Net enables SMEs to increase profits: Study

While email was used by almost all the Internet-using SMEs (95 per cent), only 49 per cent of Internet-using SMEs had websites; IT & ITES and hospitality had the highest numbers

Recent research released by Ficci and Google shows that the Internet makes a big impact on small and medium enterprises (SMEs) in India. A survey of 951 SMEs in various industrial and geographical clusters across India shows that of SMEs that use the Internet, 69 per cent experienced an increase in customers, and 63 per cent an increase in geographic reach, while 44 per cent saw an increase in employment.

The study, by Nathan Associates, found that on average, a SME adopting the Internet for business operations is able to increase its revenues by 51 per cent, profits by 49 per cent, customer base by seven per cent and employment growth by four per cent.

The study revealed significant opportunities both for India's booming SME sector, where fewer than five per cent of all businesses even maintain a web presence, and for India's economy: small and medium enterprises are critical to the economic growth in India, where 47 million SMEs employ about 100 million people and contribute more than eight per cent of India's GDP.

According to the report, only 51 percent of online SMBs use the web to advertise a mere 27 percent use it for ecommerce. But with 95 per cent of businesses yet to even establish a website; India is poised for big gains as more small enterprises come online.

The perceived benefits of using the Internet are significant: 64 per cent of respondents reported an increase in sales due to Internet use, 65 per cent an increase in profits, 69 per cent an increase in customers, 63 per cent in geographic reach and, 44 per cent in employment. Another finding was that doubling of Internet use in SMEs can generate 43 per cent higher profits for SMEs.

While email was used by almost all the Internet using SMEs (95 per cent), only 49 per cent of Internet-using SMEs had websites; IT & ITES and hospitality had the highest numbers, and the chemical products and foundry sub-sectors had the lowest. SMEs having websites perform better than the ones not having them.

Despite perceived and actual benefits, certain problems and concerns hinder Internet adoption and prevent SMEs that have adopted it from realising its full potential. Sixty-one per cent of Internet-using SMEs are very concerned about the security of online financial and personal transactions.

Only 23 per cent of surveyed SMEs engage in e-commerce; on average they have more revenue, employees, and customers than those that do not.

Nathan Consulting commissioned Nielsen to survey 951 SMEs from 14 industrial clusters in 19 geographical clusters spread across 11 states of India. In selecting clusters, the goal was to represent India's varying levels of development and the impact of Internet use on SMEs in manufacturing, services, and agriculture sectors.

Geographic clusters were selected on the basis of inputs from the Union ministry of MSMEs and the United Nations Industrial Development Organisation (Unido). Within the manufacturing, services, and agriculture sectors, Nathan concentrated on sub-sectors that contribute to foreign trade and which are expected to use the Internet in conducting business.