“At least 40% of businesses will die in the next 40 years if they don’t grab the digital opportunity to mark upon their digital transformation journey.”
India has 6.3 crore MSME units, contributing around 30% to its economy and employing 110 million people. The MSME sector comes second only to the agriculture sector in terms of employment generation. Adoption of digital solutions and technology tools is imperative for quadrupling the present growth rate of MSMEs. The digital journey started especially due to the pandemic that forced SMEs to mark their online presence on e-commerce and social media platforms.
To assess the online presence and its impacts on Indian MSMEs so far, PayPal conducted an MSME digital readiness survey. The findings were eye-opening; let us see where our MSMEs stand and what the future looks like for them.
PayPal Digital Readiness Survey
To go digital is the only secret ingredient for Indian MSMEs for booming growth. PayPal in association with Edelman Data and Intelligence released the reports of “MSME Digital Readiness Survey”. The PayPal survey was conducted between October 2021 and November 2021. The primary objective was to analyze the effect of the COVID-19 pandemic on micro, small, and medium enterprises and the role digital adoption has played so far in coping with the disruption.
Key takeaways from PayPal Survey
The findings were based on interviews with 250 MSME owners and decision-makers.
- After the Covid-19 crisis, 52% of Indian MSMEs reported a positive influence on their firm due to digitization.
- More than a quarter of those using social commerce started to do so during the pandemic.
- More than half of small businesses recognize social commerce as the key growth ingredient in the past year.
- After watching their competitors use social media, 65% of India’s MSMEs started using it.
- A marked shift can also be seen in MSMEs towards digital payment adoption. Approx 98% of Indian MSMEs are planning to invest in more payment options to build trust among customers in their platforms. These massive numbers have the potential to bring a digital payment revolution in the MSME sector.
- Around 38% of MSMEs plan to invest monetary resources to provide a seamless payment experience to their customers.
- 2 out of 3 Indian MSMEs are making use of social media platforms for selling their products and services and building a faithful audience.
- The trend towards having an online presence in Indian MSMEs is higher than it ever was. The enterprises are building their e-commerce websites, applications, and also selling them through third-party e-commerce platforms and marketplaces such as Amazon, Meesho, Flipkart, etc.
- Around 48% of MSMEs are planning to either build their own e-commerce website or application or boost their online presence by expanding the present product or service catalog.
- Cross-border trade is one of the main trends being observed in the Indian MSME sector as around 94% of MSMEs believe that cross-border trade is important for growth.
Moreover, while there have been obstructions in supply chain flow, logistic cycle, and demand generation during the pandemic, some other areas showed marked progress due to digitization.
- 33% increase in delivery options
- 29% of enterprises witnessed an increase in online customers.
- 32% of MSMEs believe that digital payment infrastructure provides better and quick transaction options.
The state of MSME digitization in India
India’s goal of taking MSMEs’ contribution to GDP from 30% to a massive 50% will require digitization, automation, and technology adoption at a larger scale. The digital opportunity window is open for MSMEs because of the increased phone usage and internet penetration, around 88% of houses have a phone in India as per TRAI. Also, the digital lending and payment infrastructure are receiving considerable focus from the Indian government. Along with the launching of the Digital India and Smart India mission, the government is also nudging small businesses and MSMEs to bring digital transformation. Moreover, the Indian Government has also launched India Stack 2.0 to address the issue of liquidity crunch in Indian MSMEs.
The key impetus for MSMEs to go digital is:
High Internet Usage: India has 560 million internet users, i.e., the potential customer base for various products and services provided by MSMEs. India’s digital economy has a massive worth of $85-90 billion. The number will grow to a gigantic $800 billion by 2030.
A Shift in Consumer Behavior: The pandemic and lockdowns stimulated a shift from offline purchases to online buying. As a result, MSMEs are benefitting from a 65% increase in online customers. Moreover, the probability increases even further for MSMEs offering various digital payment options. There has been a significant increase of repeat customers as well, around 46%.
Social Commerce and Cross Border Trade: The Biggest Trends in 2022 MSME Ecosystem
1. Social Commerce
Going digital and building an online presence were game changers for Indian MSMEs during lockdowns. Around 56% of MSMEs saw selling through social media platforms as the main growth driver. The primary reasons for a boom in social commerce are:
- The user-friendly interface of social media apps
- Easy consumer journey with a seamless experience from discovery to delivery
- No location boundations, pan-India and cross border delivery option increase market size
- Allow MSMEs to reorganize, reduce costs, analyze expansion options
- Immediate focus group provision, easy and quick understanding of what audience prefer by using analytics options
Due to this, small enterprises and businesses are flocking to social channels to sell and advertise their products. Social media channels also enable businesses to access a digitized inventory of several commodities bought at wholesale pricing from suppliers, along with logistics and customer service, through social resale channels. Also, the social media platforms do not charge a commission and MSMEs need not invest in the building of a full-fledged application. This brings down the costs significantly.
2. A universal agreement with cross border trade
Almost 100% of Indian MSMEs are planning to pristine cross border trade for bringing growth in their businesses. While 64% of merchants were already trading cross-border even before the Covid-19 pandemic, 35% began during the pandemic. Thus, 3 out of 10 MSMEs recognized the potential cross-border trade poses and grabbed the opportunity. Moreover, around 86% of MSMEs recorded an increment in cross-border trade during the Covid-19 pandemic.
While the focus on CBT is worthy of appreciation, the persisting challenges such as high logistic costs, exchange related problems, fraudulent concerns, and long delivery time are the biggest concerns. Technological advancements and adopting global payment systems is what Indian MSMEs need to take their share in India’s export portfolio to the next level.
How can the digital payment revolution benefit MSMEs and entrepreneurs?
As more Indian SMEs are adopting digital solutions, it makes sense to invest in fulfilling the need for digital lending and payment infrastructure. Some startups are doing an exceptional job in providing fin-tech solutions for Indian businesses. Around 98% of the firms polled in the PayPal Survey said they would like to invest in more payment options. The key objective is to ensure a seamless payment experience for online customers. Also, 89% of MSMEs want to enhance card payment options and simplify the overall process.
To enhance sales, nearly 40% of respondents plan to spend on enhancing the checkout and payment process. According to small enterprises, the main reasons for doing so are to accept payment from new digital sales channels (60%) and to integrate loyalty programmes.
The Road Ahead for Digital Adoption in Indian MSMEs
“It’s no longer the big beating the small, but the fast beating the slow.”
Digitization is getting more and more ingrained in our daily lives, and it will become even more so in the near future. And to keep up with the domestic and international competition, MSMEs must resort to all things digital. Many small businesses and micro-enterprises are finding themselves stuck in laborious, inefficient, and unscalable situations. So, there exists an evident need for technology to transform and promote growth in the MSME sector, particularly in the nano and micro-enterprise categories. Along with entrepreneur recognition, creditworthiness, program implementation, audience reach, a well-integrated and connected digital ecosystem is ideal for building connections and driving transformation, as well as enabling granular and cost-effective data collection in the sector. This, however, is not without its difficulties, as upgrading existing systems—or totally new ones—is a typically difficult task.
Read more: https://smeventure.com/digital-technology-to-help-msmes-spread-their-growth-wings/
Written by,
Prasad P. Patkar