Is the Indian SMB market lucrative?

By : |August 5, 2008 0

BANGALORE, INDIA: India has the second largest population of small and medium businesses (SMBs) among BRIC countries and the US. SMBs contributes more than 60 percent to the Indian GDP while their spending on IT is only 30 percent of India’s total IT spending, states a recent study ‘IT opportunity in the Indian SMB landscape’ by management consulting form Zinnov.

Giving details about the findings of the study, Kishan Bhat, engagement manager, Zinnov Management Consulting Pvt. Ltd. said: “There is a huge potential as regards the increase in IT spend among the SMB sector.” According to Zinnov estimates, the total revenue contribution of SMBs to Indian GDP is more than USD 600 billion. The SMB contribution to GDP has been growing at a steady rate of CAGR 12 percent over the last seven years. 

Zinnov defines SMBs as organizations having up to 999 employees. Out of the total Indian SMB population, approximately 96 percent of the SMBs have employee strength of 0 to 10, and there are roughly 33.8 million SMBs who belong to this segment. Among the 11 to 1,000 employees segment, there are roughly 1.3 million SMBs. 
Retail sector tops the Indian SMB landscape
Highlighting the sector-wise breakup, Bhat says, Retail contributes 52 percent to the total SMB landscape. “India has 35 million SMBs of which the retail sector tops with 18 million units. Following this is the Services sector at 9.5 million units, which primarily provides business and other social services such as education and medical services. Third comes Manufacturing, which contributes around 7.3 million units.”

Pointing at the technology adoption by SMBs, Bhat says, “IT spend by SMBs was USD 6.5 billion in 2007-08 which happens to be around 30 percent of the total IT spend in India.” The study gives a clear insight into factors inhibiting the adoption of technology in SMBs.

Lack of IT Awareness
• Many of the SMB owners in Tier II/III cities or rural areas are not aware of existing IT solutions that may solve their problems.
• Focus of most IT vendors should not be restricted to increase their penetration across the country. They need to educate these SMB owners. about leveraging technology to solve their business problems. Moreover, there should always be easily accessible communication channels available to SMB owners.

Lack of Vertical Specific Solutions
• Most IT solutions are not customized to vertical/cluster specific problem of SMBs.

Citing the example of a textile industry, Bhat says, the industry has a four stage value chain, i.e. spinning, weaving, processing and stitching. “Currently there aren’t many specific customized solution catering to each process of the value chain.”

Unclear Return on Investments (ROI)
• SMB owners need to be convinced of returns before making any capital investments in IT. In such cases, SMB owners expect quantified benefits such as growth in revenues/profit margin or significant cost savings.

• IT vendors need to build a case for IT solution and need to highlight benefits that can solve SMB’s key problems.

What are the key factors limiting the growth of technology adoption in SMBs? There are many factors,” he says. “Investments made in legacy systems is one of the major reasons,” adds Bhat.

High investments in legacy systems
Most SMBs invest in technology solutions on a long-term basis. “Frequent technological development which force them to migrate to a newer technology and dump legacy system is not welcomed by them,” Bhat explains.

“IT vendors and their channel partners need to guide SMB owners to design their IT investments and become their trusted partners,” the study points out.

Need for integration
SMBs, generally, invest in IT in a phased manner due to constraint in IT budgets and not having a clear roadmap of IT implementation. Hence, It becomes a big challenge for SMBs for integrating various technologies on different platform.

Adding further, Bhat says, “Need for seamless integration between various technologies is a major challenge for most of the SMBs, which might translate into big opportunity for IT vendors.”

High cost for technical support
SMBs that have invested in IT need frequent technical support due to limited knowledge of technology. Most of the SMB don’t invest much on internal IT staff.

“SMB owners have to often choose between a regular support with high cost or settle down to limited support at economical price. However, neither of the two options solves the need for technical support,” he adds.

Therefore, success factors for IT vendors are:

Increase in focus of smaller SMBs
Most of the channel partners focus on targeting large size deals or clientele with high IT budget. Due to this lack of focus, many a times, the actual need of SMBs often gets unnoticed. In such cases, most small businesses look at immature market for IT adoption. However, this segment holds significant market opportunity.

Alignment in goals of SMB owner and IT vendors
As is the case, the channel partners, most of the times, focus on convincing the SMB owner to implement IT products. However, in many cases, the business problem solved by IT product might not be their top challenge. The key challenges associated with critical business processes might still remain unaffected.

The key success criteria for any IT vendor is to understand the key business processes and challenges associated with it and then implement a solution for those specific needs, says the report.

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