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September 3, 2013
Category: Strategy Written by: Tagged: benefits internet strategy

The Internet and Small Firms in India

An interesting study on usage of the internet by 951 firms in various industrial and geographical clusters across India was recently released by Nathan Associates

Study Findings

Of SMEs that use the Internet,

  • 64 percent have seen an increase in sales,
  • 65 percent an increase in profits,
  • 69 percent an increase in customers, and
  • 63 percent an increase in geographic reach.

Controlling for factors such as investment in plant and machinery, the age, sex and education of personnel, and ownership type, using the Internet in business operations - increased revenue by 51 percent and profits by 49 percent.

On average, an SME that uses the Internet is able to expand its customer base by 7 percent.

An SME that adopts the Internet sees employment grow by 4 percent. SMEs that use the Internet intensively enjoy more financial growth than those who use it less.

An SME that uses on average 10 GB of Internet data per month has 7 to 32 percent higher revenue and 8 to 43 percent higher profit, 13 percent higher employment, 22 percent higher employment growth, and 18 percent more customers than an SME using only 5 GB.

Why don’t more small firms in India use the Internet or use it to its full potential?

The study team found three main reasons:

  • Small start ups are deterred by high IT equipment and connection costs.
  • The weak environment for electronic commerce is a disincentive to adopting the Internet.
  • SMEs lack “digital literacy” and are unaware of the potential of the Internet and how to use it.

Study Recommendations

  • Encourage competition in the IT market to lower costs of IT equipment and Internet connection for the SMEs.
  • Create incentives and infrastructure for SMEs to get online.
  • Strengthen the environment for e-commerce by improving supply chains, facilitating use of credit/debit cards, and improving regulations governing online activities.
  • Enforce government policies that promote the adoption and use of Internet by SMEs, thus empowering them to expand internationally.
  • Improve computer-related education, vocational training, and skill development among youth and develop a computer literate and Internet savvy workforce.
  • Publicize the success of SMEs that use the Internet through government or industry-sponsored events, and promote the registration of SMEs with a goal to increase Internet adoption by SMEs.

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