SMEs Going Global: Adoption of IT still low
By Karamjit Singh

TheEdge Daily, Thursday, Oct 26, 2006


Chee Chong Hwa, the founder and chief executive officer of KarenSoft Technology Bhd, had an encounter with small and medium enterprises that hurt the company. In 2002, the Small and Medium Industry Development Corporation or Smidec started giving out loans for adoption of enterprise resource planning (ERP) software under a scheme called the E-Manufacturing Grant to improve productivity, competitiveness and efficiency.

The government had recognised that this software was a critical business-enabling tool for SMEs, especially those serving multinational corporations. So the government, through Smidec, gave out RM150,000 of matching grants to SMEs that wanted to adopt ERP but found it costly.

ERP being its core business, KarenSoft went in aggressively but after a year, the grant was pulled as SMEs were found to be abusing the grant. Still, the experience of working with SMEs has clearly shown Chee that while the staff understands the need for software, it is always tough to get the boss to approve a budget.

This is consistent with the feedback Going Global received last year. It is still hard to justify the cost of any IT application to SME bosses, even if they agree it is of value to the company. Too many of these enterprises want government grants before they will look at buying IT, although it can strengthen the competitiveness and capabilities of the organisation.

Indeed, we have CEO of Celcom Datuk Shazalli Ramly, executive chairman of Westports Malaysia Tan Sri G Gnanalingam, and head of the channel and business development department, technology banking division at RHB Bank Prem Kumar Raja Chandran expounding on the importance and advantages of IT. But year after year, despite strong government and private-sector focus on educating them, SMEs still suffer from low adoption.

"I believe they understand the need for productivity desktop software and this is no problem but the need for enterprise software is a different kettle of fish," says Chee. "Even trying to adopt basic SCM [distribution/MRP/procurement/production] software is tough going. For example, we had a mini-ERP system designed for SMEs costing about RM60,000 which attracted a lot of interest from SME staff who unfortunately could not convince their bosses to invest."

It is precisely because of this hurdle that Chee says KarenSoft has reverted to its niche of servicing top-tier SMEs and mid-sized non-SMEs. Many in the software industry and organisations geared to helping SME, including the Small Medium Industries Association of Malaysia, have been banging their heads with little to show for their effort. Still, the interest in IT as an enabler and competitive tool has been heightened. Even the awareness of intellectual property as a key tool to protect their products and increase margins is recognised by more SMEs today (see accompanying story). It is just that the follow-through in the adoption of IT has been slow. "Absolutely, they [the SMEs] know it will help the business. Assuming quality being equal, it is all about costs. But how does an SME be cost competitive if it has no structured clue as to its real cost?" poses Chee.

Pressing on, he asks, "Without an ERP system, how do they obtain or sustain the ISO certification required by their customers. Without a supply chain management solution, how do they minimise inventory via the Just-in-Time concept and maximise profits. In addition, how do they deliver in a timely manner?"

And with more multinationals and large local companies demanding greater visibility of their suppliers' supply chain, the move to adopt higher degrees of technology into the business is a foregone conclusion. It is only hoped that local SMEs do not lose their business to competitors who saw the writing on the wall early and have prepared themselves and are IT-ready to serve customers.

Meanwhile, Chee offers an interesting idea on how the government can help. "Instead of giving cash grants which may be subject to some form of abuse, we suggest that Malaysian-developed ERP software, such as that provided by KarenSoft, be given free to qualified SMEs. Please note that the success story of Chinese software is the unqualified and unabashed support by the Chinese governments," he notes.

This way, the government agencies tasked with helping SMEs can work to identify SMEs that need to be IT-enabled but are not yet there. These companies can then be given the IT support they need through service providers that are paid directly by the government.

It is a bold idea but the forces of globalisation demand bold solutions to be competitive and relevant.