Indian SMBs on an IT spending spree

Kavitha Alexis

BANGALORE: Indian SMB segment is on the move. The sector, with around 7.4 million businesses, will be a key ingredient for sustaining future growth in the Indian software and service industry, according to Nasscom.

Facts and figures also point towards the crucial role that would be played by the SMBs to help the country retain its competitive advantage.

Considering the fact that SMBs are becoming the nerve centers of IT adoption in the country, Nasscom is organizing a discussion on Increased IT adoption by SMB segment: A strong competitive lever, on Tuesday in New Delhi.

Nasscom has also collaborated with IIM-Ahmedabad and the London Business School to release a study on ICT Adoption & Productivity in Developing Countries: New Firm Level Evidence from Brazil and India.

The study is based on the research from nearly a thousand manufacturing firms in India and Brazil to investigate the determinants of ICT adoption and its impact on performance in both countries.

In this scenario, it is imperative to look at certain facts and figures of the Indian SMB IT spend. According to a study by New York-based AMI-Partners, SMBs across the Indian subcontinent are set to spend $7.7 billion on IT this year. A third of all Indian SMBs anticipate about a 20% increase in annual revenues, and will boost their IT spending.

Internet infrastructure and solutions

Out of an IT spending of $ 7.7 billion, $1.2 billion will be spend on beefing up the Internet infrastructure and solutions, says AMI Partners.

Packaged software

Around $576 million will be spend on packaged software, especially on productivity suites, operating systems, databases and utilities software. These four software categories will comprise close to 70 per cent of the overall packaged software spending in India in 2006.

Storage, servers and networking

These areas emerged as key focus areas among Indian SMBs. As the Indian economy surges, businesses are anticipating strong hiring over the next year and are planning on opening and interconnecting new branch offices. These factors automatically create a need to effectively connect with branches and remote locations - thus enhancing the importance of networking.

Storage expenditures are anticipated to grow 44 per cent based on the growing volume of data and data security.

Close to $500 million spend is expected on servers and networking hardware, with two-thirds of the spending going toward network-related hardware purchases alone, AMI Partners report says. SMBs (companies with 1-999 employees) see investments in servers and connectivity as critical in the tough Indian market; and only 14 per cent of PC-owning SMBs currently deploy a local area network (LAN). This points to a significant untapped connectivity opportunity among SMBs.

ERP solutions

Faster ROI is what SMBs are looking for and are ready to deploy solutions that are competitively priced, easy to deploy and manage and which provides a faster ROI.

Notebooks and handhelds

SMBs are on track to spend $71 million on PDAs, up 18 per cent over 2005, following the need for portability and the remote access. Accordingly, spending on portable computers such as notebooks and tablet PCs is also expected to jump over the next couple of years.

The big spenders of SMB

India’s steady economic growth has boosted several sectors like auto components, textiles and garments, pharmaceuticals and banking and finance, which are on a major growth path. With most of the large enterprise market already tapped, these are the promising segments where vendors are turning to.

Auto components

The Indian auto component industry has registered an annual sales volume of $8.7 billion (ACMA- 2004-05) and is poised to touch $ 35 billion in the next 10 years.

Textile and garments

This industry is poised for a major growth with the quota regime coming to an end. According to the textile policy, India has targeted textile and apparel exports of $ 50 billion by 2010 from the present exports figure of $ 14 billion, of which the share of garments will be $ 25 billion.

Pharmaceuticals

The Pharma Industry is estimated to be worth $4.5 billion, growing at about 8 to 9 per cent annually. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India.

Banking, Financial Services and Insurance (BFSI)

This segment has been growing in leaps and bounds for the last few years in India despite slow down world over. Nasscom estimates that IT buying in the BFSI segment, at Rs 6,000 crore, accounts for the largest share of the domestic IT market. There is an upsurge in the mid-tier and co-operative banks in terms of IT spending.

The strong growth as well as ever changing business environment has also brought in several challenges. To meet the challenges and sustain the growth, SMBs are fast embracing IT.

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