RESEARCH PAPER

On

STUDY OF SMALL AND MEDIUM SIZED ENTERPRISES (SMEs) ON

BUSINESS COMPETITIVENESS IN IMPLEMENTING INFORMATION
TECHNOLOGY
Presented to
Acharya Bangalore B-School, Bengaluru

At
6th International Conference on
MANAGING BUSINESS COMPETITIVENESS THROUGH
TECHNOLOGY, INNOVATION AND BIG DATA
December 2015

By
RM Sudhakar
(Research Scholar Jain University, Aug 2012 Batch)
CEO, AUTOMAT - Netsoft Group,
No. 2453, 9 Main, 17 E Cross, BSK 2 Stage, Bengaluru 560 070
Email: sudhakar@automat.co.in, Ph: +91 9886795676
&
Dr. Y Vijayakumar
(PRINCIPAL, Shirdi Sai Engineering College, Bengaluru)

Title: Study of Small and Medium Sized Enterprises (SMEs) on Business Competitiveness in
Implementing Information Technology

RM Sudhakar *, Dr. Y Vijayakumar **

* Research Scholar Jain University, CEO at AUTOMAT - Netsoft Group, Bengaluru
** Professor & Principal, Shirdi Sai Engineering College, Anekal, Bengaluru

ABSTRACT

There are many challenges that any business need to face whether they are large or small. The
current scenario demands the businesses to be more agile and competitive to be successful. There
are amazing facts about MSMEs on the Government of Indias MSME website. It states that
Micro, Small and Medium Enterprises (MSME) contribute nearly 8 percent of the countrys GDP,
45 percent of the manufacturing output and 40 percent of the exports. They provide the largest
share of employment after agriculture. They are the nurseries for entrepreneurship and innovation.
They are widely dispersed across the country and produce a diverse range of products and services
to meet the needs of the local markets, the global market and the national and international value
chains.

There are lots of schemes and programs by the government for these MSMEs. Many multi-national
organizations are extending their hands to help MSMEs in India. One such development is from
Samsung. The Ministry of Micro, Small and Medium Enterprises (MSME) and Samsung
Electronics have signed an MOU to set up the MSME-Samsung Technical School.

Information Technology (IT) is the backbone of any bigger organization, however, for SMEs it is
still an option due to various reasons like Techno Fear, Cost of IT, Skilled Manpower and so on.
The recent IT wave with the eCommerce and online platform has changed the Indias market and
business scenario. This is the right time for the SMEs to be alert and to embrace technology than
to fear the unknown.

This research paper is to understand the main challenges of the SME, Challenges related to
uncertainties within the business environment can be overcome by adopting relevant technological
solution. By implementing IT solutions, it is imperative that the organization will move towards
the growth. IT is common in this global village scenario that technology has a huge impact on
most the sectors and SMEs are no special. There is a need for the sector to undergo this transition
in order to survive. In one way the sector acts as a backbone for the major industries across the
globe. Being technically driven in order to match the requirements of their high net worth clients,
IT has become a mandate to surrender to the available and suitable technological solutions. All
this comes with its own challenges cost, skill, infrastructure and compatibility to name a few.

Key Words:
IT, MSMEs, SME, Information Technology, Technology in Small Business

INTRODUCTION

Starting a Business is a challenge for most and once the Business is started maintaining it and
growing the business is even more challenging. There are many challenges that any business need
to face whether they are large or small. The current scenario demands the businesses to be more
agile and competitive to be successful.

Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and
dynamic sector of the Indian economy over the last five decades1. There are some very interesting
facts about MSMEs as published in the Government of Indias MSME website. It states that
MSME contribute nearly 8 percent of the countrys GDP, 45 percent of the manufacturing
output and 40 percent of the exports2. They provide the largest share of employment after
agriculture. They are the nurseries for entrepreneurship and innovation and widely dispersed across
the country and produce a diverse range of products and services to meet the needs of the local
markets, the global market and the national and international value chains.
There are about 46 million MSME3 units across the country employing about 106 million people
and they play a pivotal role in the growth of India's economy evidently as they contribute about 45
per cent of industrial output, about 40 per cent of exports, create over one million jobs annually
and produce over 8,000 varied quality products. Absence of adequate and timely banking,
finance, poor infrastructure facilities, limited capital and knowledge, use of primitive technology,
low production capacities, ineffective marketing strategies, dearth of skilled labour, taxes and
regulations are certain major hurdles being faced by the MSME sector and their removal is
imperative for developing a smooth business environment in India.

Micro, small and medium enterprises as per MSMED Act, 2006 are defined based on their
investment in plant and machinery (for manufacturing enterprise) and on equipment for enterprises

www.msme.gov.in
MSME Annual 2013-14 Report
3
MSME Annual 2013-14 Report
2

providing or rendering services. The present ceilings on investment for enterprises to be classified
as micro, small and medium enterprises are as follows:

Classification

Manufacturing Enterprises (In

Service Enterprises (In

Rupees)*

Rupees)**

Micro

< Rs. 25 lakh

< Rs. 10 lakh

Small

> Rs. 25 lakh 5 crore

> Rs. 10 lakh 2 crore

Medium

> Rs. 5 crore 10 crore

> Rs. 2 crore 5 crore

Table 1: Classification of MSME

* Investment limit in Plant & Machinery ** Investment limit in equipment
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and
dynamic sector of the Indian economy over the last five decades. MSMEs not only play a crucial
role in providing large employment opportunities at comparatively lower capital cost than large
industries but also help in the industrialization of rural & backward areas, thereby, reducing
regional imbalances, assuring more equitable distribution of national income and wealth. MSMEs
are complementary to large industries as ancillary units and this sector contributes enormously
to the socioeconomic development of the country.
There are over 6000 products4 ranging from traditional to high-tech items, which are being
manufactured by the MSME sector besides providing a wide range of services. The leading
industries with their respective shares are as depicted below:

MSME Annual 2013-14 Report

Fig. 1: Segmentation of leading industries with their respective shares, MSME Annual
Report 2013-14
MSME Sector consists of any enterprise, whether proprietorship, Hindu undivided family,
association of persons, cooperative society, partnership or undertaking or any other legal entity,
by whatever name called, engaged in production of goods pertaining to any industry specified in
the first schedule of Industry Development & Regulation Act, 1951 and other enterprises engaged
in production and rendering services, subject to limiting factor of investment in plant and
machinery and equipment respectively.

Information Technology (IT) can play the role of an enabler in business and can help the business
to improve its efficiency and effectiveness to gain core competence. MSMEs are not realizing the
importance and significance of technology adoption to change their old ways of doing business.
In MSMEs, IT has been considered in a supportive role instead of a business driver. For MSMEs
IT adoption is a huge challenge because it involves a lot of risk, fear of the unknown and
uncertainty about the new changes.

According to NASSCOM F&Ss India SMB monetizing emerging opportunities report5 The SMB
market is seeing a CAGR of about 15 per cent Y-o-Y (Year or Year) and this growth is expected
to propel the IT spend to cross Rs. 100,000 crores (USD 18.5 billion) by FY2018. In FY2013, IT
spend by Indian SMBs was at Rs. 47,200 crores (USD 8.7 billion) 45 per cent on hardware, 40
percent of IT services (implementation, support & training) and 15 per cent on software licensing
and SaaS (Software as a Service). Manufacturing contributes to nearly 21 per cent of domestic
spend of SMB (Small & Medium Business) on IT. Applications could range from functional
(planning, project management) to end-to-end enterprise software (ERP (Enterprise Resource
Planning), CRM (Customer Relationship Management), HRM (Human Resource Management),
etc.).

Despite its size, the MSME segment is beset with many problems: highly unorganised and
fragmented, supply chain inefficiencies, scalability and funding issues, etc. Further, SMEs has
been facing stiff competition, both in the domestic and global markets. This segment has, therefore,
a

compelling need

to

streamline

their

operations,

standardise

processes,

improve

productivity/efficiencies, adopt best practices and ensure quality products and services. These
business needs are thus driving increased investments in IT solutions that can enable meet business
objectives.6

STATEMENT OF THE PROBLEM

As it is evident from the earlier researches, the SME sector in India is facing challenges from both
internal and external sources. Challenges related to uncertainties within the business environment
can be overcome by adopting relevant technological solution. By implementing IT solutions, it is
imperative that the organization will move towards the growth. IT is common in this global village
scenario that technology has a huge impact on most of the sectors and SMEs are no special. There
is a need for the sector to undergo this transition in order to survive. In one way the sector acts as
a backbone for the major industries across the globe. Being technically driven in order to match
the requirements of their high net worth clients, IT has become a mandate to surrender to the
5

India SMB Market: Monetising Emerging Opportunities.

India SMB Market: Monetising Emerging Opportunities. NASSCOM-F&S report

available and suitable technological solutions. All this comes with its own challenges cost, skill,
infrastructure and compatibility to name a few.

LITERATURE REVIEW

Rangriz, Vahid., (2012). Analysis of impact of Information and Communication Technology

(ICT) on performance of Small and Medium Sized Enterprises (SMEs) in Karnataka. The
research focuses on ICTs Performance Measurement (PM) tools which can help to identify
weaknesses, clarify objectives and strategies, and improve management processes. The
constructed PM framework measures both internal and external performance determinants and
performance results. The performance results dimensions include the financial results to satisfy
the investors, the customer satisfaction indicators to meet customers needs, the competitive
indicators reflect the competitive advantages, and the collaborative measures to measure the
partnership. The results of the present thesis would be beneficial for the SMEs willing to get more
information about the ICT, and their capabilities. The results show that there is a huge opportunity
for ICT systems vendors to put their efforts in this area, for selling their products.
Panse, Jayant Digambar., (2013). An Empirical Study of Impact of Information Technology in
improving Business Processes in Small and Medium Scale sector. The research compares study
done by international research organizations like UNCTAD/ OECD on various aspects of
Information Technology adoption or impact in their own countries. The research work seeks to
verify these various aspects of Information Technology impact on SMEs in the Indian context. The
development had been observed in almost all industrial sectors and geographically diversified
across India, to a certain extent; along with the proportional development of SMEs around the
large sector units. The researcher concluded in this study that the implementation and usage of
Information Technology in SMEs is not only poor, but there is not enough awareness amongst the
SMEs about the unique benefits Information technology can present for improvement of business
processes and increasing the efficiency. Hence, the researcher has suggested Honeycomb model
for adoption of Information technology in SMEs; which suggests an integrative approach of all the
stakeholders in the chain.

Agrawal, Minakshi, and Pendse, Pradeep, (2008) Information technology as a Business

Enabler in MSMEs in India, the authors say MSMEs are not realizing the importance and
significance of technology adoption to change their old ways of doing business. In MSMEs, IT
has been considered in a supportive role instead of a business driver. They conclude by saying that
a multi-stakeholder approach a collective effort between the government, private sector, industry
groups, training organizations and MSMEs themselves is the most effective way to tackle the
significant barriers identified through the research, namely: cost, lack of skilled manpower, lack
of awareness, privacy and security concerns, and infrastructure. Indeed, only through this approach
can India truly bridge the digital divide in a sector that is arguably the most critical to Indias longterm prosperity and sustained economic growth.
Singh, Puneet, and Singh, Davinder, (2014). Technology Development in MSMEs Authors
say Technology has a real impact on most of industries and in all aspects of the economy, while
businesses and enterprises continue to undergo considerable changes. Modern businesses are not
possible without the help of technology, which is having a significant impact on the operations of
Micro Small and Medium scale Business. MSMEs are drawing attention in developed and
developing countries as well as in transition countries. Concludes stating that in order to enable
MSMEs tide-over the problems of technological backwardness and enhance their access to new
technologies, it is imperative to offer them a conducive environment, which in the present context
of globalization, calls for approach with knowledge playing a predominant role. The need today is
also to leverage on modern technologies to harness human capabilities through the process of
increased communication, cooperation and linkages, both within the enterprise as well as across
enterprises and knowledge-producing organizations.
Federici, Tommaso, (2007), ERPs in SMEs: Ex-Post Evaluation of Success Factors, the
introduction of ERPs into SMEs cannot be based on a sheer reproduction of the experiences with
larger companies and represents a new challenge with significant peculiarities to be considered.
ERP introduction is evaluated as a success and that the benefits obtained are mostly related to the
simplification of internal procedures, a much easier information retrieval, an improved
performance management and some increase in production efficiency.

OBJECTIVES OF THE STUDY

1. To understand those problems and challenges faced by SMEs

2. To identify the IT solutions that can be implemented by SMEs which can give them the
competitive edge.
3. To propose a tentative framework for effective IT usage for SMEs.

METHODOLOGY

A descriptive study was conducted by 50 randomly selected samples from the SME segment. For
the research purpose, both primary and secondary data are utilized. Primary data were collected
through a structured questionnaire. The secondary data sources are various published reports that
are related to the research topic. Data analysis was conducted using MS Excel (for initial tabulation
of data, and simple data analysis) and IBM SPSS (for arriving at cross tabulation, descriptive
statistical measures).

LIMITATIONS OF THE STUDY

The study is limited to SMEs who are into Services & Manufacturing sectors.

The study is conducted in and around Bangalore city. And the area is mainly urban focused

Data collected may be biased as some of the respondents may / may not want to implement
technology.

Sample providing the data may not be qualified. At times respondents had to be explained
about the technology and then how it may help in their day to day processes.

MAJOR FINDINGS

The respondents were Directors in the company, Partners and Proprietors. The analysis
based on the findings reflects that business decision at SMEs are mainly dependent on the
person heading the organization.

It can also be inferred that organizations are in the business for a significant period and
the leader who is inclined towards technology can understand and appreciate the benefit
of IT over the Business leader who comes from non IT and old generation.

The findings substantiate the fact about Manufacturing companies are more dependent on
the IT over services industry.

The bigger the size, the IT adoption is more, which is Medium enterprises are more
inclined towards IT over Small enterprises.

This analysis helped in understanding the fact that IT was used mainly for a support
system like basic documentation purpose and to access internet and for communications
(email).

It is also found that the business are using IT where regular statutory obligatory
documents to be submitted and to support the critical manufacturing process.

Online statutory filing has given the importance of IT to the SME segment and supports
in wider usage of IT. The simplified process of online payment is still partially adopted
by industry, though they see the importance of it.

The majority of the SMEs has understood the importance of a website to showcase their
business on the web.

Finance for the business is one of the major problems SMEs face for the growth and their
awareness to procure the funds is inadequate.

The skills are still a major challenge for the SMEs to acquire (attract the talent) and to
retain.

The fastest growth of the business is a challenge for the SMEs and without proper
support system most of the companies fear scaling.

The respondents feel with the proper IT implementation they should reduce the dependency of the
skilled manpower and can make better usage of the existing human resources. The study also

suggests that the respondents expect a reduction in the overall cost of the services and
manufacturing expenses they incur, easy availability of data for better decision making, support of
IT in customer acquisition and for better response or service to customers.

The major challenges faced by the SMEs can be addressed by proper use of IT implementation. IT
implementation supports in better control of the internal operations with solutions like ERP, CRM
& HRM and to speed up the regular process in a systematic way. With the least investment in IT,
the website shall not only showcase what the company does, but also can generate the inquiries to
do business with the new prospects. Social media on the other hand can help in spreading the
message quickly to the intended audience. With the cloud and software as a service (SaaS) concept,
the cost of IT implementation is reduced for easier adaptability and to experience the benefit that
IT can bring. ECommerce wave is being welcomed by Indian market and with the right product
getting business from this platform has become much easier. Free and open source software
(FOSS) is a boon for SMEs, as FOSS can allow SMEs to get the easy entry and to get the best
result with the available solutions based on their requirements.

CONCLUSION:
IT is no more an option, it is the need of the hour, and the businesses who have embraced
technology and who are an early adapter have already gained the first success in being competitive
in the current market. IT benefits the SMEs to set up the proper and right system in place, so that
the business can run effectively and efficiently. Once the SMEs understand their challenges and
adapts the right and cost effective IT solutions, then it is clear that the SMEs have gained the
business competitiveness through the technology. The growing business can get derailed if there
is no proper support system, IT in this aspect plays a very important role and supports the
businesses for their speedy growth and helps in their business scalability. However the problems
of the Finance is not addressed by the IT, but nevertheless it can give the access to the information
on how to get the right funding through the various websites and forums.

SUGGESTIONS:
With this research work, it is understood that IT is imperative for any successful and growing
business to be competitive and SMEs have to leverage the benefits that IT provides. Technology
fear has made old businesses to avoid IT, the business leaders have to come forward and should
see that the current market need to be looked differently and should encourage the usage of IT. As
found in the research work, it is recommended that the IT can be implemented with the minimum
investments for solutions like FOSS, SAAS and to leverage the benefit of Social Media and
eCommerce platforms. Having web presence is felt by smaller businesses, with little investment
in online marketing the SMEs can benefit huge in getting new business. Having a proper IT system
in place can support in giving a good experience for the customers who do business with them and
can overall benefit from most of effective and efficient delivery system. It is important to
understand that all the major business houses started as SMEs and today who have grown big are
those who embraced technology and made the right use of IT. Online /eCommerce successes like
Flipkart, Snapdeal, Myntra, OLX, OLA CABS, etc. All started small and used technology to their
benefit.

BIBLIOGRAPHY (REFERENCES)
Agrawal, Minakshi, and Pendse, Pradeep, Information technology as a Business Enabler in
MSMEs in India

Federici, Tommaso, (2007), ERPs IN SMEs: EX-POST EVALUATION OF SUCCESS

FACTORS, Paper presented at University of Tuscia, Via del Paradiso, Viterbo, Italy, pp.
1706-1717

Ghobakhloo, Morteza et al., (2012), Strategies for Successful Information Technology Adoption
in Small and Medium-sized Enterprises, Paper presented at the Journal of MDPI, Information
Vol. 1, Issue. 3, pp. 36-67

Ghobakhloo, Morteza, Sabouri, M., Hong, T.S., and Zulkifli, N., (2011). Information
Technology Adoption in Small and Medium-sized Enterprises; An Appraisal of Two Decades

Literature, Paper presented at the Interdisciplinary Journal of Research in Business Vol. 1, Issue.
7, pp. 53-80
IT Helps Fuel Revenue & Job Growth in SMEs in India. (2013, October 7) Retrieved at
http://news.microsoft.com/en-in/it-helps-fuel-revenue-job-growth-in-smes-in-india/
Panse, Jayant Digambar., (2013). An Empirical Study of Impact of Information Technology in
improving Business Processes in Small and Medium Scale sector. Doctoral Thesis, SHRI
JAGDISH PRASAD JHABARMAL TIBREWALA UNIVERSITY

Paramasivan, C., (2013). Progress and Performance of Micro, Small and Medium Enterprises in
India, Vol. 2, issue. 4, pp. 11-22

Rangriz, Vahid., (January 2012). Analysis of impact of Information and Communication

Technology (ICT) on performance of Small and Medium Sized Enterprises (SMEs) in Karnataka.
Doctoral Thesis, University of Mysore

SMEs to drive growth in Indian IT sector. NASSCOM. (2010, August 25) Retrieved at
http://www.business-standard.com/article/technology/smes-to-drive-growth-in-indian-it-sectornasscom-110082500217_1.html

SMEs to Double Their IT Expenditure: NASSCOM-F&S report. (2014, July 9) Retrieved at

http://www.businessnonstop.in/tech/smes-to-double-their-it-expenditure-nasscom-fs-report.html

India SMB Market: Monetising Emerging Opportunities. NASSCOM-F&S report. (2014, July 9)
Ministry of Micro, Small & Medium Enterprises Annual Report 2013-2014

MSME Performance and Progress details. (2015, March). Retrieved at http://msme.gov.in

Vision 2020 Implications for MSMEs. Grant Thornton. (2011) Retrieved at

http://www.ficci.com/spdocument/20143/Grant-Thornton-FICCI%20MSME.pdf