MSMEs, Online Businesses, and the Platform Economy: Benefits and Challenges

MSMEs, Online Businesses, and the Platform Economy: Benefits and Challenges 1The COVID-19 pandemic has led to significant and long-lasting changes in consumer behavior. Most apparently, a lot more people have become accustomed to ordering products and services online, and online shopping has become increasingly discovery-led, where more consumers explore new brands and products as they browse on the internet. These have prompted businesses to recognize the necessity of establishing an online presence.

Benefits and challenges of going online

In addition to keeping up with the evolving consumer trends, operators of micro, small, and medium enterprises (MSMEs) would gain many apparent benefits from running an online business compared to running a brick-and-mortar one. For instance, it is less costly to begin operation; it requires less business-related travel and/or setting up time; the work hours could be more flexible, and the customer reach is wider due to the removal of physical location constraints. Furthermore, operating a business online in the comfort of one’s own home could potentially expand entrepreneurial opportunities to more people, such as those living with disabilities and women facing the pressure of taking on lots of domestic responsibilities.

However, it should be noted that the complete lack of a physical business outside of the virtual world might result in more difficulties accessing financing and building customer trust. Access to finance is already a well-known challenge for MSMEs. Traditional banks may be particularly reluctant to lend to online businesses, or their repayment terms may not suit the online business model. Meanwhile, customers may fear fake or poor-quality products—not to mention that they may want to assess the look and feel of products in person and prefer getting products right away rather than waiting for shipping. Of course, MSMEs could opt to operate both online and in-store while adopting an omnichannel strategy to cater to customers both on and off the internet. However, not all businesses would have the resources to do so.

Furthermore, the digital divide issue may prevent certain MSMEs from operating online. Some entrepreneurs may lack the digital infrastructures and/or skills needed to run an online business. Fortunately, the rise of the platform economy has helped narrow down the gaps substantially. For many MSMEs, joining existing online platforms (e-marketplaces, social media platforms, on-demand food delivery apps, etc.) seems more attractive and feasible than developing their own digital infrastructures. Nonetheless, leveraging online platforms is not without risks and challenges.

Benefits and challenges of leveraging online platforms

As MSMEs have less financial and human resources than larger firms do, the various tools and features offered by online platforms would be particularly beneficial to helping them reduce operating costs and boost productivity. Notably, many platforms have been designed to be user-friendly and act as a one-stop service, allowing MSMEs to easily set up a shop, sell their products, advertise and market their business, receive payments, deliver the products, and offer customer service support all in one place. MSMEs can also leverage the large user base and data insights available on platforms. At the same time, they can benefit from the rise of the platform economy on the demand side. For instance, they could recruit and hire freelancers and/or crowdworkers through online platforms for specific task completion where it may not be optimal to add a full-time employee.

Simultaneously, MSMEs encounter several challenges in joining and adapting to online platforms. A frequently reported challenge is intense competition, given the low barriers to entry. Virtually anyone with a digital device, the internet, and some basic knowledge of platform usage could start a business on an online platform; hence, to stand out, MSMEs would require excellent digital marketing skills, which do not come naturally. Building skills also takes time, and smaller enterprises generally do not have much time or other resources to devote to training. Additionally, platforms may constantly change their algorithm, rules, and restrictions, making it challenging to keep up.

Moreover, MSMEs typically have little to no say in such algorithms, rules, restrictions, and fee structures, unless they are top sellers. Academics and activists have long pointed out that platform users are ‘atomized’ in that they each operate separately and may not recognize that they face mutual problems, resulting in the lack of collective bargaining power against platforms. MSMEs with their own website would undoubtedly have more control over multiple aspects of their business, including the brand identity, customer experience, and customer data. Again, businesses could choose to both build their internal digital infrastructures and leverage online platforms concurrently. Still, gaps remain between those that do and do not have sufficient resources to achieve such a feat.

Kenan and its partners’ role in building MSME resilience

“(Kenan’s) training gives me confidence in building and growing the business during this challenging time.”
-Roshinan Songbanphot (Ann), Meta Boost participant

Given the diverse nature of MSMEs, many will continue to face barriers, challenges, and limitations as technological disruptions occur. The benefits and challenges discussed in this article are by no means exhaustive. With this in mind, Kenan Foundation Asia, in collaboration with our partners and funders, has implemented many initiatives to help better understand existing gaps and solutions for closing them. For instance, our ‘Kenan Micro and SME Academy’, supported by Meta Boost, Mercy Corps, the Visa Foundation, and the Citi Foundation, has been developed to provide free training to small businesses, especially in their digital marketing skills. Our recent and ongoing projects with Thailand’s Office of SMEs Promotion—’Next Normal Situation Analyses: A Study of COVID-19-induced Global Changes in Preparation for the 2022 APEC SME Meetings’ and ‘Ready for the ‘Next Normal’: How MSMEs should Adapt to an Evolving Market Landscape’—have offered insights to help MSMEs adapt to the post-COVID world, particularly the global digital transformation. Meanwhile, our current research project, ‘Opportunities, Costs & Outcomes of Platformized Home-Based Work for Women’, in partnership with JustJobs Network, will generate evidence-based recommendations regarding the platform economy.

Since the pandemic began, Kenan has empowered over 3,500 entrepreneurs and SME owners for a better future. We thank all stakeholders involved in supporting our projects to strengthen MSME resilience and build lasting communities.

About the Author: Donhathai Sutassanamarlee is a Consultant in the Business & Economic Development team at Kenan Foundation Asia and has been involved in the projects mentioned in the article. If you want to share a comment or find out more information about how Kenan is working to strengthen small businesses, please email [email protected]

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