Digital transformation: Adapt or be left behind

As the digital revolution accelerates, Filipino small and medium enterprises (SMEs) stand at a crossroads, faced with the choice to innovate or risk becoming irrelevant in an increasingly competitive market. Despite the undeniable benefits of digital transformation and artificial intelligence (AI), there remains significant resistance among Filipinos to embrace the latest tech innovations. This reluctance poses a serious threat to the growth and economic contribution of millions of SMEs. The message is clear: adapt and embrace new technologies, or risk being left behind.

The shift from offline to online business models has been pronounced in the Philippines, where e-commerce is emerging as a vital sector. Recent statistics indicate that the Philippine e-commerce market reached approximately $20.1 billion in 2023, reflecting a compound annual growth rate of 16 percent. Currently, e-commerce accounts for about 8 percent of total retail sales in the Philippines, significantly lower than Indonesia’s 15 percent, and Vietnam’s nearly 12 percent. A modest increase of just 5-10 percent in e-commerce growth could potentially add up to 1 percent to the country’s gross domestic product, highlighting the substantial economic impact that digital transformation can have on SMEs.

According to the e-Conomy SEA 2023 report by Google, Bain, and Temasek, Southeast Asia’s overall digital economy is projected to reach $218 billion in gross merchandise value (GMV) this year, growing at an 11 percent year-on-year rate. This robust growth underscores the urgent need for Philippine SMEs to tap into this expanding market.

The Philippine government is taking significant steps to facilitate this transition through initiatives like the Micro, Small, and Medium Enterprise Development Plan 2023-2028, which emphasizes leveraging technology to support MSMEs in transitioning to digital platforms. Additionally, the roll out of the digital national ID system by the Philippine Statistics Authority simplifies identity verification for businesses.

In 2023, digital payments accounted for 52.8 percent of retail transactions in the Philippines, up from 42.1 percent in 2022. Despite this progress, there remains a gap as the Bangko Sentral ng Pilipinas (BSP) aims for 60-70 percent by 2028. This gap highlights not only an opportunity for growth but also that many businesses are still hesitant to embrace digital solutions fully.

With over 70 million SMEs in Southeast Asia, only 16 percent currently utilize digital platforms, meaning millions remain unable to tap into the vast online consumer base.

The cultural resistance to technology adoption among Filipinos is palpable. Many business owners view technology as an unnecessary expense rather than a vital investment for growth. This mindset is particularly evident in SMEs, where labor-intensive practices are often prioritized over technological advancements.

Many Filipinos are apprehensive about investing in tech solutions due to concerns about costs and potential disruptions to their established ways of doing business, often choosing to continue with cumbersome manual processes that are people-dependent rather than implementing new tools that ensure greater accuracy and efficiency. Unfortunately, this resistance can lead to stagnation and missed opportunities in a rapidly evolving market.

To thrive in today’s competitive landscape, Filipino SMEs must recognize that embracing technology and AI is not optional; it is essential. By adopting digital solutions such as cloud-based platforms and data analytics tools available through e-commerce platforms like Lazada or Shopee (where I was the first country lead), businesses can enhance their operational efficiency and make data-driven decisions that optimize marketing strategies.

Today, innovative platforms like Enstack are empowering entrepreneurs with cutting-edge AI-powered e-commerce and financial services tools that integrate essential services like store builders, logistics, and payment processing into one powerful mobile app, allowing users—especially underserved women entrepreneurs—to create, manage and grow their businesses online with ease.

Southeast Asia’s digital economy is projected to reach between $600 billion and $1 trillion GMV by 2030, driven by factors such as a growing working population and rising income levels. However, this potential will remain untapped if businesses continue to resist technological advancements.

As we navigate this critical juncture in our economic development, it’s crucial for entrepreneurs to confront our resistance to technology. Embracing digital transformation must be viewed as a strategic investment in resilience and growth.

The future of Philippine SMEs depends on their ability to innovate and adapt. By shedding outdated practices and leveraging technology, we can unlock new opportunities and establish Filipino businesses as strong players in an increasingly digitized world. This is not just an opportunity—it is a responsibility to our businesses and future generations of entrepreneurs.

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Macy Castillo is the president of Enstack, an all-in-one SME app that empowers entrepreneurs to manage and grow their businesses with ease.

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Business Matters is a project of the Makati Business Club ([email protected]).