Addressable opportunity for tech firms in 10 mn Indian SMBs

A Zinnov study on ‘Automating the Indian SMB', reveals that there is an addressable opportunity for technology firms in 10 million small and medium businesses in the country as on date, and further identified leaders and laggards in the technology adoption lifecycle among SMBs in India. The released study said that this addressable opportunity is expected to reach 11 million by 2015, with 22% in the retail sector and 20% in professional services. Manufacturing, food and entertainment and education are sectors with growing potential for technology adoption.

Indian SMBs are demonstrating significant potential to adopt technology, led by the need to be more efficient, improve ecosystem connect and to keep pace with the growing mobile workforce, apart from aiding payments/collections. The biggest areas where technology is being used are Accounting Solutions (45%), Order Processing (39%) and Design (32%), followed by Optimization (30%), People Management (24%), Procurement (23%) and Customer Acquisition (22%).

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Key findings:

- 55% of Indian SMBs are in the unorganized sector, where the business is run for subsistence by first-generation owners with few defined business processes

- Excluding rural businesses, mom-and-pop stores and organizations without fixed premises or hired employees, the total addressable market size in India is 10 million in 2012. This is expected to reach 11 million by 2015

- Retail and professional services are the largest verticals among addressable SMBs

- 94% of the total addressable SMBs have fewer than 10 employees

- While more than 5 million SMBs have PCs, around 2 million are connected to the internet and half a million have websites

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Professional services, is the most mature vertical for technology adoption, led by the need to grow the business, scale up and expand. SMBs in this space demonstrate high PC adoption, upward mobility and an understanding of the possibilities that IT presents for business. These owners are young and energetic, first-generation entrepreneurs influenced by customer needs to adopt technology. On the other end of the spectrum, retail is the laggard in this aspect, where technology is primarily seen as an enabler in reducing operational costs. These SMBs are characterized by low PC adoption and manual processes, with the owners being old and traditional. Their motivation to adopt technology includes the high level of flexibility and customization offered by technology vendors, and is influenced by their peer group and partners.

The SMB market, however, does present some challenges for technology vendors. The Zinnov study found that unclear return on investments, cluttered product portfolios, connectivity without continuity and data security fears are some barriers to adoption. High costs of support and market linkages also need to be addressed. Further, in the manufacturing sector, which has more than 2,000 clusters in India, intervention is required to identify and create positive role models in the form of early adopters.

Commenting on the study, Kishan Bhat, engagement manager Zinnov said, "We have entered the era of the connected enterprise, or ‘Enterprise+', where large organizations are leveraging efficiencies gained through tighter integration with partners and the ecosystem. This is driving smaller and mid-sized partners to also embrace IT, and technology companies that operate at the intersections of this connect stand to gain. While savvy and sophisticated SMBs on one end of the pyramid are keen to evolve as an enterprise and have well-defined business processes, there is great potential to influence the remaining 83% of SMBs in India who are in the unorganized and traditional sectors."

Zinnov recommends the following best practices for technology companies to address the Indian SMB market:

Tier I cities: SMBs in tier-I cities demonstrate high awareness and adoption of technology, and can be approached through direct sales, self-fulfillment (online) and through channel partners.

 

Tier II cities: Affordability and awareness are high, but availability of technology solutions does not match this. At the same time, these SMBs show higher technology readiness since PC penetration and connectivity are good. Technology firms must build a strong channel sales structure with skilled feet-on-street, and leverage influencers such as accountants, IT resellers and website builders.

Tier III cities and towns: SMBs in these locations demonstrate very low awareness and adoption and the recommended approach is to partner with telecom operators, device OEMs and technology resellers.

For the purpose of the study, small businesses are those with 1-99 employees, medium businesses have 100-999 employees, mid-market enterprises have 1,000-10,000 employees and the largest organizations in India have over 10,000 employees.