India's small and midsize business (SMB) demographic is evolving with the times as cloud computing, smartphones and social media contribute to rising IT adoption rates. There's still room for growth though as SMBs IT spend form only 30 percent of total expenditure, and there's a lack of trained IT professionals.
According to a recent study by management consulting firm Zinnov, India has the second-largest population of SMBs among BRIC (Brazil, Russia, India, and China) countries and the United States and this group contribute more than 60 percent to India's GDP (gross domestic product). IT adoption is growing at 15 percent in this segment and is expected to reach US$15 billion by 2015, it added.
Delving deeper into the composition of SMBs, Zinnov stated that these organizations have up to 999 employees. Around 96 percent, or 33.8 million, of these businesses have between 1 and 10 employees, while 1.3 million other companies have between 11 and 999 employees, it added.
Complex SMB environment
Kishan Bhat, engagement manager at Zinnov, went on to point out that there are four broad categories of SMBs based on IT adoption characteristics: unorganized; traditional; savvy; and sophisticated. The first group refers to companies that are unfamiliar and apprehensive about IT adoption and do not have well-defined business processes that affects uptake.
Traditional SMBs are those that have business processes passed on from generations and are rigid and averse to technology adoption, while savvy companies have well-defined business processes and understand the benefits that IT bring. Lastly, sophisticated SMBs have best-in-class business processes and are leaders in IT adoption, he elaborated.
Gartner's research director Biswajit Mahapatra added that IT adoption among SMBs varies with verticals and geographies. "In metros like Chennai, Mumbai, and Bengaluru, we find more IT savvy SMBs than other cities and small towns," he elaborated.
As for industry segments, there has been growth across all, asserted Priyadarshi Mohapatra, vice president of emerging business at SAP India. "There has been traction in organized sectors including retail, manufacturing, consumer products, automotive, engineering and construction, professional services, mining, education, biotechnology, etc," he said.
Even unorganized sectors such as poultry, gems and jewelry, dairy, plantation, city gas distribution, among others, have also seen substantial IT adoption, the executive noted.
It is the market potential and growth of this market that has spurred IT vendors to actively developing and pushing their wares out to this demographic, Bhat said.
Smartphones, social media on the rise
Zinnov's study did note that despite the size of India's SMB market, its IT spend constitutes only 30 percent of the country's overall tech expenditure. But this is set to rise with the growing demand for mobile devices, social media and cloud computing, the market players noted.
Sunil Bhave, vice president of application services at Fujitsu Consulting India, noted that with the growth in 3G services and an increasing number of business IT applications on smartphones utilizing cloud technology, the expenditure for mobile devices is increasing.
Companies, particularly those in the knowledge sector, also offer employees the option of working from home while many of their other employees are mobile workers, the executive added.
"[These working arrangements] require people to stay updated with the latest information and data along with access to key systems like CRM (customer relationship management) and SCM (supply chain management) via the Web. Smartphones and tablets are greatly helping in this," Bhave said.
Bhat did point out that the use of smartphones and tablets is a recent trend among savvy and sophisticated SMBs, which form only about 20 percent of India's overall SMB landscape.
AMI-Partners had earlier reported that India's smaller establishments spent US$173 million on smartphones in 2011. A separate report from the research firm in February showed that about 67 percent of SMBs owned at least one smartphone or tablet, and almost half planned to purchase more devices in the year ahead.
Social media is another tech trend that local businesses is growing to embrace, sometimes more than the big and established companies, as they use it to acquire new customers, Bhave pointed. "Today, SMBs cannot neglect social sites, especially if they want their products to go global and reach millions of people in no time."
Earlier in March, the Federation of Indian Chambers of Commerce and Industry (FICCI) and Facebook announced a partnership to educate Indian SMBs on how to better use the Internet as a tool to develop their businesses.
Beating cash crunch with cloud
Cloud computing is another IT enabler helping Indian businesses work around their limited financial budgets. Gartner's Mahapatra said that there are a range of cloud-based applications such as Microsoft's Office 365 that offer "affordability, scalability, flexibility and mobility" for them to consider.
Software-as-a-service (SaaS), especially, have been increasingly gaining acceptance among this demographic, indicating a shift in their thought process, Bhave said, adding that vertical-specific products will drive the adoption of SaaS within SMBs.
The Fujitsu executive added that SaaS-based business intelligence (BI) services are expected to grow too, as companies move away from gathering basic information in simple Excel tables or pivots and adopt sophisticated applications.
Bhat did say that this trend of BI and analytics adoption is limited to SMBs that already have IT infrastructure in place and are actively collecting digital data.
Lack of trained IT professionals problematic
While the growth in IT adoption is heartening, the Gartner research director warned that India's SMBs faced several challenges such as lack of funds, lack of localized and customizable IT products, and shortage of trained IT manpower.
"A large chunk of SMBs have still not looked at IT as an enabler [because] skillset availability in IT is a huge challenge," Mahapatra added.
Bhave pointed out that the use of pirated, unlicensed software is also rampant among SMBs, and they often end up risking the security and integrity of vital business data and applications. With work moving away from the traditional boundaries of the office toward laptops and smartphones, data security is another key challenge for SMBs, he stated.