Cost-efficiency and savings are the most cited measures of success for digital transformation, although many SMEs are still struggling to link investment to outcomes.

For those APAC SMEs that have figured out the challenging task of joining the dots between digital investment and measurable ROI outcomes, more than half (55%) focus on the bottom line, specifically costs-avoided and savings gained, ahead of online revenue growth (44%) and reduced cybersecurity events (27%). This latter KPI is consistent with SMEs' elevated cybersecurity concerns.

However, almost one in four (24%) SMEs across APAC do not have any KPIs in place to measure the success of their digital transformation, most commonly the case in China (52%) and India (39%). The absence of digital investment KPIs is significantly more frequent for SMEs than for middle-market companies (9%) and large corporates (8%).

No matter the size of the business, understanding the digital transformation ROI is an essential step in any journey. As is, not only looking at the value delivered by individual projects, but also at how the collective of all digital initiatives support wider strategic business goals.

SME's Top Five KPIs Used In Digital Transformation ROI

% of businesses

SME digitalisation efforts often depend heavily on external partners such as their banks, given a limited pool of internal resources and the absence of digital advocates.

One in ten (11%) SMEs use inhouse resources to manage their digital transformations – in sharp contrast to their middle-market and large corporate peers where the majority (77%) rely on internal resources, as opposed to asking for outside help (19%).

As SMEs chart their digital paths, they are increasingly engaging in fintech services, including alternative financing, marketplace lending, account aggregation and digital payment solutions. Banks have been very involved in these services both through partnering with fintechs and/or broadening their own digital offerings. Evidencing a true partnership in this space, four in five (84%) SMEs in APAC are now relying on their banks to help find the right fintech solutions and services, well ahead of liaising directly with fintech companies through regular contact (31%).

Banks are also playing a much broader role beyond the identification and provision of these services. More than one in three (38%) SMEs are seeking strategic and directional guidance from their banks to get them started on their digital journey and to fast-forward their transition. SMEs in Singapore are the exception to this. However, while they have less need for strategic and directional guidance due to the relative maturity of their digital strategies, Singaporean SMEs are still very active in soliciting bank support and guidance across cybersecurity, digital applications and implementation resourcing.

Top Five Areas Of Guidance That SMEs Look For From Banks / Fintechs In Digitalising

% of businesses

Use of cloud computing and APIs is a popular starting point for SMEs embarking on their digital journeys, given the flexibility, scalability and cost-effectiveness afforded by these technologies.

Many businesses are expanding their use of cloud at an accelerated pace to transform their interactions with customers, employees and partners. The pandemic has further boosted the speed and scale of this adoption.

Along with cloud computing, businesses are also making investments in Application Programming Interfaces (APIs) as they come to understand how they can make their digital platforms extendible, interoperable, and more open to collaboration with key third parties. This is very evident in relation to banking relationships, where SMEs are increasingly calling for and embracing APIs to connect and embed core financial services within their own workflows and customer applications.

SMEs in the region are clear that APIs deliver improved efficiencies without a major investment in time or technology, with four in ten (44%) SMEs now using APIs to connect with their banks.

SMEs also are expecting API connectivity with their banks to gain further momentum over the next 12 months with adoption rates reaching 56%, catching up to the current level of adoption at middle-market companies and large corporates. While using APIs to retrieve account-related data remains the core ask, SMEs are particularly interested in API solutions for documentary trade (61%) and trade and supply chain financing (45%), in line with digital investment priorities to improve transparency and resiliency across their supply chain.

Notably, SMEs in Hong Kong are placing a very high value on APIs, placing them ahead of smart contracts, as the most valuable technology being adopted throughout their business, both now and into the future.

Top Five Uses Of APIs For SMEs

% of businesses

Contrasted to large corporates that are adopting a more holistic approach towards digitalising their businesses, SMEs are prioritising investments on technology and platforms to digitalise their sales and distribution channels and aspects of their supply chains.

The pandemic has dramatically fast-forwarded the adoption of digital sales, with most SMEs believing that eCommerce storefront and digital in-store solutions are essential ingredients for a successful business. Spend on digitalising sales and distribution channels account for 21% of the SME digital investment budget, ahead of procurement and supply chain management (17%) and customer relationship management and servicing (10%).

A key component of this channel spend has been the adoption of digital payment acceptance solutions, as the pandemic forced a rethink and retooling of both physical and digital store-fronts to meet the demands for contact-free commerce. As a result, SMEs are now collecting an average of 35% of their total payment volume through digital acceptance channels, up 22% year-on-year.

Along with the investment in sales and distribution channels, SMEs have also been investing in online procurement and supply chain platforms to connect directly to their suppliers, distributors, and key market participants – to reduce costs, drive transparency and enhance working capital. We discuss these investments, and the reasons behind them, further in the following two sections.

The global pandemic has demonstrably solidified the need for eCommerce and where it used to be simply one of the many options to doing business, it is fast becoming a primary method.

As SMEs have tended to digitalise sales and marketing operations before other areas of business, eCommerce has helped SMEs to not only retain customers, as shoppers avoided crowds and retailers shut their shops, but also to grow customer and supplier bases whilst reaching beyond traditional markets.

A typical SME in APAC is already deriving 24% of its overall revenue through eCommerce platforms, considerably higher than middle-market companies (20%) and large corporates (17%). SMEs in China stand out as regional leaders in eCommerce, deriving 32% of their overall revenue through online channels.

However, there remains considerable headroom across the region for further digital transformation and eCommerce investment across most APAC markets. Particularly so, as APAC SMEs operate in the backyard of the world's largest eCommerce market with Asia accounting for nearly 60% of online retail sales.

This upside is not lost on SMEs. Many appear to be very conscious of the scale opportunities afforded by eCommerce, with the investment in digital sales and distribution channels (including the set-up of eCommerce storefronts) expected to remain as the largest area of investment for the next 12 months, accounting for 22% of SMEs' future financial technology and platform spend.

In addition, many SMEs are signalling that to evidence returns in this area will be critical to securing further investment in digital initiatives across the wider business, beyond the current sales and marketing focus.

Ecommerce Revenue By APAC Business Segment

% of overall revenue

Along with the growth in eCommerce there remains a considerable opportunity for SMEs to expand internationally.

As SMEs look beyond the more immediate business continuity issues involved in surviving through the pandemic, many are leveraging the digitalisation of sales and marketing operations to set new aspirations for international market access and growth.

With just 4% of SMEs in the region owned outside of their "home" market, the large majority of APAC SMEs are domestically focused. However, the acceleration to digitalisation has dramatically lowered the barriers of entry into new markets and more SMEs are dipping their toes into international waters and global supply chains.

As they internationalise, SMEs are increasingly seeking out the best digital banking solutions and partners to support their expansion, and to help them manage the costs and complexity in doing so. Beyond the usual international account, cross-border settlement and FX services, SMEs are looking for solutions to help them participate in and build out a more resilient supply chain network, as they scale their operations and face into more complexity.

As a result, the demand for digital trade and supply chain solutions has never been greater, and it is being matched by strong supply. A number of 'SME focused' digital trade and supply chain finance solutions have recently entered the market – providing SMEs with access to end-to-end digital solutions which were previously only within the purview (and budget appetite) of large corporates.

Top Five Most Helpful Cross-Border Digital Solutions For SMEs

% of businesses

Although investment in new technology directly related to ESG outcomes is very limited, SME early adopters are likely to follow the path being blazed by larger corporates.

One in 20 (5%) SMEs in the region have invested in sustainability-related technology solutions, including leveraging digital tools to track progress against ESG scorecards. Current spend accounts for a modest 2% of their total new technology budget.

However, experiences from middle-market companies and large corporates suggest that SMEs might see increased sustainability requirements flow through their supply chain relationships in the near future, as key partners use technology to drive transparency, traceability and provenance across their own supply chains.

For SMEs that are considering being early adopters in this shift, larger businesses in APAC are primarily leveraging digital tools to match investor requirements (62%) and to map against financing requirements (62%) in relation to their ESG agendas, while 52% are also investing in technology to offset their carbon footprint through the trading of carbon credits.

Top Five Digital Tools Larger Businesses Are Using To Meet Their ESG Objectives

% of businesses

In an attempt to break the seemingly daunting digitalisation challenge into smaller, more achievable chunks, we asked SMEs in APAC what advice they would give to their peers who are embarking on their own digital transformation journeys.

Although there is no "one size fits all" template for SMEs to follow as they progress their digital transformation, a majority of SMEs in Hong Kong (75%), China (56%) and Indonesia (51%) suggest focusing on investing in online storefronts first; SMEs in Singapore (73%) and India (50%) recommend prioritising banking relationships and applications; and Taiwanese SMEs (51%) advocate starting with digitalising order fulfillment.

Top Areas To Focus On First When Embarking On Digital Transformation Journey

% of businesses

Yet while there may be some disagreement on exactly where to start, the overwhelming majority of SMEs do agree that this is a matter of "life or death" and if they don't get moving "there won't be a business left to digitalise".