Business Innovation in Southeast Asia: Can Your Small Business Keep Up?

Director, SAP Business One Southeast Asia

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Despite the state of unpredictability and volatility in the world’s most powerful economies, the future looks bright to entrepreneurs in ASEAN member states. Southeast Asian business leaders are now more positive about sales increases, workforce expansion, and investment growth, according to the YPO Global Pulse Confidence Index Survey for Q4 2016.

Perhaps this optimism has a lot to do with the fact that Southeast Asia is one of the most promising emerging markets today, with a consumer class expected to increase from 67 million households in 2010 to 125 million in 2025. Whether you’re a current business owner or just about to start a business in Southeast Asia, you are in the best position to make the most out of this exciting business climate.

Southeast Asia: The region to beat?

In 2013, ASEAN member states—Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam—produced a combined GDP of USD 2.4 trillion. If it were a single country, it would be the seventh-largest economy in the world. Since its founding in 1967, ASEAN policies towards integration and liberalised trading deals within and outside the region have spurred economic growth as well as resilience against external shocks. Average government debt in the region, at 50 percent, remains a lot lower than the United States or the United Kingdom.

Investor confidence in the region has outpaced even its strong neighbour China, as foreign direct investment (FDI) inflows in the ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) increased by 7 percent in 2013 with USD 128.4 billion in FDI receipts. China had only USD 117.6 billion.

Furthermore, business executives from the United States look forward to increased profits in their Southeast Asian operations in 2017, according to the latest ASEAN Business Outlook Survey. Although the withdrawal of the United States from the Trans-Pacific Partnership may affect future American business prospects, it may open up opportunities for other potential trade deals such as the Regional Comprehensive Economic Partnership, which includes the 10 ASEAN member states as well as trading partners China, India, Japan, Korea, Australia, and New Zealand.

And while China’s e-commerce landscape is largely monopolised by big players such as Alibaba and WeChat, Southeast Asia remains a fertile ground for Internet businesses, with no single player dominating its diverse market. With its 260-million-strong Internet user base expected to increase to 480 million in 2020, Southeast Asia’s Internet economy may be worth over USD 200 billion by 2025.

The rapid growth of small and midsize businesses in Southeast Asia

According to a 2015 report by the US-ASEAN Business Alliance for Competitive Small and Medium Sized Enterprises, small and medium enterprises (SMEs) comprise 96 percent of firms in ASEAN member states. Despite today’s many economic challenges, SMEs have experienced unprecedented growth in the region.

SMEs in Malaysia, for instance, have significantly contributed to the overall growth rate in ASEAN, contributing at least 30 percent to its own GDP, with SMEs alone growing at a rate of 8.4 percent. SMEs account for almost 50 percent of the country’s labour force, with most engaged in the services sector.

According to a report from Economics WorldSMEs in Indonesia have made qualitative and quantitative strides for the country’s overall economy. Employment generation is one of the most significant contributions of Indonesian SMEs. They have always employed more than 96 percent of the country’s workforce, while consistently contributing no less than 50 percent to the country’s GDP.

While information on SME’s economic contribution in the Philippines is limited, the latest data from the Department of Trade and Industry shows that SMEs contributed to 25 percent of its exports in 2014. SMEs in the Philippines generated a total of 4.8 million jobs in 2014, which made up 62 percent of the total labour force.

Potentially the most promising emerging economy in Southeast Asia in the near future, Vietnam is estimated to experience up to 10 percent annual growth rates by 2025. A huge part of this growth is expected to come from SMEs, which have experienced an average of 20 percent profit growth rates over the past few years. A report from The Asia Foundation states that SMEs in Vietnam contribute over 40 percent to the country’s GDP, employ 77 percent of the workforce, and make up 80 percent of the entire retail market.

Meanwhile, in Singapore, 59 percent of polled businesses have experienced growth in 2015, despite economic uncertainty within the business community, according to the CPA Australia report.

Boosting business innovation among SMEs in Southeast Asia

The growing role of SMEs in any region’s overall economic development can be attributed to two separate but interrelated factors: policies and technology.

The growing role of SMEs in any region’s overall economic development can be attributed to two separate but interrelated factors: policies and technology.

The implementation of the ASEAN Economic Community (AEC) in 2015, for example, opens up SMEs to a larger potential consumer base. As ASEAN member states integrate into a single market and production base, businesses can access much larger markets than before, rather than being limited to a single market within the country.

As for technology expansion? According to the 2014 ASEAN SME Policy Index, SMEs still face challenges accessing technology, finance, and competitive markets. In fact, the study shows that the biggest policy gap in the region is the promotion of technology and technology transfer in the different stages of a typical SME life cycle.

A country worth emulating in terms of technology adoption is Singapore, which ranks first among the most tech-ready countries in the world and is also the most innovative in Asia. Even non-tech firms in this city-state have embraced the digital revolution, taking advantage of social media, business analytics, and enterprise mobility.

If you’re an SME owner or aspiring entrepreneur in Southeast Asia, you need to maximise the existing technology infrastructure to grow your small business. While the Southeast Asian business landscape is ripe for SMEs, the environment is also getting more and more competitive. Business firms and even governments are aggressively moving towards modernisation and trade liberalisation, chasing the e-commerce “gold rush” and capturing markets even beyond national borders.

So, even with a growing potential customer base, solid technological infrastructure, and supportive policy environment, competing in this exciting business era may produce new challenges. A sudden increase in your customer base, for instance, may burden your staff, especially your customer service, IT, and finance personnel. Such disruptions, although generally positive, may compromise customer service as well as the quality of goods and/or services, making your business lose its momentum in the process.

How to modernise your small business with cloud ERP

To address these issues, SMEs can harness the benefits of technology. Free flow of information through digitised platforms improves not only business-to-customer communications but also business-to-business transactions. SMEs can also benefit from online payment solutions, as customers become more mobile and digitally savvy. Tools that improve day-to-day tasks help streamline business processes, speeding up workflows and improving service delivery. To ease the need for physical technology infrastructure while improving data security, more firms are turning to cloud-based enterprise resource planning (ERP) solutions.

Different aspects of your business like customer relationship management, finance, and supply chain management can benefit from cloud-based ERP solutions in several ways:

  1. More room for innovation and expansionA cloud-based ERP solution can take multiple aspects of your business into a single platform that is more customisable as your business grows and diversifies. As processes are streamlined, information flows faster and more smoothly, allowing you to make quicker business decisions. It also frees up your technological infrastructure while reducing labour costs typically spent for IT professionals responsible for network maintenance.
  1. Minimised costs from interruptions and glitchesRunning a business will not always be smooth-sailing. A lot of business owners and managers end up spending too much time making sure that everything is running perfectly, on top of the time spent solving actual problems. A system that quickly identifies glitches, such as past due bills, late shipments, or accounting anomalies, allows business owners and managers to focus more on solving problems while spending less time finding them.
  1. Integration with old systemsAlong with business expansion comes the need to modify and customise existing ERP systems. Older ERP systems, however, may not have this capability. Switching to an entirely different platform can also be costly, especially for SMEs. A good cloud-based ERP allows you to keep existing data and processes from old systems while allowing you to adapt to changing business needs through new, expanded ERP solutions.
  1. Realtime data visibilityAs transactions are stored in the cloud in real time, cloud-based and mobile-enabled ERP solutions allow business owners and managers to access their business data anywhere—even on their mobile devices in the middle of rush hour traffic. This facilitates faster, smarter business decisions necessary in a fast-paced business climate.

Without realising the potential opportunity costs, a lot of SME owners initially hesitate to grow their business with cloud-based ERP. SMEs may risk getting left behind, not only by their larger counterparts but also by other SMEs that choose to invest in cloud computing technology. With a conducive policy environment and thriving business landscape, now is the best time to take advantage of the potential gains from modernising your business.

To maximise your SMEs potential in todays rapidly changing business climateexplore SAP Business One and how it perfectly suits your business needs.

This blog post originally appeared in the Digitalist.


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