SMB : From Strategic to Tactic

There is just no escaping the term slowdown these days. Go anywhere and it
will be staring at you, etched on the walls, on account books, in the dimmed
lights and even on the faces. No sector, no vertical, no nothing has been left
untouched by the sulphur of recession. Talks about job losses, wage cuts and
tighter squeeze have become the norm of the day. These are trying times indeed,
especially so for vendors.

Ironically, it is only in the past few years that the domestic market in
India had started to blossom, with the IT spend increasing significantly. In
fact, for the very first time in a decade or so, the domestic IT market
(inclusive of both hardware and services) grew more than the exports market.
Vendors of all hues and types, ranging from hardware to software, heralded this
shift.

Much of the domestic spurt in India can be attributed to the advancement of
the SMB segment in India. The small and medium enterprises that dot the length
and breadth of India were suddenly becoming competitive in the face of global
competition in the domestic marketplace, as well as aspirational in terms of the
global marketplace. A good indicator of the excitement can be gauged by the
plethora of reports that are available on the segment.

According to one such report, India has the second largest population of SMBs
among BRIC countries and the US. The SMB segment contributes more than 60% to
the Indian GDP and their spending on IT is around 30% of Indias total IT spend.
Little wonder that vendors that had already milked the big enterprises dry, were
keenly looking at this segment.

Another study by Zinnov Management Consulting pegged the total size of the
Indian SMB space today at about 35 mn units, with retail contributing 52% of the
total landscape. The study also reports that the spend on IT in 2007-08 by the
segment was $6.6 bn. Pankaj Agarwal, general manager, SME business, Sun
Microsystems India endorses the importance of the segment by stating that
Indias burgeoning small and medium businesses are attracting attention from
every IT company which aspires to fit in its low-cost offerings at each step of
the buying lifecycle of small enterprises such as network, applications and
computing needs. Most of the big players in the industry, irrespective of the
vertical they belong to, are eyeing this ever-growing lucrative market and are
aggressively formulating strategies to tap it.

Recessionary Blues?

Yet, for all the glamor and glitz, the SMB space is not unaffected by the
slowdown. What is bad for the goose, is bad for the gander as well. The
liquidity crisis is the biggest one that faces the segment. Even though interest
rates might be coming down regularly the availability of capital for expansion
is still an issue for most SMBs. Coupled with the risk averseness among
entrepreneurs, this is affecting the market badly.

While on record most of the vendors deny any significant impact on spending
patterns, the rumblings on the ground are evident. The challenge is two-fold for
vendors. Unlike the other SMBs, the Indian ones are pretty demanding and
extremely cost conscious.

For an Indian SMB, more than the RoI, the cost of acquisition is more
crucial. Thus vendors across the board need to adapt newer stratagems for wooing
the segment. One of the means adopted is to provide financing schemes to
clients; companies like Cisco and HP are the first movers in this regard.

Access to capital in the current economic situation has been one of the key
challenges for smaller enterprises. Here financing provides with a direct access
to capital markets like HP Financial Services are able to provide some
innovative finance and leasing schemes, says Vikram K, director (key market),
technology solutions group, HP India.

Meanwhile, Cisco has found quite a favorable response for its 0% financing
for Cisco Multi-Year Services Program, wherein the company provides an
interest-free financing package for multi-year contracts for technical services,
SMARTnet and advanced services programs.

Changing Investments

One of the changes that has become evident at the moment is the move to
tactical investment rather than strategic. What this effectively means is that
it will be hard for a vendor to convince the entrepreneur into investing into a
BI solution, but a PC-sharer could very well do. According to watchers of the
industry, SMBs will be focusing on making wise investments that both reduce
costs and enable them to better leverage technology.

Nonetheless, this has certainly not deterred the vendors from courting them.
Rajeev Mittal, group director, small and medium enterprise, Microsoft India,
hints at the same when he says, Liquidity seems to be the topmost challenge for
SMBs and is likely to remain a priority into the next year. IDC believes that
SMBs are more likely to focus IT investment on tactical projects, which deliver
immediate benefits, rether than strategic projects. Clearly the immediate and
near future is the focus of SMBsso the technology investments which they will
be looking at are those which will stand them in good stead at the moment.
According to AMI Partners the lease/finance model will also start seeing more
adoption.

Challenges Galore

Beyond the price debate, there are some more challenges that vendors face
when it comes to servicing the SMB segment. The biggest among them is sheer
ignorance. In most cases, these firms are driven by a single entrepreneur who
may or may not be IT savvy. Also there is a reluctance to pay big money for IT
investments, especially when it comes to pay for software. What! So much money
for only one CD? is quite a common refrain. Because of this, piracy is pretty
rampant in this segment, especially that of system software like Microsoft
Windows, Vista, etc.

	We firmly believe that the most effective way to reach SMBs is through partnershipsbe it resellers, SIs or ISVs Ravi Bharadwaj, head of SMB SBU, Dell India
	Most of the big players in the industry are eyeing this ever-growing lucrative market (SMBs) and are aggressively formulating strategies to tap it Pankaj Agarwal, general manager, SME business, Sun Microsystems India
	We work with our channel partners to align them with our new goals. We also impart training and award specializations and certifications Pramodh Menon, Senior VP, South & Sri Lanka, Cisco India & SAARC

The issue is complicated further by the lack of industry specific solutions.
Most IT solutions are not customized to vertical/cluster specific problem of
SMBs. In most cases, the solutions that are offered to the clients is merely a
run-down version of the professional version that is offered to the big players.
Since these systems are not attuned to the need of the player, there is
increased reluctance on the part of the player. Some of the vendors are trying
to address the issue by building specific micro-vertical solutions. One such
vendor is HP that is taking an ecosystem approach by offering solutions for both
hardware and software, consulting the client, etc.

Another factor is trust. Most SMBs make the purchase decision based on the
guidance and advise of a trusted channel partner. In spite of numerous
high-profile launches of direct portals, etc, the average SMB prefers to route
his purchase through a distributor whom he can trust and hold accountable. This
is the very reason why even LFRs or large format retail stores havent been able
to directly impact the channel business in India.

Vendors have also come to realize the same and are charting special
strategies around it. Dell, which at first was more focused on the retail
approach, is now realigning its strategy to effectively target the SMB segment.
The company is fairly aggressive on the channel front for the past few years and
now has a reach of around 150 cities in India.

We firmly believe that the most effective way to reach SMBs is through
partnershipsbe it resellers, SIs or ISVs. We have recently enhanced our partner
ecosystem to drive market momentum on software and entry products in the mid
market segment. It will not only help us to extend the reach of our software and
volume products, specifically in mid-markets, but also help us build a new
framework to empower open source software and volume channels, emphasizes Ravi
Bharadwaj, head of SMB SBU, Dell India.

Another company that is very strong on the channel front is Cisco, which has
a channel network of over 1,000 resellers in 100 cities. The company plans to
boost this network by adding 600 new partners specifically certified to cater to
SMB customers in tier-2 and tier-3 markets.

To enhance the technological assistance that our channel partners can
provide SMB customers across India, Ciscos focus currently is on building the
advanced technology channel in India. We constantly endeavor to encourage and
enable our partners selling foundation technologies to equip themselves in our
advanced technology portfolio. We work with our channel partners to align them
with our new goals, thus imparting training and awarding specializations and
certifications, says Pramodh Menon, Senior VP, South & Sri Lanka, Cisco India &
SAARC.

In the Coming Days

Despite all the challenges and the issues, Indian SMB segment is still a big
lucrative business for many. And even in the slowdown a lot of people are
hopeful that instead of a cutback, there might be a spurt in spending as SMBs
try to be more cost-efficient. Since most of the SMBs are still at primitive
levels of IT infrastructure, low capital investments like virtualization, open
source, and SaaS might be just the thing that the doctor prescribed. As a vendor
quips rather optimistically, In the current economic situation SMBs with a
forward-thinking approach and a solid grasp of technology trends will have a
distinct competitive advantage.

Hopefully, the SMB players will buy his advice and continue to grow, slowdown
or no slowdown.

Shashwat DC

shashwatc@cybermedia.co.in