Small businesses in AP warm up to IT leasing

Analysts and financing service providers see potential growth in hardware leasing, but not yet in software purchases.

SINGAPORE--More small businesses in the Asia-Pacific region are opting to lease their IT equipment, with major vendors seeing an increase in customer sales, but this form of financing remains low in software deployment.

According to a study by research analyst IDC which polled 2,900 small and medium-businesses (SMBs), 10 percent of these companies in the region are choosing to lease their IT equipment this year, up from 7 percent in 2004.

Two major players, IBM and Hewlett-Packard (HP), that offer financing programs for businesses concurred with the IDC report.

Abraham Thomas, IBM's vice president for global mid-market business in Asean and South Asia, said the company registered a "significant growth" in the number of SMB customers during the last one to two years in the Asean region. Thomas is expecting a "double digit growth in [IBM's] SMB financing market in the Asia-Pacific region" this year.

While figures vary from country to country, SMBs on average currently constitute 70 percent of Big Blue's leasing clientele in the Asean and South Asia region, he said.

HP has also seen an increase in sales from the SMB market, according to Madanjit Singh, its Asia-Pacific segment sales manager for SMB financial services. The majority of HP's financing business today comes from large companies, but he noted that HP sees a "huge and growing potential" in the SMB market.

Describing leasing as a concept that was first adopted by businesses in the United States and Europe, Singh said that bigger Asian companies such as Singapore Airlines and Telstra, adopted the leasing model as it became more well-known in the region.

More recently, he added, a new shift in financing and leasing services has taken place. "Smart SMBs and individuals" in the region are beginning to focus on the business value linked to the usage, rather than the ownership of the IT assets, and are now starting to buy into the idea of leasing, he said.

"Businesses in mature economies like Australia, Korea and Singapore, are showing much higher take-up rates (in leasing)," said Singh. "Other traditional economies--Indonesia, Thailand, India and China--are still thinking about it and (are only now) starting to talk about it."

SMBs can adopt leasing for a number of reasons, according to the HP and IBM spokespersons and market analysts. The payments are fixed and predictable, businesses have the opportunity to upgrade to the latest technology, and they can opt to return, purchase or continue to lease the equipment at the end of the lease term.

"In recent years, financing has evolved as a management strategy to facilitate systematic replacement of equipment with increasing short lives," said IBM's Thomas. "Being able to upgrade technology rapidly, with minimal impact on cash flow, is a big benefit for SMBs, particularly those in the growth stage."

Potential for growth
SMB adoption of financing and leasing services is still at an early stage, HP's Singh said, and added that this market segment is expected to grow in the next three to five years.

"Technically, given 10 good SMBs and 10 good enterprises, the SMBs should be leasing more… and we're slowly getting there," he said. The challenge is that many small businesses "just plain don't understand" what leasing is all about, he noted.

Vendors that offer leasing programs ought to ask relevant questions to identify the SMB's IT needs and requirements, he said. These questions should be easily understood so that the SMBs can provide the right information, he added.

Singh noted that overall market trends suggest that apart from equipment financing, businesses are increasingly also opting to deploy software based on a service or leasing delivery model. However, he pointed out that this does not seem to be the case for smaller businesses, which he said are more actively leasing hardware products.

Leasing penetration is also not the same across SMBs in vertical industries. The IDC findings indicated that leasing, although popular in communications, retail and insurance verticals, is not prevalent in industries such banking, manufacturing and transportation.

While ground sentiments reflect optimism for the market, leasing may not be suitable for all SMBs, cautioned Diana Ng, research analyst at AMI-Partners, a consulting firm that specializes in SMB research in the IT, Internet and telecom industries.

She said that, among other considerations, businesses should first evaluate their specific IT needs and the IT skills of their employees before embarking on a leasing program.

Cost is another issue. "Though a company need not fork out a huge capital when leasing, the lease amount can also be substantial, especially when companies start adding support options into the lease contract," Ng said.