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:
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.
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.Â