and a better outlook for local small and medium-sized enterprises (SMEs), according to a study by UOB.

The UOB SME Outlook 2021 Study published on Monday found that two in five SMEs that implemented digitalisation initiatives in 2020 had stronger revenue growth than non-adopters, with those who digitalised their entire business or multiple areas outperforming those who digitalised only one area.

Among non-adopters, six in 10 saw their 2020 net revenue decline from 2019.

The businesses that digitalised are also more optimistic about 2021 - three in five are expecting revenue to grow this year, and seven in 10 feel more prepared for a post-Covid-19 business recovery.

In contrast, only three in 10 SMEs that did not adopt digital tools are expecting revenue growth in 2021, and four in 10 non-adopters feel more prepared for business recovery after the pandemic.

The study found that digitalisation efforts helped SMEs achieve greater productivity in 2020, a business objective that firms had listed as a top priority for the year in a different UOB study conducted in late-2019.

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SMEs in business services, manufacturing and engineering, and community and personal services saw the greatest year-on-year percentage increases in productivity and efficiency, ranging from 44 to 49 per cent.

SMEs also benefited from digitalisation by helping to improve customer experience, increase coordination across departments, enable remote working and drive business performance, all crucial in the midst of Covid-19 lockdowns and border closures.

Despite the progress made in 2020, smaller businesses still lag larger peers in digital transformation, with smaller firms making up 72 per cent of SMEs that have not yet digitalised. Their top reasons for holding back include the costs, fear of cybersecurity issues and a lack of necessary skillsets among employees.

In terms of costs, 26 per cent of the SMEs said they have insufficient funds to continue with digital adoption, while 28 per cent find it hard to justify the value of the investment.

Incompatibility issues between old and new systems were an obstacle for a quarter of SMEs that have not digitalised.

"Small businesses tend to have limited resources, and as such, may form the view that digitalisation is too expensive or complicated for them," said UOB head of group business banking Lawrence Loh.

He noted that UOB has a team of dedicated technology specialists to help SMEs identify the areas of their business that can best benefit from technology, as well as the relevant solutions for them. The team has helped more than 10,000 small businesses set up additional revenue channels online.

The bank also works with partners such as the government to defray digitalisation costs through the Start Digital Programme, and collaborates with platform partners to offer SMEs cross-border business opportunities.

In 2020, electronic payments and electronic invoicing were among the top five digitalisation priorities for SMEs, in line with a demand for cashless payments since the onset of Covid-19. Other priorities were payroll, accounting and sales.

Now, SMEs are planning to prioritise marketing and inventory management in the near future, along with payroll, accounting and sales. This aligns with promising trends of doubled e-commerce spending in 2020 compared to 2019, and one in two Singapore consumers indicating a preference for shopping local to help Singapore businesses recover from Covid-19.

SMEs in the consumer goods, professional services and real estate/hospitality sectors are prioritising digital marketing, while those in the consumer goods, construction and infrastructure sectors plan to ramp up digitalisation for inventory management.

The UOB SME Outlook 2021 Study was conducted from late-November 2020 to early-December with 782 local SMEs that have revenue of less than S$100 million.

"The digitalisation journey is a long one and we urge SMEs to stay the course to see their efforts pay off when they emerge stronger through the pandemic," said Mr Loh.