SME Market in India is too big to be ignored. And while Indian entrepreneurs are chasing the big enterprise market (and consumer segment), here are a few data points for SME opportunity
- India has the second largest population of small and medium businesses (SMBs) among BRIC countries and the US.
- SMEs in India contribute to more than 40% of the total Industrial Output (35% of it is exported).
- SMEs Provides employment to 75% of India’s workforce.
- In Karnataka alone, there are more than 750 Large to Medium Enterprises with investments of more than 60,000 Crores and employing 4,00,000 people.
- In comparison, there are more than 3,80,000 SMEs with investments of just about 10,000 Crores while employing 22,00,000 people!
Digging the Small Business Gold Mine
SME – Opportunities for Small Players
The challenges that the SMEs face today seem to be primarily in the area of ICT and to quote specifically, ERP. The SMEs lament that when ever they approached the usual ERP firms, the first question they were faced with was that of their turn-over (they are quoted ERP package rates based on their turnover!).
Further, most do not even qualify to be served by these firms since they don’t measure up in terms of turn-over. Most of the practitioners wanted more simple solutions which could be used by the SME work-force, that is largely rural, with education levels being at most at Diploma levels, (in exceptional cases Engineering).
- Only 12% of the SMEs use Computers and 90% for Word Processing – The terms used today was “Typewriter”.
- One of the most startling take away was that in the last 55 years, the India SME manufacturing sector has clocked a steady GDP of 15% to 18%. No geo-political reason, economic downturns nor Policy changes etc seems to have affected this.
- And to put this in perspective, the Indian IT companies are happy if they are 1% or 2% higher than the nation’s GDP!
- SME’s spending on IT is only 30 percent of India’s total IT spending
Have the technology startups considered this space as an opportunity? Do you think the Indian SME presents an opportunity for Technology Startups to deliver smaller and much palatable solutions, which fit both the pocket and the background of the SMEs?
[The article is indirectly written by Raja, Founder of MoMo Bangalore. He had posted this in an email to the MoMo group, after a visit to MAIT Bangalore event.]
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I think “SMEs” itself is too broad a term and segments within that will be more attractive than others. SMEs that are not even using computers currently (the majority) – certainly these will not be attractive to larger IT firms, and rightly so. They may form a market for different services, primarily telecom (broadband etc) and basic adoption of hardware. Since most SMEs typically use under 10 computers, just being large numerically need not make them an attractive segment for every IT service.
“Since most SMEs typically use under 10 computers, just being large numerically need not make them an attractive segment for every IT service.” – The # of computers in one’s office is by no means a measurement of their spending.
SMEs need custom offering – how many cos. are willing to do that?
developing affordable solutions and support are big challenges for this segment of IT services, SaaS is a good model to overcome these problems
I think technology companies need to come up with a different revenue model unlike the traditional license based offering to make the offering cost effective for the SME’s.
The fact of the matter is this is very tough market to crack. Somebody needs to do serious consulting before selling to these SMEs. Most of them are happy being SMEs all their lives. Those who can’t differentiate between investments and expenses cannot embrace technology and reap benefits out of it.
Eg: I work for a small IT services form (<500 folks) serving the US customers. We work on SOA, SaaS, cloud computing, data center hosting management, you name it.
but there is hardly a single internal tool (either developed or purchased)for all 500 folks to collaborate, work, stay productive, work efficiently. People are just happy with excel sheets. BTW, even Excel could be very powerful if used right. And company is in existence for 10 yrs and remained more or less same size.
I tried to persuade ZoHo tools but management is either totally ignorant, out of touch or unwilling to change their ways or too greedy to spend or make any investments and hence struggling to grow.
God only help us!!!
Yes there is a definite need for companies like Zoho who cater to SMEs to have their ERP, IT departments, HR etc taken care but startups need to hire management consultants to educate these SMEs before even trying to sell them
Great insight and god article.
Why doing business with Small SMEs is difficult:
1. SMEs dont think they need you. Educating SMEs is not a viable option at all.
2. Their IT department is either non-existent, or does not have any support from the management (the latter one is the key thing).
3. Getting them to pay you, is not easy. They are not used to dealing with vendors who demand prompt payment for their services!
4. 90% of them need only these two functions: Documents(word/excel), Payroll. They usually have these functions the very day they buy computers! There is not enough incentive to use a better service provider.
This is the reason chances of success are better with educational institutes, where at least educating them is not necessary.
Well, Every new market would be sceptical about changes thru IT. It certainly need to evolve and get educated. But another thing of notice is how many co’s and start-up have seriously done work with these SME’s. I dont see quality product for them around the market. I mean if we cant persuade these SME’s , one can easily forget hitting the poor’s lifeline (next 50-70% population) with services
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