SME Clusters - A New Dimension Of Growth For The Indian Economy

An SME cluster usually refers to SMEs operating in the same or related industrial sectors that generally tend to cluster close to one another. These are also called geo-vertical clusters. Clustered businesses have flourished; not only in India but also globally. They perform well economically due to various factors such as proximity to raw material sources, suppliers and business partners, better coordination within members of the value-chain, presence of skilled labour force etc. Moreover – clusters have benefited through a series of Cluster Development Initiatives by the Indian Government that involves technical assistance, subsidies for technology upgrades and marketing support. A significant proportion of SMEs within a majority of these clusters are not yet penetrated with Information Technology tools. These are some of the key findings emerging from the soon to be published study by Access Markets (AMI-Partners) International Inc. titled – “India SMB Clusters – A Deep Dive Opportunity Assessment.”

Clusters: Vital For ICT Vendors; Yet Difficult To Select – Hence The Need For Prioritisation

SME clusters contribute immensely to the country’s manufacturing output and employment generation. In India it is estimated there are around 400 SME industrial clusters & over 2,000 micro & artisan based clusters - they contribute almost two-thirds of the manufactured exports & 40% of the country’s industrial output. Since these clusters are quite large in numbers and geographically scattered – it is a challenge for ICT vendors to decide on which of these clusters to target first in terms of focused marketing campaigns and building up a distribution network. In this context, a prioritisation exercise is quite helpful since it assists in initial selection of the key clusters among the whole universe.

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The nature of each cluster is quite different and unique in nature. A key influencer of the ICT needs of a particular cluster is the specific business needs and business challenges it faces. In this context – ecosystem players; customers, suppliers etc. play a major role. “Let us consider a cluster like Jaipur-Gems & Jewellery. A key business need within the cluster is the necessity to showcase products and models to overseas customers for approval or suggestions. This opens up the market for video-conferencing and creates opportunities for telcos/ ISPs ” commented Subrata Sarkar, Sr. Research Analyst, AMI-Partners. “Again, considering the Pune auto ancillary cluster, key SME focus area is to satisfactorily cater to needs of large OEMs and Tier-I auto component manufacturers.” Hence SMEs must keep their ICT systems up-to-speed to match the specifications of their larger business partners. Depending on these aspects, ICT vendors must endeavor to understand the particular business dynamics of each SME cluster better so that they are in a position to offer them appropriate business solutions.

Lack of finance coupled with low awareness of IT benefits is the major hindrances behind low ICT adoption by SME clusters. “It is imperative for IT vendors to enhance awareness about specific IT applications within SME clusters and how they can increase SME RoI in the long run. Vendors should emphasise how IT applications can increase competitiveness of SMEs within clusters, enable them to move up the technology-adoption ladder and enhance efficiency and productivity”, said Sarkar. “IT vendors can also consider introducing hosted IT solutions for SME business needs. This can help SMEs tide over cash-crunch problems since they can adopt these solutions through the pay-per-use method.” SMEs are continually plagued by low cash issues and also possess an unmanaged IT infrastructure – hence they appreciate key benefits of the hosted model – e.g. minimal CAPEX / low OPEX, hassle-free IT management by an external service provider, etc.

SMEs within most clusters are also facilitated by the use of vertical-specific software that plays a significant role in synchronising and automating their day-to-day business functions. The challenge for ISVs is to build cost-effective industry specific solutions that can be affordable and easily deployable by SMEs within the cluster. Another vital requirement for SMEs within a majority of clusters is their connectivity needs with customers and supply-chain partners – both within and outside the country. Consequently, there is a significant future growth potential of Internet and IP-based communication technologies within these clusters - presenting considerable opportunity for ISPs/ Telcos who can come forward to support these needs.