By 2022, the digital economy will be responsible for 60% of the global GDP. From small businesses to large organizations to governments, the idea of going digital has become a priority for all organizations. In Nepal, where small businesses contribute to 22% of the national GDP, the government has initiated programs to digitize the economy keeping the MSMEs at the core of digital growth through programs such as the Digital Nepal Framework, and designing the national startup policy.
Why the transformation?
The possible benefits of digitalizing MSMEs include access to finance through fintech. It provides an alternative to traditional financing. Fintech also facilitates new forms of payments such as e-wallets and QR scanning that are widely used among consumers particularly the younger population. Its other benefits include automating business processes, it allows tracking the metrics accurately and improving transparency ,it also helps in making more data available to the organization which can further help in analyzing which processes or techniques are more efficient. Implementing these processes can enhance productivity of the employees. It allows open and smooth communication between different teams and departments, strengthen teamwork, make robust decisions that will positively impact the work efficiency and success rate of the organization and it helps in reducing the overall costs. Similarly, digitalization can further help in understanding consumer behaviors and can help in creating customer transformation as well. Apart from these, it offers new opportunities, new sources of economic growth, for example, it can help internationalize MSMEs and counter weak domestic demands or give access to finance. For example, the Ministry of Micro Small and Medium Enterprises of India incentivizes the use of digital payments as means to improve the credit scores of MSMEs, which can help them later to access finance. Further, digital transformation in MSMEs can help in driving the culture of innovation and can prepare the company to anticipate any disruptions in future. It might also open doors to new business opportunities and revenue streams, enabling the creation of new products and services.
Digital transformation will help in increasing the efficiency, resiliency, productivity, and competitive advantage of the organization. However, certain challenges need to be addressed. For example, most of the MSMEs in Nepal they work in a bubble without collaborating with other industries, departments or agencies they have very less or no idea of the potentials of digital transformations, obtaining digital skills much importance is not given to innovation or creativity. In most of the cases there is a top down approach where only single person makes decisions for the company. Digital transformation is a very evolutionary process where top down approach might not always work. Further, the MSMEs in Nepal are very process driven and not output driven, here the process takes precedence over anything else and in order to get the work done, there is need to follow a strict set of tasks to be performed in sequence until a desired outcome has been achieved. There still exists extreme doubt about cyber securities and data protection measures. Cyber-attacks can expose personal information which might impact the customers’ trust. The customers might hesitate in engaging in digital transactions or may hesitate to provide basic information, download apps, etc.
What needs to be done?
Successful digital transformation is a combination of multiple factors some of which include having the right digital-savvy leaders in place, building capabilities for the workforce of the future, empowering people to work in new ways, giving day-to-day tools a digital upgrade, and communicating frequently via traditional and digital methods.
Having the right technology is important but it is just one side of the coin. The most important part is how the organization is going to use the technology to bring transformations. MSMEs in Nepal can operate in a similar model. Work on building capabilities of the employees, gain the technical expertise to connect the traditional and digital parts of the business, increase collaboration with other industries to facilitate trading more easily and across greater distances, to use a greater variety of financial services such as accounts or wallets, payments transactions, credit scoring, lending, financial management, etc. and not only focus on digitalizing their overall operations but also remain open to innovations along the way. The government’s role in the digital transformation process is also vital.
- Government can introduce measures that could support MSMEs to build an online presence or establish one-stop-shop government platforms that can facilitate the business environment. This can benefit poorly equipped MSME groups, for instance, those in very traditional industries with very little or no experience in digitalization for example in Senegal, the Trade Ministry helped set up various platforms to increase the visibility for small, medium enterprises that provided essential goods during the pandemic.
- The policymakers can ensure fair trading practices and data access conditions for the MSMEs, introduce courses or platforms for upskilling through online and physical tutorials for example establishing boot camps for coding or by providing training on digital marketing.
- The government can help in cybersecurity goals, strengthening data privacy laws, using reliable authentication methods, establishing agencies for training, investing in secure IT systems, and providing these facilities to MSMEs at minimum wage.
- By providing MSMEs with access to finance, the government must be aware of the risks of cybersecurity or the use of data in fintech products for this, the government must implement regulatory sandboxes in controlled environments.
Transformation in any kind of business is difficult and when the word “digital” gets attached, it gets more difficult. In sectors with established practices, we often see resistance to change, especially for the MSMEs because they often do not have the resources to survive a wrong turn. MSMEs are an integral part of the economy of Nepal and it often lacks industry experiences to identify and address issues that might later become huge problems. One way to ensure digital transformation’s success is by not approaching it as an independent of people and process but by approaching it as a part of the organization that will cause a shift in policies, processes, and the organization’s culture.