SME's entry into digital economy could boost Asean GDP by up to US$1 trillion: study

BRINGING South-east Asia's small businesses into the digital economy could raise the region's gross domestic product (GDP) by between US$780 billion and US$1.13 trillion, an industry study has found.

The digital economy now accounts for about 7 per cent of Asean gross domestic product (GDP) or US$200 billion, said the report, which was released on Monday - a smaller share than the 16 per cent of in China, 27 per cent in Europe and 35 per cent in the United States.

But non-tariff barriers such as logistics and cross-border digital regulations such as data localisation and e-payments continue to be challenges, especially for small and medium-sized enterprises (SMEs), said the report from consultancy Bain & Co.

The trillion-dollar GDP boost is forecast to come on the back of trade and growth within the region. The bulk of the uplift would stem from productivity improvements in sectors such as manufacturing, with the other growth drivers being the expansion of digital markets and the growth of "enabling sectors" such as information communications technology, said the Bain researchers.

Findings from the poll of more than 2,300 small businesses in Asean showed, for instance, that SMEs in the retail sector saw sales go up by 15 per cent on average after turning to e-commerce.

Meanwhile, logistics SMEs saw productivity gains of 10-20 per cent on average, and agri-businesses lifted crop yield by 5 per cent to 15 per cent. The survey polled companies across the agriculture, manufacturing, retail, transport and logistics sectors.

Still, about one-quarter of SMEs fingered limited cross-border payment options as the key barrier to selling online internationally, while close to three-fifths said that non-tariff barriers such as logistics and export processes and data localisation rules were obstacles to cross-border trade.

"To enable higher adoption, the financial ecosystem must allow for development of innovative services . . . whilst addressing obstacles to user adoption such as developing digital IDs, streamlined know-your-customer processes and less restrictive cash-in and cash-out rules," said the authors, who presented their work at the Asean Economics Ministers Meeting in end-August.

Another issue highlighted in the report is the skills gap in the workforce, with two-fifths of SMEs saying that they did not have the necessary digital skills and close to half of SMEs calling their lack of understanding of digital technology the top barrier to digital integration. 

The authors wrote: "In order to accelerate results, Asean member states should partner with the private sector in designing the most relevant digital skills road maps - building off the work that has been done in Singapore and Malaysia - and accelerate the roll-out of these programmes for prioritised sectors."

The Bain report was done in association with technology companies Google and Sea, as well as Rebecca Fatima Sta Maria, former secretary-general of Malaysia's International Trade and Industry Ministry.

Bain partner and report co-author Florian Hoppe said: "The findings from our research suggest there are significant gains if Asean countries can come together and grow as a single regional digital economy, rather than operating separately."

Also, Forrest Li, chairman and group chief executive of Sea, said in a statement: "We see huge momentum in e-commerce as more SMEs tap into new, fast-growing markets online, but it is vital that more SMEs are given access to this opportunity."