Mar, 2019
B2B Digital Services Landscape in India Impact on MSMEs
B2B digital services in India are a market of USD 5.6 Bn and is set to grow by ~39% in the next 5 years
Authors
Anil Kumar
CEO
Ujjwal Chaudhry
Director
Vithika Mishra
Engagement Manager
Executive Summary
1. MSME's in India account for ~38% of GDP in 2018 to the tune of USD 1.1 Tn
2. B2B digital services in India are a ~ USD 5.6 Bn industry consisting of Digital Marketplaces & Listing platforms, On Cloud Enterprise Application (SaaS) and Digital Ancillary services
3. B2B digital services are growing at a strong pace of ~39% CAGR driven by rise of 7000 + digital start-ups in India
4. The digital start ups offer MSME focussed services such as software 'modules', one stop solutions, vertical enterprise application, 'pay as you use' facility and lifetime licenses
5. The MSME penetration of digital services is in the range of 6% to 10% and assessed direct revenue impact of digital services on MSMEs is to the tune of USD ~18 Bn in 2018 growing at ~30% CAGR
6. Manufacturing setups; specifically auto ancillary, Textile, pharma and chemical, food manufacturing and jewellery; have been the earlier adopter of digital services among MSME's
7. Although service sector in MSME has seen high digital engagement and has moved quickly towards spending on digital advertising and setting up own website
8. Challenges lie in creating low cost digital talent pool accessible to MSMEs, changing mindset to increase digital adoption and building overall awareness of digital impact on business efficiency
MSMEs have opportunity to gather increasing value from the digital services offered
Introduction
B2B Digital Services Landscape and It's impact on MSMEs
B2B models in digital services in India have seen a steady growth as enterprises have gradually increased their adoption over the years. Way forward for the services lie in deeper penetration into the MSME segment that constitute more than 90% of total enterprises in India, make a significant contribution to the country's GDP and also generate large scale employment across the nation. Hence the study was conducted to assess the maturity of digital services in India and their impact on the MSME segment so far- also encompassing the opportunity size, key challenges and future growth trends. With this objective in
mind, the report covers following key aspects:
1.Assessment of the B2B digital services- Market size, growth and growth enablers
2.MSME overview- with focus on current digital adoption
3.Understanding of impact of digital engagement on MSMEs
4.Challenges for increasing adoption and
5.Future adoption trends
MSME Overview
B2B Digital Services- An Introduction
B2B Digital Market- Overview
B2B digital services in India are a market of USD 5.6 Bn and is set to grow by ~39% in the next 5 years
B2B Digital services had an impact of at least USD 18 Bn in 2018 on the revenue of MSMEs- enabled by digital marketplaces
The digital market places & listing platforms is estimated to rise to USD 9.4 Bn in 2023 growing at ~38% CAGR
This growth is being led by innovations that ensure platforms offer more personalised buyer experience and wider business support to sellers
The segment has evolved from enabling seller discovery to enabling transaction to offering add on business operations support to seller
The growth of digital platforms can be attributed to emerging operational and technology innovations that offer faster, cheaper service to ever rising net savvy customer
Online wholesale market in India is of USD 0.3 Bn – enabling marketplace for at least 4.5 million businesses pan India
IndustryBuying- focussed on building a profitable SME e-commerce model has been doubling it's revenue in past few years
Listing platforms market in India is of USD 0.2 Bn and is set to grow by ~29% to become a USD 0.9 Bn market by 2023
Business process enabling marketplaces (BPEM) in India are growing at strong pace – as they enable offerings more specific to MSMEs context of use
IndiaMart- One of the largest online marketplace is platform to 4.7+ million MSMEs
The company currently has 59.8 Mn buyers & has been growing even rapidly by offering more and more customer centric solutions
Oyo Rooms- A budget hotel chain transforming the mid segment hotel sector in India expects to have 200,000 hotel rooms inventory by FY19
Practo - Established reach in 35+ cities and facilitates 45 M + appointments on its platform
annually
The digital ancillary services constitute those offered to enhance ease and innovation in
business support activities are seeing strong growth
Digital ancillary services are expected to be a USD 9.2 Bn segment by 2023- but are yet to build penetration into MSME segment
The growth of digital ancillary services is promising given the ease of business that they enable through use of advanced data analytics technologies
Mswipe- An Independent merchant acquirer and POS network provider claims to have a network of 0.25 Mn terminals across India with a large SME base
Digital advertising industry in India being led by google and Facebook with ~80% market share
South Seas Distilleries, a 24 year old company has adopted Digital advertising just 3 months back and has already started seeing benefits
Enterprise Applications that enable business operation on-premise requiring heavy investments are being replaced by On cloud applications
Indian B2B digital Services in SaaS is ~USD 0.9 Bn in 2018 which is growing at a ~1.5 X the global industry
Indian SaaS based services market is being fuelled by expected strong growth of CRM-as customer experience becomes of utmost importance even for SMEs
SaaS application in India is growing with strong initial adoption by tech based start-ups
and on the back of rising number of Indian players
On cloud CRM service in India are set to become a USD 1.7 Bn market by 2023 – supported by rise of India market focussed start ups in the space
Zoho has created a strong model of cost effective and comprehensive product range for SMEs on the back of internally trained low cost talent pool
On cloud ERP service in India are set to become a $ ~600 Mn market by 2023 – as firms of all sizes begin seeking more modern business applications with intuitive user Experience
Tally is synonymous with 'going digital' for small and medium businesses in India
MSMEs in manufacturing and services have varying level of digital adoption; Trade that constitutes ~35% is at medium digital adoption
The digital penetration among MSMEs is fuelled by the listing and e-tailing websites where manufacturers and retailers are able to showcase their products to a wider customer base
Exports in India have been growing in the range of 8-10% in the past 3 years and is largely impacted by sectors like gems and jewellery
The government of India has come up with multiple digital initiatives that support in easy financing, technology upgradation and product promotion
MSMEs from multiple sector were studied for depth of digital presence and impact of digital services
Overall digital engagement for the studied sectors in MSME is medium- implying high maturity to avail online benefits but low tendency to use paid digital services
Retail sector has high penetration of free listings and hence do not feel much need for
selling through their own websites
The retail sector has been a fast adopter of the digital platforms and is seeing an average revenue increase of ~10% but cost impact has not been assessed significantly
Apart from revenue benefit, Retailers have felt a noticeable benefit on enablement of better decision making
A retailer who is planning to move his complete business model online due to the
M Oswal Marketing, an office supplies wholesaler saw ~10% Y-o-Y revenue growth in
Manufacturing sector sees a high software usage but are yet to increase selling on e -commerce websites
The manufacturing sector has seen an average of ~12% increase in revenue due to listing platforms and are also taking paid value add services on these platforms
Also they are the earliest adopter of the accounting software and have been active on the listing platforms for significant number of years
A traditional manufacturing company which is seeing increasing benefits from digital
An Automotive Spare Part Manufacturer supplying to Tier 1 suppliers across the
Services sector has the highest engagement with businesses using their websites to connect to leads and are paying for digital marketing activities
The services sector has high digital adoption and is garnering upto 30% of their revenue from online leads
Reduction in time and effort for customer engagement and enterprise management is the key reason for high investment on digital services by this sector
An IT firm using digital channels to optimize their daily processes
Exporters have seen higher adoption of digital services but the benefits realized have not been aligned with expectations
MSMEs continue to struggle with mindset shift, low awareness and dearth of talent to take the technology leap
However, MSME businesses intend to increase their IT spends in the next few years with plans of adopting more software and investing in digital marketing activities
Conclusion
Methodology
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