Advertisment

SMBs move from Strategic to Tactic

author-image
CIOL Bureau
Updated On
New Update

INDIA: 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, 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.

Advertisment

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 small and medium business (SMB) segment in India. The small and medium enterprises (SMEs) 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 small and medium businesses (SMBs) among BRIC countries and the US. The SMB segment contributes more than 60 percent to the Indian GDP and their spending on IT is around 30 percent of India's total IT spend. Little wonder that vendors that had already milked the big enterprises dry, were keenly looking at this segment.

Advertisment

Another study by Zinnov Management Consulting pegged the total size of the Indian SMB space today at about 35 million units, with retail contributing 52 percent of the total landscape. The study also reports that the spend on IT in 2007-08 by the segment was $6.6 billion.

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.

Advertisment

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.

 
Advertisment

“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

Advertisment

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, rather than strategic projects. Clearly the immediate and near future is the focus of SMBs. So 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.

Advertisment

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.

 
Advertisment

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 haven't 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 partnerships - be 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, Cisco's 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.