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Small can be big

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CIOL Bureau
New Update

NEW DELHI: The SME segment needs urgent attention if we have to meet with our target of $ 80 billion software industry by 2008. Consider this: Of the 900 Nasscom members, 70 percent of the exports are by 25 companies and 90 percent of the exports are by the Top 50 companies. The rest of the 850 companies contribute only 10 percent of the country's exports.






Now consider another set of figures: In 1995-96 there were only four companies exporting more than Rs 100 crore. This number grew to 20 in 1998-99 and 44 in 2000-01. Companies exporting in the range of Rs 25 crore - Rs 50 crore were 15 in 1995-96, 58 in 1999-2000 and 65 in 2000-01. Further companies exporting up to Rs 1 crore grew from 253 in 1995-96 to 426 in 1998-99 to 1400 in 2000-01. Clearly, companies which were small and medium sized during the early years have grown over the years to move into the higher slabs.



The bottomline: Today's SME is tomorrow's giant. If we do not nurture this base, the industry may not witness a quantum growth and achieve the target of $ 80 billion by 2008.



Second, advocates of the SME segment say that it will not be possible for the Top 50 companies to maintain the quantum growth as in the boom times. Overall, industry growth has already declined from 58-60 percent to 29 percent. With no perceptible change in IT spending, software companies will not be able to regain the growth figures of those heady days. Therefore, contribution from the top companies is bound to go down. The best way to counter the impact would be to effect growth among SMEs and increase contribution from more and more smaller companies.



Third, and a more practical reality is that SMEs are performing a valuable function to the dynamics of the industry. This segment is chiefly responsible for churning out the talent pool of the industry. Companies are so concerned with turnaround time of employees that they would rather hire experienced professionals from smaller IT companies than hire freshers.



An analysis by a leading business daily has shown that spending per employee by top IT companies has actually increased during 2001-02 despite layoffs, freeze in hiring and cutting down on employee benefits. The major reason cited for the increase in spending per employee is the number of lateral recruitment has increased during the fiscal. Experts believe this is going to become the hiring trend by top companies as the industry matures.



Today SMEs are engaged in a tough battle for survival, as they have been the worst victims of the slowdown. According to the statistics available from the National Association for Small and Medium IT companies (NASMEIT), as many as 250-300 companies have closed down during the period January '01 to June '02. While larger companies have the resilience to withstand the demands of the slowdown, smaller companies have simply closed shop.



The Association has now demanded sops from the government to sustain smaller companies. One of the immediate relief demanded from the government is to ease the tax burden on SMEs who adhere to the same tax structure as large companies like Wipro and TCS. The association has therefore asked for tax holiday for the next five years for companies with less than Rs 10 crore of turnover.



Another demand of the Association is that the government should include at least one member from the SME segment to the advisory committee formed by the Ministry of IT and Communication. It is believed that due to lack of representation from the segment, the incentive structure is skewed in favor of large companies.



There are other suggestions from individuals worth considering. Sanjiva Shankar Dubey, CEO, Bhilwara Infotech Ltd, a start-up company of the Bhilwara Group, suggests, "Government bodies like STPI should charge infrastructure usage on a pay per usage basis from SMEs."



PK Sandell, Chairman, NASMEIT, added, "About 60-70 percent of companies in STPI are SMEs and government should review the charges from such companies. Availability of money should be made easy by waiving off bank co-laterals and differential rates of interest for companies below Rs 25 crore turnover."



Both Dubey and Sandell suggest that since the government is making a lot of IT investments these days some projects like those below Rs 20 lakh be reserved for SMEs. In bigger contracts, the government can favor the sector by giving preference to SMEs whose bid could be 20 percent higher than a big company. After the bid is won, SMEs can form a consortium with big companies and execute the project jointly.



Another issue dogging the industry is sub-contracting. In the absence of a sizeable domestic market, sub-contracting would have kept the segment thriving. But it has not happened in the Indian software since bigger players do not have the mindset and hence hesitate to sub-contract work.



Rajendra Pawar, Chairman, NIIT Technologies attributes the hesitation to difficulty in monitoring the quality of software coding as against manufacturing where details are specific and therefore has less room for error. However, the Indian mindset is changing, said Arun Kumar, President Hugh Software & Services since "We are beginning to explore the possibility of sub-contracting work to smaller firms", he added.



The need of the hour



SMEs need to focus on niches and strengthen their marketing. The only way for SMEs to survive is to find a niche and gain a considerable marketshare. "Niches are difficult to find but easy to market," says Dubey of BIL. BIL is focussed on niches like steel, textiles and jewelry industry. It is important to find more than one niche since by the very definition, niches would be a small market. But SMEs have the advantage of being nimble and can leverage on quick turnarounds.



Said Vishnu Dusad, Managing Director, Nucleus Software, "Entrepreneurs should have a commitment to survive, find a niche and concentrate on the marketing." Nucleus Software with a turnover of Rs 62 crore was among the few medium sized companies to have registered quantum growth during last fiscal as against the previous year's turnover of Rs 35 crore.



Marketing is very critical for SMEs. Dusad says Indians are culturally modest and inhibited to talk about strengths.



Entrepreneurs should learn to have the doors being slammed on the face and learn to leverage on networking skills. The government has sanctioned a sum of Rs 10 crore to help SMEs market themselves abroad. Another initiative has been a recent delegation sponsored by UNIDO and the UK to China to establish direct contact between SMEs in both the countries. As a result of that initiative, a delegation of Chinese SMEs has come to India during this month to explore business relations.

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