According to the ASEAN, Small and Medium Enterprises (SME) in ASEAN countries account for between 88.8% and 99.9% total establishments and between 51.7% and 97.2% of total employment. The contribution of these companies to each ASEAN country GDP is between 30% and 53%. SMEs just cannot be ignored. Why does it often seem that SMEs are left out of the digital revolution? We believe there are an accessibility gap and a profound asymmetry in capabilities and power.
The digital economy benefits in the hands of a few
Over the past few years, we have seen a nascent digital economy take shape, at the intersection of technology, data and algorithms; driven by exponential demand for speed and personalisation. Pioneered and probably best represented by the FAMGA (Facebook, Amazon, Microsoft, Google and Apple) and the BAT (Baidu, Alibaba and Tencent), digital and AI technologies have been democratised and made more accessible to all. For example, Amazon Comprehend, Azure Linguistic Analytics Facebook’s Wit.AI and Google Cloud Natural Language are all APIs that offer natural language processing as a service. Moreover, they are either free or affordable and easy to use.
However, they are controlled by a handful of companies and these have grown “unprecedented power” as described by Shoshana Zuboff in her latest book The Age of Surveillance Capitalism. It has led to an unsustainable imbalance:
- Outsized growth largely enabled by the lack of any form of social, political or regulatory resistance; pushing the boundaries of the socially acceptable (such as privacy) and new legislation (like GDPR, or General Data Protection Regulation, and Personal Data Protection Act, or PDPA data protection laws).
- Exclusive ownership of the customer experience based on subtle (i.e. Amazon open voice ecosystem) and not-so-subtle non-interoperability (i.e. Apple, Samsung), forcing users to adhere to the company’s realm and creating a digital-social divide (e.g. “Are you an iPhone or an Android person?”).
- Exceptional concentration of power, wealth and knowledge: a winner-takes-all game where the pursuit of market domination, financial rewards, total appropriation and proprietary intellectual capital control leads to a monopolistic market structure.
On the other hand, digital and AI technologies are still not very accessible to SMEs, who lack internal capabilities and don’t really get the attention they deserve as vendors pursue big brands to make a name of themselves and think that is where the money (and the hype) is.
Keeping the pace of transformation
There is a reason why taking the digital turn can be such a Herculean task. In his book Smart Business, Ming Zeng, the former Chief of Staff and strategy adviser to Alibaba Group’s founder Jack Ma, defines the path to become a Smart Business, a company capable of “automating every decision possible”: a digital business should use data to create both efficiencies and greater information asymmetry in order to build a sustainable competitive advantage at scale.
It is then easy to understand why most digital and AI initiatives fail to scale. In many cases, data scarcity or availability, data mining costs and structural organisation changes outweigh the perceived future market value of such massive transformation. In short, most companies have not reformed their business enough yet to capture such value in full. And legacy businesses, in particular, face great inertia to implement such a roadmap.
Small businesses, especially in retail, are suffering from the aggressive competition of the larger chains and e-commerce. What are they competing against? Choice, price, reach… and insights.
Digital giants like Alibaba to Amazon have built their business around relentless and systematic data collection and AI-powered automation to better understand and anticipate customer needs: what to sell when to sell it, and who to sell it to. The information they collect is processed and used to their advantage to manage and automate the end-to-end customer life cycle: target-engage-convert-service-retain.
Small businesses, on the other hand, have a few unique characteristics that work in their favour. For example, small independent retailers can leverage location and customer proximity (they still beat Amazon’s one-hour delivery window), agility and speed (Small is beautiful by British economist E.F. Schumacher), human connections (they personally know their customers), simplified governance and low operating cost (see this great article from McKinsey on “the five attributes of enduring family businesses”), little to no legacy technology infrastructure; to name a few.
New and small businesses can leapfrog and build these new capabilities from the ground up for a fraction of the cost and time. Most small businesses would have tons of data already, such as business website data, Facebook page data, Wi-Fi hotpot user data, point of sale data, CCTV cameras, loyalty card data, etc. Consolidating, normalising and using this data at scale can provide tremendous value: stores could predict demand for certain products and build up inventory accordingly, monitor on-shelf availability, identify low-performing products and reallocate shelf space to growing categories.
And on the solution side, a full suite of products and services are readily available, from off the shelf Internet of Things sensors, to turn-key cloud infrastructure, to ready-to-use data science platforms.
SME should leverage their unique data
The missing link is the last mile to the data: the final step to integrate the data and these services together requires some expertise and capabilities not accessible by SMEs. The main challenges for business owners include:
- Access to new capabilities: SMEs need help and support from vendors to equip them with the latest solutions. Solution providers need to understand the opportunity that SMEs represent.
- Adoption of new technologies: managers and staff will need to embrace new ways of doing things. Solution providers need to design outstanding customer experiences to lower the barrier of entry.
- Change from instinct-led to data-driven when making business decisions: business owners and managers need to rely on data more and more. Solution providers have to deliver insights and intelligence in ways that blend with their daily workflows to minimise change and maximise impact.
A successful transformation into an AI-powered digital business will, therefore, be possible using:
- Sustainable business models based on reciprocities: creating a fair exchange of value between the data producer-owner and the data processor-miner. It means to make data work for data owners first; and if they allow it, enable them to share for the benefit of others and to monetise for their own. Mining behavioural data for the originators’ benefits and not for third parties’ profits.
- New Capabilities: Enabling SMEs with the means to transform into smart businesses via low cost, intuitive, turnkey solutions.
- Mindset shift: From instinct-led to data-driven business, small businesses have to change and adapt their behaviours to maximise the value provided via the adoption of such new technology.
Facing the big tech competition – or should we say “domination” – SMEs struggle to keep the pace of transformation. Nevertheless, as they produce data throughout their activities, this should help them bear fruit. SMEs represent a massive growth opportunity and untapped market for solution providers and platform businesses. And, for those who think these small corner shops are dead, according to kr-asia, online commerce still represents only 2-3% of total retail sales in South East Asia.
Damien Kopp – ENVOLVE DATA