Covid is accelerating the shift of SMEs to digital sales

About two-thirds of small and medium-sized enterprises (SMEs) in India used online channels to sell their products and services in 2021, according to a survey by digital lender NeoGrowth Credit. However, the survey found that despite growing digital adoption, cash sales remained by far the primary mode of payment and day-to-day digital transactions were mostly limited to tax-related legal functions.

The survey, conducted between February and December last year, covered 9,564 small business owners, 93% of whom had an annual income of less than 1 crore. NeoGrowth is a fintech company that primarily serves underbanked SMBs.

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Digital is the way

Arun Nayyar, CEO of NeoGrowth, attributed the adoption of the technology to “unprecedented economic, social and business disruption due to the pandemic”.

Many SMBs are still lagging behind large enterprises in digital adoption.  istockphoto

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Many SMBs are still lagging behind large enterprises in digital adoption. istockphoto (Photo: iStock)

Companies in the apparel segment were the most likely to sell online (77%), followed by mobiles and accessories (73%) and the food and beverage segment (67%). Online sales by SMEs were most common in Mumbai (81%), Bengaluru (66%) and Hyderabad (63%), with Facebook and Instagram proving to be the most popular platforms in all cities.

Although comparable pre-pandemic figures for digital adoption among Indian SMEs are not available, an upward trend has been observed across the globe. A 2021 report from the Organization for Economic Co-operation and Development (OECD) cited other surveys to suggest that up to 70% of these companies globally have “stepped up” their use of digital tools due to the pandemic, and “many of these changes were poised to last given the investments made and the business benefits of the new models.” A Salesforce survey in mid-2021 also found that 63% of SMBs globally now have an e-commerce presence as customers increasingly want to transact digitally.

SMEs in India use tools such as Google My Business (35%), WhatsApp (13%) and Facebook or Instagram (7%) to list their products and services so that they can be discovered, according to the NeoGrowth survey. Businesses in Mumbai were the “most visible” online (24%), followed by Bengaluru (13%) and Delhi (8%). prefer Facebook and Instagram for discovery. For customer engagement, reviews and ratings on Google and JustDial were the most popular modes.

The use of digital tools brings significant benefits, such as reduced transaction costs, faster access to information and communication with staff and suppliers, among others, says the 2021 report from the OECD. However, many SMEs are lagging behind large companies in digital adoption, which threatens to increase inequalities between people, places and businesses, according to the report.

The disparity may also be true for India. Despite the gains, cash payments still dominate, with 70% of SMBs opting for such payments and only 16% for UPI payments, the NeoGrowth survey found. Adoption of digital payments was highest in gas pumps (32%), mobile phones and accessories (28%), restaurants (27%) and pharmacies (26%) .

SMBs have also yet to embrace online tools to deliver their products and services, with up to 50% delivering through their staff. Digitization of day-to-day operations is still mostly limited to GST and income tax filings (where 67% of businesses reported using digital tools), while only 7% of businesses used digital tools for invoicing and stock management. Digital inventory management was more popular in Mumbai, and digital invoicing and accounting in Kolkata, Hyderabad and Bengaluru.

“The survey reveals challenges such as lack of awareness of various digital solutions, loss of business due to limited reach, and inefficient inventory management leading to delays and lost business,” Nayyar said.

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