Internet driving Indian SME growth story

It is no secret that India thrives on its SME ecosystem. There are nearly 48 million SMEs in the country who provide a variety of services or are engaged in the manufacture of intermediate and finished goods, collectively accounting for a sizeable share of India’s industrial output.

By: Shashank Mehrotra

That said, while the sector employs 40% of India’s workforce, it contributes only about 17% to the country’s GDP, according to the Economic Survey conducted in the middle of 2013. One of the primary reasons cited for this below par performance has been the sector’s slow adoption of technology.

The real challenge is to scale your business. Investing in technologies and tools such as an ERP, CRM or even cloud based offerings that promise cost efficiencies, is fairly expensive and a lack of scale can inhibit such an investment.

So consider this – the internet, to a large extent, can solve the problem of scale by creating an online outlet for goods and services of all kinds. The Indian e-commerce industry is by far the finest example of this.

The e-commerce market has witnessed exponential growth since 2009 when it was worth about $2.5billion to reach $16billion by the end of 2013. Data from an ASSOCHAM report indicates that the same will reach a whopping $56 billion by 2023, making it 6.5 percent of the total retail market.

This scale comes from the fact that there are around 200 million internet users in India, slated to grow to 500 million by 2015, according to consulting firm McKinsey & Co.

Internet penetration in turn is getting its scale from the country’s mobile revolution where the cellular phone is ubiquitous. But the more interesting fact is that for the whole year of 2013, the internet user base grew 42% to 213 million (from 150 million in 2012). Of the total user base, mobile internet users accounted for 130 million in 2013 (over 60%), a growth of about 92% from 68 million in 2012.

There is even more to look forward to when one looks at the expected growth; by June 2014, IAMAI forecasts that the internet user base will touch 243 million. The number of mobile internet users is expected to touch 185 million in the same timeframe accounting for a massive 76% of the internet user base in the country.

The point I am making is that as it stands, the Indian SME ecosystem is missing out on one of the biggest opportunities to further monetize its business and scale up i.e. getting on the internet. As Flipkart breached the $1 billion mark recently, it has already set its sights on the $20 billion target by 2020. Similarly Snapdeal expects to breach $1 billion in revenues in FY15.

What is interesting to observe is that these are all businesses that have been established within the last decade or so with Snapdeal being only about 4 years old. The pace of growth is clearly scorching for internet businesses. The Indian SME needs to join the bandwagon quickly. A great way to start would be to focus on building an online presence.

A 2013 Google-FICCI survey revealed that only 5% of Indian SMEs have a website despite the fact that web-enabled SMEs had 51% higher revenues, 49% more profit, and 7% larger customer bases than their offline-only brethren. In addition to a website, a branded email address also goes a long way in building credibility for an SME. It is natural for entrepreneurs with sophisticated websites and branded email, to be considered much savvier by potential customers. Integrating with a business listing service or signing up for an online advertising solution will help SMEs drive customer leads to their website and can help them scale their business overnight.

If you are an SME looking to grow your business I would strongly recommend that you take the first step, get yourself an online presence, nurture it and allow it to create enough scale to warrant investments in additional technologies. These tools in turn will help you bring further efficiencies to your business and spur productivity. Good luck!!

Shashank Mehrotra is General Manager & Business Head, BigRock


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