80% SMEs seek more government funding for spurring digitalization

A majority of small and medium enterprises in a survey by Capterra India, expressed preference for more government funding initiatives to support the digitalization process. Cyber-security issues, integrating new technology with existing technology and lack of expertise to implement digitalization have been highlighted as major barriers to digitalization. 

Image Source: Shutterstock

Micro Small and Medium enterprises (MSMEs) are the backbone of the Indian economy. The sector contributes about one-third of the GDP and about half of the country’s exports. The sector had a share of about 45% in India’s merchandise exports worth US$ 422.00 billion in FY 2021-22. The industry is expected to contribute about 50% of GDP by 2030. Thus, the 63 million MSMEs in the country are playing an integral role in achieving India’s goal of being a developed nation by 2047.

Capterra India, a software reviews platform, recently conducted a survey titled “Digitalization of Indian SMEs”. The survey, while highlighting the significance of MSMEs in the growth of the Indian economy, evaluated the current level of digitalization among the SMEs, the role of government funding and initiatives, as well as the challenges/barriers faced by these SMEs.

The survey covered a total of 435 respondents, including managers, senior managers, CEOs, and founders. These respondents were from companies that either have a digitalization strategy in place or have implemented such a strategy in the past. Thus, they provided a relevant, comprehensive, and in-depth sagacity of the state of SMEs’ digitalization in India. Of the 435 respondents, 341 worked for SMEs, and 94 worked for enterprises (i.e. companies having more than 250 employees). 

Key findings of the survey

The survey found that 80% of respondents expressed a preference for more government funding initiatives to support companies undergoing the digitalization process. Only 6% of the respondents suggested exploring alternative sources and reducing reliance on public funding for supporting digitalization efforts. While public funding remains a preferred avenue for many respondents, exploring alternative funding sources could be an area for further consideration.

Various initiatives undertaken by the government to support the digitalization efforts of SMEs include RAMP programme, MSME Innovative Scheme, and ASPIRE scheme.  

Startups and the small businesses (that are in the early stages of development), in the absence of funding, may face some difficulties while implementing their digitalization plans. Such businesses might also shy away from taking forward their digital transformation without some financial support. The survey indicates that the Digital India Program and Startup India Initiative have been successful in their goals of providing assistance to existing/nascent entrepreneurs and startups.

As for the funding landscape, the survey found that nearly 40% of the respondents had received government funding for digitalization at least once. However, only 20% of the respondents reported to have received government funding multiple times. 

It was found in the survey that approximately 20% of the respondents had not applied for government funding and 8% were unaware of any such facility. However, these respondents expressed interest in availing of such facilities if they were known to them.

Challenges to digitisation

About 36% of the respondents have referred to cybersecurity as a major challenge. This reinforces the criticality of safeguarding digital assets and sensitive data, particularly when businesses are adopting new technologies. According to respondents, digitalization should not come at the cost of cybersecurity issues like data breaches, data loss, and data theft.

The integration of New Technology with existing systems is another challenge reported by about 26% of the respondents in the survey. This reflects the complexities arising in fusing diverse technologies and ensuring flawless business operations.

Lack of expertise to implement digitalization was identified as a barrier by about 24% of the respondents. This signifies the pressing need for skilled professionals who can effectively lead the way and execute digital transformation. Many companies, as noted in the survey, were finding it difficult to continue with their digitalization initiatives. The causes, as cited by the respondents included:

• Limited budget for implementation, quoted by about 37% of the respondents as the major factor obstructing their digitalization efforts.
• Around 34% of the respondents expressed concerns regarding ‘overwhelming’ their employees with technology. This suggests that for a smooth transition to digital operations, it is important to reconcile the embracement of technology with employee comfort and readiness.
• A lack of awareness about the software that would improve their current business processes, was another barrier, as reported by about 29% of the respondents. This suggests that there is a need for more information and education about the available digital tools in order to accelerate the digitalization process.

Need for a multidimensional approach

Digitalization of businesses while keeping in focus the tech-savvy consumers in the country, will be a crucial strategy to enable long-term survival and growth of businesses. Technological solutions such as Data Analytics, cloud-based platforms and Enterprise resource planning (ERP) systems will be instrumental in the formation of a company’s strategy and growth. It may necessitate many businesses to revamp their business models so as to reap the benefits of digitalization. Digitally empowered SMEs are able to increase their revenue, lower risks, decrease costs and diversify consumer segments in a shorter time span as compared to offline businesses. 

The Digitalization of Indian SMEs survey -Part II, reveals that while some SMEs have availed the funding support provided by the government for digitalization, some seem to be still unaware of the available opportunities and a few others may have different funding strategies. This emphasizes the importance of a multidimensional approach for accelerating the digital transformation of SMEs.