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Demystifying the SME market

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DQI Bureau
New Update

During the domestic economic

downturn of the late nineties, when the government and large enterprises

were reeling with sluggish market behavior and plummeting GDP growth,

vendors espoused the SME opportunity as a savior by the wayside.

Microsoft, SAP, IBM, Compaq, Wipro, HCL, Novell and others offered

solutions for this ‘pot of gold at the end of the rainbow’. But was it

really the veritable ‘pot’? The vendors told no one and nobody got to

know. Now with the great recession of the nineties just a hazy

memory,  DATAQUEST looks at the real IT opportunities in this elusive

but much talked about market segment. Covering more than 30 pages of never

before exposed, IT spending and usage trends, we present the first part of

this survey. Read on for the DQ Insight Survey on SMEs:

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IT spend not of

strategic importance

Going by

the low percentage of IT spending as part of sales revenue, information

technology may still not be a strategic tool for many small and medium

enterprises (SME). A high percentage of SME organizations have an IT

spending, which is less than 0.4% of the sales revenue. From the sample of

organizations surveyed, 73% had an IT expenditure of 0.4% and less of the

sales revenue. Another 15% of the organizations had an IT spending between

0.4% and 0.7% of the sales revenue. IT spending includes capital and

service expenses and internal support expenses.

 

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In comparison, in another DQ survey,

approximately 70% of large and medium organizations surveyed had an IT

spending of 0.7% and less of the sales revenue. The LME survey results

were published in the IT Outsourcing Survey, DATAQUEST March 31, 1999.

Rs5 lakh, my IT spend





A typical SME organization can be expected to spend upto Rs5 lakh per

year on information technology. More than 65% of the surveyed

organizations revealed that they plan to spend upto Rs5 lakh on

information technology in 1999-00. Another 30% revealed that they would

spend between Rs5 lakh and Rs25 lakh on information technology in 1999-00.

Only a very small percentage of companies have an IT spend above Rs25 lakh

per year.

IT spending going up YOY





A year to year comparison of IT spending as percentage of sales

turnover in the surveyed organizations, revealed that spending was up. For

all market segments except trading, the surveyed organizations revealed

that they planned to spend more on IT in 1999-00 than 1998-99. In the SME

market, the vertical segments with the highest IT spending as percentage

of sales revenue were the information technology and telecom segments.

Their IT spending was close to 1% of the sales revenue. For other vertical

segments, the typical IT spend was between 0.2 and 0.4% of the sales

turnover.

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Application software

more dominant in larger SME




As the size of the SME organization increases the spending on application
software increases. Spending on packaged software, as part of external IT

spending increases from 23.5% to close to 30% as the size of the

organization increases from Rs10 Crore to Rs100 Crore.

External to Internal

spend ratio





The IT spend in organizations has two main components. The first is

related to spending outside the organization and includes capital purchase

and services. The second is related to spending inside the organization

and covers salaries and other indirect support expenditures. As the size

of the organization increases, the size of the IT department tends to

stabilize and grows at a much smaller rate leading to an increasing

external to internal spending ratio.

In SME organizations, this starts at 1.5

and increases to 2.0 in organizations with turnover between Rs75 Crore to

Rs100 Crore. Using related results from the DQ Outsourcing Survey, the

external to internal ratio increases to 2.5 in LME organizations with

turnover above Rs100 Crore. It continues to increase and reaches 3.0 in

organizations with turnover above Rs1,200 Crore.

Networking more dominant

in larger SME





With increasing size of the SME organization, there appears to be a

moderate increase in the spend on networking. This appears to be quite

logical, since increasing enterprise size will result in more LAN

applications, like messaging, file and print services, storage, server

based applications and other workgroup related activities.

Increasing spend on

networking software in larger SME





With increasing size of the SME organization, there appears to be a

moderate increase in the spending on systems software in comparison to

application software. This increase appears to in the area of networking

operating systems and other LAN support software. 

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