India’s small and medium enterprises (SMEs) see technological advancements as a key driver for better global exposure. The second annual SME Ambitions Barometer 2024 The report, published by Payoneer in collaboration with Oxford Economics, highlights the current ambitions and challenges of small and medium-sized enterprises (SMEs) in India.
While India is ahead of other countries in the world in adopting artificial intelligence, the implications of rising import duties and cross-border payment barriers are limiting India’s ability to expand its global operations.
The report, which included 3,779 SME decision makers, including 252 from India, highlighted the goals, achievements and challenges of SMEs in the ever-changing global marketplace.
Increasing global presence
Globalisation remained a key priority for Indian SMEs. Over 61 per cent of the companies surveyed identified technological advancements as key drivers for better global exposure. Currently, the US accounts for nearly 40 per cent of cross-border transactions for Indian SMEs, followed by countries such as Australia, China and the UK. With continued efforts to tap global markets, Indian SMEs are focusing on regional expansion, particularly in South Asia and East Asia, where growth opportunities are abundant.
Technological transformation: a critical need
The report noted that India is ahead of its global peers when it comes to the adoption of artificial intelligence (AI). About 26 percent of Indian SMEs have implemented AI in various areas of their business, compared to a global average of 20 percent. Over 78 percent of Indian companies see technological change as a key driver of innovation, with plans to increase investments in emerging technologies such as AI and digitalization.
This push towards technological transformation has already had a significant impact. The report revealed that companies that have digitised their operations are better equipped to improve efficiency, customer satisfaction and overall profitability. Indian SMBs are focusing on automating repetitive tasks, digitising their inventory and improving technology skills within their workforce.
Employment and local economic impact of SMEs
Indian SMEs continue to make a significant contribution to local employment. The report estimates that SMEs in India will have created over 6 million jobs between 2021 and 2022, it said. Moreover, 67 percent of businesses report that their operations are the sole source of household income, underscoring their importance to the local economy.
However, Indian companies still lag behind the global average when it comes to hiring local talent, with 49.8 percent of hires being local, compared to the global average of 57 percent.
Cross-border payments and legal obstacles
As Indian SMEs increasingly engage in cross-border transactions, they face significant operational challenges. More than 45 percent of these companies struggle with issues such as exchange rates, compliance with international trade regulations and slow transaction times. In addition, language and cultural barriers (38 percent) and high debt-to-income ratios (39 percent) pose major obstacles to global expansion.
However, there is optimism around digitalisation. More than 58 per cent of Indian SMEs have adopted multiple payment options, such as real-time currency conversion and automated tax calculations, to facilitate cross-border trade, the report said. However, difficulties in cross-border payments continue to hamper their efforts to grow internationally.
Policy objections from SMEs
One of the most pressing concerns for Indian SMEs is the impact of rising import duties. Government policies, including increased import duties since 2017, have hit SMEs disproportionately hard. Larger companies that produce raw materials have shifted the cost burden to smaller companies, reducing their competitiveness.
Moreover, high debt-to-income ratios and access to affordable credit remain key barriers. Despite accounting for 97 percent of all enterprises, Indian SMEs contribute just over 40 percent of the country’s exports. A relatively small portion, less than a million of the country’s 51 million SMEs, are involved in global trade.
Business Models of Indian SMEs
The report also highlighted the division of Indian SMBs between business-to-business (B2B) and business-to-consumer (B2C) models. A significant 46 percent of Indian SMBs are primarily focused on consumer (B2C) while only 21.8 percent are active in the B2B space. About 32.1 percent of the companies have a balanced mix of B2B and B2C customers.
Future prospects and growth strategies
Looking ahead, Indian SMEs remain optimistic about the future. Over 83 percent expect their revenues to grow in the next 12 months, with a significant focus on expanding into adjacent markets. South Asia and East Asia are top priorities, with 20 percent of Indian companies planning to enter South Asian markets in the next five years. Their focus on regional expansion is seen as a strategic goal to tap emerging markets with geographical proximity.
While the outlook is largely positive, the report warns that Indian SMEs need to address operational inefficiencies and global challenges to maintain their growth momentum.
First publication: Sep 23, 2024 | 3:34 PM IST