Indian SMEs, characterised by low establishment costs, operational flexibility and location-wise mobility, have contributed significantly to domestic production and export earnings. However, with increased globalisation and removal of trade barriers, SMEs have been facing increasing competition in the domestic market.
The government has devised cluster development programmes for augmenting the growth and competitiveness of SMEs. Though Indian SMEs have the competitive advantage of having government support and cheap labour, it has been recognised that adoption of information & communication technologies (ICT) will help SMEs to become more competitive.
IT adoption among auto component clusters: A 2009 Dun and Bradstreet, India, study on IT adoption in auto component clusters in the National Capital Region, Pune and Chennai revealed differences in the level of IT adoption among clusters. The study showed that while around 55% of the surveyed companies in NCR have IT process in their businesses, only around 31% companies in Chennai were IT-compliant. From this, it is obvious that IT has yet to gain wide acceptance among SMEs in the auto component clusters in NCR and Chennai. In contrast, about 80% companies in the Pune cluster had implemented IT processes in their businesses, which showed that IT adoption was gaining wide acceptance among surveyed units in Pune.
The study further revealed that the usage pattern of IT hardware and software also varied among the clusters. In NCR, the companies had a wider acceptance for hardware (desktops, scanners, printers and modems) and they were relatively less experimental with software applications such as ERP, customised software, Softech and Tally. In the Chennai region, the companies mostly use printers (47%) in the hardware segment and ERP solutions (75%) in the software segment. Moreover, software applications like ERP and/or customised software help 88% companies in better planning, while 70% of the surveyed companies use their existing IT applications for payroll activities. In the Pune cluster, hardware had a majority share in the IT budget of SMEs. Further, software applications like ERP, accounts software and CNC were a few of the widely-adopted IT applications.
In the study, the high cost of implementation had emerged as the most significant challenge in both NCR and Chennai regions. Non-availability of skilled labour followed by the lack of funds were the other obstacles faced by the auto component firms in NCR. In comparison, in the Chennai region, an equal number of respondents considered factors like availability of funds for implementation, smaller size of business and no relevant software for business as other major deterrents to IT adoption.
What could be done?: The answer to successful IT intervention among the auto component firms lies in recognising that most auto components firms fall under the category of micro, small and medium industries. Since the high cost of implementation has emerged as the common factor for the low IT adoption, the firms providing information technology services could devise tailor-made software products that are cost-effective. SMEs also sometimes lack awareness about ICT-related issues. Thus, dissemination of information is an important tool to facilitate IT adoption and greater IT penetration.
The government can set up a web portal where information on ICT-related issues for the SME sectors are provided. This could help SMEs in knowing and deciding about the right technology to implement. Besides, to solve the issue of availability of skilled labour, government polytechnics and government-funded institutions spread across tier-II and tier-III cities should integrate more IT related courses. Along with government initiatives SMEs themselves need to take initiatives and show interest in implementing IT processes to enhance their business opportunities.
The author is senior economist, Dun & Bradstreet India