Building Makati Philippines

Cisco Study: Digitalization of PH SMBs could add $28B to GDP by 2024

In a study by the technology company Cisco found that small businesses (SMBs) are realizing the need to adapt to digitalization with 100% of respondents admitting to digital transformation as “critical to their business.”

The drive to digitalization has never been more pronounced as when the COVID-19 pandemic hit. By now, eight months into the global health crisis, it is evident that technology helped — greatly — in business continuity.

To understand the state of SMBs’ digital transformation maturity, IDC developed a framework to help SMBs clearly assess their
current capabilities and establish goals that work to synchronize business objectives with IT needs.

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In its second year, the “2020 Asia Pacific SMB Digital Maturity Study” conducted by industry analyst firm International Data Corp. (IDC) also outlines the pace at which Philippine businesses are embracing digitalization. In the four stages of digital maturity, SMBs in the country are only on the second stage — Digital Observer.

The four stages include Digital Indifferent, Digital Observer, Digital Challenger, and Digital Native, in that order.

Digital Indifferent companies are reactive to market changes and digital efforts do not exist. Digital Observer is described as companies whose digital efforts are in progress but tactical or calculated. These companies are just on the first step in mapping out a digital plan. Digital Challenger is a company that has a strategy for the use of digital technologies and is more proactive in market responsiveness. Companies classified as Digital Native already have an integrated digitalization strategy and is focused on driving continuous innovation.

IDC framework

The study gathered and analyzed data from over 1,400 SMBs across 14 markets in the Asia Pacific to assess the challenges and opportunities the companies face in their digital transformation journey. The 14 markets are Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Thailand, Taiwan, and Vietnam.

While already on the second stage of digital maturity, nearly the majority or 73% of the respondents are still in the first stage or Digitally Indifferent.

“The study believes that there is going to be a huge impact of the overall economic growth,” said Karrie Ilagan, managing director for Cisco Philippines, at the virtual media briefing Thursday. “And the IDC research shows that making SMBs more digitally mature could add as much as $28 billion to the Philippine economy by 2024. It is also very important to note that this growth projection is incremental to the overall economic growth that we will see during that year.”

Customer experience

The objective of Digitally Mature SMBs in making digital transformation a necessary component of business operations is to improve customer experience and service delivery.

In order to achieve that, the respondents choose to invest in emerging technologies that are slowly becoming essential in driving business growth. The results of the study show that AI (artificial intelligence) or analytics (18%) is the top technology investment priority for SMBs in the Philippines, followed by cloud technologies (15%) and purchasing or upgrade of IT infrastructure software (11%).

“AI and analytics also help (SMBs) to understand the pain points and the motivations,” Ilagan said. “Understanding of (their) own operations also allows companies to improve their service delivery by getting a better understanding of customer preferences, which then enables them to offer tailored and much better experiences to their customers.”

Even if digital transformation is gradually becoming the norm among SMBs in the country, there are challenges that prevent them from fully embracing technology as part of business operations. According to respondents, lack of budget or commitment from management (15%) is the biggest hurdle they face, followed by the shortage of skills (14%). Many also experience cultural resistance to change (12%) as the digitization of products and services requires a substantial shift from long-standing practices.

Ilagan highlighted positive and significant developments, given that SMBs account for 99.6% of all businesses, 62% of the country’s total employment, and contribute 36% to overall GDP, making them a critical component to the Philippines’ trade and commercial landscape.

Cisco believes that the resilience, agility, and digital transformation capabilities of SMBs will play a pivotal role in the country’s post-COVID-19 economic recovery.