90% of Taiwan's SMEs invest in digital transformation, the biggest challenges are capital and talent

　　In the post-pandemic era marked by geopolitical factors, inflation, and supply chain disruptions, digital transformation becomes a crucial factor in the growth of small and medium enterprises (SMEs). For the second consecutive year, PwC has been assisting the Administration for Digital Industries, Ministry of Digital Affairs, in conducting the '2022 Taiwan SME Digital Transformation Status and Needs Survey.' The survey reveals that a staggering 91% of SMEs have embarked on the transformation journey, showcasing an almost 20% increase compared to the previous year. This indicates that a majority of businesses have recognized the imperative of embracing transformation to remain competitive.

Focusing Digital Transformation Strategies on Markets and Customers Facilitates Revenue Growth

　　The survey findings highlight that when businesses direct their digital transformation strategies towards market expansion and enhancing customer experiences, such as increasing market share or optimizing customer interactions, it creates a greater potential for revenue growth. On the contrary, strategies centered around cost reduction or basic digital tool adoption may hinder growth and result in being overwhelmed by the digital wave. The government's initiative, Taiwan Cloud Marketplace (Tcloud), offers subsidies to various industries for adopting user-friendly cloud tools and resources, which can aid small and medium enterprises in accelerating their transformation.

　　Data indicates that high-performing companies have embraced data analytics platforms to understand the value derived from data. This is particularly beneficial for wholesale retailers and manufacturers. Whether utilizing customer data for decision-making or leveraging data to manage orders and customization requirements, these industries are more likely to profit. For instance, efficient wholesale retailers prefer using sales and customer management systems (50.3%), followed by data analytics platforms (36%). This demonstrates streamlining sales processes to shorten the shopping journey and conducting in-depth customer segmentation sales and management, contributing to a resonating customer experience that accelerates purchase conversion rates.

　　Among high-performing manufacturers, 50% indicate that they are currently utilizing data analytics platforms and large-scale integrated management systems. These systems play a pivotal role in integrating production processes, leveraging collected data to accurately monitor production capacity and quality control. Additionally, they facilitate meeting highly customized demands, ultimately enhancing resilience and boosting order quantities.

Achieving net-zero carbon emissions is expected to enhance the competitiveness of the transformation.

　　Achieving net-zero carbon emissions by 2050 has become a significant goal, prompting major brands and contract manufacturers to request carbon emission data from their suppliers. According to this survey, nearly 40% of SMEs have already adopted awareness of net-zero carbon emissions. This indicates that while SMEs are gradually catching up to the net-zero carbon trend to enhance their competitiveness, progress remains slow. As the first step towards carbon reduction, most SMEs utilize digital tools for carbon assessment and energy conversion when implementing net-zero carbon emission practices. This enables them to formulate future carbon reduction strategies and roadmap planning.

　　Jacky Lu, Partner & Chairman at PwC Taiwan, emphasized that government regulations and the net-zero carbon emission goals set by clients will drive companies to accelerate their transformation. SMEs should not view ESG (Environmental, Social, and Governance) initiatives as mere cost increases, but rather as a means to enhance their future competitiveness. Strengthening carbon reduction capabilities is necessary to avoid being eliminated by investors, clients, and consumers.

Partner & Chairman at PwC Taiwan　Jacky Lu

The greatest challenge in digital transformation stems from the gaps in funding and talent.

　　Transformation is not an overnight process, and the primary challenge lies in limited funding. Most SMEs allocate less than 500,000 NTD of their own funds for transformation. Additionally, the lack of digital talent and the ability to analyse market and customer data contribute to newcomers struggling in their efforts, resulting in modest (<5%) returns on digital investments for 70% of companies. Enterprises must devise strategies to better understand their customer base in order to maximize the return on investment.

　　Jacky Lu pointed out that the interviewed industries generally face shortages in funding and talent. For wholesale and retail businesses, it is suggested to manage and analyze customer groups using digital platforms, and to enhance transformation efficiency by integrating applications across digital platforms. Additionally, nurturing existing talent through upskilling or encouraging cross-skills learning (reskilling), providing work flexibility, and designing incentive or reward systems are crucial to retaining talent and preventing talent drain.

　　For the manufacturing industry, which often faces a severe talent gap, attracting the younger generation requires addressing the existing industry's structure. For instance, building a digital culture to reshape the industry's image, conveying the significance of smart manufacturing for talent and organizations, and reforming internal talent development systems can attract young talents. To effectively shorten the trial and error period of transformation, besides refining their own digital business strategies, enterprises can also seek government resources.

Taiwan's Tcloud Platform Accelerating Business Digital Transformation

　　This survey has revealed that 50% of small and medium-sized enterprises (SMEs) require government assistance for their digital transformation efforts. This assistance includes subsidies, talent development programs, and expert guidance. Businesses that have benefited from government initiatives are often inclined to continue investing in transformation. Furthermore, their successful guidance cases can inspire other enterprises to seek government resources. The government's Taiwan Cloud Marketplace (Tcloud) provides subsidies for various industries to easily adopt cloud tools, with applications taking as little as 10 minutes to complete. To date, Tcloud has listed nearly 800 cloud tools, receiving over 50,000 applications from various industries and even reaching 2,000 applications from rural businesses.

　　Jacky Lu emphasizes that in the face of challenges like slowing market demand, the global net-zero carbon trend, changing consumer behaviors, and labor shortages, digital transformation has become imperative. For many SMEs, digital transformation signifies a comprehensive organizational shift involving significant changes in organizational structure, talent, processes, and technological frameworks. Compared to resource-rich large enterprises that have already initiated transformations to enhance their competitive advantages, SMEs must accelerate their pace. Faced with challenges such as limited funding, planning capabilities, and digital skills, SMEs must embrace digital transformation to adapt to evolving business models and market changes, striving to stand out amidst intense competition.