Introduction

Steady growth on the cards

MBs are overseeing a gradual transformation of their IT infrastructure from one that’s heavily weighted toward the basics—desktops, notebooks, printers—to one that also encompasses servers, storage and sophisticated applications such as ERP

Access Markets International (AMI Partners) conducted a Research Survey on IT adoption within the small, medium and large business segments for Express Computer. In this issue, we present the findings of the medium business survey that is the result of quantitative research conducted by AMI using a structured questionnaire in the cities of Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Kanpur and Jaipur.

Organizations having an annual turnover between Rs. 100 crores and Rs. 300 crores were polled in the following vertical industries as part of the study: Utilities/ Transportation/ Real Estate & Construction, Manufacturing, Service sector (Professional & Other Services), Wholesale/ Retail, IT/ ITES and BFSI (Banking/ Financial Services & Insurance). The manufacturing segment accounted for the largest proportion of the sample at almost 30%. The growth-oriented Service sector consisting of Professional Services like Engineering, Audit, etc comprised one-fifth of the sample. The Utility/ Transportation/ Construction & Real Estate and IT/ITeS sectors together make up almost 30% at more or less equal shares.

Approximately 40% of companies fell in the Rs. 225 to 300 Cr. turnover bracket while “100-124 Cr.” and “125 – 174” businesses were in more or less similar proportions; roughly 18-19% each.

The respondents were mostly senior members in the organization having a significant role in the IT purchase decision making process. The GM/Manager IT was the respondent in 53% of the cases, other senior personnel in the IT department in 36% and the proprietor in 11%.

Base = 194

Survey highlights

Indian Medium Businesses (MBs) are keen to strengthen their basic IT infrastructure that acts as a support to their ambitious growth plans. Almost 80% of MBs surveyed mentioned that they plan to hire employees in the next 12 months, creating huge employment opportunities in the process. Expansion plans are also in the offing with over two-thirds of MBs contacted saying that they were keen to open new branches to increase geographical coverage and cater to a newer and larger customer base. The BFSI and IT/ ITeS verticals, in particular, showed much higher growth plans compared to the overall average.

Branch and workforce expansion automatically leads to a ramping up of the existing IT infrastructure—PCs and printers for basic computing infrastructure and networking and servers for better collaboration and connectivity within different branch-offices and employees. Increasing mobility coupled with a drop in notebook prices also lead to an increased demand for laptops.

A better economic performance is also expected to add as a booster for increased IT investment. A typical MB earns approximately Rs. 185 Cr. as sales revenue annually. Over 80% of MBs anticipate a growth in turnover next year; with approximately 12% MBs anticipating 20%+ turnover growth. Relatively more growth-oriented and IT-savvy verticals like ITeS and BFSI allocate a larger proportion of their annual revenues to their IT Budgets. However, spending is lower proportionately than is the case with Small Businesses (SBs). While SBs spend as much as 1.5% of their turnover on IT (that figures for the IT/ITES sector; the average SB spent 0.7% in 2007-08), that number’s only 0.55% (IT/ITES again) or less in the case of MBs—an average MB spent 0.4% in 2007-08.

Almost all of MBs have a basic IT infrastructure in place including desktops, printers and basic networking. Now the stage is set for a greater deployment of existing technologies as well as adoption of more advanced technologies like WAN, VPN, network-storage, enterprise applications.

Base = 193

IT spending analysis

On an average, an MB spent approximately Rs. 76 lakh on IT deployment in 2007-08; a huge majority (around four-fifth) had spent less than Rs. 1 Cr. Around 15% spent within Rs. 1 – 2.5 Cr. while 4% were large spenders; over Rs. 2.5 Cr.

Trends indicate a rise in the IT budgets of MBs with roughly 63% of MBs expect to hike their IT budgets next year. IT budget per MB is likely to rise by around 7% in 2008-09. An analysis of the “Rank-1” spending areas for “current” and “next 12 months” indicate that at present desktops dominate the pie at 48%, followed by laptops (14%) and servers (5%). However, in the next 12 months there is anticipated to be a shift in trends; the share of servers, networking and other advanced applications like storage and security is likely to rise at the expense of desktop (a drop from 48% to 41%).

At present, the spending on advanced applications like Enterprise Software, WAN, Security and Storage is still low. That said, there is likely to be a rise in their expenditure in the near future as the medium businesses strive to reach the higher technology adoption levels of their large counterparts.

Where the MB Rupee goes

Desktops, laptops and printers (basic hardware items) are the top-ranked IT spend areas within the MBs surveyed. MBs are keen to strengthen their initial robust IT infrastructure; subsequently they are planning more advanced IT applications. Servers are also important, but at a secondary level. Software applications are mostly ranked in the medium level of importance by respondents in terms of IT spending. Enterprise applications are of lesser priority on the whole, yet more than SBs, MBs are about to start investing in these software as the awareness is gradually increasing about the benefits of these applications in improving business processes. IT Services are again ranked at a relatively lower level in terms of IT spending, however, MBs cannot do without them as services act as the backbone of advanced IT applications. Security and storage are of moderate importance to MBs; there needs to be greater focus upon these areas for obvious reasons. Software applications are mostly ranked second by respondents in terms of IT spending. Connectivity and Internet applications have also increased in importance as broadband lines have become much more easily available and affordable.

The top-ranked spend areas for 2007-08 and the next 12 months as planned by the respondents show a change in the overall spending trend. Servers and networking are increasing in importance as MBs are likely to put more emphasis on connectivity modes. There is also anticipated to be a rise in expenses for Storage, Security, Enterprise Applications and Services.

On an average, MBs plan to spend larger average amounts on basic hardware and connectivity components like desktops/ laptops, software, servers, networking/ connectivity and services as these are the priority sectors. MBs plan to spend an average of Rs 20.7 lakh on desktops/laptops, Rs 7.7 lakh on software, Rs 6.4 lakh on servers, Rs 5.9 lakh on printers, Rs 5.5 lakh on networking and Rs 5.3 lakh on connectivity and services each. Security gets an average of Rs 4.7 lakh, Internet applications get Rs 3.4 lakh, enterprise applications Rs 2.8 lakh, primary storage Rs 2.6 lakh and communication devices Rs 1.7 lakh.

In terms of frequency of occurrence within the top ten planned investment areas of the surveyed verticals the following technologies were rated as of ‘high’ importance on account of their featuring on the lists of 4-6 verticals—desktops, laptops, Windows servers, laser printers, accounting software, network software, MFDs and LANs. Those technologies that appeared on the lists of 2-3 verticals are anti-virus, routers, networking support, broadband and hubs. Still lower on the priority list of the MB segment are IT management, NAS, Linux, DSL, intranets, inkjet printers and Web sites with these featuring on the list of a single vertical.

Looking at the data communications spending, in 2007-08 there was greater emphasis on voice calls compared to Internet access and branch office connectivity. That’s poised to change in 2008-09 with an increased emphasis on Internet access and branch office connectivity; at the expense of voice calls.

MBs have become more aware of the needs to connect with customer to understand their requirements in-depth so as to design their product and service offerings accordingly. Expanding reach across geographies to gain access to a newer customer base has been mentioned as a key business challenge for upcoming and progressive MBs who like to spread their wings beyond their own countries. Maintaining cost efficiency is a rapidly increasing challenge for all MBs due to the spiraling prices of raw materials and other input costs. Increased competition often does not allow the enterprises to indulge in price hikes as that may lead to losing out to competitors .

Boosters and hindrances

Managing rapid business growth is a major booster for IT, specially keeping in mind the rapid growth and expansion nature of MBs. Another major reason is that IT acts as a basic tool to do simpler tasks. This is more relevant since quite a few medium businesses are yet to integrate IT within their basic business process framework.

“High cost” still acts as a major hindrance for MBs in terms of adopting newer technologies or upgrading older versions. A major factor for this is MBs are still unaware of the various technology finance options available from technology vendors, finance institutions, etc. Another major problem area is the lack of service and support from vendors/ resellers; MBs need considerable assistance since quite a large proportion of them lack an adequate internal IT service & support infrastructure.

Quite a few MBs do not know the exact functional areas where IT can help them add value to their organizational performance and develop competitive performance. They need further education and inputs from vendors or channel partners.

Apart from high-quality products (which is a ‘must’ and almost a hygiene factor for MBs), MBs need considerable pre-sales support from IT vendors in terms of informing them about product features and what suits them both in terms of utility and features. They have also indicated that they are keen to learn about newer product development and features. Other promotional support aspects like discounts, freebies are also welcome.

The need of a proper city infrastructure in terms of roadways, power, tech parks, etc. is a must and MBs feel that associations have a role to play in this. MBs have mentioned that they expect a lot from industry associations in terms of putting forward members’ point of views to suitable forums, e.g. ministries; lobby for tax reduction and other budget benefits.

Conducting training programs for MBs is highly important since they need to keep updated with latest technology trends. Export promotions and helping members search for worldwide customers is another important marketing function.