In recession, small is bountiful

The global slowdown has created opportunities for Indian small and medium enterprises operating in the information technology space in both international and domestic markets. To tap these, SMEs are looking to consolidate and compete with big companies under one brand.

SMEs contributed an estimated $25-30 billion of India's IT services' export which was $47 billion in 2008-09.

K Purushothaman, Nasscom's regional director for Tamil Nadu and Kerala, said the new opportunity for SMEs was in their ability to offer products at competitive prices with better service.

Most recession-hit clients, domestic and foreign, are asking for price cuts that large Indian IT firms are unable to offer due to high overheads. However, SMEs can afford to do so, since their employee costs are low.

This is the right time to enter the domestic market, which is projected to expand five-fold by 2020 to $90-100 billion, including both technology and business outsourcing, said Purushothaman. BFSI and public services are expected to contribute 40 per cent of the opportunity.

Krishnakumar Natarajan, who heads Nasscom's Emerging Companies Forum and is CEO & managing director of MindTree, says that while emerging companies in the IT industry are able to bring out new products, they are unable to market their products and address the right target customer. To address these issues, Nasscom has started an initiative that includes a mentorship programme and B2B collaboration.

The mentorship programme for emerging companies is currently underway in Delhi and Bangalore and will be launched in Chennai, Hyderabad and Pune this year.

Nasscom is planning to build a portal, in which all the emerging companies will be listed, and which will serve as a readymade vendor database.

It has tied up with Bitcom, an association of emerging companies in Germany, and with a similar organisation in France also. Every year it will take delegations abroad, consisting of only emerging companies.

Chennai-based CI.com, an SME, is looking at the domestic market, said its president, Sarada Ramani. The company has developed two products, Mobile SalesPerson (a remote order and invoice entry system that runs on handheld devices) and Sage Pro ERP (an accounting and manufacturing solution) and supplied them to over 500 clients in Australia, North America, West Asia and South Africa. Now it is looking at Indian retailers and financial institutions.

"Earlier the domestic market used to be price- and brand-sensitive, but now the outlook is changing. Customers are ready to pay a good price for a good product and service," she said.

According to Nasscom, SMEs' success in the domestic market will be determined by factors such as low-cost delivery, end-to-end service offerings, specialised offerings for domestic markets, local language capability and alternative 'value-based' pricing.

Purushothaman added that in the domestic market, apart from manufacturing, retail, health care, pharmaceuticals, telecom, transportation, education and utilities, SMEs can play a larger role in e-Governance projects such as smart cards, digitisation of various departmental and public data, and automation of the public distribution system.

Ramani said that SMEs are currently unable to participate in these projects because the government has eligibility criteria (including line of business in terms of tenure and turnover) that keep them away from the tendering process.

While Nasscom is trying to persuade the Tamil Nadu government to include SMEs in e-governance projects, some SMEs have decided to consolidate themselves not only to skirt the revenue cap kept by the government, but also to take on big players, which have started looking at small customers due to the slowdown.

 One example of such consolidation in Tamil Nadu is the coming together of five SMEs -- CI.com, Tycons, Shrim Soft, Fifth Generation and Blue Shit -- to float a new company.

The other potential market for SMEs is their counterparts in other industries, in both the domestic and international markets like the US, where a sizeable untapped segment of SMEs is opening up.