The future is full of possibilities for SMEs and it is up for grabs by the virtue of opportunities afforded by the e-commerce boom in India. A joint report by KPMG and Snapdeal examines the influence of e-commerce on SMEs in effecting efficiency gains and in changing the way they interact in the global market
The e-commerce sector in India is projected to cross $120 billion by 2020 and $300 billion by 2030 and is already changing the way small and medium businesses operate. Increasing Internet penetration, growing adoption of smart phones and increased market awareness will further accelerate the growth of e-commerce. A new trend is taking shape, with many SMEs taking the e-commerce route to establish themselves in the market and using Internet not only as a marketing tool but also to understand if a unique product has high demand in the market. Indian SMEs are looking at e-commerce as an innovative tool to build fresh business models.
Despite significant contribution to the economy, SMEs are faced with a number of challenges including competitive pressures, locally, nationally and internationally. In this highly competitive market, in order to keep their position intact and their businesses sustainable, SMEs need to improve access to new customer segments and reach customers in all corners of the world. This is where e-commerce comes in to improve their competitiveness and provides businesses a platform to achieve a truly global scale. SMEs have begun to recognise the potential of e-commerce and understand that its adoption could play a major role in enabling growth for their business, both in domestic and international markets.
By adopting e-commerce, SMEs achieve significant advantages such as increased revenues and margins, improved market reach, access to new markets, cost savings in marketing and communication spend, customer acquisition, and improved customer experience.
Potential Benefits to SMEs
Increase in revenues
Offline SMEs are limited by their geographical reach and more often than not, make incremental efforts in expanding the consumer base which is acquired over a long period of time. E-commerce aids SME businesses in conducting transactions at a global level by offering a platform that can be accessed across geographies, thereby increasing the volume of sales handled and the revenue generated. The improved speed to market, global consumer base and flexibility to conduct business can potentially boost SME revenues to the tune of 51%, along with e-commerce specific advantages such as online referral systems for acquiring even more customers, insight-based personalisation to improve customer acquisition, service and feedback channels to ensure all lessons learnt are immediately incorporated to improve future sales experience.
- Lower marketing and distribution spend
Since competition in the e-commerce space has increased significantly, e-commerce players are spending heavily on both digital and traditional media for improving site traffic, acquiring customers, building customer relationships, and ultimately for improving sales. SMEs could reduce expenses on call centres, trade shows and even offline advertising thereby optimising the overall marketing and sales spend to the tune of 60% to 80%. Additionally, e-commerce adoption reduces costs associated with traditional marketing as well as any incremental cost required for opening additional stores at multiple locations.
- Increase in profit margins
Adoption of e-commerce enables SMEs to take advantage of third party trading platforms (e-commerce marketplaces) with limited or no investment in developing and hosting online storefronts and in managing infrastructure/operations for packaging, logistics, warehousing, etc. This may boost profit margins (up to 49%) by reducing overhead costs and upfront capital investment. Reduction in costs allows for a more competitive pricing strategy, which in turn can positively impact sales volumes. Increase in transaction volumes further adds to overall profit values. E-commerce platforms allow SMEs to engage directly with consumers without the need for any middlemen or agent, which further results in reduced transaction costs.
- Improved geographic reach and accessibility
The Internet transcends all geographic boundaries and provides an opportunity for SMEs to connect with several buyers and sellers across geographies. This enables them to enter international markets at a fraction of the cost and gives them the opportunity to directly compete with global giants within their industry, thereby contributing to the government’s ‘Make in India’ campaign. As geographical boundaries disappear in the virtual marketplace, SMEs are selling 24×7 across the world without any time zone restrictions, and with limited investments.
- Shorter time to market
The window of demand for a particular product category can be very short, and if companies fail to respond to the demand in the given time, they could miss out on the opportunity. The ability to introduce a product into the market before a competitor does could be a key success factor and there are few sectors in which this is more conceivable than in e-commerce. Adopting e-commerce enables faster communication between SME sellers and buyers and helps to avoid potential chaos in the supply chain. They can streamline communications, eliminate redundant processes, and improve order management capabilities, thereby increasing the market relevance and product visibility.
- n Improved customer experience
Intense competition in the e-commerce environment nudges and at the same time encourages SMEs to operate within the paradigm of ‘customer first’ business philosophies. E-commerce companies support these SMEs in their quest to offer better customer experience across the customer lifecycle by helping them institute customer-focused processes enabled by tools and technologies. Quicker response to customer inquiries, interactive order taking processes and better after-sales service to customers are just few of the improvements which over a period of time lock-in a loyal consumer base and eventually turn them into strong brand advocates.
E-commerce is no longer a passing trend but a business reality that can no longer be ignored or contained. SMEs that remain oblivious or determined to ignore the online transaction market may have to compete with organisations that have capabilities far beyond theirs.
Ignore e-commerce at your own risk
E-commerce in India is gaining traction at an accelerated pace. SMEs who are offline may realise, albeit a bit late, that adopting e-commerce could cause more good than the perceived harm. Technology and innovation bring positive change which can drastically improve the way small and mid-sized businesses operate and not doing so may increase the effort to stay in the game.
- Not having an online presence or presenting a poorly designed website can put the business at a serious disadvantage, especially in consumer centric sectors such as retail, export and tourism.
- Ignoring technology or adopting solutions which are not an appropriate fit can leave the business crippled and without the competitive edge it needs to survive in the market today.
- An increasing number of SMEs today lack an organised central database of customers and sales records. This makes it difficult to carry out marketing and communication related activities while a significant portion of the target segment remains unaddressed.
- In a country that is increasingly going online, assuaging fears of obsolescence will depend on equal opportunity creation across the board for SMEs, even in the most remote locations and by enabling them to tackle the challenges of adoption. With the online consumer demand already at an all-time high, the market expects a fulfilling environment which is seamlessly on autopilot. To this end the government has taken several steps in the last few years to boost SME participation in e-commerce. These include Digital India, Make in India, and Skill India.