Tech-savvy SMEs fare better than their offline counterparts: FICCI report

FICCI, in partnership with Google, has released a new research that shows that web makes a big impact on small to medium enterprises (SMEs) in India.

The report, compiled and presented by Nathan Associates, showed that SMEs, who use the web, fare much better than those that do not. On an average, web-enabled SMEs boasted 51% higher revenue, 49% more profit, and 7% broader customer bases than their offline counterparts.

The study revealed significant opportunities both for India's booming SME sector, where fewer than 5% of all businesses even maintain a web presence, and for India's economy: small medium enterprises are critical to the economic growth in India, where 47 million SMEs employ about 100 million people and contribute more than 8% of India's GDP. According to the report, only 51 percent of online SMBs use the web to advertise a mere 27 percent use it for e-commerce. But with 95% of businesses yet to even establish a website; India is poised for big gains as more small enterprises come online.

Speaking about the key findings from the report, Sanjay Bhatia, chairman, FICCI MSME Committee and Chairman and MD, Hindustan Tin Works, said, "The Internet will play a vital role in narrowing the gap between Indian SMEs' potential and their aspirations. India has all that it takes to compete with other developing and fast growing economies. With the success of e-commerce companies like Makemytrip and Flipkart in India, we believe that more Indian SMEs can benefit from the Internet and eCommerce. While the government has introduced policies that stress upon the development of SMEs, with this report we would like to highlight how Internet can play an instrumental role in driving growth of the SMEs in the country."

The study showed that Internet use was the highest among SMEs in the IT & ITES, tourism/transportation, chemical products (96 percent) and pharmaceuticals (95 %). Only 49% of Internet using SMEs surveyed had websites; IT & ITES and hospitality had the highest numbers. SMEs in the B2B space had the lowest number of websites.

Following is the snapshot of the report:

● The Internet can be a great equalizer for SMEs, providing them with access to new markets, more customers and visibility so as to unleash their potential. The survey of 951 small and medium enterprises in various industrial and geographical clusters across India shows that SMEs that use the Internet, 69 percent experienced an increase in customers, and 63 percent an increase in geographic reach and 44 percent saw an increase in firm employment.

● Controlling for factors such as an SME's investment in plant and machinery, the age, sex and education of personnel, and ownership type, the study found that using the Internet for business operations increased the SME's revenue by 51 percent and profits by 49 percent.

● On an average, an SME adopting the Internet is able to grow its customer base by 7 percent and employment growth by 4 percent.

● The perceived benefits of using the Internet are significant: 64 percent of respondents reported an increase in sales due to Internet use, 65 percent an increase in profits, 69 percent an increase in customers, 63 percent in geographic reach and, 44 percent in employment.

● While email was used by almost all the Internet using SMEs (95 percent), only 49 percent of Internet using SMEs had websites; IT & ITES and hospitality had the highest numbers, and the chemical products and foundry sub sectors had the lowest. SMEs having websites perform better than the ones not having them.

● Doubling of Internet use in SMEs can generate 43% higher profits for SMEs

● Despite perceived and actual benefits, certain problems and concerns hinder Internet adoption and prevent SMEs that have adopted it from realizing its full potential. Sixty-one percent of Internet-using SMEs are very concerned about the security of online financial and personal transactions (e.g., hacking of email accounts).

● Only 23 percent of surveyed SMEs engage in e-commerce; on average they have more revenue, employees, and customers than those that do not.