How digital tools can help businesses overcome economic uncertainty

Rising costs of imports and exports caused by trade war can impact revenues and margins of SMEs

Digital processes can boost productivity and streamline business operations so leaders can focus on strategising for growth

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How digital tools can help businesses overcome economic uncertainty

Published: 6:16pm, 10 Apr 2019Updated: 11:17am, 6 Jun 2019

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Today’s business climate is an uncertain one. The trade war between the United States and China culminated in the rapid rise of inflation and an economic slowdown in many countries last year.

Neither Hong Kong nor Singapore remained unscathed. Hong Kong’s year-on-year (YoY) GDP growth in Q4 2018 was less than 1.5 per cent, compared to 2.9 per cent in Q3, while exports showed “almost zero growth”. Meanwhile, Singapore’s economy experienced a 2.2 per cent YoY growth in Q4 2018, the weakest since Q3 2016.

The blow to international trade can be felt across industries, especially as reduced demand from China and from the US manufacturing industry for raw materials has weakened exports.

International economic tensions have also affected local spending. Although Hong Kong’s consumer spending has remained high, the consumer confidence towards economic development has waned, dropping by 17.5 per cent YoY in Q4 2018.

Business confidence also plummeted in Q1 2019, recording the lowest score in 10 years.

No doubt large corporations with multinational operations are directly affected by global economic uncertainties.

Yet in reality, we also see a lot of small and medium-sized enterprises (SMEs) feeling the full brunt of the trade wars, particularly those who have yet to embrace digitisation, as they will be slower to adapt to industry changes and to optimise their operations.

Impact of trade wars on SMEs

One in five SMEs said they were affected by the ongoing trade conflict between the US and China, according to the 2018 SME Development Survey by DP Info.

An inevitable consequence of a trade war is the rising cost of both imports and exports, which has a negative impact on SMEs’ business revenue and margins. They will have to pivot and source their materials elsewhere or risk losing their competitive edge owing to the increasing cost of goods.

However, with lower consumer confidence and intensifying competition, it is difficult for SMEs to raise the prices of their goods. To do so would make them less competitive against big companies that are able to enjoy economies of scale to introduce product discounts while still making a profit.

With higher reserves of cash and enough collateral to take out loans, these larger enterprises also tend to have the financial cushion to maintain operations during an economic slowdown.

In the same survey, 15 per cent of SMEs projected negative turnover growth for 2018, and 44 per cent suffered from finance-related challenges, particularly delayed payments from customers.

In times of economic stress, such challenges may only be exacerbated; a study of SMEs’ experience in the global recession of 2008 found that they experienced increased delays on receivables during that period.

Together with increased unsold inventories, this resulted in an “endemic shortage of working capital and a decrease in liquidity” for SMEs.

While all SMEs are affected by the unsavoury effects of a trade war and economic slowdown, the ones most at risk of suffering the brunt of its effects are those who have not yet digitised.

How SMEs can survive – and thrive

The digital transformation of businesses has the potential to increase productivity, streamline operations, increase security, reduce costs and mitigate economic uncertainty.

By automating internal processes, streamlining workflows, implementing smart management systems and using analytics to make data-driven decisions, business leaders can redirect their energies into business improvements and focus on making more strategic decisions that drive long-term growth.

Although the digitisation of processes entails initial costs, its return on investment (ROI) comes in the form of enhancing the overall productivity and functionality of a business. And this is what can mean the difference between success and failure during these uncertain times.

For SMEs to stay afloat amid economic turbulence and remain competitive, they need to employ digitals tools that help them minimise costs and optimise their businesses.

Fortunately, digital solutions have become accessible and affordable for SMEs, largely thanks to cloud computing. For example, the Software-as-a-Service (SaaS) model lets you pay only for the software capabilities you need.

Here are some ways SMEs can leverage technology for their business success.

Move from paper to cloud

Traditionally, businesses log their financial records and other sensitive company information on paper ledgers. Not only is this method tedious, time- and space-consuming and subject to human error, it is also a data security risk with no back-up measures.

By upgrading to cloud-based software, small businesses can store and organise vast amounts of data in one place. Cloud software can provide them with complete data protection, secure file access at any time and any place, back-up and recovery systems, and easy file sharing systems.

At the same time, cloud software enables automation of manual tasks such as data entry, invoicing, and bank reconciliation. It also allows integration with bank feeds and other apps through application programming interfaces (APIs).

This can help businesses increase productivity and lower costs by reducing the amount of time it takes to perform routine tasks.

A report by WorkMarket found that 53 per cent of employees and 78 per cent of business leaders say automation helps them save up to two and three work hours a day, respectively.

Small businesses subscribed to Xero, a global business platform, saved 307 hours from March 2017 to May 2018 thanks to more than 750 million invoice and bill code recommendations, and more than 250 million bank reconciliation recommendations delivered by the platform’s machine learning capabilities. These systems help automate tasks and identify and correct errors in accounts.

Automate manual HR functions

Human Resources (HR) is an essential component of any business, but has always been a highly manual, paper-based, and time-consuming function. HR tasks include calculating payroll, verifying timesheets and expense claims, and tracking employee leave – activities that can easily be automated on the cloud.

HR automation tools such as HREasily and Talenox can take on the burden of these repetitive tasks and processes, as well as use the data collected from the staff to glean actionable insights that can improve employee engagement and retention, create talent forecasts and other strategic decisions.

Companies reap extra-time savings when they integrate these complementary apps with an accounting platform such as Xero, so that all it takes to add payroll data to your financial ledgers is a single mouse click.

Traditionally perceived as a support function, HR has the potential to take on a more strategic role in business. With digitisation freeing up HR teams’ time, they can focus on activities that create higher, longer-term value for the business, such as improving employee performance, satisfaction and retention.

Well-trained staff who work well together and have an in-depth knowledge of the business will be especially important during economic uncertainties, as they are better positioned to improve the products and services to drive sales. Successful retention will also cut the cost of employee turnover and hiring.

Use inventory management software

SMEs tend to use ledgers to track their stocks or apply a see-what’s-on-the-shelf approach to inventory management. In fact, this is the approach of a shocking 43 per cent of small businesses.

Yet improper inventory management comes at a high price. The carrying costs of holding inventory over a given period of time can be as much as 30 per cent of the value of the inventory itself. During periods of weak consumer confidence, excess inventory can become a liability, while the inability to predict demand for a product can make the business lose the opportunity for a sale.

These additional costs can easily be avoided through inventory management systems such as Tradegecko and Unleashed by providing SMEs with real-time inventory control and reporting.

Data analytics can be used to understand inventory and sales trends and predict future demand for each product. This allows a business to adjust its orders accordingly, avoiding excess or insufficient inventory.

Manage a firm’s relationship with customers

A sales team needs to be able to manage and follow large numbers of leads – and fast. This entails storing vast amounts of data and implementing a system that will help you find, generate, get in touch with and follow up on leads.

Customer relationship management (CRM) is a tool for managing an organisation’s relationship with existing and potential customers. It serves to meet the needs of the sales team and can take on all the logistical tasks of engaging with customers.

Without a system to manage all that information, contact details can get lost, meeting discussions are forgotten or not tracked, and customer relationships are at risk. This situation is undesirable for any business, but more so during weak economic periods, when it becomes tougher to win new customers and retain existing ones.

Speed up payments with digital solutions

It takes an average of 24.16 days for SMEs to receive payments. This process can be made faster with digital solutions such as e-invoicing, AR management software and app integration. SMEs, for example, can take advantage of payment solutions such as PayPal and Stripe, which can integrate with your accounting software so you can receive electronic payments and have these recorded automatically in your ledgers.

Industry analysts believe that companies that use AR management software can realise a return of investment (ROI) in as little as two months, in addition to other benefits including:

●   a 20 per cent reduction in Days Sales Outstanding
●   a 25 per cent reduction in past-due receivables
●   a 15 to 25 per cent reduction in bad-debt reserves

In addition, a report by the Aberdeen Group revealed that organisations that digitise their AR processing enjoy a 38 per cent better on-time payment rate. All these represent more working capital at hand to tide over difficult times.

Make use of e-commerce

Without the large capital required to set up a brick-and-mortar store, e-commerce can help level the playing field between SMEs and large corporations.

Capitalising on e-commerce platforms such as Shopify and a2x, SMEs can establish a business online for a fraction of the cost while reaching a wider group of consumers. Through these platforms, SMEs can sell to customers from around the world and leverage the automated processes and operational tools provided by the platform to save on time and costs.

Additionally, by analysing the data stored in the platform, SMEs can understand their customers better and implement strategies that can generate more revenue. These include predicting product demand in individual markets, identifying new markets, implementing dynamic pricing and personalising online marketing campaigns.

What can digital transformation mean for SMEs?

These are just some of the many digital solutions available to SMEs in the market. They are a testament to the way digitisation has deeply transformed how businesses operate, making them significantly more efficient, productive, and collaborative.

Findings from Microsoft and IDC revealed that through digitisation, business leaders in Asia-Pacific expect to see an 80 per cent improvement in certain business areas by 2020. These areas are productivity, quality of customer advocacy, speed of customer acquisition rate, share of wallet of customers and revenue from new products and services.

While this is certainly good news, SMEs have a long way to go. Around 35 per cent of SMEs in Hong Kong and Singapore are uncertain about their digital transformation plans, while some cite the perceived high cost of adopting digital tools as a major barrier.

Digitising operations will inevitably incur costs, but it may be more costly for a business to miss out on the tangible benefits that tech transformation can deliver.

Learn more on the Xero website

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