ROLE OF E-COMMERCE TRADING IN THE GROWTH OF MSMES
Introduction
The Micro Small and Medium Enterprises (MIPYMES) sector makes an important contribution to the socio-economic development of the country. India comprises ~6.3 crore of MSMEs and the number of registered MSMEs increased by 18.5% yoy to 25.13 lakh (2.5 million) units in 2020 from 21.21 lakh (2.1 million) units in 2019. The SME sector contributes ~29% of India's GDP through its domestic and international trade. The Indian government plans to double the country's economy to $5 trillion in five years and to achieve this goal, it aims to improve SMEs' share of exports and their contribution to GDP. Also in fiscal year 22 (2 times) the government increased the budget of MSMEs to Rs. 15,700 crore (US$2.14 billion) at Rs. Rs 7,572 million (US$1,030 million) in fiscal year 21.
Government push
Since 2014, the government has been introducing initiatives such as Digital India, Make in India, Start-up India, Skill India and Innovation Fund to accelerate e-commerce in India. It also encourages SMEs to market their products on e-commerce sites, especially on government websites such as e-Marketplace (GeM), which are used by government ministries and UPMs (public sector companies) to purchase materials . The platform recorded trades worth Rs. 55,048 crore (US$7.5 billion) as of September 2020. As part of the India Digital initiative, the Ministry of MSMEs has taken numerous initiatives to digitize the entire MSME ecosystem, which housed all the offices. to spread the benefits of digital payment solutions such as BHIM, UPI and Bharat QR code.
Nitin Gadkari, the Minister of MSMEs, said at the Amazon Smbhav Summit 2021: "E-commerce will play a decisive role in the success of Indian MSMEs, and the industry needs to ensure that this digital transformation takes place at a pace that allows them to states to take advantage of current opportunities. It is becoming increasingly clear that in the coming days technology will be a crucial factor in determining the success and competitiveness of India's MSMEs, both nationally and globally. The digitization of millions of MSMEs must be a top priority He also urged Amazon and all other stakeholders, industry leaders and experts to continue to invest in and increase the potential of MSMEs and thereby make them more successful and powerful.
MSMEs have an unprecedented opportunity to embrace digital transformation with the availability of a healthy and supportive ecosystem that the current government is building.
Potential benefits of e-commerce for Indian SMEs
In recent years, the emergence/emergence of online markets through e-commerce has been boosted and has had a positive effect on SMEs. By embracing e-commerce, SMBs can reap significant benefits such as increased revenues and margins, increased market reach, access to new markets, savings on marketing costs, customer acquisition and a better customer experience.
Conclusion:
The e-commerce sector in India is expected to reach $80 billion by 2021 and $300 billion by 2030. For SMEs, e-commerce is synonymous with economic stability, growth and security; and it's a channel that allows even the smallest MSMEs to showcase their products anywhere in the world without having to pay for expansions or location changes. These platforms have enabled small businesses by breaking down barriers, providing a large customer base and consequently generating higher revenues. For the growth and development of SMEs, e-commerce markets are arguably the best catalysts to drive their transformation with minimal cost, investment and innovation. A concerted effort between government, private sector, industry groups, training organizations and SMEs is the most efficient way to support SMEs.
Increase sales and profit margins: Improving marketing timeliness, global customer base and flexible business behavior can help SMEs increase sales and provide specific e-commerce benefits, such as online referral systems. acquisition and use feedback and service channels to improve future sales experiences. In addition, the adoption of e-commerce allows SMEs to take advantage of third-party trading platforms (e-commerce marketplaces) with little or no investment in the development and hosting of online storefronts and the management of packaging, logistics, warehousing and other infrastructure. This can increase profit margins by reducing overhead and initial investment.
Reduce Marketing and Distribution Expenses: Due to increased competition in this area, e-commerce players are spending heavily on digital and traditional media to improve site traffic, win customers, build customer relationships, and drive business sales. In addition, digital channels provide a cost-effective and efficient information space to advertise and interact with the target audience, with most e-commerce platforms providing links on social media channels, which are then used by their partners to raise awareness about your products and services. . This can further help SMBs reduce costs for trade shows, offline advertising and traditional marketing, and avoid additional costs required to open offline stores in multiple locations.
Use data analytics to understand, engage and retain customers: Through their portals/websites, most B2B e-commerce players generate, store and analyze customer data, including products, prices and technical details for those who access, time spent on every page, orders placed and purchases made. in a period. These players also analyze data points such as preferences, including delivery time, location, order quantity, packaging, logistics options and payment methods. In addition, this data can be of great help to SMEs that do not have the technical means. In addition, MSMEs can use the data to respond faster to customer demand and provide better after-sales service to ensure a loyal customer base.
Extend the reach of SMEs: E-commerce has the potential to help SMEs grow and extend their reach in the following ways:
Build a global reputation - Online transactions create a verifiable history of a company's performance and reliability. Consumers often rely on these registries to identify the companies most likely to provide satisfactory service. In addition, companies and financial institutions rely on these data points to find trusted partners and identify strong companies to invest in and support growth. Therefore, a strong online transaction history is one of the most valuable assets a company can have in building a global reputation.
Access to foreign markets: One of the biggest challenges with traditional export channels is the inability of small businesses to participate in that process. To overcome this, e-commerce platforms provide a level playing field for all types of businesses seeking access to foreign markets. This can be achieved in the following two ways: one, where companies can create their own websites and fulfill orders themselves; second, where companies can open e-commerce sites that have a presence in international markets and take advantage of benefits such as inbound customer traffic and infrastructure support. In addition, e-commerce exports allow companies to test the waters and determine how products meet the needs of their customers in different segments. By experimenting directly with customers in small quantities and with low initial investment, companies can determine product market suitability and test all key operational aspects such as purchasing, shipping and returns management. In addition, MSMEs can access the information needed to build a customer base and understand their preferences in real time. For example, NMK Textiles, based in Maharashtra, is an export company that recently acquired Amazon's e-commerce platform to launch its new brand 'California Design Den'. Through this brand, the company sold and exported premium bedding "Made in India"; This helped to double its sales in North America and expand its presence in global markets.
Benefits of Acquisitions: E-commerce platforms can provide SMBs with the ability to do business directly with manufacturers and suppliers, helping to reduce the cost of acquisitions by eliminating middlemen and entering into long-term contracts. Numerous B2B ecommerce platforms have created hub-and-spoke models for supply chain management; This enables MSME partners to reduce storage costs and downtime. E-commerce offers the following benefits to SMEs:
Competitive Pricing - MSMEs generally source from local retailers or wholesalers and do not benefit from volume pricing due to low volume requirements. However, an ecommerce platform can offer the best price for products traded for bulk purchases. An offline store network is much less likely to offer competitive prices.
Wide Accessibility: SMEs face the problem of product availability due to limited inventory from local retailers or dealers; however, your need for specific products is met/satisfied by online B2B shopping as this channel offers multiple branding options and plenty of suitable products and replacements for the same or lower price.
Overcome information asymmetry: With a detailed product catalog, a wide range and better prices, e-commerce platforms solve global information asymmetry problems in the industrial goods sector. Product reviews, articles, buying guides and user guides, which are organized by ecommerce platforms, can greatly benefit buyers by helping them choose the right products for their needs.
Technology integration: Finally, e-commerce platforms provide technology benefits such as total transparency, with detailed order status monitoring, and enable recurring purchases, which are not available during offline purchases. Since industrial products are functional in nature and need to be replicated to run a business, MSMEs can take advantage of these services/offers.
Key initiatives by e-commerce companies to boost the sales of SMEs
Flipkart's "SAMARTH" - In July 2019, Flipkart, a local platform, developed/introduced the Samarth program to promote India's artisans, weavers and state handicraft industries. With this initiative, the company aims to give SMEs easy access to the online business market and provide support in the areas of business administration, warehousing and account management. With Samarth, Flipkart aims to empower millions of small entrepreneurs, leading to rural development in India.
Amazon's 'MSME Accelerate': The company launched this initiative in June 2020 to help MSMEs recover from the aftermath of the pandemic. Through this program, businesses can take advantage of sales and volume discounts to continue or run their business smoothly.
Paytm Unsecured Loans: The company launched an initiative to offer unsecured loans of up to 5 lakh (US$6,729) at low interest rates to MSMEs. As part of this initiative, Paytm, in collaboration with banks and NBFC, has digitized the entire loan process, from application to disbursement, without additional document requirements.
Shopclues "Atmanirbhar Section": As part of this initiative, Shopclues launched an online marketplace platform "Vocal for Local", which includes locally produced products in various categories such as fashion, shoes, jewelry, groceries and others. The company works with thousands of local merchants and promotes local products in the market.
Key recent developments in support of MSMEs
In April 2021, Amazon announced the “Spotlight North East” ($25 million) program to bring together and support 50,000 artisans, weavers and small businesses in the eight northeastern states online by 2025; and stimulate the export of important commodities such as tea, spices and honey.
In April 2021, ICICI Bank launched "Merchant Stack", a comprehensive digital banking service designed specifically for retail traders. With these value-added services, users such as merchants, grocers, supermarkets, major retail chains, online businesses and major e-commerce companies can meet their banking requirements and provide better service to their customers amid the pandemic. In addition, users can use these contactless services on InstaBIZ, the bank's mobile banking app.
In April 2021, Vedanta Limited, a leading producer of metals and oil and gas, launched the "Vedanta Saathi" program, which offers services including channel financing in partnership with a large number of banks, NBFCs and fintech companies; emerging e-commerce solutions (such as transparent pricing and live pricing options, instant purchase access to a diverse portfolio of products without quantity restrictions, and easy delivery tracking and micrologistics); ways of technical improvement; opportunities for MSMEs to establish support/downstream production units near Vedanta factories; and a dedicated web portal for SMEs to interact with Vedanta's quality, product application, engineering and innovation teams.
In February 2021, Walmart's Vriddhi program was expanded to Uttar Pradesh, with the launch of an electronic institute to make it easier for small businesses to access skills and competencies on online and offline platforms such as the Flipkart Marketplace and Walmart's global supply chain, resp. This new electronic institute will benefit 50,000 MSMEs across the country to expand nationally and globally.
In February 2021, Mastercard and Razorpay joined forces to help Indian small businesses and entrepreneurs embrace digital payments. This partnership will integrate Razorpay's payment processing capabilities with Mastercard's digital banking platforms and card services.
In February 2021, Bank of Maharashtra partnered with the Vayana Network, a supply chain finance (SCF) platform, to provide financial assistance to SMEs. Through this partnership, the bank will provide short-term credit to meet the budget needs of legitimate business distributors/suppliers through its Mahabank Channel Financing and Vayana Network scheme.
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