Indian SME vs. Global SME

SMEs (Small and Medium Enterprises) have been at the forefront of the IT industry's interest world-wide for over 2 decades. There is even greater interest in this segment in emerging markets, where the massive scale of SMEs remains an elusive source of monetization.

Strangely, despite the intensity of interest, it remains a segment which continuously defies consistent definition. Like the proverbial elephant, the person you talk to gives you one narrow viewpoint of a narrow sub-set of this marketplace. The sheer diversity and size prevents people from getting their hands around it, and it variously gets represented as the trunk, the tail, the ears, the legs, the body — and each definition seems contradictory to the other.

This is further aggravated by the environments in which these businesses operate — and the characteristics of SMEs in emerging markets (epitomized by India), and emerged markets (typically termed as Global), differ significantly because of this.

In particular, the sheer unpredictability of SME behaviour in India — even across common business lines — can be contrasted with the far more stable business behaviour in the developed markets. My favorite illustration of this is to imagine starting a small/mid-size business in the US in 1990, and capturing the steps required to get it up and running. When someone else wants to start a similar sized business in 2010 — even in a different line — over 90% of those steps will remain the same. However, if you were to start one in India, and within 3 months, another business is started, probably less than 20% of the steps will be replicated!

This poses interesting problems for the IT industry. While there is a theoretical ability to create solutions which could handle this diversity, the ability to make such a system 'usable' is extraordinarily challenging. Coupled with the need for affordability of the solution, it is generally concluded that the investment to make this attempt is futile. Therefore, the most common approach devolves into creating solutions for niche segments or niche problems. This then further aggravates into increased cost of customer acquisition, as finding the customers in the ocean of businesses becomes a steep upward climb.

The second, and less understood, contrast is the buying behaviour of these organizations. The DIY culture (do-it-yourself) in developed markets is fairly well established. The high costs associated with 'assisted' activity has encouraged people to optimize by making most activities as self-driven. This includes their buying behaviour, and the traditional 'retail-at-the-counter' is the most common form used to address them. Effectively, the consumer and the SME, both 'go and buy'. In emerging markets, this cost arbitrage does not exist to the same levels. In fact, almost all SMEs have the buying behaviour of larger Enterprises — who get addressed through 'retail-at-the-desk', which is that people 'go and sell' to them in their offices. While most IT industry players fully understand how to service the large enterprises efficiently through appropriate feet-on-street, the sheer size of the SME market prevents them from understanding how to solve this problem. We, therefore, land up with a deadlock. The buyer expects people to 'go and sell', while the seller desires that customers 'go and buy'. The industry hopes, without any foundation for success, that delivering solutions on the cloud will magically make this problem go away.

It is possible to view the statements above with some dismay. While other important differences exist, just these two are enough to make the problems seem insurmountable. The purpose of stating them here was NOT to create that impression.

At Tally, we have been tasting unprecedented success purely because of our focus in addressing these issues. Perfecting the solutions for these problems will always be a journey, and every new step we take in the right direction is immediately rewarded with a larger addressable market, and associated results. The complexity of creating a solution comes from having no reference solution from other parts of the world, since those markets have not required to address these problems.

As more and more companies review their strategies against this backdrop, my expectation is that India WILL see more vibrancy and a larger number of success stories. As an Indian, I have a strong desire to see this happen in a few short months/years. By the grace of the Almighty, the IT industry will become an important growth enabler for this segment.