Indian SMBs to spend $15 billion on IT by 2015

Indian SMBs to spend $15 billion on IT by 2015

Summary: Small and midsize businesses emerging as sizeable market with IT investments growing at over 15 percent, reveals new study, which underscores need for IT vendors to localize products for smaller enterprises.

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TOPICS: IT Employment, CXO, SMBs
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NEW DELHI--Small and midsize businesses (SMBs) in the country will grow at a compound annual growth rate (CAGR) of 15 percent by 2015, contributing US$15 billion or over one-third of India's overall IT spend.

According to a new survey released by Zinnov Management Consulting, titled "Indian SMB ICT adoption insights", the country's overall IT spend was predicted to increase at a CAGR of 12 percent to reach US$36 billion by 2015.

The study noted that India is home to around 50 million SMBs, of which 10 million are technology-ready. This addressable market opportunity will increase to 11 million by 2015, it added.

"India is the land of SMBs," Praveen Bhadada, director of Zinnov, said in an interview, noting that over 95 percent of enterprises in India were SMBs, or companies with fewer than 1,000 employees.

Transforming from the traditional "pen-and-paper" business culture, SMBs today are increasingly adopting technology for the betterment of their business. "Modern SMBs are investing heavily in tools like PCs, Internet and Web sites to market themselves and compete in global and domestic markets," Bhadada said.

A large chunk of SMBs, 94 percent--or 8.9 million SMBs--in the country were small in size with an employee base of less than 10. "This clearly shows the increased awareness and interest level of base-level SMBs in technology, which is also an indicator of India's technology progress," Bhadada said.

The study revealed that 500,000 SMBs in India currently have Web sites and 2 million have Internet access. Growing PC adoption is also another growth driver, with 4 million SMBs already using personal computers. This number is expected to grow 30 percent from 2011 to 2015, doubling the size of PC-enabled SMBs.

The study further identified retail as the largest vertical in terms of addressable market opportunity, with 2 million SMBs ready to adopt or expand their technology deployment.

The second-largest segment was professional services companies, at around 1.9 million, followed by manufacturing enterprises at 1.2 million, and hotels and restaurants at 1 million.

"By 2015, retail will stand at 2.5 million, followed by professional services at 2.3 million, manufacturing at 1.6 million, and hotels and restaurants at 1.1 million SMBs," the study said.

It noted that the education segment was not far behind and was expected to grow to 1.1 million by the same year, from the current 900,000.

"Do-it-for-me" SMB market
According to Bhadada, India is still largely a hardware market. "The SMBs in India are very different from SMBs in the developed world where small enterprises have a higher understanding of IT."

While smaller enterprises in countries such as the U.S. and Japan adopt a DIY (do-it-yourself) approach with IT, Indian SMBs carry a "do-it-for-me" attitude. Therefore, having "face time" or spending time to educate customers on the technology adoption is important, he said.

As a result, IT vendors need to have a different strategy for India, he noted. "They cannot bring the same strategy they have for SMBs in the U.S. or Japan to India," he said.

To sustain India's growth rate, Bhadada added that SMBs have unique challenges that need to be overcome, noting that the main roadblocks are the lack of technology know-how, unclear returns on investments, cluttered product portfolio, high cost of technical support, and high investments made in legacy systems.

Kishan Bhat, engagement manager of Zinnov, said in a statement: "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."

He noted that the majority of Indian SMBs still perceived IT adoption as a time-consuming and complex process and, therefore, preferred 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," Bhat said.

Localize offerings for India
According to Zinnov, the four key points technology providers need to bear in mind while addressing India's SMB segment are:

•  Product localization is necessary for emerging markets;
•  Unique support models are needed to showcase value and reduce the overall cost of the IT offering;
•  There is also need for customized pricing strategies that are targeted at driving the adoption of IT; and
•  Offerings should understand local workflows and can offer a bouquet of services under the same umbrella.

Bhadada said the market for business intelligence or data analytics tools among SMBs was around 160,000.

"SMBs are also more amenable to experimenting with the cloud as opposed to large companies as they do not have any legacy systems," he added.

He noted that India's SMB market is marked by two extremes: unorganized and sophisticated.

"The unorganized segment represents enterprises with a lack of defined business processes which run for subsistence and by first-generation owners, while the sophisticated group is identified as those with business processes adapted from industry benchmarks and global best practices, which are keen to evolve as an enterprise and are taken over by the second generation owners," the Zinnov study said.

It added that sophisticated businesses have an aggressive outlook toward growth and look at technology as an enabler of business transformation. This category is viewed as the key driver of technology in the SMB space.

Swati Prasad is a freelance IT writer based in India.

Topics: IT Employment, CXO, SMBs

Swati Prasad

About Swati Prasad

Swati Prasad is a New Delhi-based freelance journalist who spent much of the mid-1990s and 2000s covering brick-and-mortar industries for some of India's leading publications. Seven years back when she took to freelancing, India was at the peak of its "outsourcing hub" glory and the world of Indian IT, telecom and Internet fascinated her. A self-proclaimed technophobic, Swati loves to report on anything that's remotely alien to her--be it cloud computing, telecom, BPOs, social media, e-government or software and hardware, and also how high-tech sectors impact the Indian economy.

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