How Cloud Computing Transforms Small and Medium-Sized Enterprises (SMEs) in South Africa
Sun, 30 Sep 2018 || By Ellyaty Priyanka

Introduction

The adoption of cloud computing—a technology model that allows the use of configurable computing resources (network, server, storage, and application) on-demand[1] launch such as Microsoft 365 and Google Apps—has become increasingly popular in South Africa. The diffusion of this technology does not only occur within big corporations and multinational companies, but also small and medium-sized enterprises (SMEs), an enterprise consisting of 5 to 200 employees.[2] The rising number of enterprises using cloud-based services is driven by various business logics, such as the push to become more competitive and efficient.[3]

cloud computing

 

Table 1. The percentage of SMEs who have adopted cloud computing in South Africa (2014-2016)[4]

Similar to other countries, especially developing ones, SMEs also play a significant role in South Africa's economy. This particular type of enterprise represents 90% of the formal business entity, absorbs 61% of total employment, and contributes to 57% of Gross Domestic Product (GDP) of the country.[5] However, SMEs are highly vulnerable to bankruptcy; unable to survive until the second year of the business operation, that the failure rate reaching almost 63%.[6]  The most prominent causes could be attributed to limited access to funding and lack of partnership as well as business network.[7] This article thus attempts to provide a brief review of the role of cloud computing in helping SMEs in South Africa overcome the challenges mentioned above. 

Cloud Computing Contribution to South Africa’s SMEs

The most central challenge faced by SMEs in South Africa lies in limited funding and business network. Cloud computing offers several solutions to those issues. First, cloud computing can reduce the cost of technology purchase, production, and experts.[8] Second, not only that, cloud computing also can boost the prospect for business networking enlargement and more integrated production chain.

How does cloud computing reduce production costs? Firstly, seen from the side of cost accounting, cloud computing can be a cheaper alternative in comparison to traditional technology—defined as on-premise technology hosted, installed, and managed internally by SMEs[9] whose license obtained or copy bought from independent vendors. The most common form of on-premise technology is on-premise software. The on-premise software basically requires a high amount of capital because consumers—or SMEs in regards to this case—have to pay their own in-house server hardware, software license, internal IT support staffs, and takes longer time for the integration.[10] Besides, the technology also comes with certain durability due to depreciation, maintenance costs, and management expenditure which must be borne by consumers hence makes on-premise technology more expensive.[11]

In contrast, the payment of cloud-based service could be arranged according to the need and its actual deployment since it is principally operated on-demand basis, adjusting to consumers’ needs or “pay as you use”.[12] Through the subscription of cloud computing service, SMEs no longer bears maintenance costs and depreciation expense coming from technological tools and utilities since the cost is automatically shifted to providers as owners of such tools.[13] Therefore, cloud computing could reduce the market barrier to entry because infrastructure expenditure and technological tools are no longer as costly as before, thus enable starts-up to scale up faster with cost-efficiency.[14] For example, cloud-based email could save the spending ten times less than on-premise email managed and installed internally by SMEs.[15]

Secondly, cloud computing is also prospective in boosting SMEs’ competitiveness. First, cloud computing makes it possible to access a new market, most importantly previously untapped ones abroad. Cloud computing also creates bigger business opportunities because SMEs now have a chance to offer their product to global-scaled market and provides them access to new market segmentation.[16] Additionally, cloud computing also helps the integration of the production chain. Cloud computing allows more convenient coordination among business partners, suppliers, and goods distributors.[17] For example, cloud computing enables electronic data interchange (EDI), thus makes the supply chain with suppliers and vendors as well as access to information faster and easier.

Conclusion

Recently, SMEs in South Africa are starting to make a transition to cloud-based service rather than to deploy their own on-premise technology due to cost efficiency—especially in period of initial operation, which is the most critical momentum for the survivability of SMEs given they only own limited capital—prospect for business expansion, and easier as well as more flexible integration of supply chain. Nevertheless, there is still around 40% SMEs in the country who have not utilized the cloud computing service.[18] One of the most significant determinants to such relatively high percentage is SMEs’ low awareness to cost-benefit calculation from the use of cloud computing, exacerbated by their reluctance to directly test the technology due to high-risk perception.[19]

Low awareness as an inhibiting factor in the adoption of cloud computing in South Africa is also parallel to what happens to Indonesians who, in common, still possess a relatively low digital literacy.[20] The Indonesian government has been more active in promoting the agenda of digital literacy improvement, targeting SMEs in particular, in order to empower them in the e-commerce scene.[21] Likewise, providers of cloud-based services in Indonesia also can take advantage of this momentum to introduce cloud technology as well as its benefits to SMEs, along with education program and trial offer which treat them directly as potential consumers in the near future. Through this offer, SMEs could have first-hand experience and benefits coming from cloud computing without having to bear the cost of wasted resources and run compatibility test. This solution could be attractive to SMEs who generally tend to be risk-averse in spending money due to minimum capital, let alone on unfamiliar products which have not gained much trust.

Editor: Treviliana Eka Putri

Read another article written by Ellyaty Priyanka or article about Cloud Computing.


[1] Microsoft Foundation. (2016). Modernising the Public Sector through the Cloud. Woodstock: Research ICT Africa.

[2] Kumalo, N. & van der Poll, J. A. (2015). The Role of Cloud Computing in addressing SME challenges in South Africa. s.l.,In: International Conference on Cloud Computing Research and Innovation. [online] Singapore: IEEE, 139. Diakses di: https://ieeexplore.ieee.org/document/7421904 [Accessed 15 September 2018]

[3] Mohlameane, M. J. & Ruxwana, N. L. (2013). The Potential of Cloud Computing as an Alternative Technology for SMEs in South Africa. Journal of Economics, Business and Management, 1(4), pp. 1-5.

[4] Pazvakavambwa, R. (2016). SME cloud adoption rises in SA. [online]  Available at: https://www.itweb.co.za/content/kxA9PO7Nrxo7o4J8 Accessed 16 September 2018.

[5] Kumalo, N. & van der Poll, J. A. (2015). The Role of Cloud Computing in addressing SME challenges in South Africa. s.l.,In: International Conference on Cloud Computing Research and Innovation. [online] Singapore: IEEE, 139. Diakses di: https://ieeexplore.ieee.org/document/7421904 [Accessed 15 September 2018] 

[6] Ibid.

[7] Ibid.

[8] Mohlameane, M. J. & Ruxwana, N. L. (2013). The Potential of Cloud Computing as an Alternative Technology for SMEs in South Africa. Journal of Economics, Business and Management, 1(4), pp. 1-5.

[9] Ibid

[10]Hedges, L., n.d. Cloud ERP vs On-Premise ERP. [online] Available at: https://www.softwareadvice.com/resources/cloud-erp-vs-on-premise/ [Accessed 27 September 2018]

[11] Mohlameane, M. J. & Ruxwana, N. L. (2013). The Potential of Cloud Computing as an Alternative Technology for SMEs in South Africa. Journal of Economics, Business and Management, 1(4), pp. 1-5.

[12] Ibid

[13] Ibid

[14] Matandela, W. (2017). Determinants Influencing the Adoption of Cloud Computing by Small Medium Enterprises in South Africa. Master. University of The Witwatersrand Johannesburg.

[15] Mohlameane, M. J. & Ruxwana, N. L. (2013). The Potential of Cloud Computing as an Alternative Technology for SMEs in South Africa. Journal of Economics, Business and Management, 1(4), pp. 1-5.

[16] Ibid

[17] Ibid

[18] Pazvakavambwa, R. (2016). SME cloud adoption rises in SA. [online]  Available at: https://www.itweb.co.za/content/kxA9PO7Nrxo7o4J8 [Accessed 16 September 2018].

[19] Matandela, W. (2017). Determinants Influencing Adoption of Cloud Computing by Small Medium Enterprises in South Africa. Master. University of The Witwatersrand Johannesburg.

[20] The Conversation. (2017). Researchers find Indonesia needs more digital literacy education. [online]

Available at: https://theconversation.com/researchers-find-indonesia-needs-more-digital-literacy-education-84570 [Accessed 27 September 2018].

[21] ASEAN, n.d. Transformation towards Indonesia's digital-savvy MSMEs. [Online] Available at: https://asean.org/transformation-towards-indonesias-digital-savvy-msmes/ [Accessed 27 September 2018].