It’s a three-letter word that vendors love using these days. SMB, short for small and medium businesses, are a hot topic of discussion in IT circles. There is a reason for it. Part of it incidentally is linked to the slowdown that the industry is witnessing at the moment. Large enterprises – a key segment for most vendors – have cut back on their IT expenditure in their drive to rein in costs. Vendors then have to turn somewhere for business. The SMB market provides a viable opportunity in that sense.
According to US-based research and consultancy firm AMI Partners, there are some 4.03 million small and medium businesses in India that can be addressed by vendors out of the total 42 million enterprises that exist in India. “Of the 4.03 million, 1.46 million enterprises have at least one personal computer,” says Swati Sasmal, senior manager, research & consultancy, AMI Partners. “The balance 2.57 million enterprises don’t have a PC at all. Here lies the potential, if you ask me. Not only to tap this untapped market, but to help the 1.46 million enterprises move to a better computing experience.” Says Harish Kohli, chief sales officer, Acer India; “The early adopters of information technology were the large enterprises. Institutions in banking & finance and even government bodies to a certain extent were quick to adopt IT. The next round saw individual consumers take to IT. SMB is the next logical segment.”
What obviously helps here is the low penetration of IT among SMBs in general. Says Vinnie Mehta, executive director, Manufacturers’ Association for Information Technology (MAIT); “This market is least computerised. It is a virgin market.”
In contrast, the enterprise market is smaller in size in terms of the number of businesses that exist. But orders typically tend to be large on account of the sheer magnitude of the corporate house or company who is giving business. The quantum of business coming out of the SMB segment in that sense is smaller, but, as Sasmal says, it is a “volume market”, which means that there are more number of firms who can give orders even though small that can more than offset the total business coming from large enterprises. The point is that it has to be harnessed right. Says Mehta of MAIT; “The key challenge for vendors is to map the value chain right. Once that is in place, SMBs would be more interested in the offering on hand.”
Small is big
Despite the challenges, it is the ability of the SMB market to provide business to vendors otherwise starved of orders on account of the slowdown that seems to be enthusing them the most. “These businesses are constantly evolving,” points Rajesh Kumar, director, marketing, SMB at Microsoft India. The Indian arm of the software giant has been working with SME clusters in the country for close to a decade now, so the company would know. Microsoft, in fact, has been one of the early ones to look at this space quite seriously. Kumar refuses to divulge its contribution to overall company turnover, but claims it is sizeable.
The model Microsoft has adopted is to evangelise and create awareness about the need for information technology among entrepreneurs who run small and medium businesses. This Microsoft is doing with the help of the National Manufacturing Competitive Council (NMCC), a Government of India undertaking. The project has been dubbed Vikas. Kumar says that the project involves a five-year action plan that aims at increasing global competitiveness of SMBs through the use of IT.
This in a sense sets the stage for an introduction of custom-made solutions, which Microsoft does with the help of multiple partners. “Our experience so far has shown that these businesses ride on primarily three waves. The first is the personal productivity enhancement wave where companies put their basic IT infrastructure in place. They move to the next level when they feel the need for a better computing experience. So in comes broadband and internet connectivity etc. The third wave is about the integration of business processes. We find that the small enterprises typically are at the first level tending towards the second, while the medium enterprises are at the second stage veering towards the third,” says Kumar.
This approach of building awareness, of coming up with custom-made solutions is being adopted by a number of vendors today. Dell, HP, Acer, HCL are all choosing to get micro rather than macro when targeting SMBs. The key link, they say, is the local channel partner. “The point of contact for SMBs should be the channel partner. Confidence among emerging enterprises comes from dealing with someone next-door rather than dealing with a large vendor directly,” says Kohli.
Acer, in fact, has opted to take an indirect approach, that is, dealing with SMBs via channel partners. “I think that works,” says Kohli, “because they don’t feel intimidated then.”
But not all vendors are opting for this route. Says George Paul, executive vice-president, marketing, HCL Infosystems, “We have a direct sales model in place. This is in addition to the value-added resellers or channel partners we have on board.”
Given the size of the market, the sales force typically is large, but the distributor/channel partner network of most vendors is even larger. “The channel partner network has to be strong,” says Ravi Bharadwaj, general manager, SMB, Dell India. “They help you identify the needs and wants of small and medium businesses. That’s key.” Depending on the scale and size of operations, vendors could have channel partners going up to over a 1,000, even 2000, in some cases. Microsoft, for instance, has 6,000 channel partners, but this has been built over a decade. The newer entrants such as Dell have a smaller pool of partners, but it’s growing, claims Bharadwaj.
Getting creative
As vendors take the conventional direct-sales or channel-partner routes to reach out to small and medium businesses, many are also getting creative in wooing the latter. Dell, for instance, has instituted special awards for SMBs who use technology innovatively. “These awards have been around for 12-13 years across various markets in the world. This is the first year when it is being introduced in India,” says Bharadwaj. “Entries were being invited between February and May this year. The process of selecting ten finalists from these entries will begin shortly. The winner will be declared at a ceremony somewhere in September-October. This one will get a chance to meet Michael Dell apart from winning equipment worth $25,000. The ten finalists, on the other hand, will get business laptops only. They will also get a chance to interact with executives across the Dell network,” he adds.
But vendors aren’t stopping here. To increase accessibility to products and services many of them are conducting roadshows at regular intervals in different markets. “It just gets you closer to your prospective customer base,” points Deepti Dang, head of marketing, commercial and SMB, personal systems group, HP India. Dang, for instance, has just completed a series of events in cities such as Jaipur and Chandigarh. “That’s where the market is,” she points.
Vendors such as HP, Dell and HCL also have comprehensive solutions packages in place to help SMBs. HP, for instance, has Total Care, Dell has Complete Cover and Pro Support while HCL has Datacentre in a Box – all of them specifically targeted at small and medium businesses. Says Dang, “Total Care is a package where we advise an enterprise on what would be best for it in terms of technology based on its size and scale of operations as well as employee strength. We help the enterprise make the right choice even deploy the technology for it and train staff to use it.”
Segmentation required
For all the efforts though, observers opine that segmentation is still unclear in the minds of vendors. “The difference between the needs of the small-business entrepreneur as opposed to an entrepreneur running a medium-sized business is often unclear in the minds of vendors. The result is a disconnect in terms of solutions provided,” points Diptarup Chakraborti, principal research analyst, Gartner.
Says Kohli of Acer; “Definitely the needs of companies are diverse. Some of them are growth-focused and view IT as a strategic tool to achieve business goals, while some are cash-flow-focused and make business and IT decisions accordingly. The third category of entities has no affinity to technology and don’t view IT as key to their business. Therefore, the challenge for vendors is to convince these companies to invest in technology in the first place. The second category, on the other hand, needs more value add-ons. The first category with its in-house IT teams is in search of newer applications.”
The segmentation problem at times can also extend to clusters. “There are 400 clusters in India,” points Kumar of Microsoft. Identifying them and mapping their needs can be a challenge then. But broadly vendors seem to have found a way out with textiles, gems and jewellery, leather, automotives, pharmaceuticals, life sciences etc being key cluster groups on the radar of many of them.
