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Why Small And Medium Enterprises Are Emerging As The Backbone Of India's Economy

27/09/2016 11:53 AM IST | Updated 28/09/2016 5:36 PM IST
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Young Indian woman selling clothes at a small store in a shopping mall in Delhi, India.

Two years ago, Nilma Dilepan, a 27-year-old entrepreneur from Bangalore created With Love, Nilma. It's an event styling company. She also founded Yellow Umbrella, a production house. In 2014, four women from Pune—Seemantini Mihir, Sudakshina Sinha Banerjee, Rashmi Ranade and Chhanda Bihari—founded Coppre, a social enterprise. Coppre works towards reviving a 400-year-old tradition of handcrafted metalware and helps artisans across India sell their products online. Devika Srimal Bappa, an animal lover and a PETA volunteer started Kanabis, a brand of high-quality, fashionable, affordable and PETA-approved vegan footwear in 2015. All are women with innovative, creative ideas they're passionate about, branching out on their own.

The online space has opened up a whole new avenue of doing business which was just not available earlier.

These are just a handful of the small and medium enterprises (SMEs) which have been born and come into their own in the last five years. Many have been started by young entrepreneurs, a large number of whom are women. Indeed, SMEs are the true backbone of the Indian economy, accounting for more than 17% of our GDP in 2014, while contributing to 45-45% of our industrial output and 40% of total exports*. No small matter.

One of the reasons these small businesses are seeing so much success is because they are capitalizing on Digital India and leveraging the internet to market themselves and build an identity—and lead the digital transformation for India. Digital has democratized globalization—a few people with vision can now reach customers all over the world. The online space has opened up a whole new avenue of doing business which was just not available earlier. Which has in turn led to a growth of entrepreneurs as well as giving SMEs an importance in our economy—something that simply wasn't possible earlier.

Take just the SMEs I mentioned at the beginning of this post. Nilma doesn't have a website to market her companies and relies solely on Facebook pages. Coppre uses Facebook to market its artisanal products globally, and has more than 11,000 fans. Kanabis uses social media platforms like Facebook and Instagram to reach thousands of fans to sell its vegan shoes.

In April, we launched #MyStartUpStory in partnership with a prominent youth site. We write about young entrepreneurs who are overcoming odds to build successful small businesses using our platforms. It's an attempt to change the definition of start-ups in India from being technology-focused to technology-driven. We've reached 4.6 million people through this initiative. The thought behind #MyStartUpStory is to inspire other entrepreneurs to take the plunge and learn from the experiences of those featured on the microsite.

For India, it seems the concept of "acchhe din" has percolated to online SMEs.

To help businesses succeed in the digital economy, we need to understand the current and future economic environments in which businesses operate. Hence, we decided to conduct a Future of Business Survey with The World Bank and Organisation for Economic Co-operation and Development (OECD). The hope was to gain better insights into the current environment in which these SMEs are working, help businesses succeed in the new mobile economy, and see if our insights could help inform decision-making across levels and help businesses grow.

Partnering with World Bank and OECD made sense as they provide data as a public good and build open platforms where information is catalogued and accessible. Facebook has one of the largest online communities of SMEs in the world. With more than 60 million business pages active on our platform (more than 2 million based in India) the collaboration demonstrates the value of private-public partnership in producing timely, relevant aggregated data that can inform decision-making at all levels.

The findings of the survey are eye-opening, to put it mildly. The email survey is a monthly one, and was launched in February 2016. The survey polls Facebook business page owners (both newer and long-standing companies). It's important for me to state here that all identifying information is removed for analysis and no user data is being given to OECD or World Bank.

The survey reiterates what we have long known: empowering and inspiring women in India is critical to the future of the country's economy...

In the first six months, nearly 100,000 SMEs on Facebook, across 22 countries, responded to the survey via email. Of these, 3888 were from across India. What we discovered was quite interesting.

Globally, businesses had a significantly more positive outlook on the future (looking six months ahead) than in the reporting period (February-July 2016). They had a more positive perceived outlook (current and future) of their own business, in comparison to their industry colleagues and the economy as a whole. And there was a direct correlation to a business outlook on its use of online tools.

For India, it seems the concept of "acchhe din" has percolated to online SMEs. Small businesses had a significantly more positive outlook on the future (looking six months ahead) than in the reporting period (February-July 2016) in terms of business confidence and employment growth. Fifty-five percent of businesses had a positive current outlook, 73% had a positive future outlook. The business confidence levels correlate with three existing metrics from the OECD: the CLI, Unemployment Rates, and Business Tendency.

The most common uses of online tools for the SMEs that were surveyed were showing products or services (84%), communicating information such as opening hours, contact info etc (83%), and advertising to potential customers (81%).

What was quite heartening to see—for our economy—is that a significant number (16%) of small businesses in India are engaged in international trade. And remember, these aren't huge firms; 78% of SMEs surveyed had fewer than 10 employees. We expect to see this number rise as platforms make more tools available for businesses to engage in cross-border trade. Across India, more than 155 million people are on Facebook, and 59% of them are connected to at least one business in a foreign country.

Of the most common business challenges, attracting customers (61%) was number one for the Indian market, followed by maintaining profitability (48%) and increasing revenue (43%).

Empowering people to branch out, harness their creativity, become self-sufficient and bite the entrepreneurship bullet are key to India's economy. This is the true Make In India.

The aim of this survey with OECD and World Bank is not only to keep providing monthly findings and learnings into SMEs across the world, but also provide insights on how India can make the most of this five-year-old spurt in entrepreneurs. And we plan on conducting this survey for many years to come and keeping the results online for anyone to access.

The survey reiterates what we have long known: empowering and inspiring women in India is critical to the future of the country's economy, and we have a long road ahead to change. Only 11% of the businesses surveyed in India are either owned by women or have women in top management positions, one of the lowest globally. This correlates with India's Sixth Economic Census National Sample Survey Organisation (NSSO), which states 14% of business establishments in India are being run by women entrepreneurs.

If India can increase participation of women by just 10% (68 million) by 2025, we could increase our GDP by double digit percentage points. Now that's a task we should set for ourselves. Empowering people to branch out, harness their creativity, become self-sufficient and bite the entrepreneurship bullet are key to India's economy. This is the true Make In India.

Monthly survey of SME page owners on Facebook

*Source: The India SME survey 2014-15 Firstbiz - GreyHound Knowledge Group Initiative

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