Undisputedly SMEs are one of the key drivers behind the Indian growth story. This sector that comprises manufacturing, infrastructure, service industry, food processing, packaging, chemicals, and IT, has emerged as the most vibrant and dynamic engine of growth of the Indian economy over the past few decades.
SMEs are self-funded proprietary firms, private co-operatives, private self-help groups, Khadi, and Village and Coir industries. They provide huge employment opportunities and also ensure regional balance by taking industrialization to rural India.
Flourishing amidst a challenging environment, the Small and Medium Enterprises (SMEs) of India experienced several highs and lows in the past few years where 2020 took the cake. With the Indian economy expected to emerge as one of the leading economies in the world and likely to become a $5 trillion economy by 2024, the major impetus is being given to strengthen the backbone of our economy – the SME sector.
The significance of this sector can be seen by looking at the lending numbers in the job market, the contribution it makes to India’s GDP, and the entrepreneurship and innovation it fosters.
The SMEs today should be able to identify the types of transformation that various areas of their business can potentially undergo. This systematic approach helps keep FOMO at bay.
Growth Trends in SMEs
SME-focused B2B e-commerce
The data-driven Industry 4.0 technology is opening newer channels for businesses across several sectors. This is particularly true for B2B e-commerce firms focused on the Indian SME sector. The presence of innovative technological platforms is bringing on board a rising number of small players including the neighborhood Kirana-stores. This results in enabling efficient transactions, procurement of raw materials and industrial goods, and most importantly, forging better connections between established brands and small shop owners.
Companies like Amazon saw the participation of lakhs of Small & Medium Enterprises (SMEs) this sale season. Due to the COVID pandemic, this was done to help them rebuild and accelerate their businesses. Customers had the opportunity to shop for unique products from thousands of Amazon sellers under various programs such as Local Shops, Amazon Launchpad, Amazon Saheli, and Amazon Karigar and enjoy deals given by lakhs of small businesses.
Amalgamation of e-commerce & market-commerce
Digital transformation is no longer a fancy term as far as Indian SMEs are concerned. This is due to the courtesy of faster penetration of the Internet. Add to this the increased affordability of smartphones, it can be said that the Indian SMEs are experiencing simultaneous adoption of web as well as mobile-based technology. Companies have now enhanced their focus on mobility as against social, resulting in a change from Social-Mobility-Analytics & Cloud (S-M-A-C) to Mobility-Analytics-Cloud & Social (M-A-C-S).
The technologies under the SMAC umbrella are as follows:
- Social: Social media channels like Twitter, Facebook, Instagram, and Snapchat have provided businesses with new ways to attract engage and delight customers. It has given rise to new job profiles such as social media influencer or digital influencer, marketing tactics such as viral marketing campaigns, and new data sources such as likes, comments, shares, retweets, etc.
- Mobile: Mobile technologies and devices like the iPhone and the iPad or Smart Watches have changed the way people communicate, shop, and work. The introduction of connected devices and wearable devices, both of which rely on cheap sensors to generate and transmit data, are the basis for new business models and new services offered to customers.
- Analytics: Data analytics allows businesses to understand how when and where their target audience consumes goods and services. It is also used as an indicator for future customer behavior as well as when will be the right time to introduce a new product or service. As the cost for processing power and storage decreased, analytics became a top priority for companies.
- Cloud: Cloud Computing provides a new way to access technology and the data a business needs to solve its problems and respond quickly with respect to changing markets. It ushered in a new way to build infrastructure, platforms, and services. Amazon Web Services was one of the big disruptors in this space.
Improving SME lending with growth in FinTech firms:
There is no easy availability of finance when it comes to SMEs.
It is difficult for SMEs to find favor with traditional banks when it comes to lending, courtesy lack of experience, absence of collaterals and infrastructure, and/or poor financials. It is through their significant online presence that several modern fintech players make it convenient for the SMEs to receive loans.
These alternative lending companies analyze the creditworthiness of the sellers using analytics and other scanning metrics like their sales and fulfillment records and can disburse loans in less than 48 hours. Some banks like Bank of Baroda are also partnering with new age Fintechs to expand their reach, especially in the SME sector.
The Government’s consciousness about the potential of SMEs has resulted in myriad initiatives to provide sustained financial aid to SMEs. The implementation of GST which ushered in the concept of One Nation One Tax has considerably eased the tax systems. The Insolvency and Bankruptcy Code, 2016 has shown the way for financially troubled SMEs to ease out of their businesses. MSME Ministry has set up AI & machine learning tools to strengthen single window system portal ‘champions’ to ease the registration of SMEs. These are just a few examples of the Government easing business norms to facilitate SMEs.
Overcome FOMO of Digital Tech
There are many technologies available to explore. It becomes overwhelming and often people suffer from the FOMO or – fear of missing out when it comes to utilizing digital tech. The key here is not to lose sight of the goal one has envisioned and using the most efficient yet optimized way to achieve said goal.
SMEs today should be able to identify the types of transformation that various areas of their business can potentially undergo. This systematic approach helps keep FOMO at bay. These areas can be:
- Process transformation
This refers to changing the way a firm produces its goods by tinkering in their processes as they develop. World today calls for customization. Technologies like 3D printing can help. The use of Robotic Process Automation (RPA) is being increasingly adopted to mechanize operations like the assembly line or the movement of goods in the warehouses. When earlier the process of sales involved flyers and door-to-door marketing, it has been replaced by online and social media marketing thereby transforming the marketing area of business.
2. Domain and Business Model transformation
Domain and business model transformation is an area not many have exploited. It has immense potential. It can be seen as providing value-laden services in a form different from the way they are usually obtained. One of its foremost examples can be the app Unacademy in the education sector. Classroom studies cannot be replaced but for remote areas, such apps are a boon. Not to mention how the entire world is essentially being imparted education digitally given the COVID-19 pandemic.
Another example is the Mumbai – based The Yarn Bazaar. It’s a B2B one-stop marketplace for the fragmented yarn industry. It is a holistic one-stop platform for discovering good quality yarn, getting the best price, and also vendors. In just a year of its inception, this app has a GMV of Rs. 58 crores.
4. Cultural/Organizational transformation:
Businesses are dynamic entities and need to be treated so. They require transformation as well to fit in with the changing customer demands and the avenues available to the businesses to meet the said demands. For this to happen, it’s important that decentralized decision-making systems based on precise feedback exist. The employees should have a responsive grievance redressal system, they are trained to achieve the necessary skills to complete their tasks and their efforts should be recognized. This would result in the creation of an agile workforce. Satisfied employees lead to efficient businesses.
The above timely and methodical steps should help when striving for a growth driven transformation with focus on sales and marketing to increase client base. As we embark on the next decade, some of the trends that SMEs are likely to exhibit are:
- Digitization and Automation which have for a long time been considered the sole domain of the industrial giants will also come to the doorsteps of SMEs. Many startups in India have started creating digital solutions in the form of apps and software with a special focus on the needs of small businesses. It’s an exciting market space that these startups are vying to capture. In this process, they are inadvertently educating the traditional SMEs and digitizing them in the process. For example, Pune based company Business Setup promises to be a personal CFO to help entrepreneurs start, run, and grow their startups.
- Business Collaborations are going to be the norm. With the marketplace being shifted to the internet, the customer is now spoilt for choice. To compete in this scenario the SMEs are expected to create quality products with competitive rates. Doing so in collaboration would help pool resources and be a winning scenario for the resultant team.
- A strong focus on Customer service is required. It’s important to create a loyalty base because that is what results in “brand creation”. Therefore customer engagement is most important. It works as an excellent feedback mechanism system that aids in business improvement, keeping the competitive edge and of course, a satisfied customer is the best marketer.
- Delegation and Diversification are quickly gaining traction in small businesses. These enterprises have limitations when it comes to a talented workforce, resources and capital. Therefore it’s quite the norm where certain functions of the organization can be outsourced to another entity. The Human Resource Management System (HRMS) is software that aids the HR personnel in its functions thereby optimizing workforce and time. One doesn’t know what could happen in the future that would turn the waters of the economy choppy. It could be a pandemic, a terror attack, or a conflict between nations. Therefore not keeping all eggs in a single basket and diversifying the portfolio of SMEs could aid. The key is to handle a few small businesses aside from the main separately and independently. In difficult times if one business doesn’t perform well, then there’s at least some revenue from the other business.
- Focus on R&D and innovation can be brought about with access to game-changing digital technologies like Artificial Intelligence (AI) and Machine Learning (ML). Innovation can be done in the field of marketing and sales with the aid of Big Data.
When it comes to SMEs , one has to be careful. All aforementioned changes cannot be carried out without a well thought of strategy. They face the issue of capital crunch so whatever they possess needs to be judiciously used. The old things need to be gradually phased out at the same time skilling their employees to work efficiently with the new technologies. Step by step methodical approach to successfully bring up Indian SMEs to the global standards so as to increase our exporting capabilities should be kept in mind. It is strategy that should proceed action in all spheres. What we often tend to forget is that we have done this successfully before. We established our pharmaceutical and automobile industries. Today when needed, India beautifully rose to the occasion to manufacture lakhs of personal protective equipment (PPE) gear and became an exporter from an importer to tackle the COVID-19 pandemic.
India has shown remarkable resilience and innovation. Having joined the Liberalization -Privatization-Globalization brigade in the early 1990s and witnessed the fourth Industrial Revolution on top of it, India has become home to a number of quirky startups like Flipkart, Zomato, Oyo, and Paytm. If this is the result of the first three decades, then the future sure seems interesting.