Seven out of the top 10 fastest-growing economies from 2010 to 2050 will be in Asia. And according to the 2011 Citi Investment Research and Analysis, the Philippines is at the sixth spot with an estimated average economic growth of 7.3 percent. Also on the list are India, Bangladesh, Vietnam, Mongolia, Indonesia, and Sri Lanka.
While this is partly because these countries have a lot of catching up to do, what’s more interesting and significant are analysts recognizing that small and medium enterprises (SMEs) have been and will be driving the tremendous growth this side of the world.
Despite not having the capital, resources and clout of large companies, SMEs are finding new ways to thrive and grow through their ingenuity and resourcefulness—with the help of the Internet.
Internet, GDP and SMEs
• The Internet generates $1.3 trillion of value added, roughly 3.6 percent of global gross domestic product (GDP). If it were a sector of the economy, it would be larger than the agricultural, energy and utilities sectors, and as big as the educational communications sector worldwide.
• Around 120 million SMEs across Asia contribute to half of the continent’s GDP and employ three-fourths of its workforce. SMEs comprise more than 90 percent of the business ecosystem in Malaysia, Taiwan, Hong Kong, Japan, China, Thailand, Singapore, South Korea, and the Philippines.
• “Over the next two to three years, Asia is going to see very rapid innovation and proliferation of Internet-related services amongst small businesses,” says Anu Madgavkar, senior fellow at McKinsey Global Institute.
Breaking the barriers
• The extent to which these SMEs extract value from the Internet depends on how developed the Internet ecosystem is in their countries. Internet penetration can vary between 10 and 20 percent (India, Indonesia and the Philippines), right up to 80 to 90 percent in some countries (Singapore, Japan and South Korea). “The higher the Internet penetration, the higher the level of sophistication and spread of the Internet in the general public, and the more SMEs are able to extract value from the Internet,” explains Madgavkar.
• The two main barriers to SMEs completely relying on the Internet are quality of bandwidth, which SMEs think is much lower than they need, and the cost of such bandwidth which is too high for them. “In the next two to three years, the rollout of 4G services in some of Asia’s largest economies promises to change this. Governments and the private sector have to make high-speed Internet access a reality even in remote parts of the country and bring down the cost of doing this quite dramatically,” says Madgavkar. Lack of education or technical know-how in navigating the Internet and using it more actively in the business is a close third.
Mastering the Internet
• According to Madgavkar, SMEs in Asia are already using the Internet as a sales and marketing channel or as a means to manage back-end processes. In a survey, SMEs reported that the Internet has helped them increase their revenues substantially and reduce their procurement and administrative costs. “Add the impact of high revenue generation and cost reduction that would translate to at least 20-percent impact in terms of bottom line that these SMEs reported. And these are not purely online SMEs, they’re very traditional, largely offline SMEs,” says Madgavkar.
Photo: Getty Images
This article was originally published in the July 2013 issue of Entrepreneur magazine.