Smaller businesses have been digitizing operations slower than larger companies. But that is changing fast

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The trend of businesses adopting digital tools for operations has been ongoing for decades. However, the pandemic has given digitalization a significant push, and the acceleration toward new ways of working is set to continue. For example, a new report by UNCTAD and eTrade for all partners found global e-commerce's share of retail trade rose from 14% in 2019 to 17% in 2020.

E-commerce is just one part of the bigger picture of the digital revolution. A study by the OECD on SMEs in 2021 noted several other crucial factors needed for smaller businesses to find success in an increasingly competitive and international market. These included high-speed broadband, social media, cloud computing, and e-commerce.

Businesses of all sizes are adopting these new technologies due to the efficiencies they provide and, during the pandemic, out of necessity. For example, a survey by the Centre for Economic Performance found that over 60% of UK firms have invested in new digital technologies such as cloud computing and remote working, and around 40% have adopted digital capabilities like e-commerce and advanced analytics.

However, research and studies on the issues facing SMEs noted that the smaller the business, the less capacity they have to adopt digital tools in their operations due to tighter margins. The disparity is causing a divide between SMEs and larger firms, which have the resources to adapt. In more developed countries, governments have deployed initiatives and fiscal policies to help smaller enterprises, but in developing countries, help has been more limited leading to decrease in income, store closures, and overall loss of livelihood for retailers.

New technologies and developments are allowing smaller businesses to catch up

A major survey of 30,000 SMB in 50 countries was undertaken in 2020 by Facebook, the OECD, and the World Bank Group. Over 26% of small businesses reported being closed between January and May. However, many took that time to digitize their operations. In 49 of the countries, a third said that in the previous month, 25% of their sales had come from digital channels.

This is being made possible by various factors such as the developing world connecting to the internet, cheaper technology, and the rollout of 4G and 5G. This has allowed access to a rising number of platforms, apps, and startups that are creating solutions specifically for smaller businesses.

Many of these apps and programs have free tools for anyone who can access them. For office work, there is Google docs, Microsoft Office, Dropbox, and other cloud services. In addition, fintech companies like Wise and Stripe address the possibilities offered by the digital world that aren't available with traditional banking networks. But there are others that specifically help SMEs.

New approaches and platforms are targeting smaller operations

Marketplaces such as Alibaba, Facebook, Amazon, and Shoppee provide new ways for companies to sell goods and services to larger markets. Platforms are also tackling other aspects, such as helping small firms become more efficient, which is crucial when margins are tight.

A great example of this is Riyadh-based startup Retailo, the first regional B2B marketplace which is digitizing retail supply chains in the Middle East, North Africa, and Pakistan (MENAP). The startup noted the growing disparity between smaller firms and larger corporations and designed a mobile platform for small businesses.

Retailo co-founder Talha Ansari says, "Retailers in the MENAP region have been fragmented and operating manually for centuries. With the digital revolution, many were operating on increasingly tighter margins and were falling behind larger firms. They lacked the resources and efficiencies that come with scale. We wanted to fix that.

"The market for the region is vast, with the retail industry worth US$500 billion and over 10 million small businesses serving over 700 million customers. However, the pace of digitization and the restrictions of the pandemic meant many smaller retailers were feeling the pinch."

Recognizing there was a huge untapped market that needed help, Retailo took a different approach to most startups. Ansari explains, "There was so much potential across MENAP that we flipped the traditional model of starting in one market and expanding into others. Instead, we began with a multi-market model, and the unconventional approach has paid off. In just 18 months, we expanded to over ten cities in three countries KSA, UAE, and Pakistan.

"We built a suite of technologies specifically for small business owners. Our platform gives these retailers access to over 5000 SKUs (stock-keeping units) which can be delivered in less than 24 hours at very competitive rates. In addition, we provide buy-now-pay-later services with flexible payment schemes and credit lines. It can be tough competing against larger firms as there are fewer options to source goods and stay profitable," Ansari says.

"As Retailo started with a regional presence, we can also offer other services that optimize logistics, with efficient warehousing operations, smart fleet management solutions, cross-border distribution, data analysis, and so on. These all help smaller enterprises stay competitive."

The demand for platforms targeting SMEs is vast

Demand from smaller companies has been overwhelming, and Retalio recently raised US$36 million in its Series A investment round and a total investment of US$45 million in less than 1.5 years. The round was led by Silicon Valley-based Graphene Ventures, whose previous investments included Snapchat and Lyft. As a result, Retailo is now the fastest growing startup in MENAP.

Clearly, there is a vast potential market for startups and platforms that target smaller companies. With SMEs making up roughly 90% of businesses worldwide, and access to the internet rising across all markets, the race is now on. Being hit hard by the events of the last couple of years, SMEs have been forced to digitize operations simply to survive. Fortunately, startups and platforms such as Retailo have made this easier, and the sector is finally starting to catch up.