Technology As Growth Drivers For MSMEs

For Micro, Small, and Medium Enterprises (MSMEs) in India, exporting presents a significant opportunity for growth and expansion. By tapping into international markets, MSMEs can diversify their customer base and increase revenue streams. Exporting also allows MSMEs to showcase their products or services on a global scale, enhancing brand visibility and credibility.

Moreover, entering foreign markets can help MSMEs stay competitive by exposing them to different business practices, innovative technologies and new trends. This exposure fosters creativity and adaptability within the organization while promoting continuous improvement.

Exporting enables MSMEs to reduce dependency on domestic market fluctuations. Diversifying sales geographically helps mitigate risks associated with economic downturns or changes in consumer behaviour locally.

In essence, exporting is not just about selling products overseas; it is about seizing opportunities for growth, innovation, and resilience – ultimately securing long-term sustainability for MSMEs in India.

MSMEs are integral to India’s economic landscape, playing a pivotal role in employment and GDP contributions. About 96% of the industrial units belong to small companies in the Indian economy. The small companies account for 40% of the nation’s overall industrial production and over 40% of all Indian exports. As India’s position in global trade bolsters, technology emerges as a vital enabler for MSMEs to enhance their export capabilities. 

Here is how technology can propel MSMEs into new international markets:

Technology led credit and lending

The MSME sector in India faces a significant credit gap, amounting to Rs 25 trillion. Meanwhile, the total debt demand from MSMEs is Rs 69.3 trillion, expanding at an annual compound growth rate (CAGR) of 11.5%. This underscores a substantial need for innovative financial solutions to bridge the funding shortfall and support the sector’s growth.

Financial constraints often hinder MSMEs’ ability to expand their export operations. Technology-driven solutions, such as digital lending platforms, provide easier access to credit. These platforms use AI algorithms to assess creditworthiness quickly and accurately, eliminating the need for traditional collateral and expediting the loan approval processes. This technology is particularly beneficial in identifying promising MSMEs that might be overlooked by conventional credit scoring methods. Government initiatives like the Emergency Credit Line Guarantee Scheme (ECLGS) have further facilitated this access by providing collateral-free loans backed by guarantees.

Digital connectivity

The digital era offers unprecedented opportunities for MSMEs to connect with global markets. Through internet connectivity, MSMEs can engage in online trade and integrate into international value chains. As per reports, 70% of the MSME sellers in India have internet connectivity, and 60% of them are now using online payments. This connectivity is crucial not only for market access but also for attracting foreign investments and fostering innovation​. Moreover, digital tools and platforms enable MSMEs to participate in international trade fairs and B2B meetings virtually, reducing costs and expanding their global footprint.

E-commerce platforms

E-commerce platforms revolutionize how MSMEs approach international markets, allowing them to sell directly to global consumers without the intermediaries traditionally required in exporting. Platforms such as Amazon, eBay and Alibaba enable Indian MSMEs to list products and manage sales across different countries, significantly lowering the barriers to entering foreign markets​​. The Indian government has planned the setting up of Trade Connect ePlatform to increase the participation of MSMEs and startups in exports. Studies indicate that MSMEs using e-commerce record 60%-80% reduction in marketing and distribution costs. 

Digital solutions for efficiency

Operational efficiency is critical for the competitiveness of MSMEs in the global market. Digital solutions like Enterprise Resource Planning (ERP) systems and Customer Relationship Management (CRM) tools help streamline operations from inventory management to customer interactions. Such technologies ensure that MSMEs can manage increased order volumes and maintain customer satisfaction with efficiency and ease.

Government initiatives and support 

The Indian government has been actively promoting technological advancements in the MSME sector to boost exports. Initiatives like the Digital India program aim to provide digital infrastructure and connectivity, enabling MSMEs to leverage technology for international trade opportunities. Additionally, schemes such as the Export Promotion Capital Goods (EPCG) scheme offer incentives for MSMEs to invest in machinery and equipment for enhancing export capabilities.

Various financial support mechanisms, like subsidized credit facilities through institutions like SIDBI, have been put in place to assist MSMEs in adopting advanced technologies for exporting goods and services. Moreover, initiatives such as the Technology Upgradation Fund Scheme (TUFS) encourage modernization of manufacturing processes by providing capital subsidies.

Challenges faced by MSMEs in adopting technology 

Embracing technology for exporting offers immense opportunities, but it is not without its challenges for MSMEs in India. One of the primary hurdles is the initial investment required to integrate advanced tech solutions into existing operations. Many small businesses struggle with limited financial resources, making it difficult to afford cutting-edge technologies.

Moreover, there is a skills gap that exists within many MSMEs when it comes to leveraging technology effectively for export purposes. Training employees or hiring new talent skilled in digital tools can be time-consuming and costly. Concerns around data security and privacy often deter MSMEs from fully embracing technological advancements.

Furthermore, the rapidly evolving nature of technology means that staying updated with the latest trends and innovations becomes a continuous challenge for MSMEs. This fast-paced environment requires constant adaptation and learning which can be overwhelming for smaller businesses with limited manpower and resources.

Future outlook and potential impact on economy

As technology continues to revolutionize the way MSMEs operate and engage in export activities, the future outlook for India’s economy appears promising. The integration of advanced tools like Artificial Intelligence, Internet Of Things and blockchain is expected to enhance efficiency, reduce costs and open up new markets for these small enterprises. By leveraging data analytics and digital platforms, MSMEs can target specific customer segments with tailored products and services.

This technological shift not only boosts productivity but also improves the overall competitiveness of Indian exports on a global scale. With streamlined processes and innovative solutions at their disposal, MSMEs are better positioned to meet international quality standards and fulfil orders in a timely manner. As a result, this increased efficiency could lead to higher revenue generation for these businesses while contributing significantly to India’s GDP growth.

By embracing technology-driven strategies for exports, MSMEs have the opportunity to diversify their product offerings and expand into untapped markets around the world. This expansion not only benefits individual businesses but also has a ripple effect on job creation, skill development and overall economic prosperity across various sectors in India.