SMEs To Contribute More Than A Third Of Indian IT Spend By 2015

Zinnov, a leading Globalisation and Market Expansion Advisory firm, today released its latest study titled ‘Indian SMB ICT Adoption Insights’ highlighting the current state of IT adoption in the SME segment in India, and predicting the likely trends going forward. The study provides a detailed analysis of the different opportunities, challenges and scope related to IT spending and technology adoption in the sector that may result in SMEs contributing to over one third of the total domestic IT spend by 2015.

The study states that while the overall domestic IT spending is expected to grow at a CAGR of 12% to reach USD 36 billion by 2015, SMEs at the same time will grow at a CAGR of 15 percent contributing USD 15 billion by 2015. The Zinnov reports states that the country is home to around 50 million SMEs currently of which 10 million are technology-ready. Transforming itself from the traditional ‘pen & paper’ business culture, SMEs today are increasingly adopting technology for the betterment of their business. Modern SMEs are investing heavily on tools like PCs, internet and website to market themselves and compete in global /domestic markets.

Providing some interesting statistics, the study reveals that today five lakh SMEs in India have websites and two million SMEs are accessing the Internet. Increased adoption of PCs by SMEs is also another significant factor that will fuel the growth of this sector. Four million SMEs in the country are using PCs which is expected to grow at thirty percent from 2011 to 2015, resulting in doubling the base of SMEs with PC, reveals Zinnov.

According to the study, the addressable opportunity of 10 mn SMEs will continue to increase during 2011-2015 as more firms realise the necessity of organising themselves with the help of technology. A lion’s share of (8.9 million which is 94 percent) technology-ready SMEs in the country are very small in size with an employee base of less than 10. This clearly shows the increased awareness and interest level of base level SMEs in technology which is also an indicator of India’s technology progress, says Zinnov.

Further splitting the SME market in India, the study finds that Retail is the single largest vertical by addressable opportunity with an overwhelming two million firms ready for technology adoption and expansion. Around 1.9 million Professional Services firms is second in the list followed by 1.2 million Manufacturing enterprises and 1 million Hotels & Restaurants. And by 2015, Retail will stand at 2.5 million, followed by Professional Services at 2.3 million, Manufacturing at 1.6 mn and Hotels & Restaurants at 1.1 million enterprises. The study also says that not far behind is the Education segment which is expected to grow to 1.1 million units from the current 0.9 million units.

While the SME segment is witnessing steady growth, it has its own set of challenges that needs to be overcome in order to sustain the rate of growth. The main roadblocks facing the SME sector in India are the lack of technology know-how, unclear return on investments, cluttered product portfolio, high cost for technical support and high investments made in legacy systems.

“The Indian market is promising and challenging at the same time. We are optimistic about the growth outlook but there are serious concerns which need to be addressed immediately. Majority of SMEs still perceive IT adoption as a time consuming and complex process and therefore, prefer to stick to their existing traditional processes. There needs to be a categorical shift from legacy systems, and some fresh investments made from a long-term growth perspective,” said Kishan Bhat, Engagement Manager, Zinnov.

The study also provides some useful suggestions to technology providers to succeed in the highly competitive SME market in India. According to Zinnov, the four key points that technology providers need to bear in mind while addressing the SME segment are:

1. Product Localisation is necessary for growing in emerging markets

2. Unique support models are needed to showcase value and reduce the overall solution cost

3. Need for customised pricing strategies targeted at driving adoption of solutions and

4. Solutions that understand local workflows and can offer a bouquet of services under the same umbrella.

The study analysed trends in the Indian SME segment spread between two extremes: Unorganised and Sophisticated. The unorganised segment represents enterprises with lack of defined business processes, which run for subsistence and are run by the 1st generation owners while the sophisticated group is identified as those with business processes adapted from industry benchmarks / global best practices, who are keen to evolve as an enterprise and are taken over by the 2nd generation owners. Sophisticated businesses come across with aggressive outlook towards growth and they look at technology as an enabler of business transformation, and this category is viewed as the key driver of technology in the SME space, according to Zinnov.