The shift to digital platforms did not immediately improve the resilience of micro, small, and medium enterprises (MSMEs) in the Philippines during the early phase of the COVID-19 pandemic, a study released by the Asian Development Bank (ADB) over the weekend showed.
According to the ADB report published on its website titled, Unintended Consequences of Business Digitalization among MSMEs during the COVID-19 Pandemic: The Case of the Philippines, many MSMEs struggled with the forced-transition due to a lack of digital infrastructure, limited technological expertise, and workforce skill gaps.
However, a year into the pandemic, MSMEs began to notice improvements in resilience as digital transactions became their daily routine.
“The sudden imposition of strict lockdowns further complicated the transition online, as disruptions in logistics and delivery systems made efficient fulfillment of online orders difficult. For MSMEs, especially those in traditional sectors, this rapid digital shift posed considerable challenges, limiting their ability to capitalize on e-commerce and online services,” the report said.
“As MSMEs became more familiar with digital platforms, such as e-payment systems, the potential benefits of e-commerce became increasingly evident,” it added.
The study cited previous reports that 67 percent of Philippine firms surveyed between July 2020 and January 2021 had adopted digital payment systems, with more than half using these technologies during the pandemic years.
“This shift illustrates how businesses gradually embraced digital solutions, enhancing their ability to engage in e-commerce,” the ADB report said.
Further enhancing the resilience of MSMEs through digitalization against potential future shocks, the report recommends strengthening human capital for digitalized business and advisory services, encouraging the formalization of informal businesses, and improving information, communication and technology (ICT) and physical infrastructure, especially in rural areas.
It also called for the promotion of e-commerce, e-payments, and digital finance solutions through enhanced business development services, and the establishment of a regulatory framework to ensure fair competition for MSMEs on digital platforms.
“Simply using internet or e-commerce did not necessarily contribute to MSME resilience to the COVID-19 shock: MSMEs need a certain level of maturity to effectively harness digital tools,” according to the report.
“The delayed positive effect one year into the pandemic highlights the importance of gradual digital adoption, the development of supporting digital capacity across different segments of society, and the critical role played by logistics and physical infrastructure,” it said.
“These factors collectively shape the ability of MSMEs to navigate the challenges brought about by the pandemic and to capitalize on the opportunities presented by the digital transformation,” it added.
