Small and medium-sized firms (SMEs) continue to have a significant impact on the Southeast Asian (SEA) economy, where, including micro businesses, they account for over 90 per cent of all SEA enterprises. According to the UOB Business Outlook Study 2024, the outlook for SMEs in the region is positive. Four out of five businesses in SEA reported greater revenue growth in 2023 vs 2022 – with most businesses experiencing a revenue increase of 10 per cent to 50 per cent in 2023.
Due to the sheer scale of SMEs and their impact on the SEA economy, it is imperative that any prospective future developments be closely monitored and examined as the region recovers from recent economic uncertainties.
Looking ahead to 2024, there are several emerging SME trends that can help these companies to further unlock their potential. These include a rising emphasis on sustainability-led support, the proliferation of Green Technology (greentech), and accelerated demand for overseas expansion within SEA.
SMEs demand for greater sustainability-led support
As the 2030 deadline for the United Nations (UN) Sustainable Development Goals (SDGs) approaches, Southeast Asia continues to struggle with environmental and economic challenges. The effects of climate change, from extreme weather to rising sea levels, are the biggest threat to SEA.
It could result in a fall in the region’s GDP by 11 per cent by the end of the century. Therefore, to retain productivity and profitability, SMEs must assess the impact of climate change on their manpower and business and build the appropriate risk mitigation measures.
Such measures include advocating for greater support in financing, policy and employment regulations for sustainability practices. At a regional level, the Association of Southeast Asian Nations (ASEAN) adopted the ASEAN Strategy for Carbon Neutrality in mid-2023, highlighting eight areas that include greening the regional supply chain, connecting green infrastructure and market, enhancing common standards, and facilitating green talent development and mobility.
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However, since different countries have distinct sustainability concerns, localised support is also crucial for SMEs. Consequently, SEA nations such as Singapore have launched the Financing Asia’s Transition Partnership (“FAST-P”) to mobilise up to US$5 billion for green and transition projects in Asia, while countries across ASEAN introduced various localised initiatives such as Malaysia’s launch of Belanjawan 2023 and Indonesia’s Just Energy Transition Partnership, to name a few.
Rising greentech for greener consumers
Beyond capital and operational support for sustainable incentives, SMEs in Southeast Asia are driving greater sustainability-centric innovations for profitability, with greentech taking centre stage it appeals to the growing eco-consciousness of the region’s consumers who believe that their individual purchasing decisions can contribute to a significant impact on the wider environment.
To expedite GreenTech innovation launches, SEA hosts a variety of accelerator and incubator programmes that are collaborative in nature, bringing together support in terms of funding, mentorship and piloting.
Regional accelerators such as UOB FinLab’s Greentech Accelerator are well-suited to utilising more extensive networks, which can broaden the scope of expertise, mentorship, and pilot support for SMEs and their green innovation ambitions.
On the other hand, local-level accelerators have the advantage of involving local academic institutions, government ministries, and innovation piloting centres that are more geographically accessible for SMEs. Such was the case with Enterprise Singapore’s Enterprise Sustainability Programme, Vietnam’s Greentech Incubator, and the Agri-Aqua Technology Business Incubation (ATBI) programme in the Philippines.
The three aforementioned countries, as well as others in Southeast Asia, are at varying degrees of sustainable technology adoption. Nonetheless, the growing presence of innovation accelerators focused on enhancing SMEs’ potential to launch greentech illustrates a shared purpose among countries: to leverage the vastness of their respective SME networks to bring more GreenTech innovation to market for the benefit of their population and the economies.
SMEs to leverage digitalisation for regional expansion
Sustainable development, rapid urbanisation, and digital transformation have all contributed to Southeast Asia’s reputation as an ideal market for business. SMEs are aware of these benefits, with 60% expressing a desire to prioritise regional SEA expansion through 2026, according to the UOB Business Outlook Study 2024. Such expansive mindsets can also be attributed to the revitalised consumer travel in Southeast Asia, which has been on the rise since the region began to recover from the COVID-19 pandemic.
However, trade tensions and restrictions in Southeast Asia can make such regional expansion difficult, prompting SMEs to seek out novel and borderless expansion opportunities, such as digitalisation. Southeast Asia’s digital economy consists of five key sectors: e-commerce, travel, food and transportation, online media, and digital financial services. These sectors have a significant profit potential, with combined revenues reaching an estimated US$100 billion in 2023.
Also Read: The climate change and gender equality connection: How to support underfunded women-owned business
Beyond profit prospects, sustainable factors such as bridging the economic divide can motivate such expansion. ASEAN recently announced implementing a new regional cross-border payment system that allows users to conduct cross-border transactions in Indonesia, Malaysia, Thailand, and Singapore using only a QR code. Not only does this method help streamline payment processes, but it also enables SMEs to easily reach underprivileged communities throughout Southeast Asia.
Another driver of rising SME expansion-based digitalisation is the increasing support of diverse industry players. For example, tech providers such as cloud providers, system integrators, and cybersecurity specialists have been crucial in assisting SMEs to counter market-proven digital challenges such as lack of digital skill sets among employees and concerns over cyber-security issues.
Furthermore, multinational corporation (MNC) support through foreign direct investment (FDI) can be crucial for SME digitisation because it provides the optimal channel of global networks, research and development (R&D), and accumulated expertise to fill in any gaps of knowledge and resources that SMEs might lack.
A positive outlook for SMEs in Southeast Asia
Overall, while some common issues for SMEs persist, such as access and capital flows, there is hope that old problems can be overcome with new solutions based on sustainability-focused initiatives, novel technologies, and widespread support from the public and private sectors. SMEs in Southeast Asia are an intriguing space to watch, and UOB will continue to keep an eye on new developments.
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