Small business a weak link in Australia's digital economy

Australian small businesses achieved the lowest rate of growth in the Asia–Pacific region in 2021, according to CPA Australia’s Asia-Pacific Small Business Survey, published today. The organisation says the results point to the need for governments at all levels to do more to support Australia’s digital future and is urging major political parties to commit to more ambitious programs to hasten small business digital transformation.

The survey shows that more Australian small businesses shrank in 2021 than grew. Just over 32% of Australian respondents reported business growth last year, while 35.5% reported a decline. Revenue growth was low for Australian businesses (33.7% vs a 50.2% survey average), as were the number of employee hires (7.1% for Australia vs a 28.7% survey average).

Senior Manager Business Policy Gavan Ord said the below par results are a wake-up call.

“Small businesses are incredibly important to Australia’s economy. They make up around 98% of all Australian businesses, employ over 40% of the domestic workforce and contribute the equivalent of one-third of our country’s GDP.

“I take my hat off to small businesses in Indonesia, the Philippines and India, which led the region by growth. Those markets have also had a tough ride from COVID-19 and yet their small business sectors have proven remarkably resilient. This begs the question, ‘Why are small businesses in Australia being outperformed by their regional peers?’

“Our survey shows that part of the answer lies in their inability to participate in the digital economy. There is positive correlation between digital adoption and business growth. But when it comes to Australian small businesses, technology is their weak link,” Ord said.

Two years after the pandemic began, Australian small businesses are significantly less likely to conduct business online than their regional peers. 44.7% of Australian small businesses did not earn any revenue from online sales in 2021 (survey average 19%). They are also the most likely not to offer digital payment options (39.4%; compared to only 0.1% of Chinese small businesses) or use social media for business (36.7%; survey average 17.2%).

This situation appears unlikely to change anytime soon. Australian small businesses were the least likely to make any investment in technology in 2021 (35.1% did not make any investment in technology compared to only 4% of small businesses from India). Only 5.9% of Australian small businesses expect to innovate in 2022 (survey average 27%).

Ord said the results are evidence that Australia’s small business sector needs more help.

“These are clear signs that current government digital support and incentive programs aren’t delivering for enough small businesses. The economic and social benefits of the shift to a digital economy will never be fully realised while significant numbers of small businesses are left on the sidelines. It’s in the national interest for governments to facilitate their inclusion and participation.”

CPA Australia is also concerned about the cybersecurity implications of the survey’s findings, given the current geo-political climate. Only 35.3% of Australian small businesses have reviewed their cybersecurity in the past six months (survey average 46.7%).

“Cybersecurity is a national security issue. According to the government’s Australian Cyber Security Centre, Russia’s invasion of the Ukraine has increased the likelihood of cyber attacks on Australian businesses. Our survey suggests that Australian small businesses underestimate the prevalence of, and are under-prepared for, cyber attacks. This makes them one of the most vulnerable sectors of our economy, and hence most attractive targets for cyber attacks,” Ord said.

There are lots of ways to help small businesses improve their digital capability. However, they typically require a substantial investment, which overseas governments have so far proven more willing to make. For example, Singapore’s Productivity Solutions Grant (one of many in that country) includes S$600 million (AU$605 million) to help small to medium-sized enterprises to digitalise and automate their processes.

With a federal election looming, CPA Australia is calling on the major political parties to make a meaningful commitment to small business digital transformation. CPA thinks this is a key to Australia becoming a leading digital economy and society by 2030, and to driving Australia’s future prosperity.

“Whichever party forms government, we want them to ensure Australia’s Digital Economy Strategy reflects the importance of small business and supports them to succeed in the digital economy,” Ord said.

One of the predictors of small business success is access to professional advice. 96.1% of the high-growth businesses surveyed sought professional advice in 2021. However, Australian small businesses were the least likely to seek professional advice. CPA Australia recommends giving small businesses financial incentives to seek professional advice, including about digital transformation.

CPA Australia’s Asia-Pacific Small Business Survey 2021-22 is available here.

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