Focus shifts to emerging economies
The Hindu Survey of India Industry, May, 2011
An article by Rajeev Mittal, General Manager, Small and Medium Enterprises, Microsoft India
A recent Economist's report on emerging markets states that 70 percent of the growth of the world economy will be powered by emerging markets! While Asia's emerging economies are growing at an average annualised rate of over 10% America's GDP fell by 1% in 2009. The same report states that emerging Asia could grow by at least 5%, while the G7 economies contract by 3.5. The focus for growth has shifted to the emerging economies and within these it is the SMBs which are powering growth. What is interesting though is that if China, India and Indonesia were among the few economies in the world that continued to expand throughout the global downturn, it was largely due to the resilience and agility of the SMBs.
SMBs have been consistently growing at a higher CAGR than their larger counterparts. In India, SMBs form 99% of businesses employing 90% of the workforce and represent 50% of the country's GDP (AMI Partners). To help India realize its long-term "potential" it is important that we acknowledge the growth coming from this segment, and it is imperative that we help to sustain it. While this holds true for the segment at large, the question arising here is that does this also apply to SMBs within the Technology vertical (IT SMBs) - typically a set of ISVs and SIs that work to deliver IT support for businesses & consumers across the board?
At Microsoft, we regularly engage with customers and partners to understand how SMBs are responding to the current economic climate and adapting to its competitive challenges. In a recent SMB/Partner Insight Report, a survey conducted across the U.S., U.K., Canada, Brazil and India that looked at business and technology trends among SMB customers we found that businesses clearly are still focused on technologies that will help bolster the bottom line - either by containing costs, enhancing business functions, or acquiring and retaining customers. So businesses serving the IT needs of an economy are definitely going to remain critical in the near future. This means that there is immense potential for the growth of IT SMBs across the world and also in India.
An exploration of the IT business landscape in India is critical to understanding the challenges in this space and the opportunities which exist for them to leverage. While we have had fantastic success stories in India including the likes of Infosys and Wipro what is clear is that they have had a long steady growth path and it is with time that they have come to be the successes they are today. These businesses have also clearly leveraged the opportunity which the booming IT industry provided to them at the global scale. What IT SMBs need to learn from these examples is that patience is critical but so is an astute understanding of the opportunities which they could leverage in the current scenario. The focus is shifting significantly, to the domestic market and to markets in other emerging nations from where the next wave of growth shall be coming.
A services driven model of functioning has been the mantra of past growth, and while the excellence in services is laudable, it is time we begin looking at local Innovation more closely. The next stage of evolution will clearly come from there and IP and innovation is one critical piece which needs to be addressed by these businesses if they are to fast track their growth into truly global players. Today in India we have only a handful of software product companies creating IP for the domestic market. Going forward, as an increasing number of ISVs start looking at the domestic market vis-a-vis the traditional export-oriented outlook, the scales will tilt in favour of IT innovation from India. While Indian IT companies have been traditionally focused on creating ideas for others with an implied thrust on software services exports, software product creation is an opportunity which has been lying dormant and largely unexplored. Also, most ISVs need to build on management expertise today and map their ideas with market needs, both from a financial and technology roadmap perspective.
There is significant support from the industry available for this and several vendors including us at Microsoft have been working closely with Indian ISVs and the ISV ecosystem influencers, such as industry, government, VCs (venture capitalists), and incubators, to generate a world which is more conducive for innovation. We are focused on building a robust software product ecosystem in India, by collaborating with ISVs (independent software vendors) to help them build innovative world-class products. Microsoft also facilitates the dynamic journey of an entrepreneur through its cloud solutions. A one person company will surely grow into a small business and then keep growing. An entrepreneur will need technologies which will grow and scale with the size and complexity of the business. Solutions in the cloud promise to become a partner to them in sustained growth. In this paradigm the sky is the limit! At Microsoft we also offer a fillip to entrepreneurship through our programme called BizSpark. BizSpark is designed to accelerate the success of IT entrepreneurs through software support and a vibrant ecosystem in the country. BizSpark aims to provide Indian startups with software, support and visibility at a time in the lifecycle when they are most valuable and least affordable which is during their first three years, with no upfront costs and minimal requirements.
USJade Software Limited is an apt example as they help clients improve their business performance by providing a comprehensive suite of services. Being a service provider, active collaboration with internal teams and client is the primary requirement for the success of its business, and this had become a pain point for the company. USJade opted for Microsoft Online Services that gave its employees a 25 GB mailbox, access from anywhere and a 99.99% SLA-backed uptime. Microsoft Exchange Online helped USJade collaborate better—both internally and with their clients. By eliminating the need to maintain any software and hardware on their premises, Exchange Online services helped USJade meet their needs of robust security and all-day every-day reliability, which resulted in improved productivity at a lower cost. Nishikant Nair, Manager - Infrastructure Practice USJade believes that, "Microsoft has a very clear roadmap that was very important for us to understand, as we wanted to invest in a future-proof solution, including upgrades to the latest version of the product. Microsoft delivers a holistic business productivity approach to meet our ever-changing business demands."
Microsoft's recent SMB-Partner Insight report has reiterated to us that SMBs are pursuing growth and sustainability and are seeking innovative solutions as tools of cost-effective growth. The report also suggests that remote workers are going to be on the rise leading to a corresponding rise in demand for collaboration and mobile communications solutions. There is great business opportunity waiting to be leveraged to help IT businesses to grow, as the environment is conducive to their growth; and they need to leverage that, like their successful predecessors have done in the past.
As IT SMBs stand at the threshold of greater growth, the ecosystem needs to evolve to support them. The key catalysts for bringing this change will be a stronger IPR regime, easy availability of venture capital funding to enable start-ups/IT entrepreneurs, and skill enhancements of Indian ISVs to build requisite competencies for product innovation and adoption of the right technology tools. We stand at a unique juncture where the industry forces have colluded to create the relevant opportunity of growth for IT SMBs and they need to respond to this. The sooner these businesses embrace these changes, the faster will be their journey towards being an innovation superpower.
This article was first published in The Hindu Survey of India Industry .