Digital Technology Adoption by Cambodia’s Tourism MSMEs

A survey has revealed that Cambodian travel-related MSMEs are starting to tap into digital technology to aid their business; however, training is key to help them reach their potential
Early risers flock to Angkor Wat to catch the sunrise. (Kiripost/Siv Channa)
Early risers flock to Angkor Wat to catch the sunrise. (Kiripost/Siv Channa)

The current state and role of digital technology adaptation in tourism-related micro, small and medium enterprises (MSMEs) in Cambodia in 2023 have been reported by the Cambodia Development Resource Institute (CDRI), under the support of the Asia Foundation.

The majority of businesses in Cambodia are MSMEs, accounting for 99.9 percent of all businesses and a significant portion of private sector employment. Despite digital technology (DT) becoming an essential component of successful business operations, the adoption of DT among Cambodian MSMEs needs to increase, stated the report.

Digital technologies encompass electronic tools, automatic systems, technological devices, and resources that generate, process or store information. Frontier technologies such as the Internet of Things (IoT), artificial intelligence (AI), cloud computing, 3D printing, automation and robotics, blockchain, and data analytics have rapidly propelled DT, transforming not only the digital ecosystem but also the way the economy and businesses operate.

The research aims to investigate digitalization trends among MSMEs in the Cambodian tourism industry and objectively examine how adopting new technologies affects business performance. This includes examining the current state and varying levels of DT adoption among MSMEs in the Cambodian tourism sector.

The research also seeks to understand MSMEs’ perceptions of opportunities and challenges related to DT adoption, especially during the pandemic. It investigates how Covid-19 has impacted MSMEs' operations and coping strategies, and assesses how DT adoption contributes to the performance of MSMEs, particularly in terms of revenue, productivity and shock resistance.

Furthermore, the research works to identify potential digital solutions to encourage DT adoption and promote recovery and resilience within MSMEs against potential future external shocks.

Chhay Sivlin, president of the Cambodian Association of Travel Agents (CATA), told Kiripost,

"The use of digital technology adaptation in tourism MSMEs in 2023 is very feasible and developed, given Cambodia's potential in the tourism sector."

To get the latest news on Cambodia's business and tech, join our Telegram Channel and subscribe to our email newsletter.

Simultaneously, there should be improved training for people on how to use DTs, as adapting to them can help SMEs, the tourism sector and the economy by expediting production to markets and promoting partnerships in import and export, with reduced expenses and time savings.

Sivlin expressed her hope that Cambodia will develop more rapidly by promoting digital tourism activities and MSMEs, ultimately enhancing the economy and other sectors.

Cambodian MSMEs mainly prioritise the following policies

MSMEs in Cambodia's tourism industry are already embracing digital technologies, but most of them are only using basic DT, which prevents them from fully benefiting from digital transformation. Encouraging MSMEs in Cambodia to go digital is crucial, as digital technologies are integral to business performance and success.

The following six main areas should be the focus of policies to improve MSMEs' digitalization: promoting ICT and digital infrastructure, enhancing knowledge and skills in digitalization, promoting digital literacy, supporting access to financial services, building trust in digital solutions, and incentivizing MSMEs to adopt digital technology.

Opportunities arising from digital technology adoption

The more advanced MSMEs become in their digital adoption, the greater the benefits they perceive from digitalization. Therefore, MSMEs that have already adopted digital technologies are more likely to invest in further advancing their adoption compared to those in the early stages.

This ambition could potentially exacerbate the existing digital adoption gap in the future, underscoring the urgent need to promote digitalization among MSMEs with lower levels of digital adoption.

In addition to investing in ICT devices, software, and digital solutions, those planning to increase their use of digital technology point to digital skill training and expert advice as essential for their digital transformation.

Key findings for Cambodian MSMEs in 2023

The study found that 60 percent of MSMEs have basic digitalization, 30 percent are at an intermediate level, and 10 percent are at an advanced level. The use of social media, primarily Facebook, Telegram, and Instagram, for sales and marketing, as well as e-payment methods, is more common than using a website and sophisticated tools for back-end operations.

While adopting DT, MSMEs face various obstacles. The lack of digital skills is the most commonly perceived barrier, followed by budget constraints and concerns about the return on digital investments. Government support for digitalization remains largely unknown or poorly understood by most MSMEs. As a result, only five percent of survey participants reported receiving government assistance, primarily in the form of tax exemptions and reductions, and training and education.

Moreover, the study highlighted that DT adoption positively correlates with productivity. Particularly, MSMEs that adopt DT more frequently tend to be more productive. The gains vary depending on the industry and the stage of DT adoption. Notably, MSMEs in the hospitality industry benefit more from DT adoption than those in the restaurant and food industry. MSMEs with intermediate DT implementation have a 16 percentage point higher productivity level than those with basic DT adoption.

The study underscores the significance of digital technology as a crucial element in business performance and resilience against Covid-19 shocks. The potential benefits depend not only on the availability and use of technological tools and basic software, but also on a greater inclination to use websites, social media, digital platforms, and e-payment methods.

However, 49.12 percent of MSMEs reported not receiving any financial support, while 23.03 percent and 21.09 percent reported receiving tax and rent deferrals, respectively. Microenterprises are even more disadvantaged as 70 percent of them received no government assistance at all. Although access to low-interest loans and skills development assistance has been offered, few microenterprises have been able to secure these subsidies.

The potential advantages primarily hinge not only on the accessibility and use of technological tools and essential software but perhaps, even more crucially, on a stronger inclination to use websites, social media, digital platforms and e-payment systems.

Impacts of Covid-19 on MSME activities

The impact of Covid-19 on MSMEs has been a subject of discussion in numerous studies. Many sources have outlined how the pandemic affected MSMEs’ operations, including reduced activity, decreased revenue and threats to business survival.

Covid-19 has undoubtedly changed business practices to varying extents. Overall, 72 percent of surveyed MSMEs reported digital changes in their business functions. According to The Asia Foundation (2020), the majority of MSMEs in the tourism industry experienced revenue declines of more than 50 percent due to the Covid-19 crisis.

However, the negative effects have opened up new opportunities for digital adoption. The increased use of digital payment methods and the shift to online business models are among newly adopted practices.

On average, MSMEs reported a 62.37 percent decline in revenue. The entertainment industry saw the highest average revenue decline at 85 percent, followed by accommodation (73.06 percent), travel agencies, and transportation (70.51 percent).

To mitigate these effects, the government has offered various forms of assistance to the private sector, particularly the tourism industry. In contrast to the 49.12 percent of surveyed MSMEs that did not receive any government assistance, 23.03 percent and 21.09 percent received tax and rent deferrals, respectively. Nonetheless, very few have received assistance in the form of access to low-interest loans or skill development support.

Current status of digital technology adoption

According to the Cambodia Digital Economy and Society Policy Framework (2021-2035), digital technology encompasses the generation, storage, processing and analysis of data using electronic tools, smart devices, telecommunication systems, information technology systems and computing resources.

'Digital adoption' refers to individuals' ability to understand and adapt to the continuous evolution of digital technologies deeply integrated into business, the economy and society.

Similarly, advanced digital technology (ADT) refers to advanced software used to efficiently and productively handle back-end tasks, such as finances and accounting, data analysis, customer relationship management (CRM) and more.

Although social media platforms have become widely accessible and most people are familiar with them for personal use, micro firms are less likely to adopt these technologies for business purposes.

Adoption rates for micro-businesses stand at 24 percent, compared to 67 percent and 100 percent for small and medium-sized businesses, respectively. In addition to social media, 34 percent of MSMEs use digital or e-commerce platforms for their businesses, primarily meal delivery applications and booking platforms.

In recent years, there has been a significant increase in e-payment usage due to higher internet penetration, increased mobile phone usage, supportive regulatory frameworks and the recent risk of Covid-19 transmission, all of which encourage cashless payments.

Regarding the current trend of online sales, more than half of the survey respondents (55 percent) reported using at least one online platform for their business, including social media, digital platforms and websites/applications.

However, this information only indicates their online presence and does not necessarily indicate whether they engage in online selling or the extent of online sales within their business.

The discrepancy between the availability of affordable digital technologies and MSMEs' perceived high costs could be explained, particularly for low-level technology businesses, by the fact that these MSMEs are unaware of the readily available digital solutions today.

The uncertainty surrounding digitalization is more pronounced in businesses with lower degrees of digital adoption, suggesting that businesses hesitate to initiate or increase digitalization when in the early stages. Once technology is adopted, this hesitation gradually subsides, making low-level technology MSMEs the most promising group for propagating digitalization.

To get the latest news on Cambodia's business and tech, join our Telegram Channel and subscribe to our email newsletter.