ict in smes 2005

0

5

10

15

20

25

Exports (US$ bn) 15.28 14.94 17.77 21.53

2000-01 2001-02 2002-03 2003-04

Enhancing Export Competitiveness ofIndian SMEs through ICT

Hemant Verma*

VOL. VII NO. 3 JANUARY-MARCH 2005

IN the current era of global industrial restructuring,Information and Communication Technology (ICT) is

playing a crucial role in interlining enterprises across theinternal as well as external value chains and reshaping theirbusiness models to strengthen the competitive performance.Today, application of ICT is not limited to shop floorsonly rather it is used widely in non-production processessuch as procurement, product design, businessdevelopment, and aftersales support, etc., which areconsidered as important non price factors ofcompetitiveness.

The Governments recognize “Small and Medium sizedEnterprises (SMEs)” for source of flexibility and theirsignificant contribution to economies, in terms ofinnovation and the proportion of the labour force employedby these firms. While SMEs typically contribute to around50 per cent of GDP and 60 per cent of employmentinternationally, SMEs only contribute between one quarterand one third of manufactured exports and account for avery small share, usually less than 10 per cent, of foreigndirect investment (FDI) (Source: OECD, UNCTAD, APEC,Observatory of European SMEs). In most nationaleconomies, SMEs comprise more than 95 per cent ofmarket participants, and contribute to around 50 per centof direct value added or production. Overall, SMEs areestimated to contribute between 25 and 35 per cent ofworld manufactured exports.

SMEs in IndiaA vibrant and dynamic SME sector of Indian economy,

with over 11 million units providing employment to over27 million people, contributes to nearly 40 per cent of thetotal industrial production and over 34 per cent of thenational exports.

* The author is with Small Industry Division of Confederation ofIndian Industry (CII), New Delhi.

0

200

400

600

800

1000

1200

Exports (Rs bn) 291 364 392 444 488 542 698 712 860 989

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

SME EXPORTS (Rs bn.)

SME EXPORTS (US$ bn)

0

5

10

15

20

25

30

35

Growth 25.46 7.62 13.23 9.76 11.11 28.78 2.07 20.73 15

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

GROWTH RATE (%)

Source: 3rd All India Census of Small Scale Industries.

SME EXPORTS (CURRENT PRICES)

2 TECHNOLOGY EXPORTS, JANUARY-MARCH 2005

TECHNOLOGY EXPORTS

EDITORIAL BOARD

Ranjan ChatterjeeIndia Trade Promotion Organisation

Ashwani GuptaDepartment of Scientific & Industrial

Research

Nirupama RaoMinistry of External Affairs

S.R. RaoEXIM Bank

Dr. K.V. SwaminathanWaterfalls Institute of Technology Transfer

ADVISORY & TECHNICALSUPPORT

Dr. S.P. Agarwal

G.P. Gandhi

Madanlal

EDITOR

Anil K. Kanungo

ISSN 0972-1460

SUBSCRIPTION RATES

Single Copy : Rs 100 ; $5

Annual Subscription : Rs 360 ; $18

Reproduction of features and news fromTechnology Exports with due acknowledge-ment is welcome. Two copies of the issuereproducing any material from TechnologyExports may kindly be sent to the Editor.

Printed and published by P.K. Puri,Registrar, for Indian Institute of ForeignTrade, B-21 Qutab Institutional Area, NewDelhi-110016 with support of Departmentof Scientific & Industrial Research atAristo Printing Press, New Delhi.

Exports from the SME sector have experienced excellent growth rates sincethe turn of new millennium. This has been mostly fuelled by the performance ofunits in sectors such as garments & knitwear, leather, auto components, drugs& pharmaceuticals, processed foods and gems & jewellery.

Today, SMEs in India are grappling with fast changes at the market placethat is transiting from a controlled economy to a free market set-up. They beingthe important members within the supply chain are also exposed to the competitivepressures either directly from the market place or indirectly passed on fromtheir higher ups in the chain. Considering the strategic role played by SMEs, it isessential to examine how can they improve their performance in internationalmarkets and how they can enhance their export competitiveness.

While several studies demonstrate the importance of technological advantagein international trade, last decade of twentieth century has witnessed technologicaltransformations mainly led by information and communication technology (ICT).Worldwide ICT is helping SME exporters overcome the digital divide and grabsuperior business opportunities.

ICT Adoption in Indian SMEsIn recent years, organizations have implemented thousands of large and

small innovations in software applications, work process, business organization,enterprise resource planning & management, supply chain management, customerrelationship management and business intelligence & agility.

ICT adoption in the Indian SME sector can be evaluated by using, a 4 stagemodel. These stages are (i) Basic ICT Infrastructure, (ii) Functional Automation,(iii) Business Automation, and (iv) Business Integration. This model can also beused for benchmarking ICT adoption among different industry sectors.

Stage (i ) Computerization in selective roles, Basic level computerization andLAN for Office Automation, Communication/Promotion purposes (e.g.Word Processing, Spread Sheets, Database, Drafting, Graphics,Intranet, Email, Web site, Product Catalogues, etc.)

Stage (ii) Computerization in selective functions (e.g. Financial Accounting inAccounts, Material Accounting in Stores, Payroll in HR, Invoicing inSales) - mainly non cross functional.

Stage (iii) Computerization in core business processes, process automation &integration (DSS+ERP)

Stage (iv) Computerization in business networks (DSS+ERP+E-Commerce)

Based on the survey findings and case studies, conducted towards examiningAwareness, Access, Adoption & Advantage aspects of ICT in SME industrysegment and suggesting appropriate intervention strategy on ICT application tostrengthen their business performance, ICT adoption in select SME sectors ispresented below:

Within small scale sector of India’s auto component industry, Stage (i) hasbeen started in 30-50 per cent of the companies and in the coming two years 50-70 per cent are planning to set up the basic structure. Stage (ii) has been startedin 10-30 per cent of the companies and in the future 50-70 per cent are expecting

3TECHNOLOGY EXPORTS, JANUARY-MARCH 2005

to implement it. Stage (iii) integration has taken placein less than 10 per cent companies. Stage (iv) is notimplemented as yet and there are no plans in future.

In medium sector of India’s auto componentindustry, Stage (i) is set up in more than 70 per centcompanies. Stage (ii) is started in 50-70 per cent ofthem and will increase to over 70 per cent in the nexttwo years. Stage (iii) is integrated in 30-50 per centof the companies and it is expected to rise to 50-70per cent in future. Stage (iv) has been done in lessthan 10 per cent companies and no increase is expectedhere.

Indian garment industry sector is highlyfragmented with around 85 per cent of the units assmall manufacturers, and nearly 13 per cent mediumscale, the current usage of ICT in this sector is at avery basic level supporting functional automation. Butbecause of its unique cluster pattern, Indian garmentsector has a very high scope of ICT adoption.

In drug and pharmaceutical sector small scaleunits account for 90 per cent of the total industry.Only 10-30 per cent of the companies have the basicICT infrastructure, i.e. Stage (i). In the coming twoyears about 50-70 per cent units are planning to setup the basic ICT infrastructure. Stage (ii) is achievedin less than 10 per cent of the companies, but around30-50 per cent are planning to use ICT in variousfunctional areas. Stage (iii) is present in again in lessthan 10 per cent units and they are planning to carry itthe same way. Stage (iv) implementation is not achievedas yet and there is no response in terms of future planningalso.

About 8 per cent of the industry in the drugs &pharma sector is composed of medium scalemanufacturers. In the current scenario, Stage (i) ispresent in 50-70 per cent companies. In coming twoyears it is expected that more than 70 per centcompanies will get equipped with the basic ICTinfrastructure. 30-50 per cent companies are havingICT enabled accounting systems, i.e. Stage (ii) and incoming two years more than 70 per cent will crossthis stage. Stage (iii) is present in less than 10 percent of the companies but 30-50 per cent are planningto attain this in next two years. Stage (iv) is absent atpresent and only 10 per cent of then have decided togo for this in coming years.

Almost 93 per cent of units in leather industry aresmall scale units and 6 per cent are medium scale.

STAGE IIFunctionalAutomation

STAGE IIIBusiness

Automation

STAGE IVBusiness

Integration

STAGE IBasic ICT

InfrastructureSmall 10-30%Medium 50-70%

Small <10%Medium 30-50%

Small <10%Medium <10%

Small NilMedium Nil

Small NilMedium <10%


Small 30-50%Medium >70%


Current

Next 2

Years

Sector : Drugs & Pharmaceuticals

Sector : Garments


STAGE IIIBusiness

Automation

STAGE IVBusiness

Integration

STAGE IBasic ICT

InfrastructureSmall 10-30%Medium >70%

Small 10-30%Medium 50-70%


Small NilMedium Nil





Curren

t

Next 2

Years

STAGE IVBusiness

Integration

Small !Medium <10%

Small !Medium 10-30%

Next 2 Years

Sector : Leather


STAGE IIIBusiness

Automation

STAGE IBasic ICT

InfrastructureSmall <10%Medium >70%



Small NilMedium Nil



Current


STAGE IIIBusiness

Automation

STAGE IVBusiness

Integration

STAGE IBasic ICT

InfrastructureSmall 30-50%Medium >70%

Small 10-30%Medium 50-70%



Small !Medium <10%




Current

Next 2 Years

Sector : Auto Components

4 TECHNOLOGY EXPORTS, JANUARY-MARCH 2005

Medium and large companies in this sector are mainlyengaged in branding, design & development, and exportactivities.

Above snapshots indicate that there is tremendousscope within Indian SMEs for strategically deploying ICTand get transformed to take global leadership position.

With ICT tools, SME sector can improve upon theway it is doing business currently and become more vigilantto the finer details in its day to day operations and theirimplications on international competitiveness. This willhelp SME businesses, not only to sustain the presentcompetition but will also provide them a platform to growin future.

It is therefore essential for Indian SMEs to absorbappropriate Information & Communication Technology(ICT) tools to leverage business advantage. Effectiveutilization of an information and decision support systemwill provide SMEs a disciplined business environment tooperate in, where decisions concerning supply and demandare fully supported by facts. This approach would alsohelp in maximizing business value and enhancing growthand competitiveness.

PROJECT PROPOSALS INVITEDFOR COMPILATION OF

EXPORTABLE TECHNOLOGIES/PROJECTS FROM SMEs: STATEWISE

(For details visit website: dsir.nic.in/dsir.gov.in)

INTERNATIONAL TECHNOLOGYTRANSFER PROGRAMME

(ITTP)

Department of Scientific andIndustrial Research

Sierra Atlantic Buys US Co.Sierra Atlantic has recently announced the acquisition

of Sceptre, a US-based consulting company in a cash-cum-stock deal. With this acquisition, apart from acquiringclientele of Sceptre, the company will be in a position toexpand the technology offerings covering manufacturingand financial services, where the latter is stronger.

Pidilite Buys 75% Stake inChemson Asia

Pidilite Industries Ltd. has acquired a majority stakein Singapore-based Chemson Asia Pte. Ltd. The companybought 75 per cent stake in Chemson.

Chemson manufactures waterproofing coating andemulsion plants. Pidilite owns the popular brand adhesive,Fevicol. Pidilite operates in two main segments: theconsumer and bazaar products segment, which contributes70 per cent of sales; and the industrial products segmentthat chips in with the rest. Pidilite boasts of strong brandssuch as Fevicol and M-Seal. In the branded consumerand bazaar products segment, the company’s productsinclude adhesives, sealants, art materials and constructionand paint chemicals. In the industrial speciality chemicalsbusiness, products include industrial adhesives, syntheticresings, organic pigments, pigment preparations,surfactants which are consumed by various industrieslike packaging textiles, paints, printing ink, paper andleather

Ispat SPV in Nigerian Iron Ore DealsGlobal Infrastructure Holdings Ltd. (GIHL) has

acquired iron ore mining concessions for two mines inNigeria.

The Nigerian Government has awarded long termmining concessions to GIHL for the Nigeria Iron OreMining Company’s (Niomco) Itakpe and Ajaybanko ironore mines, which would feed iron ore to Nigeria’s largeststeel plant, the 2.2 million tonne Ajaokuta Steel Companywhich is also controlled by GIHL. The Niomco iron oremines have an estimated reserve of about 300 million tonne,

JOINT VENTURES/JOINT VENTURES/JOINT VENTURES/JOINT VENTURES/JOINT VENTURES/ACQUISITIONS/ACQUISITIONS/ACQUISITIONS/ACQUISITIONS/ACQUISITIONS/SUBSIDIARIESSUBSIDIARIESSUBSIDIARIESSUBSIDIARIESSUBSIDIARIES

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