Cambodia Investment Review

Opinion: Is Digital Transformation a Requisite for Empowering Cambodia’s SMEs toward Sustainable Growth?  

Opinion: Is Digital Transformation a Requisite for Empowering Cambodia’s SMEs toward Sustainable Growth?  

 Pagna Pich Pork

In Cambodia, small and medium enterprises (SMEs) contribute to 58 percent of Cambodia’s GDP and provide more than 70 percent of employment. They have played a significant role in social and economic development, becoming the backbone of the country’s economy.

In today’s rapidly evolving business landscape, the need for digital transformation is crucial for SMEs seeking not only to survive but also to sustain their growth. While being the catalyst of the country’s economy, SMEs are now facing numerous challenges including limited access to internal and external markets, financial resources, operational models, and technical skills and knowledge. They are also facing issues such as incoherent regulatory frameworks and high input costs, while experiencing difficulties accessing business development services including capacity building and upgrading, business networking, and access to finance provided by the Royal Government of Cambodia (RGC) and development partners.

The RGC, which has long recognized the positive contribution of SMEs to national economic growth, has implemented several policies and established business support institutions for SMEs to accelerate their digital adoption. The initiatives are aimed at providing support for sustainable business practices and enhancing economic efficiency and productivity through digital technology and innovation. To build a vibrant entrepreneurial ecosystem, Cambodia should embrace digital technologies as a strategic necessity to empower its SMEs towards sustainable growth. 

The Cambodian Government’s Initiatives

The RGC has taken steps to promote SMEs’ digital adoption. The Cambodia Digital Economy and Society Policy Framework 2021-2035 was adopted in May 2021, paving the way for the other supporting policies, key priorities and implementation principles to be generated subsequently. The policy includes five key measures: Digital Reliability and Confidence, Digital Citizen, Digital Government, Digital Business, and Digital Infrastructure. This policy, among which Digital Business is one of the main focuses, has been integrated into the National Pentagonal Strategy-Phase 1 stated in the Pentagon 5 (Development of Economy and Society).

The Digital Government Policy 2022-2035 was launched in 2022 with the vision of developing a vibrant digital economy and society. The policy’s goals include establishing a digital government to enhance people’s quality of life and fostering greater trust through improved public service provision. The policy is guided by specific implementation principles such as delivering services directly to citizens (G4C), providing services to businesses (G2B), and facilitating interactions between government entities (G2G). Overall, this initiative aims to leverage digital technologies to create a more efficient, transparent, and responsive government that meets the diverse needs of citizens and businesses alike. This demonstrates that the government has been ready to provide utmost services to citizens, business people, and the governmental institutions themselves. Key public institutions, such as the Khmer Enterprise (KE) and the Techo Startup Center (TSC), are established to provide support for sustainable business practices in Cambodia.

Why Does Digital Transformation Matters? 

– Operational Efficiency

Digital tools and solutions enhance operational efficiency. By adopting digital technologies, SMEs can streamline processes, reduce costs, and improve resource allocation. For instance, cloud-based accounting systems simplify financial management, allowing businesses to focus on core activities. This efficiency not only cuts operating costs but also enhances agility, a crucial asset in today’s dynamic business environment. The recent survey of the Cambodian Development Resource Institute (CDRI) on “The Current State and Role of Digital Technology Adoption in Tourism MSMEs in Cambodia” shows that 19 percent of MSMEs (micro, small and medium enterprises) interviewed saw a reduction in operating costs, while the other 29 percent experienced an increase in profit. The study also found that around 29 percent of MSMEs witnessed a rise in labor productivity, and 40 percent of them said digitalization helped them simplify business operations and especially financial management.

– Market Expansion, Competitiveness, and Inclusion in Global Value Chain

Digitalization opens doors to broader markets. SMEs can reach customers beyond geographical boundaries, participate in e-commerce, and explore export opportunities. A well-designed website or an active presence on social media platforms can significantly boost visibility and customer engagement. In addition, digital transformation equips SMEs with digital tools to compete effectively, which is crucial in the globalized economy. Whether it is automating inventory management, implementing data analytics, or optimizing supply chains, technology-driven strategies enhance competitiveness. Digital adoption also fosters inclusion in global value chains. By aligning with international standards and leveraging digital platforms, Cambodian enterprises can participate in cross-border trade and collaborate with partners worldwide.

A joint initiative, namely the SME-eBiZNest of the Go4eCAM project between Khmer Enterprise (KE), the United Nations Development Fund (UNDP), the Ministry of Commerce, the Enhanced Integrated Framework (EIF), and the Australian Government has catalyzed SMEs to boost their online presence, provide new services, and increase international opportunities. The program has trained and provided grants to more than 175 SMEs to embrace digital and e-commerce platforms since 2020. H.E. Dr. Chhieng Vanmunin, the KE CEO, said that, “given the difficult circumstances caused by COVID-19, through this program partnership, qualified SMEs will have various opportunities to receive grants that are provided by KE. This program structure offers efficient mechanisms to provide funds and can train SMEs to go digital.” The COVID-19 pandemic has catalyzed proactive efforts by policymakers and organizations like the KE to bolster SMEs’ resilience through targeted financial support and capacity-building programs focusing on digital transformation. Such interventions will contribute to the acceleration of the RGC’s Pentagonal Strategy for promoting digital economy, underscoring the critical role of digitalization in Cambodia’s economic development and the need to empower MSMEs via digital initiatives.  

Challenges and Ways Forward

– Simplified Policies and Collaboration 

To encourage SMEs to adopt digital technology, digital adoption policies must be simple and easy to understand. Dr. Taing Nguonly, executive director of the TSC, emphasizes that the journey toward digitalization is both continuous and responsive to dynamic business needs. Clear guidelines and accessible support mechanisms are essential. Stakeholders, government agencies, financial institutions, industry associations, and SMEs must collaborate. Joint efforts can create an ecosystem conducive to digital transformation. In addition, training programs, mentorship and access to capital are critical components of this transformation.

– Long-Term Vision

Digital transformation is not a short-term fix. SMEs should recognize that going digital is an ongoing process. It requires adaptability, investment in skill development, and a commitment to staying updated with technological advancements. The CDRI’s report reiterates that the majority of the MSMEs in Cambodia who have already utilized digital technologies are still in the early stages of adoption. Therefore, six priorities of the policy action to enhance MSMEs’ digital adoption are suggested as follows.  

First, promoting Information and Communication Technology (ICT) and digital infrastructure involves expanding broadband access and investing in telecommunications to enable MSMEs to leverage digital tools. Second, increasing knowledge and skills in digitalization is meant to enhance workforce competency through targeted training programs, benefiting micro and unregistered businesses. Third, promoting digital literacy can raise awareness and assist MSMEs decision-makers in developing digital investment strategies with a particular emphasis on micro and unregistered businesses. Fourth, supporting access to financial services including expanding business loan opportunities and promoting digital payments to improve financial inclusivity for MSMEs. Fifth, enhancing trust in digital solutions involves establishing robust legislative frameworks for data protection and cybersecurity coupled with education initiatives for MSMEs. Lastly, incentivizing MSMEs to uptake digital technology adoption includes offering financial incentives such as matching grants and professional guidance on digital solutions to foster a business environment conducive to digital innovation and competitiveness. These integrated priorities form a strategic framework aimed at fostering MSMEs’ growth and resilience in the digital era.

Beyond individual businesses, digital adoption across SMEs in Cambodia can have a transformative and long-term impact on Cambodia’s economic development. Successes in digitalization mean economic efficiency and business sustainability, fostering a positive and forward-thinking business environment. Digital transformation is not an option; it is a requisite for Cambodia’s SMEs aiming for sustainable growth. As Cambodia embraces digital transformation, its SMEs can thrive to ensure business successes, create decent employment, drive resilient economic growth, and contribute to the realization of Cambodia Vision 2050 of becoming a high-income nation.

Pork Pagnapich is currently a fellow of Adenauer Young Scholars for Excellence, a public policy training program co-organized by the Konrad Adenauer Stiftung Cambodia and the Institute for International Studies and Public Policy of the Royal University of Phnom Penh. This article was first published on Cambodianess.

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