MSMEs go high-tech to thrive during pandemic

Danial Norjidi

As more and more consumers are pushed online by the COVID-19 crisis, the adoption of e-commerce is being accelerated and will thus require digital adaptation by micro, small and medium enterprises (MSMEs).

This is highlighted in a policy brief from the Asia-Pacific Economic Cooperation (APEC) Policy Support Unit, the policy research and analysis arm for APEC, and the Asia Foundation.

The policy brief, entitled ‘Supporting MSMEs’ Digitalization Amid COVID-19’, states that MSMEs are particularly vulnerable to the economic impacts of the COVID-19 pandemic, and notes that targetting economic relief for small businesses has been a critical component of policy interventions in APEC economies. These interventions have included a range of fiscal and monetary policies, as well as initiatives promoting digital adoption.

“Supporting MSME digitalisation efforts amid COVID-19 requires policymakers to adopt a two-pronged approach of allowing them to reap the benefits while overcoming the challenges of digitalisation. Facilitating MSME’s adoption of digital tools is of utmost priority, yet the window of time between survival and closure is narrowing for many,” it said.

The report highlighted policy recommendations that policymakers can consider in their effort to accelerate benefits for small businesses in going digital. This is particularly with regards to those in the food and beverages sector as well as retail and wholesale sector.

“The idea is that policymakers could achieve impact by considering – in coordination and dialogue with the private sector – a series of immediate ‘sprint’ interventions to support MSMEs with digital solutions that address critical pain points through digitalisation,” it said.

The first recommendation is to focus on overcoming the digital divide and onboarding. As the report explained, “It is important for economies to facilitate access to devices such as mobile phones, tablets and computers, which constitute the hardware component that enables user access to the Internet, as well as onboarding MSMEs to platforms for them to use their services to address their pain points. Access to the Internet would also serve the dual purpose of allowing MSMEs to take advantage of government fiscal interventions, by connecting them to up-to-date resources for vital business information.

“Specifically on hardware and software, grants, subsidies, and other incentives can be provided to support first-time purchases and to upgrade legacy systems. Partnerships with equipment providers could also be considered.”

The second recommendation is to promote lower data costs.

“An important and possibly critical point of intervention during the COVID-19 crisis could be to temporarily address the cost of accessing Internet services for MSMEs. This temporary reduction could come in the form of a subsidy or through crisis-response partnerships with telecommunications providers, and, over time, could be reduced as the crisis subsides.

“A key benefit of lowering data costs for MSMEs is that these enterprises may become more willing to participate in online digital literacy training, an often bandwidth-intensive process that business owners may avoid due to the cost of data,” it said.

The next recommendation is to promote digital literacy.

“Given the low levels of digital literacy in many sectors in which small businesses are active, training that emphasises building online business skills will be a critically important activity in many sectors of APEC economies.

“Under COVID-19 related measures, online video and Internet-enabled training could help with digital literacy campaigns, and policymakers are advised to consider ways to work with the private sector to promote the development of such materials. ASEAN, Google, and The Asia Foundation, for example, have partnered to support MSME digitalisation efforts using video and distance learning techniques in alignment with the ASEAN Action Agenda on Digitalisation of ASEAN MSMEs.”

A fourth recommendation is to support access to mobile money and fintech. “An intervention that should take place in tandem with general onboarding and digital literacy training is the introduction of mobile money and digital payment tools to firms that have yet to experiment with this technology.”

“Policymakers could explore partnerships with private sector mobile money and fintech providers to develop strategies that expand uptake of these services in the short run. Financial assistance from government-sponsored MSME support programmes could also be channelled through mobile money and fintech platforms as a way to draw in new users. Special emphasis should be given to microfinance institutions, which can support mobile money outreach to microenterprises through their existing large networks and extensive trust relationships with micro-entrepreneurs,” it said.

Also highlighted was a recommendation to enhance trust in digital solutions.

“Realising the benefits of adopting digital solutions requires conscious efforts by various stakeholders in tackling a myriad of inter-related issues, including data protection and privacy, cybersecurity and protection from digital fraud. Failure to address any of these issues would negatively impact the trust that businesses and consumers place in digital solutions, whatever their purpose.

“In the context of cybersecurity, for example, strategies aimed at helping MSMEs guard against cybercrime should raise awareness of risks (eg, the need to be prudent when entering into transactions with suppliers and customers) and targetted training to new users of digital services. Such trainings would go hand in hand with general digital or ‘cyber’ literacy training for small businesses. Economies can also enhance their capacities to deal with cybercrime through enacting new legislation or revising existing legislation relating to cybersecurity and cybercrime.

“In the context of protection from digital fraud, policymakers should be vigilant and prepared to act decisively to maintain market integrity and trust. In the context of data protection and privacy, policymakers can continue to support MSMEs in their efforts to expand services to consumers while also understanding and honouring the diverse needs of economies vis-a-vis data privacy,” it said.

The subsequent recommendation pertained to addressing competition issues, noting that competition is one of the key underpinning conditions of the market economy.

“Improved competition can reduce prices and enhance regional coverage in the telecommunications sector. Increased competition can enable MSMEs to access a wide range of online services capable of relieving their pain points. Appropriate competition policies can also be employed to tackle newer issues, such as those related to the use of data (eg, data sharing and portability) and algorithms. As technologies and business models are evolving rapidly, competition policies may have difficulty keeping up with the pace of change.

“Policymakers are advised to ensure that competition policies and approaches, including those used to assess market power, can facilitate new market entrants and the adoption of new business models, as well as ensure that digital technologies and tools are not exploited to the detriment of competition,” it said.

Lastly, the report recommends promoting regional cooperation and public-private partnerships, stating that “the digital economy is complex and multifaceted in nature. Maximising the opportunities of digitalisation while overcoming its challenges require cooperation between economies”.

It was shared that the endorsement of the APEC Internet and Digital Economy Roadmap, the APEC Cross-Border E-Commerce Facilitation Framework, the formation of the Digital Economy Steering Group, as well as the development of the APEC Privacy Framework and APEC Framework for Securing the Digital Economy are examples of work in this regard.

“The rapid shift to digitalisation in response to COVID-19 containment measures has brought to the fore of the need to accelerate efforts in this area. In addition, considering that the private sector could be better placed to facilitate the delivery of some interventions, economies are encouraged to explore and enhance their public-private partnerships”.

“For example, by working with private enterprise partners in the financial and telecommunications sectors, policymakers can enhance MSMEs’ access to more advanced international payment processing tools, such as payment gateways, which can help businesses more effectively manage online transaction and cash flow needs. Partnerships with alternative lending institutions could help many entrepreneurs in the region’s informal economy rebound from the COVID-19 crisis and grow in new ways,” it said.

The report added that as the COVID-19 situation evolves, APEC policymakers may wish to extend or expand support to other firms and sectors with longer term enhancements in mind, such as in the case of the tourism and hospitality sectors.