SMBs to invest $12 billion on net solutions this year

Small and medium businesses (SMBs) in India are set to invest up to $1.2
billion on beefing up their Internet infrastructure and solutions this year.
This would account for almost one sixth of the total IT spending at $7.7 billion
this year, according to a recent study by New York-based AMI-Partners.

Much of the impetus comes from the government itself, AMI-Partners found. The
central government finalized a policy - called Broadband Policy 2004 -
specifically to accelerate the growth of broadband services in India. The aim is
to boost applications, including tele-education, tele-medicine, e-governance,
and entertainment. All these are achi­e­­ved through government initiatives
geared toward the improvement of infrastructure and terrestrial telecom
facilities: such as nationwide laying of fiber optic cables, providing tax
benefits such as a five-year tax holiday to companies providing Internet
services, broadband networks, and other telecom services.

Additionally, the government is encouraging multinational corporations to
capture this investment opportunity. “This policy has a two-fold benefit,”
said Avimanyu Datta, a Kolkata-based Analyst at AMI-Partners. “First, through
its tax initiatives, it will facilitate the creation of new business and
employment opportunities. Secondly, the technical infrastructure creation will
boost the development and diffusion of high-speed Internet through cable modems
and DSL, as well as wireless Internet. The increased need for Internet access
has led to economies of scale for service providers which, in turn, have brought
down access and installation costs.”

The biggest spenders on Internet technologies among SBs are businesses in the
retail sector, and among MBs it is manufacturing enterprises. The India economy
grew by a little over eight percent in 2005. “The country is fast becoming the
destination of business process and knowledge process outsourcing for many
global corporations such as GE, Dell, HP, Cap Gemini,” asserted Datta. “The
central government and several state governments are proactively encouraging
such initiatives. This will further drive the demand for Internet technologies,
particularly ones related to Internet access.” SMB spending on Internet access
is forecasted to amount to nearly $830 million this year, a 24 percent jump from
last year.

Almost all medium businesses and more than half of PC-using SBs already have
access to the Internet. “However, close to a half of these SBs use dial-up
access and therefore an untapped market still exists in the broadband Internet
arena,” noted Datta. Website and e-commerce penetration remains comparatively
low among SBs. “The reason for this low penetration is attributed to the
products SBs sell. They operate on very low margins, as their customers are
usually medium businesses, not large businesses,” commented Datta.

The Indian demography is also a growth driver for Internet adoption. Around
seven in 10MBs and 14 percent of SBs have multiple branches. Internet access
provides a cost-effective communication link between firms, and frees them from
setting up their own telecom infrastructure. In the future, owing to the
increase in business volumes, the number of branches will increase and firms
that currently don't have multiple sites are anticipated to expand, thus
further boosting Internet demand.

Despite all these growth-enhancing factors, the Internet in India is yet to
be synonymous with business growth and opportunities among SMBs. “This is
because the Internet is still perceived as an enabler in India, rather than a
driver of business growth and opportunities,” said Datta. “The Internet is
not opening new avenues for growth, but is instead supporting a growth that is
evident, and therefore it's embraced. Its adoption is more reactive than
proactive. It's still considered an economical channel for communication
rather than a strategic growth driver to enhance competitive position.”

DQC News Bureau