Though the Malaysian government has long encouraged small- and medium-sized enterprises (SMEs) to go digital, many businesses did so only after the Covid-19 crisis hit. Some, however, have not been able to adapt. We spoke with Peter Kua – data science strategist, entrepreneur, and co-founder of the Disruptive Tech Institute in Kuala Lumpur – to discuss the challenges and opportunities of digital transformation for Malaysian SMEs trying to survive the pandemic.
Q: Covid-19 lockdowns have posed a serious challenge to SMEs across the world. Is this true for Malaysian SMEs as well?
Peter Kua: Yes. The ruling Perikatan Nasional administration enforced a full lockdown on 28 March – called the Movement Control Order, or MCO – that lasted for slightly more than two months. All businesses, except essential services like hand sanitizer manufacturers, were forced to cease operations. Travel restrictions were imposed, and curfews were required in certain places. The most common way for a Malaysian to get supplies was by buying online. Companies that did not go digital before the pandemic were struck by a wave of alarm and panic.
Q: Have Malaysian SMEs managed to survive the crisis?
Peter Kua: Some have, some haven’t. A survey by an online home services platform found that almost 70 percent of SMEs suffered more than a 50 percent drop in business within one week of the MCO. In addition, the FMM-MIER Business Conditions Survey revealed that 42 percent of the manufacturing sector plans to cut costs by reducing their headcount by as much as 30 percent by the end of the year, just to keep their businesses afloat.
The digital divide sped to the forefront for everyone. The chasm between SMEs that embraced technology early on – going digital with their systems, websites, search engine optimization (SEO), and content – and those that were digitally unprepared grew a whole lot wider. For the traditional businesses who had nothing in place, panic ensued as regular business leads dried up and they were unable to operate. Many businesses folded due to a lack of understanding when it came to technology. They did not know where to find resources or were unable to obtain the necessary help, since the details of government assistance were mostly disseminated online. On the other hand, the sudden boom of sales during lockdown for prepared online sellers showed that going digital was the right move for SMEs.
Q: Are SME owners starting to change their approaches due to their experiences during the pandemic?
Peter Kua: Yes, many SMEs have started thinking about aligning to the requirements of this new normal. Take, for example, local burger company myBurgerLab. Traffic to their restaurants became non-existent during the MCO. However, they were able to think quickly, and within two weeks of the lockdown offered their DIY burger home kit. One could order from their website and pick up these kits.
The industry has also seen more companies signing up for trainings, requesting assistance to build websites, and venturing into digital marketing. Just ask any digital marketers. During the MCO, there were a soaring number of requests for help.
Q: Had the government encouraged these businesses to go digital before the Covid-19 pandemic, and if so, how?
Peter Kua: The Malaysian government has, at least for the past decade, pushed and encouraged SMEs to go digital. In fact, Malaysia has Malaysia Digital Economy Corporation (MDEC), a government-owned institution responsible for driving Malaysia’s digital economy. Through MDEC, the government not only offered complimentary resources, but was also willing to provide a 50 percent matching grant of up to RM5,000 (about USD 1,000) to help each business adopt a digital model.
Government initiatives have provided much-needed relief for those trying to stay the course during lockdown. MDEC, for instance, teamed up with a wide range of providers to offer industry-related digital training programmes. The government has also initiated programs to teach business owners to sell on popular e-commerce platforms such as Lazada and Shopee.
Q: Are there businesses that are still struggling to digitize?
Peter Kua: Yes. Even with the availability of multiple government policies and programs, many SMEs have fallen through the cracks. These businesses have been hearing about going online and going digital for years. But building a digital platform takes time and money. If business owners do not see the necessity of it, they would be unwilling to spend “unnecessarily” on making full use of these platforms. Other obstacles include the lack of manpower, potential risks, and not having the right skills.
The government would also do well to regain our trust. It is deeply ingrained in Malaysians to not trust the government, particularly in the past decade. In recent years, Malaysia went through the 1MDB global financial scandal, in which then-Prime Minister Najib Razak allegedly stole billions. Then, we had a new government take over and be overthrown by a member of that government itself. All this political turmoil has discouraged many Malaysian businesses from wanting to have anything to do with the government, and in this case, applying for grants from that very same dysfunctional government.
Q: What are the challenges faced by different types of Malaysian SMEs when it comes to digital transformation?
Peter Kua: Malaysia has different ethnic groups and cultures – including Malay, Chinese, and Indian – and this can, in general, translate to different business cultures as well. For example, many Chinese-owned small businesses, such as mini grocery stores and shops that sell Chinese prayer items, have not gone online yet. Many of these businesses are handed down from generation to generation, in the same way that food and sauce makers pass down family recipes from way back when. According to my own experience from multiple years in various industries, and experiences from colleagues with traditional Chinese-owned businesses, some business owners tend to cherish tradition more than going digital. Some might even refuse to adopt new business models if they go against custom, and prefer to rely on networks of family and friends for support.
Indian business owners have had to deal with discrimination because many were brought into Malaysia as estate workers during colonial times. As a result, many Indian business owners have had to establish their businesses from scratch, without any encouragement. Taking them into the digital age might sometimes feel like an unnecessary risk.
Malay businesses face a different set of challenges. After decades of policies and laws that enable the Malays, as the privileged class, to receive rather cushy government jobs, Malays may not be as incentivised to build scalable businesses or to take them to the next level. Malay owners of successful SMEs are often frustrated because they fail to find a network of savvy business people from the same cultural background to share resources.
Q: Which factors might help these companies survive such a crisis?
Peter Kua: Many companies are being passed on to the next generation. The ones who will take over – the millennials born in the 1980s and 1990s or the so-called Gen Z born after 1995 – know the power of digitizing companies. Search engines and social media guide their buying decisions, whether consciously or unconsciously.
Members of this younger generation have tried to convince their parents to, at the very least, start a Facebook page, though often to no avail. But sometimes it works. For example, a local property developer roped in his sons and daughters to lead the digital transformation of his business. When they take over, this tech-savvy new generation is likely to thrive in a business that is online in terms of sales and general marketing, even if some of their parents still do not see it that way.
Q: What is your personal takeaway from the crisis as somebody advising businesses? What advice would you give?
Peter Kua: It is never too late to start somewhere when it comes to taking traditional businesses digital. Hope is not lost. Many have pulled through the pandemic by pivoting their business direction quickly at the start of the MCO. For example, there was a company that was built on the sale and installation of water filters. With the MCO in place, they pivoted to include other items, such as child swimming pools and toys, in order to survive the pandemic. They already had an online system, and these new sales provided them with a buffer when the sale of water filters dropped during the MCO and they lost their revenue from installations. Having other profit-making items needed by the public available and selling them online proved vital. There are multiple success stories waiting to surface.
Government agencies also have to find a better way to disseminate information. They are doing a great job already with MDEC, but more awareness-raising amongst the older generations of business owners needs to be done. The time to start is now.