Digitalization or bust: The key decision facing Indonesia’s SMEs

Indonesia’s two-decade run of consistent economic expansion came to an end in 2020, all thanks to the Covid-19 pandemic. Consecutive negative growth in Q2 and Q3 confirmed the country’s first recession since the Asian financial crisis in the late 1990s.

The archipelago’s small and medium-sized enterprises (SMEs), which account for 60% of the country’s gross domestic product and 97% of its domestic working population, have been hit hard by the turn of events. The spread of the virus has caused around half of these businesses to temporarily close down, mostly due to sharp drops in demand and disruptions to supply chains.

As one might expect, the financial vulnerability of these small firms is a core issue. “One of the most common pain points that SMEs face lies in accurate revenue forecasting and predicting the direction of the business,” says Angela Thenaria, head of institutional banking at DBS Indonesia. These factors have only become more difficult due to Covid-19.

The need for digital

Increasing productivity and efficiency are now more important for small businesses, and outsourcing certain functions might make more sense for their long-term business viability, says Thenaria. For example, a startup with five employees probably doesn’t need to hire an accountant – adopting an accounting software would suffice.

She adds that using digital banking services can also help businesses save money and time, which can instead be put into developing the company.

Photo credit: Willy Sebastian

In order to survive, turning to digital solutions is an essential step. In fact, according to a study by the Mandiri Institute in May 2020, going digital increases the resilience of a company, as it gives the firm the ability to continue operations even as offline shop fronts are forced to shutter.

Moving more businesses online could even help Indonesia reduce 1.5% of the Covid-19-induced economic burden on its GDP. This is a significant figure, given that the country’s economy is estimated to grow by only 2.3% at best or contract by 0.4% at worst, according to government estimates.

However, Indonesia’s Ministry of Cooperatives and SMEs says only 13% of the country’s small businesses have made the leap to digital and remote working. The country’s unstable and often expensive internet connectivity and the difficulty in getting funding to kickstart the digitalization process could be some factors that cause this.

Helping hands

The Indonesian government is doing what it can to help, having launched its National Economic Recovery Program in May 2020. The initiative includes tax incentives for selected industries, interest subsidies for SMEs, and support for consumer spending to boost public consumption.

Ecommerce platforms such as Lazada and Shopee have joined in, providing financial aid, training, and other resources to help small businesses make the transition to selling online and participating in the burgeoning digital economy.

Banks are another strong source of assistance – local financial institutions are deferring loan repayments, extending repayment periods, and reducing administrative fees, for example. DBS, for its part, is approaching the problem from a big-picture point of view. It’s providing educational resources to SMEs that can help them make smarter business decisions.

Among its efforts to do this is the launch of the Business Class program, which provides networking and learning opportunities for small enterprises.

“We want to build an ecosystem where entrepreneurs can share their insights and collaborate to grow more and have an impact on the development of the overall SME industry,” Thenaria says.

DBS also offers the SME Academy learning program, which invites subject matter experts, business owners, and advisors to share their insights and experiences with attendees. Past guests include speakers from cloud computing company Alibaba Cloud and co-working space provider UnionSpace, as well as successful local entrepreneurs such as Yasa Singgih, who founded men’s fashion brand Men’s Republic when he was a teenager.

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On the technical side of things, the bank’s digital banking solution for SMEs, DBS RAPID (Real-Time Application Programming Interface by DBS), integrates real-time processing of payments, accounts receivables, and automated information reporting on customer business workflows. This facilitates business transactions on the clients’ own network.

“DBS RAPID increases workflow efficiency and cost savings for our clients while also providing a great customer experience to the end user,” says Thenaria.

Adapting to the future

The pandemic has irrevocably changed the business landscape in Indonesia – a McKinsey & Company report finds that 88% of consumers intend to keep shopping online even after Covid-19 passes.

Multinational corporations and large Indonesian companies are finding ways to help consumers and small businesses get through this crisis. For their part, SME owners must also adapt to this digital future if they wish to survive.

Overseeing cash flow, focusing on efficiency and cost management, strengthening employee organization in light of work from home measures, and planning new marketing strategies are just some of the adjustments that SMEs have to make, explains Thenaria.

“Digital banking solutions have also evolved to provide strong support to entrepreneurs, so making the most of these services will go a long way,” she says.

Find out more about the banking solutions that DBS has crafted specifically for SMEs on its website.

This content was produced by Tech in Asia Studios, which connects brands with Asia’s tech community. Learn more about partnering with Tech in Asia Studios.