Small and medium businesses (SMBs) across the country are increasingly looking to adopt digital technologies to remain relevant and grow amid the massive disruption caused by the Covid-19 crisis, according to panellists at The Economic Times -Back to Business Dialogues -Using Tech to leverage SMBs for India.

Leaders from companies such as Google, Flipkart, Udaan, Unicommerce, EY and Capital Float all concurred that while small businesses have been pushing to go digital for over a decade, it has vastly accelerated because of the pandemic.

These small businesses have embraced digital payments, use internet search to improve discoverability, sell across India using marketplaces, are consolidating their supply from fewer and more tech-enabled players, use technology to pay income and other taxes and are even leveraging their data for easier access to credit.

Ankur Pahwa, partner, ecommerce and consumer internet, at Ernst & Young, steered the conversation and captured views — categorised into four themes — from across the diverse set of panellists.

Evolution of SMBs

Far from managing inventory on multiple marketplaces and accepting payments digitally, SMBs shunned even basic technology tools at the start of the previous decade. However, that changed quickly with the proliferation of high-speed wireless internet, smartphone reach and knowledge of digital tools in the past five years.

“In 2016 or 2017, a large part of Indian SMBs didn’t get digital at all. Only 2% of SMBs then were using digital for really engaging with their customers and about 17% of them were using some tools for business; 68% of them had nothing online, not even email,” said Shalini Girish, director, customer solutions at Google India. Since then, Google has trained over 1 million SMBs in digital literacy, while its learning app Primer has been downloaded over 10 million times, Girish added.

The huge acceptance of digital tools by small businesses is not only because of education, but because of a realisation that not being digital puts them at a disadvantage. “Today, I think everybody understands the power of the internet. In terms of trying to convince businesses about how it can transform the way they do business, I think that point is already driven home strongly,” said Amod Malviya, cofounder of Udaan.

Diversifying supply chains

This shift of SMBs towards digital presents an opportunity in modernising supply chains that these businesses tap into. The pandemic has exposed many weaknesses in traditional supply, forcing businesses to demand more transparency, better cost and quicker turnaround times.

For Adarsh Menon, senior vice-president at Flipkart, this shift has presented a good opportunity to bring to businesses the conveniences that it brought to consumers a decade ago. “There is a big opportunity in fixing challenges that have crept up because of broken supply chains. In future, customers will lay emphasis on alternatives and ensuring business continuity, which has gotten impacted due to the crisis and hence digitally streamlining supply chain is a good opportunity,” Menon said.

Age-old models of purchasing are also getting disrupted, says Malviya of Udaan.

Retailers, who earlier bought stocks once or twice a month due to the tedious process of having to go to markets and locking up working capital in purchasing inventory, are today ordering smaller baskets but more frequently.
“What that does is it unlocks working capital for SMBs. Earlier, it was getting stuck in a few large purchases, now it is getting broken down into smaller purchases. This brings the wallet share on an online platform from 20-30% to 80-90%,” Malviya said.

Data for Finance

Selling online, accepting digital payments, and utilising digital tools to manage aspects of their business are also opening up avenues for SMBs to tap credit with new-age fintech players building more granular platforms.
For instance, according to Gaurav Hinduja, the CEO of Capital Float, when he started the fintech venture 6-7 years ago, it was hard to get an SME to apply for a loan online. “We would see only 5-10% SME who applied digitally, which is why we had to invest in a field force,” Hinduja said.

Things have, however, changed. “SMEs are so small, they don’t really maintain proper books or accounts. For us, the bank statements, GST, as well as partnerships with ecommerce players, these data points are holy grail,” he said.
Capital Float has been able to add 50,000 more SMEs as customers in the last six months. “The reason we have been able to do that is we are no longer giving larger lines…we have started giving loans of Rs 15,000- Rs 20,000, and seeing how that plays out for the next 6-10 months and take it from there,” Hinduja added.

Rise of new age brands

According to Kapil Makhija, CEO, Unicommerce, there has been a phenomenal increase in the adoption of technology by small businesses amid the pandemic.

This transition is even more stark in small towns. “At Unicommerce, we have seen an increase of 4x in enquiries, and many are coming from small towns. Our initial split was 30-70, where 30% used to come from tier-2 cities. Now, that has increased to 50-55% of enquiries,” said Makhija.

These businesses are largely looking at marketplaces as well as others to go online. “Because SMEs cannot invest a lot in technology, they prefer the marketplace route to begin with,” he said. Another rising trend is the rise of direct-to-consumer brands. “We see brands that have spent two years in their marketplace journey investing heavily on the D2C side,” said Makhija.