Unleashing Potential: The Internet's Role in the Performance of India's Small and Medium Enterprises

In this report, Nathan Economic Consulting India Private Limited (Nathan India) joined with the Federation of Indian Chambers of Commerce and Industry (FICCI) and Google India to analyze the economic impact of the Internet on India’s small and medium sized enterprises (SMEs).

The survey-based study of 951 firms in various industrial and geographical clusters across India examines how SMEs use the Internet, quantifies the impact of Internet use on SMEs’ economic performance, explores why SMEs might not be using the Internet or not using it intensively, and recommends ways to promote and support Internet use to benefit SMEs and the Indian economy as a whole.

 Findings

  • Of SMEs that use the Internet, 64 percent have seen an increase in sales, 65 percent an increase in profits, 69 percent an increase in customers, and 63 percent an increase in geographic reach.
  • Controlling for factors such as investment in plant and machinery, the age, sex and education of personnel, and ownership type, using the Internet in business operations increased revenue by 51 percent and profits by 49 percent.
  • On average, an SME that uses the Internet is able to expand its customer base by 7 percent.
  • An SME that adopts the Internet sees employment grow by 4 percent.
  • SMEs that use the Internet intensively enjoy more financial growth than those who use it less. An SME that uses on average 10 GB of Internet data per month has 7 to 32 percent higher revenue and 8 to 43 percent higher profit, 13 percent higher employment, 22 percent higher employment growth, and 18 percent more customers than an SME using only 5 GB.

So, why don’t more small firms in India use the Internet or use it to its full potential? The Nathan India study team found three main reasons:

  • Small start ups are deterred by high IT equipment and connection costs.
  • The weak environment for electronic commerce is a disincentive to adopting the Internet.
  • SMEs lack “digital literacy” and are unaware of the potential of the Internet and how to use it.

 Recommendations

  • Encourage competition in the IT market to lower costs of IT equipment and Internet connection for the SMEs.
  • Create incentives and infrastructure for SMEs to get online.
  •  Strengthen the environment for e-commerce by improving supply chains, facilitating use of credit/debit cards, and improving regulations governing online activities.
  • Enforce government policies that promote the adoption and use of Internet by SMEs, thus empowering them to expand internationally.
  • Improve computer-related education, vocational training, and skill development among youth and develop a computer literate and Internet savvy workforce.
  • Publicize the success of SMEs that use the Internet through government or industry-sponsored events, and promote the registration of SMEs with a goal to increase Internet adoption by SMEs.

(Download the report through the link on the left.)

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