MNCs target SMEs to fuel growth

MNCs target SMEs to fuel growth

Multinational IT firms that were once content to follow the 80:20 rule—this meant 80% of their revenue came from 20% of their customers—are now singing a different tune. All of them are now focused on small and medium enterprises (SMEs), as they believe selling to these firms present better opportunities than selling to larger ones.

In the past few months, the Indian arms of global IT heavyweights such as International Business Machines Corp., SAP AG, and Oracle Corp. have unveiled strategies to tap SMEs or the small and medium business (SMB) segment, as some of these companies term it.

“The SMB sector is the fastest growing division within IBM India. We were one of the first companies to start focusing on this segment as we saw the potential," said Ramesh Narasimhan, director, global mid-market business, IBM India/South Asia. Last week, IBM launched Express Advantage, an SMB-centric application development package along with Independent Software Vendors. Last year, almost half of IBM’s revenues in India came from SMBs. Worldwide, IBM derives just 20% of its revenues from this segment.

SAP actually has a suite of products targeted at SMBs, called Business One. The firm, which makes enterprise software—which can run key business applications—derives 35% of its revenue in India from the SMB segment. Of its roughly 1,000 SMB customers, about 400 were added in the first half of 2007 alone. SAP India did not comment on the issue; however, it has previously said SMBs would account for half its revenues by 2010.

Another enterprise software firm, Oracle, said it has more than 4,500 customers who are SMBs. The firm, in March 2007, launched a programme called Oracle Accelerate to reach out to this segment.

As India’s economy continues to expand at more than 9%, SMBs are being created across the country in a variety of sectors including cooperative banking, auto ancillaries, health care, mining and textiles. Many of these firms spend on IT because they see it as something that can help them become more efficient and profitable.

According to research firm ACNielsen, IT spend by small and medium enterprises will reach Rs26,709 crore by 2008. The firm adds that there are over nine million such enterprises in India, with an average IT spend of Rs30 lakh a year.

At one time, the IT companies considered selling to such customers unviable. Today, they are developing products for them. The IT companies still have to overcome the challenge of geography: small and medium enterprises are scattered around the country.

According to IBM’s Narasimhan, mid-sized businesses face the same challenges as a large enterprise, but without the same budget or staff resources to address them. Therefore, IBM is focusing on reworking solutions to meet specific SMB needs. “SMB is where the action, and growth, is," said Narasimhan.