Digitalisation of SMEs in Africa

Economics of the fourth industrial revolution
Vusa Nyathi, Executive MBA Candidate
Digitalisation of SMEs in Africa
Vusa Nyathi, Executive MBA Candidate

There is a general consensus that Small to Medium-sized Enterprises (SMEs) are the key to the economic development of African countries.

It is also a well-known fact that the digitalisation wave is not ephemeral, but is only the beginning of a whole new era in general life and in business.

There is, therefore, a confluence of vision – SMEs should be adopting and applying digitalisation to their businesses. Like any other nascent phenomenon, there are both opportunities and threats of digitalisation that SMEs need to be aware of.

There are different types of SMEs, for example, traditional ones like the local neighbourhood grocers in South African townships, commonly termed “spaza” shops. Other traditional SME’s include restaurants, beauty salons, and professional services like plumbers, builders and electricians. There is a myriad of other types of SMEs, across different industries and sectors, including tech startups. The commonality amongst all of them is their size and scale, and ownership, as contrasted to large businesses that are either “listed” or have surpassed a certain threshold of revenue, which varies from country to country. Whatever form or shape they are, all SMEs need to understand digitalisation.

What is digitalisation and what does it mean to an SME?
Gartner, the global research and advisory firm, defines digitalisation as “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; the process of moving to a digital business”. Digital technologies include social technology platforms, Mobile, Cloud, Internet of Things, Artificial Intelligence, Analytics, Virtual Reality, and Blockchain, amongst others.

All these technologies can be harnessed to introduce new digital business models by changing and enabling better internal processes, customer experience and operating models. Digitalisation can be a source of unapparelled competitive advantage when adopted and applied correctly, and conversely, great handicap, for SMEs that fall behind the curve. Both academic research and anecdotal evidence point to digitalisation drastically reducing the cost of capitalising businesses – a continuous bane amongst SMEs.

For example, cloud platforms and their pay-per-use service models obviate the need for relatively large capital outlays to buy computing infrastructure. SMEs could use cloud platforms to deploy their Information Technology (IT) infrastructure and applications and only pay for what they use. This would then free-up much-needed cash flow to be channelled towards other facets of the business. An example of cloud services available to SMEs is Microsoft’s Dynamics 365 Business Central. It is an all-in-one business management cloud solution that natively and seamlessly integrates with Microsoft Office applications that most businesses are already familiar with, namely, Outlook, Word and Excel. Microsoft’s Dynamics 365 Business Central enables small businesses to streamline their operations by integrating sales, marketing, finance, production and warehousing functions, without the need for as much capital as is required to fund comparatively more expensive enterprise systems like SAP.

Further to this, social media and mobile technologies can be used to interface directly with customers, thereby shortening the distance between the SME and its customers. In addition, with over two billion people reportedly using social networking platforms worldwide, exploiting mobile technologies opens up virtually unlimited markets. Other less-considered benefits include the reduction of traditional overheads. For example, depending on the type of business, digitalisation reduces the need for expensive office spaces by allowing businesses to function fully, from anywhere where there is an Internet connection!

The x-factor in competing with big businesses
Digitalisation is levelling the playing field for SMEs – the host of digital technologies alluded to hitherto gives small businesses a relatively equal footing to compete with big business without needing the same economic muscle. There is however a catch; Big businesses are scurrying to embark on, or to accelerate, their own digitalisation drives. If SMEs are slow in their digitalisation, the gap between them and big businesses will only widen. In as much as digitalisation is enabling SMEs to compete with big players by extending market reach cheaply, or reducing the cost of infrastructure, digitalisation will also enable big businesses to tap into the markets that are normally left for SMEs after the big businesses take the lion’s share. The equal footing will be on both sides.

Think of the clashes between metered taxis and Uber/Taxify operators in South Africa, small business owners of metered taxis have found themselves losing business, drastically, in the wake of the “invasion” by the born-digital players like Uber. If small businesses are going to survive, they will have to compete using the same, or similar, tools as used by big business. SMEs need to develop their businesses with digitalisation in mind and not attempt to retrofit it at a later stage. This will require a different mindset, that is, thinking the way that technology startups think, irrespective of the industry the business is operating in.

Challenges besetting digitalisation in SMEs
Although the digitalisation wave has been gaining global momentum in the last five to eight years, it has not been part of mainstream training offerings in Africa. African SMEs will need training in creating digital strategies encompassing digital marketing, cloud and mobile technology, digitally-enabled revenue models, utilization of analytics for drawing insights, and collaboration tools. Digital skills training will engender a holistic understanding of the benefits of digitalisation and enable small businesses to actively and fully engage it. Small businesses will need to understand digitalisation beyond the clichés and buzzwords around it, to realise the true benefits. The availability of, and access to, digital advisory services would help small businesses on this journey.

African SMEs could also benefit from programmes similar to Vodafone Hungary’s Ready Business Index. The index is an online, questionnaire-based evaluation of an SME’s digital readiness, in view of the industry it operates in, and its competitors. The process ends with the company being informed, immediately, of the value-added solutions Vodafone offers to help the company with improving its digital maturity. Similar services could go a long way in assisting African SMEs. The biggest challenge is probably Internet access. Access to internet services is the linchpin of digitalisation. SMEs in Africa could benefit from cheaper and more accessible internet services and so would their customers.

SMEs will continue to be looked on to help create employment in Africa, but this will only be truly realised if they take advantage of progression levers like digitalisation. Here is some food for thought:

Would it not boost township economies if, for example, spaza shops started allowing customers to order groceries online and then delivering them? This would expand their market reach and attract more customers;

Would it not create more employment opportunities if plumbers, carpenters, electricians, beauticians ran campaigns on Facebook or Instagram, or created a virtual marketplace for their services?

SMEs will have to take full advantage of digitalisation capabilities to help African economies to grow and digitalisation could very well help SMEs to readily grow into big businesses, faster.

Contributed by Vusa Nyathi, Executive MBA Candidate