Jakarta. The digital economy can potentially add more than $1 trillion to Southeast Asia's combined gross domestic product by 2025, once the region can address digital trade barriers and improve internet infrastructure, global consultancy Bain & Company said in a report published on Monday (03/09).
The report titled "Advancing Towards Asean Digital Integration," says the digital economy only accounted for $190 billion, or 7 percent the region's total gross domestic product last year, compared with 16 percent in China, 27 percent in Europe and 35 percent in the United States.
"The findings from our research suggest there are significant gains if Southeast Asian countries can come together and grow as a single regional digital economy, rather than operating separately," said Florian Hoppe, a partner at Bain & Co in Southeast Asia and co-author of the report.
The consultancy coopted technology giant Google, Singapore-based technology firm Sea and Rebecca Fatimah, former secretary general of the Malaysian Ministry of International Trade and Industry, to work on the report.
Bain & Co noted that small and medium enterprises play a critical role in boosting growth in the region's digital economy.
It said SMEs, which employ more than 80 percent of the workforce in Southeast Asia, see digital tools and regional integration as opportunities, but that only 16 percent utilize and maximize this.
"SMEs can be the powerhouse of the next phase of Southeast Asia's growth if they are empowered with the resources and skills to unlock their true potential. We see huge momentum in e-commerce as more SMEs tap into new, fast-growing markets online, but it is vital that more SMEs are given access to this opportunity," said Forrest Xiaodong Li, chairman and group chief executive of Sea.
Bain & Co's research focused on five key sectors: manufacturing, agriculture, retail, transportation and logistics, and information and communication technology. These represent 50 percent of the region's GDP and employ 60 percent of Southeast Asia's total workforce. The consultancy interviewed the owners of more than 2,300 SMEs in the 10 member states of the Association of Southeast Asia Nations (Asean).
The research showed that the use of digital technology can help SMEs increase their sales by 15 percent, while those active in logistics can boost productivity by between 10 percent and 20 percent on average.
Meanwhile, SMEs focused on agribusiness can improve their crop yields by between 5 percent and 15 percent through farming applications.
Around 95 percent of the SMEs Bain & Co surveyed are using digital tools and all are engaged in exports, further showing that digital platforms can help smaller companies capture international markets.
Bain & Co noted that over 50 percent of the surveyed respondents highlighted non-tariff barriers and poor logistical services as the main factors that hamper physical cross-border trade.
The respondents also said the absence of a seamless cross-border payment system was a challenge, while 40 percent said insufficient digital skills among workers posed a problem.
Bain & Co suggested that there should be a collective effort between each government in the region and the private sector to push for a digital curriculum in primary and secondary schools.
Aside from that, the consultancy said the streamlining of regulations is one of the keys to growing the digital economy.
SMEs still face hurdles from regulatory uncertainty, complicated business process and prohibitive costs. Bain & Co said governments in the region also need to improve digital infrastructure to improve connectivity in rural areas.