Digital economy boom is empowering SMEs in India

by Gopal Pillai

E-commerce has provided a plethora of unexplored possibilities for sellers to expand their business and scale greater heights, writes an Amazon India expert.

One of the best parts of my job is that I get to travel across India quite frequently. Wherever I go I am struck by the fact that it is small businesses that are at the heart of the communities there. It is not a stretch to say that small businesses keep the giant Indian economy humming.

India’s 633.88 lakh non-agricultural Micro Small and Medium Enterprises (MSMEs) were responsible for over 11 crore jobs in 2015-16 and contributed 28.77% to the Indian GDP, according to the 2017-18 report of the Ministry of MSME.

Small businesses are expected to contribute significantly to the growth of the industry. There are close to 51 million SMEs in India currently, which employ over 117 million people. These SMEs contribute approximately 37 per cent of the manufacturing output, and 46 per cent of exports, the IAMAI study says.

Yet, most of these small businesses remain just that—small. The reasons are many—from lack of infrastructure, absence of technological competencies, access to limited customer base and scarcity of capital to even ignorance of opportunities.                                                                                            `

But the biggest hurdle can be summed up in three questions—how do I find new customers, how do I reach them and how do I serve them well? E-commerce is the answer.

The fact that the e-commerce revolution, with its large-scale technology innovation, has drastically transformed the way business is transacted, impacting both value as well as volume growth, is well known.

E-commerce has provided a plethora of unexplored possibilities for sellers to expand their business and scale greater heights. Sellers have realized the immense potential of new business opportunities being offered by e-commerce platforms. Technology and custom-built, localized innovations are empowering the seller ecosystem at a rapid pace and offering them unprecedented scale to flourish.

The case for going digital

The internet helps SMBs break free from location based limitations. Traditionally, Indian businesses had to invest in a capital intensive and many-tiered distribution network to have a nationwide footprint. Not anymore!

Studies have shown that small businesses selling online grow faster—with profits growing by over two times—than those that do not. This is directly linked to the larger customer base that e-commerce opens up for them. Digital commerce, which grew at 34% CAGR between December 2011 and December 2017, is expected to reach Rs 2.37 lakh crore by end of this year, according to a research report by IAMAI and IMRB Kantar. That is a sizeable and fast-growing market.

Online commerce also does away with numerous inefficiencies. Historically, it was the middleman who had all the power with his stranglehold on ‘market knowledge’. E-commerce is transparent—a seller even in a small town has visibility over pricing trends across the country and is no longer dependent on a middleman for that piece of critical information.

Tech helps sellers cut across boundaries of geographies and languages to play in a cohesive, digital marketplace. It is tech that is powering small business participation from Tier II and III cities, and even small towns, thus offering a path to economic upliftment and a greater role in India’s resurgent economy.

Think Global, Act Local is the new success mantra. Technology has enabled local artisans, weavers, craftsmen engaged in Indian cottage industries and traditional arts to jump onto the e-commerce bandwagon. With tech having wiped away the boundaries of language and space, hyperlocal sellers, even in remote locations, are able to connect with customers, not just across the length and breadth of India but also globally. Technology is also a great enabler of gender diversity as it enables women entrepreneurs to join the seller community easily, safely and conveniently!

The numbers say it all. The success of the digital selling model, coupled with an India-centric approach, has resulted in an exponential increase in the online seller base across the e-commerce vertical in India. From my own experience, tech has enabled a dramatic jump in the seller base of my company. We have grown from a mere handful of sellers and 7 million products in 2013 to a phenomenal 450,000 sellers and 170 million plus product base, with a lot of this growth occurring in the last two years alone.

Within the e-commerce ecosystem, tech plays multiple roles in bridging the gap and building business relationships by establishing a direct connect with sellers. E-commerce players have custom-built tech modules that cut short this process and enable sellers to get onboard and commence selling within a record time of just 60 minutes. Compare this with the procurement process of brick and mortar stores which can take months!

The beauty of economies of scale

So why isn’t everyone online yet? Putting up a basic website is easy, but not every business knows how to drive traffic, showcase products, ensure the inventory is mapped, order management is seamless and, after a sale happens, how to fulfil that order.

This is why a marketplace, with the ability to service a large footprint nationally and even globally becomes important. Marketplaces give a seller the luxury to focus just on his area of competence—procuring and/or manufacturing products. With hundreds of thousands of sellers on one marketplace, these organisations can offer the benefits of economies of scale to all the sellers. Also sellers can pass on the savings driven by their lower cost structure back to the customers, thus increasing sales.

However, organisations working with small businesses need to understand that tailor-made solutions will be indispensable for their progress. Our experience has taught us that sellers need different options to choose from. Some might be equipped to handle storage, packaging and logistics, while others need support in some or all of these areas. On their own they will not be able to nor do they need to build each of these capabilities. Being on a marketplace helps them gain access to such services at low cost as the e-commerce platform builds such features for thousands of sellers.

Also, unlike a traditional system where hundreds of employees nationwide are needed to power growth, a SMB selling on a marketplace can target 100x growth by increasing the employee base by just three to five times.

Room for improvement

With growth come greater ambitions. To fuel their ambitions small businesses need easier access to cheaper capital. There certainly is scope for improving the quality of internet connectivity especially in smaller markets. The recently announced National Digital Communications Policy-2018 has the stated objective of bringing broadband to all Indians by 2022. That will be a gamechanger for small businesses.

If we can help these businesses grow faster, more jobs will get created and the Indian economy will prosper at a rapid pace.

My experience shows that small business owners in India do not need handouts. What they need is well organised systems, customised tools, right support and guidance centred on seller success. The opportunity is gigantic and exciting; we have only started.

Gopal Pillai is the Vice President – Seller Services, at Amazon India.

2019-08-19T06:52:38+00:00August 9th, 2019|2019, Global Edition – August 2019|

About the Author: Gopal Pillai