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MSME Day 2019: Why India’s MSMEs Need To Adopt Tech, Embrace Startups To Boost Growth Prospects

MSME Day 2019: Why India’s MSMEs Need To Adopt Tech, Embrace Startups To Boost Growth Prospects

MSMEs provided employment to more than 123 Mn workers in FY’16 in India

Low tech adoption is a major growth obstacle for MSMEs, according to DataLabs by Inc42

Flipkart, InstaMojo, Zoho recently announced new MSME-friendly programmes

The United Nations has designated June 27 as MSME Day to promote and showcase innovations from Micro, Small, and Medium Enterprises around the world. India is one of the global leaders when it comes to the MSME sector, and each year the government announces new policies and initiatives for MSMEs in terms of financial support as well as technology adoption.

According to the Reserve Bank of India (RBI), the MSME sector supports the balanced development of industries across all states and involves low capital cost. The contribution of the MSME sector to India’s GDP remained stagnant around 30% in recent years. Not only do MSMEs provide employment opportunities, but supplement the growth of large enterprises and companies to support all-round development.

The MSME sector in India has registered a higher growth rate than the overall growth of the industrial sector on many occasions in the past decade, as per the central bank. Even though MSME annual growth has slowed down in recent years from 9.1% from 2013-14 to 7.62% in 2015-16, the growth rate of the overall industry has hovered around 6%.

Secondly, MSMEs provided employment to more than 123 Mn workers in FY’16 in India. The total GVA (gross value added) of the MSME sector was $568 Bn which contributed 28.77% to the total GDP of India in 2016. According to DataLabs by Inc42, the total GVA of the Indian MSME sector by FY2020 is estimated to grow to $866 Bn, at a CAGR of 11.12%.

Access to credit is an important aspect for any business and so is the case with MSMEs. Lending in this sector has mostly been dominated by informal financial entities such as money lenders. This can be attributed to the fact that nearly 40% of credit allotment to MSMEs in India is through informal channels. The market potential of digital lending is estimated to be between $80 to $100 Bn by 2023.

But while more robust financial support is a long-term goal, MSMEs can look to make their businesses more future-proof by adoption technology for their business by working with SaaS and analytics software startups, and get clearer visibility on their inventory, improve logistics and handle the flow of customers in a better manner.

Can Startups Boost MSME Tech Adoption?

While internet penetration has improved in areas where MSMEs are most prevalent, many of these businesses are still running in an informal manner without being registered, and thus cannot utilise the latest tech and software solutions that are being offered to registered MSMEs. However, government regulations and changes in policy have forced many MSMEs to join the formal market.

Regulatory changes such as GST and demonetisation pushed many MSMEs to go digital and register themselves, but the government’s forced transition did not work as smoothly as envisioned. Besides the technical assistance at district-level and government-backed incubation centres, a lot more that can be done to empower MSMEs.

For one, technology, which is a key position among modern startups in Indian cities, needs to trickle down to MSMEs in Tier 2, 3 and rural areas. Tech platforms such as SaaS and business analytics offerings can help MSMEs connect with potential clients to grow their business further, manage inventory smartly and enhance delivery efficiency of their product or services, manage filings, accounts and more.

MSME Day 2019: Startups and Unicorns Working With MSMEs

The potential for adoption of business analytics tools in the MSME sector is higher as it aligns with digital tools used for payments, accounts and sales tracking. For example, 47% of MSMEs have adopted digital tools for business processes, payments, and online sales in India, which means B2B tech startups have room to offer SaaS, analytics, business intelligence and inventory management solutions to MSMEs.

We see a lot of demand coming in from SMEs, manufacturing companies for TeamViewer,” Krunal Patel, TeamViewer, India sales head

While Flipkart is not stepping in with tech adoption programmes for MSMEs, it had announced a ‘Growth Capital’ programme to enable financial inclusion and independence for MSMEs who operate online. Flipkart’s 1 lakh plus sellers including MSMEs can avail credit at competitive interest rates from 10 NBFCs and bank partners with quick approvals and disbursal.

Payments startup Instamojo has announced an MSME skilling platform, mojoVersity, on the MSME Day. Through MojoVersity, Instamojo aims to empower small business owners across the country with the knowledge essential to run a successful business in the digital ecosystem. The online knowledge platform provides MSME learners video-based courses for finance, sales and marketing, digital media, social media tax filing, legal compliance, and even niche courses such as Whatsapp marketing. Not only is this familiar, but the learning process doesn’t feel burdensome.

The company says it’s focussing on services for digital payments, logistics and lending, and that it works with over 800K MSMEs, helping them navigate the digital business landscape.

Sampad Swain, CEO and cofounder of Instamojo said MSMEs need to be made aware of the scale of their contribution to India’s economy and this is especially true for the digital economy. “The scope of growth for this sector is enormous; however the presence of several challenges is preventing the same, especially the lack of knowledge on several business specific elements. A major roadblock we identified was that several MSMEs did not know where to source information from,” he added.

Similarly, SaaS unicorn Zoho is also targetting MSMEs with new products and government tie-ups. Rajendran Dandapani, the company’s director of engineering, said in a press statement recently that Zoho is supporting small enterprises that are only now moving their businesses online by creating websites, enhancing their social media presence and even figuring out ways to incorporate digital signatures to their documents. “We have onboarded several thousands of small enterprises across the globe and helped them with their digital transformation,” he said, adding that Zoho will create educational content in regional languages to help entrepreneurs with their digitisation efforts.

Remote team management software company TeamViewer recently launched operations in India and one of its key focus areas is business from the MSME sector.  Krunal Patel, sales head for TeamViewer in India and South Asia said that 2/3rd of the company’s go-to-market planning happens with SMEs in mind.

“Within SME, we want to go further micro and target sectors like auto ancillary and also managed service providers because remote working and support is required by a lot of service providers. We see a lot of demand coming in from manufacturing companies,” Patel told Inc42 earlier this month.

Solving Hiring And Upskilling For MSMEs

The MSME sector provided employment to more than 123 Mn workers in FY’16 and with the increased prevalence of digital tools and the introduction of new-age technologies, a large part of this workforce needs reskilling and learning tools. With the job crunch going on for the past couple of years, MSMEs could use a helping hand in terms of getting skilled workers, particularly for those positions which require on-the-job training. These training goals can be set at a pre-hiring stage for each employee, which brings an added measure of professionalism and efficiency for MSMEs.

Besides the problem of skilling, the traditional hiring methods and approaches have also become outdated, especially as technology is a big focus area when hiring and such talent is not easily available. HRTech startups are working with MSMEs to solve their hiring pain points, and helping them train the workforce for the challenges that adopting technology in the business adds.

Learning and training platforms are helping MSMEs create custom training modules for their workers, which is in line with the specific goals for MSMEs, which are often vastly different from big corporations. And that’s been one of the hallmarks of startup-MSME collaboration. Startups are able to view the MSME sector from a different prism – one that is similar to a startup lifecycle than a corporation – and this enables startups to target MSMEs in a very specific manner as they bring MSMEs up to speed with the latest digitalisation tools and technology.