Digitization of MSME to become a $10 billion market

Digitization of MSME to become a $10 billion market
Digitization of MSME to become a $10 billion market

Offering digital services to MSMEs is a market that has a potential to grow exponentially in the coming years. Studies find that this market will grow at a CAGR of 50 per cent for the next five years to touch $10 billion from $1.5 billion last year.

Greater adoption by more number of MSMEs and increased spending by them for digital services, including online sales, payments, lending, logistics, advertisements and SaaS are set to grow. According to RedSeer Consulting, as of 2018 three million or just 6 per cent of the MSMEs had adopted digital services.

Low level of awareness, talent crunch and cost are some of the factors that lead to lower adoption of digital services. “Small businesses find it difficult to get resources who know how to operate the various software and digital tools. Since businesses are small/less complex, they do not feel need to buy or use these digital services,” said Anil Kumar, founder and CEO of RedSeer. 

However, RedSeer expects that 20 per cent of the MSMEs or 14 million will adopt digital services by 2023, growing at a CAGR of 35 per cent. There annual spend will increase $500 to $650 in five years. Both together will take the total market size to $10 billion.   

“We are very bullish on the opportunity ahead in digitization. We expect rapid growth as more MSMEs come online to these platforms. Additionally, we expect MSMEs to adopt a wider bouquet of services with platforms pushing them to adopt them in future. Our research with MSME validated that those who have adopted digital services show a strong benefit and optimism from their digital journey and are willing to adopt other digital services in the future especially advertising and enterprise software,” said Kumar.

Associating with online marketplaces is one of the major triggers for this growth. Online Marketplaces have been instrumental in MSME digitization, by opening a wide customer base which never existed for MSMEs, supported with deep insights around the products, demand, planning and pricing. Starting from this initial hook for MSMEs, over time these platforms have themselves become more mature and are offering an ever-wider bouquet of services for their MSME partners.

These platforms put MSMEs deeper into an ecosystem that offers digital payments, lending, advertisements, logistics and other digital services. MSMEs can then selectively adopt various business services over time as the marketplace matures and MSMEs feel a greater need to invest on these services in order to stay relevant and to continue serving their consumers effectively.