SMALL and medium enterprises (SMEs) in the Philippines are planning to increase investments in digital technologies next year, a survey by United Kingdom-based Ernst & Young Global Ltd. (EY) showed.

The report, “Redesigning for the Digital Economy: A Study of SMEs in Southeast Asia” showed SMEs in the Philippines had an optimistic growth outlook for next year, recording the second- highest net positive score (NPS) in the region at 93.3%, trailing only Vietnam at 94%.

For Association of Southeast Asian Nations (ASEAN) member-countries, the average NPS stood at 86%, driven by the expectation of SMEs that revenues will grow by 12.6% this year.

The NPS is based on the responses of 368 senior decision makers in SMEs from the Philippines, Indonesia, Malaysia, Singapore, Thailand and Vietnam on whether they expect their businesses to grow 15-20% in 2020.

“The NPS score in the Philippines is favorable with resilient growth supported by its government’s infrastructure push and spending in this general election year. Rising wages in a tight labor market, coupled with softer inflation, are also boosting household spending,” the report said.

EY Regional Managing Partner Liew Nam Soon, who presented the results of the survey at a briefing in Makati City yesterday, said more Philippine SMEs are looking to boost investments in current and transformative technologies versus in fixed assets over the next three years.

About 88% of respondents from the Philippines said they would need heightened investments in current technologies by 2022, from 85% this year. Current technologies cover the upgrades and expansion of existing ICT assets such as network infrastructure.

For transformative technologies, 83.3% of the Philippine respondents said they would invest heavily on these by 2022, versus 71.6% this year. These technologies include artificial intelligence, blockchain, Internet of Things and smart sensors.

Meanwhile, investments in fixed assets are expected to slow down, as only 80% of the respondents said they would still need to prioritize these in 2022 from 83.3% this year.

Compared to the rest of the ASEAN region, SMEs in the Philippines are seen to be more active in investing in technology solutions in the next three years. The ASEAN average for investments in transformative technologies by 2022 is 80.7%, lower than the Philippines’ 83.3%. For investments in current technologies, the regional tally is again lower at 76.9% against the Philippines’ 88%.

“The incremental growth is a lot higher in the Philippines… because…it’s a catch-up game,” Mr. Liew said. “In many other markets like Indonesia and the Philippines, we see (SMEs) take this as an opportunity to leapfrog against the competition, and therefore the investments are a lot bigger.”

However, the report noted several operational challenges SMEs face, led by cybersecurity threats which was flagged by 75% of the respondents from the Philippines. Other challenges include sluggish customer demand (68.4%), human capital challenges (67.7%), competition from new entrants (67%) and rising production costs (66.7%).

But Mr. Liew said digital transformation can be key to solving many of SMEs’ problems, and one thing that could help is having more progressive regulatory compliance policies.

“Adopting a digital mindset goes beyond executing discrete projects within a specified timeframe. SMEs that successfully fuse digital into their DNA to deliver continuous innovation into everyday operations are those effectively redesigning themselves for the digital future,” he said. — Denise A. Valdez