April 21, 2024

SA’s underperforming SMME sector needs to embrace digital transformation

4 min read

Two realities are driving business globally, and the SMME (small, medium & micro enterprise) sector has to catch the wave or risk jeopardising its future sustainability.

Digital transformation was always coming, but its forward momentum has been accelerated by the COVID-19 lockdowns, which graphically demonstrated the link between digital platforms and the agility to respond to disruptions.

The second, related trend, is that the digital revolution has created a business environment that is highly competitive, but which at the same time offers huge new opportunities. Digital technologies allow SMMEs to compete with more sophisticated and better resourced competitors by enabling them to offer more services more cost-effectively than would be possible in a totally analogue world.

Research by the US Chamber of Commerce shows that 93% of small businesses that use technology grow faster, are more profitable and can hire more employees. The situation is less rosy in South Africa: According to the SME Landscape Report, 50% of SME owners say that lack of technology is an obstacle to growing their business, with half of those companies citing that lack of access to stable and reliable Internet was the principal obstacle. More perturbing, only 35% of SMEs are prepared for disruption, and only 32% are ready for innovation.

This lack of technology is a major contributing factor to the significant underperformance of South Africa’s SMMEs as compared to SMMEs in countries that are members of the Organisation for Economic Co-operation and Development. In these countries, SMEs create 60%–70% of employment and contribute up to 60% of gross domestic product. By contrast, despite making up 98.5% of the economy, South African SMEs only contribute 28% of the jobs.

The SME Landscape Report identifies high data costs as a major obstacle: data is more expensive in South Africa than in other developing economies. South African SMEs are highly dependent on mobile data. Fibre is less widely used, thus further constraining SMEs in the use of Wi-Fi. Most SMEs use Wi-Fi to connect to the Internet, and a growing minority to access the cloud—only 27% use cloud services all the time, with a further 19% using them intermittently.

Here’s the real eye-opener: Only 20% of SMEs use e-commerce regularly – a huge potential new market just waiting to be entered. On the plus side, though, 70% of SMEs are enthusiastic about embracing new technologies.

Getting the recipe right

SMMEs are intrinsically cautious, and slow adopters of technology. This is understandable – they are typically under-resourced and so cannot afford expensive missteps. In addition, many are short on technology skills, and do not have the luxury of IT staff to advise them. Sticking to the tried-and-trusted ways of doing things makes apparent good sense but, in fact, makes them extremely vulnerable to disruption. It also puts a brake on their growth – not least because the ability to accept and make digital payments is increasingly important in a digital world.

The capability to transact digitally also creates a basic financial record that can help demonstrate that an SMME qualifies for capital funding from the financial sector. Lack of access to capital is frequently cited as a reason for SMME underperformance and even failure.

Taken together, these factors create something of a burning platform: SMMEs need to embark on a journey of digital transformation now in order to maintain their viability and grow, and the country desperately needs them to do so in order to grow the economy and create jobs.

To us at Telkom Business, this places an onus on service providers to develop the offerings that will assist the SMME sector make this transition successfully. Speaking for ourselves, under our Business Fusion banner we have created highly flexible bundles that address many of the obstacles identified above. These bundles can be customised, but the basic premise is unlimited fibre and data, unlimited voice over IP (VoIP) and one or more mobile SIMs. The premise of limitless access is important because of the access it gives, but also because it means that billing is predictable, something that’s key for SMMEs.

No more running out of data!

Another important principle is to look beyond simply providing product – basic consultative services are also part of the package, as is support. This kind of approach makes it easy for SMMEs to access the connectivity technology they need to begin the journey, and in a way that minimises risk. It’s also important to have the next step available for them: typically well-priced cloud services such as cloud-based PBX, cybersecurity, marketing, web design and domain hosting, to name a few.

The digital journey is one that holds out immense promise for our SMMEs. To support this journey, it is incumbent on the market to understand what they need, and then provide it. If we get it right, the sky is literally the limit.

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