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Digital Adoption Among Firms and Impact on Firm-Level Outcomes in Singapore

Digital Adoption Among Firms and Impact on Firm-Level Outcomes in Singapore

There is general consensus among policymakers and firms that the adoption of digital technologies is associated with improved performance among firms. Indeed, technologies like the Internet of Things, artificial intelligence and e-payments allow firms to streamline internal processes, cut costs and enhance their profitability. International studies examining digitalisation and its associated impact on firm-level outcomes such as productivity have also generally found positive results.

Our study augments existing research on Singapore’s digital economy by investigating digitalisation trends among firms in Singapore. In particular, we examine firms’ adoption of: (i) Basic Digital Tools (BDT), comprising Internet Usage, Computer Usage, Web Presence and Infocomm Security; (ii) Digital Platform Tools (DPT), made up of E-payments, E-commerce and Software as a Service; and (iii) Advanced Digital Tools (ADT), including the Internet of Things, Data Analytics and Artificial Intelligence. In addition, we also empirically estimate the impact of digital adoption by firms on their performance.

We find that while BDT are widely adopted by firms in Singapore, the adoption rates for DPT and ADT are considerably lower, particularly in the case of ADT. Focusing on DPT and ADT, we observe that a sizable share of firms only adopted at most one of these digital tools, even though this share had seen a decline between 2014 and 2016. Taking a closer look at the characteristics of the firms, we find that small- and medium-sized enterprises (SMEs) were the main drivers of the low adoption rate of the more advanced digital technologies (DPT and ADT) among firms in Singapore.

Our regression results show that the adoption of an additional digital tool (either DPT or ADT) by firms is associated with a statistically significant increase in their value-added and productivity, at 25% and 16% respectively on average. The results for SMEs are similarly positive and statistically significant.

Our findings suggest that there is room for firms in Singapore, especially SMEs, to make further progress in their digitalisation efforts by using more advanced digital technologies (e.g., e-commerce, data analytics). Moreover, as the adoption of an additional digital tool is linked to an improvement in firms’ performance, the Government will also continue to help firms overcome hurdles in their digitalisation journey so that they can reap the benefits of digitalisation.

The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the Ministry of Trade and Industry, Info-communications Media Development Authority, or the Government of Singapore.

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