Since November 8, 2016, much has changed with respect to how Indians conduct business and transact on a daily basis. The removal of over 80 per cent of India’s active liquid currency present in the market and its transition from a cash-only economy to a digital economy was begun in earnest in the year that followed. Indian consumers began to use digital payment systems to purchase and sell items, and even as cash flowed back into the Indian economy, digital transactions continued gaining in volume — 105 million transactions were undertaken on the UPI Interface in November 2017 alone. This transition to a more digitally-led economy had a significant impact on the Indian SME sector as well, with many adopting digital payment systems. The relative ease of adoption of digital payment technology helped many SMEs contemplate reaching out to and fulfilling customer requirements through the digital realm – taking the SME sector and the Indian economy one step closer to going completely digital.
Estimates indicate that there are 42.5 million SME units in India, providing employment to 40 per cent of the country’s workforce, accounting for 45 per cent of the nation’s manufacturing output, and 40 per cent of its total exports. Countless SMEs across the length and breadth of the country are operating in all manner of conditions, creating products and services to meet consumption needs in their own local areas. They often have great experience and skills in their own areas of expertise, but face tremendous challenges for their growth. They are usually small-scale operations that tend to work outside the boundaries of the formal banking system, and face great difficulty competing against larger, and better organised companies that are more location-agnostic than they are. The demonetisation exercise compelled many such organisations to begin using digital payments. The policy framework post-demonetisation was extremely encouraging, and the success of smartphone proliferation made this transition much easier than it might have been in the past. While this was essential for SMEs to do just to stay in place, going beyond digital payments might be essential for SMEs to compete with legacy players in the market.
One of the biggest weaknesses of SMEs in comparison to larger companies was their inability to advertise or market themselves effectively, due to the high costs associated with such campaigns. Even if they were able to advertise in some form, their voices were drowned out by the amount of money that larger companies could bring to bear on forums such as newspapers, radios, and television. Customers also found it easier to trust larger brands, with the expectation that receiving products and services from them ensured a certain level of quality. Most customers were unaware that SMEs could often provide comparable and occasionally better quality of service than larger corporations — at a lower price point. This lack of awareness needed to be bridged — and in an increasingly technologically-savvy Indian market-space, digital platforms became key to providing an even playing field for SMEs to challenge established players.
As these SMEs have become capable of transacting digitally, a larger number of opportunities has opened up for them. The more ambitious and tech-savvy SMEs have begun to recognise the inherent value in using the digital channel for greater outreach to customers. Digital platforms enable them to compete with established players with much greater chances of success, especially since they can offer their wares at competitive prices and don’t need to spend money on advertising. Further, the platforms lend an air of credibility to the SME, making customers more likely to trust them while transacting digitally. The reviews and customer feedback on their products on such online platforms also go a long way in removing any doubts customers might have, and help SMEs chart a tangible growth strategy by removing many pre-existing logistical problems. Many digital platforms take the burden of delivering the products on themselves, helping SME companies save the expense of last-mile delivery. Such marketplaces or platforms can provide a win-win solution to the scaling up problem we discussed earlier.
While the post-demonetisation Indian economy is still taking steps into becoming a digitally-led marketplace and better realise the promise of technology and digitisation, SMEs could end up leading the charge towards a more dynamic and technology-led economy. Combining with eager young startups deploying digital platforms, SMEs can improve their outreach and end up engaging with customers across the country, reducing their costs while increasing sales and profit. More and more SMEs are now turning towards digital platforms to realise their complete potential, and we can look forward to a future where the digital India tide can lift the SME sector towards greater competitiveness and productivity in the marketplaces of tomorrow — virtual or otherwise.
(The writer is co-founder and CEO of Rentsher)