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(Karrie Ilagan, Managing Director for Cisco Philippines)

Digitalizing small and medium businesses (SMBs) in the Philippines could add P1.17 to P1.36 trillion ($26 to $28 billion) to the economy by 2024.

This is vital to the country's post COVID-19 recovery, according to the Cisco-commissioned 2020 Asia Pacific SMB Digital Maturity Study of the International Data Corporation (IDC), presented in this morning's (October 15, 2020) virtual press conference.

Significantly, 100 per cent of Philippine SMBs surveyed acknowledged digital transformation is critical to their business.

Digitally mature SMBs enjoy higher benefits in revenue and increased productivity, contributing to their growth and overall economic recovery.

Yet, local SMBs are still at the cusp of the second stage of being a Digital Observer, trailing behind Malaysia.

The Cisco-commissioned study mapped out four stages of digital maturity among SMBs across Asia Pacific.

These are: Stage 1 – Digital Indifferent - reactive to market changes and digital efforts do not exist; Stage 2 – Digital Observer - digital efforts have started but remain tactile and in bite-sized initiatives; Stage 3 – Digital Challenger - has a strategy for the use of digital technologies and is more proactive in market responsiveness, and Stage 4 – Digital Native - has an integrated digitalization strategy and is focused on driving continuous innovation.

More digitally mature SMBs enjoy higher benefits in revenue and productivity versus those with an indifferent approach to digitalisation.

Now in its second year, the study showed SMBs in the Philippines are moving closer to the Digital Observer stage, although 73 per cent are still in the first stage of Digital Indifferent.

Local SMBs prioritize improved customer experience and service delivery as the main drivers for digitalization.

In particular, 26 per cent of SMBs aims to improve customer experience, 22 per cent targets improving service delivery, while 19 per cent seeks to boost marketing and sales.

SMBs account for 99.6 per cent of all businesses, 62 per cent of the country’s total employment and contribute 36 per cent to overall Gross Domestic Product (GDP).

Hence, they are a critical component of the commercial landscape and play a pivotal role in post-COVID-19 economic recovery.

“The SMB sector has been among the hardest hit by the COVID-19 pandemic," Karrie Ilagan, Managing Director for Cisco Philippines, conceded.

Still, "The country’s SMBs showed great resilience and leveraged technology to continue to operate. Their digital transformation plays a pivotal role in their recovery and contributes to overall economic growth."

The study ranked AI or Analytics (18 per cent) as the top technology investment priority for SMBs in the Philippines, followed by Cloud Technologies (15 per cent) and purchasing or upgrade of IT infrastructure software (11 per cent).

Nevertheless, SMBs faced challenges in adopting digitalisation strategies.

According to respondents, lack of budget or commitment from management (15 per cent) was the biggest hurdle they faced, followed by shortage of skills (14 per cent).

Many experienced cultural resistance to change (12 per cent) as digitization of products and services require a substantial shift from long-standing practices.

“SMBs are the backbone of ASEAN economies, accounting for over 85 per cent of total business establishments and making up the main contributions to private sector employment in the region," Raz Mohamad, Cisco's Director Small Business and Commercial for ASEAN, pointed out.

"While they currently face the biggest challenges to their operations, they also have an unprecedented opportunity to accelerate their digital transformation," he underscored.

Aside from solving key challenges and revitalizing operations, technology can help SMBs sustain their growth in the long term, according to Mohamad.

The Cisco study showed nearly 70 per cent of SMBs in Asia Pacific are accelerating the digitalisation of their businesses because of COVID-19.

Among the respondents, 86 per cent believed digitalisation helps develop future resilience against crises like COVID-19.

Within the region, SMBs in Singapore, Japan, and New Zealand continue to lead the Digital Observer group, with no changes in their ranking versus 2019.

Notably, mainland China, Taiwan, and Thailand surpassed Korea, Hong Kong, and Malaysia.

On the other hand, SMBs in Indonesia and Vietnam made "notable progress".

The 2020 Asia Pacific SMB Digital Maturity Study analysed data from over 1,400 SMBs across 14 markets in Asia Pacific (APAC).

The countries covered include Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Thailand, Taiwan and Vietnam.