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Digitization Impact on SMEs

There are always two sides of everything, similarly digitization has a negative as well as positive impact on SMEs. Let's see how digitization has an impact on SMEs.
BY Akshay Arora
Feature Writer, BusinessEx
Nov 13,2017

In this highly dynamic and vibrant economy, SME sector is on the rise, the recent developments in technology and advancement in digitization has a major impact on SMEs growth. The digitization has expanded the landscape of operations for small and medium enterprises. The major impact in technology advancement is that several non-tradable services are now tradable, which has helped offline businesses to explore more options online. Lets see some actual facts of digitization impact on SMEs.

SME Digitization Trends:

  • According to Ministry of MSME 2016-16 report, there are 51 million MSMEs in India contributing 37.5 per cent GDP contribution.
  • A study by BCG-Google and TRAI reveals that there are 1.3 billion mobile subscriptions and 350 million internet users in India. These users are exploring and transacting with businesses online.
  • Approximately 68 per cent of small businesses are offline and only 2 per cent are actively promoting their business online. Internet penetration is expected to increase 50-60 per cent by 2020 and with the rise in trends if businesses also collaborate then they can contribute 46-48 per cent in GDP growth rate, as per the statistics showed by KPMG report on Impact of Internet and Digitization.

Digitization Impact on SMEs

Wider scope:

Advancement in digitization has enlarged the scope of operations for small businesses. They have more and better opportunities to expand their business in new industries as well. With an online presence, a business can provide its services to a large consumer base worldwide unlike offline businesses as they are just limited to a confined user base. As per KPMG report, in the B2C type of business, there is a growth of 20 per cent customer database for an online catering business and offline businesses have shown only 11 per cent rise in a year. Even in the B2B type of business, the online engaged businesses showed 20 per cent rise while offline showed 10 per cent in a year. This is a great opportunity but it is not fully utilised yet, as reflected in the statistics.

Increase in revenue:

A huge impact has seen in businesses after the digitization especially in terms of revenue. The most important objective of a business is revenue, the higher the revenue, higher the growth of the business. Businesses that adopted this new technology showed high profitability. The trends in KPMG report reflects that online business profits grew by 19 per cent yearly and offline business revenue grew by 10 per cent. These statistics clearly show that how digitization has benefitted small businesses in profitability.

Intense competition:

After digitization, the offline businesses went online and new businesses started in this space. The competition keeps on rising in all the industries which made it difficult for business to last longer than a year or so. To survive in the current business ecosystem, it is essential to stay updated and connected with the new technology. It is analysed that startups are not lasting much longer in terms of duration as most of them suffer loss and close down after a year and if somehow startups manage to surpass this duration they have a hard time to run their business. The digitization has opened up with opportunities but there are drawbacks as well.

Digital Marketing:

Digital marketing has certainly helped many businesses to promote their business at low cost. Businesses can use social media to promote their business. The main social media handles that has helped business in promotion are Facebook, Instagram, Google, etc. The personal selling concept is not much beneficial than this method. Digital marketing has made a huge impact on business productivity.

New Business Opportunities:

In India, the digitization has created a flood of new ideas and provided the right channel as well but due to lack of knowledge, the resources are still not fully utilised. More business opportunities are now available but only a few adopting it properly. Small businesses are the most profitable after digitization as they can operate their own business and can have an online presence as well like a small businessman can sell their products on big platforms like Flipkart, Amazon, etc.

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