Is IT the Best Route for SMBs?

Small and Medium Businesses (SMBs), while facing financial crunch, are debt-ridden, many cry foul play at being overlooked by the government and many complain of industry bodies favoring the big corporates. However the picture isn't all that gloomy.

Often described as a nursery of entrepreneurship, the SMB sector, emerging as an engine of economic growth, seems to be banking on IT in the next 3-4 years. As the technology adoption is rising at 15% and expected to touch almost $15 bn by 2015, experts say that the SMB sector may contribute to over one-third of the total domestic IT spending over the next 3 years.

Retail Opportunity

With the SMBs taking to promotion route via websites, the segment is poised to shift from traditional working methodology to paper-less technological methods. According to a recent study titled 'Indian SMB ICT Adoption Insights' - by Zinnov, the overall domestic IT spending is expected to grow at a CAGR of 12% to reach $36 bn by 2015 with the SMBs growing at a CAGR of 15%, expected to contribute almost $15 bn by 2015.

Further splitting the study into other verticals, the report finds that the retail sector is the single largest domain that has an opportunity of almost 2 mn firms ready for technology adoption and expansion.

 

While retail, manufacturing, and professional services will be topping the list of most addressable SMBs; in real estate and automotive, there are 0.9 mn and 0.4 mn SMBs, respectively. The research report also reveals that an addressable opportunity of 10 mn SMBs will continue to increase during 2011-15 and 20% of the total 50 mn SMBs in India are technology-ready today. As of today, almost 5 lakh SMBs have websites and 2 mn are accessing the internet.

Global Hitches or Just Harmless Villains?

Amidst the faltering global economic growth, crisis in the Eurozone, and floods in Thailand impacting hard-disk drive production, the question that strikes the mind is how, as according to the report, the IT spend is going to see a rise in the years to come?

"With almost $8.7 bn investment in the pipeline for the SMB sector, the whole IT sector will see a spurt," says Praveen Bhadada, director, Zinnov Management Consulting. It is based on 3 factors, Bhadada adds, with almost 150 large Indian enterprises getting enlisted in the top 2,000 companies in the next 3-4 years, even as currently the number stands at 17. Furthermore, he adds the study finds that as many as 15 bn SMBs have restricted competitiveness and business efficiency, as when these enterprises come into contact with global competition, their exposure to the technology is going to increase.

"There has been a clear change in the mindset of small businesses who now view IT investment as a strategic decision enabling them to fulfill their business needs. Adoption of technology among small and medium businesses is directly dependent on bringing down the total cost of ownership and increasing ease of use," says Rajesh Shetty, VP, Cisco India & Saarc, while responding to whether the employment of IT will see a rise in the coming years.

It would not be wrong to say that technology can bring in vast efficiencies to any business process, and also contribute greatly to the bottom line. Moreover, the technology use can increase operational efficiency, employee productivity, customer responsiveness, cost containment, and network security as well as increase agility to react to competitive pressures and high-speed business changes.

Are SMBs Getting IT Right?

However there is a bit of a chicken-and-egg question with the study. While the report claims an inflow of investments with the employment of IT, the SMBs cry for investments, first to be used in the IT service. While the reply to this remains as much a puzzle as the answer to the original teaser, Bhadada comes in with an optimist review on this catch-22 situation.

"The SMB sector is recognizing the need for IT," says Bhadada, adding that one of its needs is the ability to hunt for customers, as technology through websites enables a firm to reach out to new customers on a global scale."It is pertinent for the companies to know the relevance to the customer. The more is the relevance to the customer, the more is the propensity of SMBs to do extra business. Additionally, IT will bring in faster execution, accelerating the speed of delivery of the product, and reduce the complexity.

"It is the SMEs who would derisk themselves from buying computers and upgrading it and procuring the software on top of it and hiring people to manage it. There is a world of opportunity for the IT organization for the SMEs," says N Ravi Shanker (IAS), additional secretary, department of IT, Ministry of Communications and Information Technology.

Going forward, SMBs with a forward-thinking approach and an understanding of technology trends will have a distinct competitive advantage, he adds.

Industry Favors IT

"IT tools are very much required, be it for the SMB sector or heavy industries sector," says Sunil Bhardwaj, assistant director, National Institute of Entrepreneurship and Small Business Development (NIESBUD) (under the Ministry of Micro, Small, and Medium Enterprises), who also stresses the need of IT employment in the segment.

"We have been giving training to young people in different streams using IT, and it had been very successful in getting people established and gain self-employment," Bhardwaj adds, he is also one of the faculty members at NIESBUD.

Where Anil Gupta, president, Indian Industries Association (the biggest MSME association in the country), feels that the use of IT is the need of the hour; he, who also have been a member of Prime Minister's Task Force on MSME, finds that a company can't do without the employment of IT facilities and if companies are not using it, they will be left behind. He also added the IT adoption is bound to grow.

"The SMB is not using the IT tools at its optimal level and here they are lacking, as e-tendering and e-procurement are online business mechanisms," says Sudarshan Sareen, president, All India Confederation of Small & Micro Industries Associations, who feels the sector should be upgraded by employing latest IT tools.How Can SMBs Hit the Snag?

While the sector is short of finances, it is also unquestionably running intochallenges. As most of the SMBs perceive IT adoption as a time-consuming and complex process, therefore they prefer to stick to their existing traditional process.

"Almost 95% sector comprises of micro and IT adoption in micro is a difficult proposition by the date," Gupta responds while talking on challenges in the use of IT. The report defines the main roadblocks standing tall before the SMB sector: Lack of technical know-how, unclear return on investments, low understating of the SMBs, and a cluttered product portfolio.

"High costs for technical support and high investments made in legacy systems are some of the problems that are hindrances in using the IT systems," says Bhadada while commenting on the challenges. There is lack of know-how on how IT can be used to devise their businesses, which is revoking the IT adoption and its usage at its optimal level.

It is not just lack of finance or awareness, the sector even lacks an inspiration to march ahead in the right direction. Elaborating more on this, Bhadada adds that motivation for IT is very low within the segment. He adds that the perception of SMEs is that IT costs are higher, but that approach arises because SMEs do not budget for it, hence it will always be difficult for them to invest in IT.

The report ends with a positive note, while recognizing that the segment is witnessing a steady growth, at the same time, it also suggests that the sector has a set of challenges that need to be overcome in order to sustain the current rate of growth.