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Indian SMBs to spend $8 billion on IT this year

The manufacturing vertical will alone account for $2.9 billion, said AMI

Small and medium businesses (SMBs, or companies with up to 999 employees) in India are on track to spend $8 billion on IT-related investments this year, up 23 percent from last year. The manufacturing vertical–which includes discrete manufacturing, life sciences, pharmaceuticals and process manufacturing–will account for $2.9 billion or 36 percent of the pie.

An Access Markets International (AMI) Partners, Inc. study found that the banking and financial services, insurance, real estate (collectively called FIRE) and professional services segments will be the top drivers of Indian SMB IT spending in 2007, growing at a healthy rate of 25 percent. Professional services include accounting, auditing and bookkeeping, advertising and consulting, data processing, legal and PR services, engineering, photography, physical distribution & logistics, etc.

“The IT revolution among Indian SMBs is taking place at two levels,” said Dipendra Mitra, Analyst at AMI-Partners. “On one hand are the small businesses (SB, with up to 99 employees), which are aggressively investing in basic computing infrastructure. On the other hand you find medium businesses (MBs, or companies with 100 to 999 employees) which are looking at boosting IT infrastructure for increased revenue growth and customer convenience. This is aptly reflected in the high growth in IT-related spend among FIRE and professional services, both of which are customer-centric verticals.”

More than 56,000 new SMBs within the manufacturing, FIRE and professional services sectors are planning to invest in basic PC infrastructure this year as a means to improve business management, communications and networking. Moreover, many existing and new SMBs are looking at improving their Internet facilities and adopting better security measures.

“Higher employee mobility, increased competition and expansion in terms of office locations have pushed more SMBs in India to embrace IT and the Internet,” Mitra said. “This has increased the threat of viruses and spam. Indian SMBs have spent nearly $160 million over the last 12 months on security-related products and services—such as anti-virus and anti-spam software, intrusion detection programs, firewalls and other IT security measures. FIRE, professional services and the manufacturing sector have emerged as the most significant spenders for security products, and account for more than 80 percent of security spending.”

Of great interest are the very small businesses (VSBs, or companies with up to 19 employees). India’s VSBs are faced with many impediments, such as the need to control costs, increase in competition and challenges of globalization. As these VSBs look for effective solutions for their primary business challenges they are seeking out IT infrastructure and services to help them overcome their impediments. This in turn is fueling above-average spending on IT infrastructure among VSBs.

“Within the Indian VSB, sub-verticals such as readymade garments, food processing, retail and wholesale pharmaceuticals are the most progressive,” Mitra said. “Their need to maintain quality, control costs and retain customers is fueling IT adoption. Their IT infrastructure requirements are also hugely influenced by their customers, suppliers and regulatory compliance.”