Small is the new BIG

By M H Ahssan

Global IT heavyweights see a growing opportunity in India’s SMEs during the downturn

The winds of recession have blown to India as well. Some sectors are down, and the stimulus packages are yet to show their effect. But this has had a positive effect as many companies have discovered a whole new market to sell. This was known before and companies were targeting it, but today there is a new found urgency. The SME segment. For IT companies for example, this is a good time to target the SMEs with cloud computing as a form of disaster management.

While the IT sector has been the most prolific in targeting emerging businesses, other sectors are warming up to the market in a big way. In the last few months, Indian arms of global IT heavyweights such as IBM, SAP, and Oracle have unveiled strategies to tap SMEs. According to research firm AC Nielsen, there are over nine million such enterprises in India, with an average IT spend of Rs 30 lakh a year.

"There are about seven million small-andmedium-businesses that don't consume any IT today and are open to the software as a service model (SaaS) or Cloud Computing to enable them to compete with giants in their verticals," says Doug Farber, VP, Asia Pacific, Salesforce.com. A Springboard study says that the Indian SaaS market will grow at a CAGR of 76% between 2007-2011 and reach $260 million in revenues by 2011. Springboard also said that the Indian SaaS market is poised for high growth with 76% of survey respondents, who have not adopted SaaS, planning to do so within the next 12 months. Frost & Sullivan estimates the market to grow at a CAGR of approximately 71%, expecting it to reach $267 million by 2011.

Cisco is planning to give its services business a bigger thrust to tide over the tough year that lies ahead. Crucial to the success of this strategy is rolling out the red carpet for SMEs, by targeting a growth of more than 25% from this sector this year. "While the consulting business has seen lower activity, SMEs can drive our services business further," says Kumar GB, senior vice president, services, India and SAARC. The top US network equipment maker has been aiming for long-term revenue growth of 12-17% a year. To achieve this figure, Cisco expects Indian SMEs to play a much bigger role as some of their major markets experience a slow down. Last year, says Kumar, the services business grew by over 50% in India.

At one time, IT companies considered selling to such customers unviable. Today, they are developing products for them. Kumar says that the demand this year is coming from private companies who are catering to defence services and government departments. For these companies, it is not so much about understanding technology but creating value.

While earlier the services used to be bundled free with the product, "that is not the case anymore," he says, referring to an important change which is expected to add to revenues in these times. For Cisco, SMEs are again a more reliable source of revenue as they have not experienced the kind of turmoil that the bigger players are witnessing. "Most of them are still on the growth path," says Kumar. The value of services is going up, and is not tied with the product anymore, he maintains.

Cisco is also pushing for adoption of telepresence units by SMEs. These are equipped with large, high-definition screens with builtin microphone and camera lenses, and are more evolved than traditional videoconferencing systems. To install such a system, Cisco's fee includes not just the equipment but also constructing the room with appropriate acoustics.

Its competitor LifeSize is also targeting the emerging businesses aggressively. The market for telepresence is expected to grow as companies cut travel costs and chose the economy of video conferencing for face-to-face meetings. Kumar points out that in congested and big cities like Mumbai people are using their systems to even talk to other offices within the city.

In spite of Reserve Bank of India announcing measures to release funds and directing banks not to stop lending, many PSU banks are refraining from extending financial assistance for working capital and overdrafts citing reasons of liquidity crunch. This will surely hit the SMEs and emerging enterprises, who, unlike large corporates cannot bank on their internal accruals and investment portfolios.

For software giant Microsoft, the market is also about addressing the disaster recovery space. "We are seeing explosive growth in deployment of security solutions in this space," says Rajeev Mittal, group director, SME Business at Microsoft India. He says that this is arising from two areas: Requirement for more and more sophisticated solutions and customers moving their security environments from other vendors to Microsoft.

It is this same space that is being targeted by Mark Sorenson, Sr VP, EMC Storage Division. "Targeting SMEs in these times of slowdown is the way forward," he says. Typically, power makes for 50% of the cost of running a data centre. EMC has devised storage methods to store the same amount of information using dramatically less power, which is the main offering to Indian SMEs.

While the offerings to SMBs are hotting up in the IT space, other sectors are not far behind. For example players in the printing business are looking at SMEs. Take Infoprint for example. Established in January 2007 as a joint venture between IBM (Printing system division) and RICOH, the company is actively targeting SMEs.

"Only 20% of our clients are large enterprises. Others are SMEs," says Benoit Chatelard, vice president, Asia Pacific. He says that most such customers are indirect clients for the print service providers who are our largest target segment that falls under the subset of production printing. Most small banks, insurance companies, etc., are outsourcing their printing requirements to print service providers across the country.

And understandably, companies are also lining up to service SMEs in the fashion industry, at a time when bigger houses are cutting down costs despite the rise of the rupee, as their clients in the US face the brunt of the recession. Take Lectra, which has now increased focus on the emerging businesses.

"The fashion industry is composed of a large number of SMEs, many of whom have been loyal customers for a long time and have helped us develop solutions perfectly adapted to their needs," says Prashanth LJ, managing director, Lectra Technologies India. On the software side, Lectra is offering a range of 2D and 3D design, engineering, prototyping, product development and material consumption management solutions adapted to all types of fashion products (apparel, footwear, luggage and leather goods) and to all levels of user expertise.

The economic slowdown has forced SMEs to look at alternative solutions. Many of them are deferring their expansion plans and reducing their spends. But companies are also strengthening their existing infrastructure, implementing proven technology to optimise their processes.

But this is not a dampener to Lectra which has been involved with SMEs for some time. With tougher market conditions in the export market, Indian SMEs are competing with their counterparts from other countries who have implemented new technologies to offer quality products at competitive rates. Free market has also brought in competition from other countries to the domestic market. With the ever increasing input costs like power, transport, taxes and labour, SMEs to are constantly looking at ways and means to save on raw materials, decrease time to market and thereby reduce the cost of the end product.