At a press session “Helping Small Business Think Big” held at Google Singapore today, Anu Madgavkar, a senior fellow at McKinsey Global Institute shared about how the Internet has the power to bring traditional SMEs in Asia to the next level.

Anu also predicted that in the next two to three years, Asia is going to see a proliferation of the Internet in small businesses. From the 2011 McKinsey survey of 2,280 SMEs across China, Japan, Korea, Malaysia, Taiwan and Vietnam and McKinsey’s 2012 survey of 554 SMEs in the organized sector in India, data showed that these small and medium businesses have reported an average of 13 percent improvement in productivity from using web technologies. SMEs in China rank the highest in terms of average revenue gains, at a good 10.3 percent. This is followed by Vietnam at 9.4 percent and India at 9.1 percent.

Internet adoption and penetration in Asia

According to Anu, about 50 percent of Asia’s Gross Domestic Product (GDP) come from SMEs. These SMEs have a significant share to contribute to the current economy in the region, which isn’t exactly doing great.

But among Asian SMEs, what exactly is deterring them from using the Internet? Well, according to McKinsey, bandwidth speed and cost are two primary concerns these business owners have. Other reasons include a lack of Internet infrastructure, trust and education.

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Though more and more Asians are getting on the web, there is great disparity in terms of Internet adoption across Asia Pacific. In 2011 alone, Australia, Korea and Japan reported Internet penetration of 90, 83 and 80 percent, respectively, while Thailand, Indonesia and India stood at 30, 22 and 10 percent. This being said, India has a population of 1.2 billion. This means 10 percent of 1.2 billion is still 120 million strong.

However, what is even more noteworthy is the healthy growth of China’s Internet penetration. As of 2011, it has 36 percent of its population on the Internet. That’s 483 million people we are talking about. Anu shared that 90 percent of China’s e-tailing market depends on peer-to-peer services, which will not hold up without the Internet due to the sheer scale of the Chinese market. She also noted that e-tailing has been picking up momentum in smaller cities in China and India, but not so much the bigger cities. In smaller cities, there are not as many services and the Internet provides a full catalog for these consumers.

How do you fight the forces of saturation?

Later, at a panel Q&A with all the speakers involved*, Leslie Tan of Homebox shared that the barriers to entry are low. However, if SMEs can all get onto the Internet, how exactly does one break into the market and get awareness? Kevin O’Kane, director of SMB Operations, Google Asia Pacific, suggested that these SMEs could make sure they target their customers well with a solution for a specific problem consumers want solved. He also added that there are 2.5 billion people on the Internet, so there should be enough consumers to go around for these businesses.

Google SMEs Panel

*Speakers: Karim Temsamani, president of Google Asia Pacific; Kevin O’Kane, director of SMB Operations, Google Asia Pacific; Anu Madgavkar, senior fellow at McKinsey Global Institute; Vivek Prabhakar, founder of Chumbak; Leslie Tan, founder of Homebox; and Chris Anderson, founder of Tattoo Temple