Conquering the downturn

The ongoing global economic crisis, which began from the financial markets,

has spared no segment of the Indian economy, be it the biggest conglomerates and

corporate establishments or the small and medium businesses (SMBs). While the

large corporates have been very vocal about their liquidity concerns and are

collectively pursuing their demands with financial institutions, it is our

country's SMB sector which has had to bear the brunt silently. With a size of

more than 7.6 million businesses, it was this sector that was at one point

taking the country's economic prowess to newer highs. It is indeed sad to see

that today the sector is struggling to find its feet.

In order to survive in these tough times, all companies are exploring ways to

increase compet­itiveness and productivity. According to a recent survey, more

than two thirds of SMBs believe that bettering the local competition is their

greatest challenge, followed by increasing customer satisfaction and loyalty,

and improving employee productivity. Most Indian SMBs have realized the need for

IT solutions to help address their current shortfalls, but budget constraints

coupled with high interest rates of loans are proving to be major obstacles.

These findings are also corroborated in AMI's latest quarterly tracking study.

According to this study, 40 percent of Indian SMBs seek to leverage technology

to reduce costs, make processes more efficient, and improve employee

productivity. It is interesting to note that despite the slowdown, the total

annual technology spend by SMBs stands at $5.8 billion.

Filling the Gaps



Even prior to the onset of recessionary conditions, many SMBs found it

difficult to bridge the gap between technology requirements and budget

availability. The cost limitation has only worsened in the wake of economic

slowdown. Leasing options could provide the answer and may prove to be a win-win

formula for both SMBs and technology providers.

Any comprehensive technology adoption or upgrade requires large monetary

commitments. In a scenario characterized by limited budgets, SMBs have been

studied and found to invest in point solutions. While these solutions may solve

the SMBs immediate needs, sooner or later these individual products, which are

often not fully integrated or compatible with one another, begin to affect

productivity. Upgrades and changes of technology are also crucial requirements

as the company grows and market dynamics change. It is thereby important to

explore the leasing and financing offerings that allow technology usage by SMBs

without the need for a capital budget allocation.

Technology providers, targeting the SMB market, should develop and market

financially-friendly and easy-to-understand lease and loan solutions to aid in

the development and growth of business.

Technology providers can create innovative and flexible financing solutions

in differing forms. These may be created to alleviate cash flow issues, allowing

the SMB to spread the cost of purchase over a number of years, or to open up

flexible repayment terms, so that it can match its costs to the technology

benefits over time. Operating leases, offered by technology providers,

capitalise expenditures to turn into operating expenditures over time. Flexible

financing could easily be a boon for the SMB sector as technology providers have

a sound understanding of customer requirements and are sometimes able to

customize their offerings as per customer requirements, or even design products

and solutions from the ground-up.

Counting on Leasing



Leasing provides the option to reduce upfront investment by focusing on a

usage model, where the costs of equipments are matched to business revenues.

This allows businesses to spread the cost of equipment and services over several

years, thereby freeing cash for alternative growth opportunities. At the same

time, businesses can avoid technology obsolescence and opt for flexible upgrade

options being provided by technology players.

A Gartner Dataquest report titled 'Will SMBs Ever See the Value of Leasing

IT?' outlined the benefits that leasing can offer to SMBs. It stated that

leasing provides an alternative means of funding that preserves capital. Thus,

SMBs can use existing sources of capital funding to grow their businesses.

Further, leasing allows better cash flow management by converting payments into

predictable, regular periodic expenditures. It also provides flexibility to

refresh technology when needed, allowing SMBs that want to change or replace

their IT assets on a specific and systematic basis. Additionally, it allows an

SMB to implement some form of IT hardware and software standards, and to

rethink, streamline, and standardize organizational processes for acquiring,

deploying, and retiring IT assets.

Added to that, often as a by-product, TCO is reduced as IT hardware and

software standards are introduced, and SMBs begin to proactively plan lifecycles

for IT assets. Thus, SMBs are often able to minimize ongoing support costs,

improve productivity and maximize the usefulness of their assets. The benefits

of leasing and financing, however, are not necessarily just for SMBs.

Technology providers have a significant role to play in providing leasing

solutions for SMBs. For their part, they stand to gain from the increased value

that customers will associate with their brand. By providing a solid business

case and road map for introduction of new technologies (or for refreshing of

aging equipment), technology providers can effect a huge difference in buying

decisions. They sometimes bring the added incentive of being able to offer

interest rates that are at or below market rates and other incentives as they

utilize their existing funds.

Among the prominent technology providers offering leasing for SMBs in India

are Cisco, IBM, and HP. In the near future, we can expect to see financial

options such as leasing becoming a key deciding factor for SMBs in choosing one

technology solution over another.

Cisco Capital functions as a business enabler and a consultant. This can help

SMBs acquire the technology they need to help drive productivity, profitability,

and competitive advantage. Most importantly, we ensure that the SMB gains access

to this technology when it needs it. Through Cisco Capital, an SMB can get

financed for not only Cisco equipments, but also third-party solutions, and also

could get the soft costs associated with integration and support services. In

addition, Cisco capital's creative leasing plans include incentives that make it

easy for a company to upgrade its existing equipment and afford the very latest

advances in networking and communications technology. Finally, Cisco has been

the pioneer in the area of business-to-business e-commerce over the Internet.

Hence, Cisco Capital has developed the ability for SMBs to conduct most of their

online transactions on Cisco's website. This is done by submitting all the

requisite financial information to enable Cisco to complete credit underwriting

process, etc.

Under recessionary market conditions, where adequate spending on technology

is indeed the need of the hour, companies need to constantly question themselves

if they are spending wisely. Leveraging financial instruments, such as

customized leasing, can provide a one-stop solution to their technological needs

while at the same time freeing capital for other business opportunities. With a

proper technology road map in place, SMBs can sustain their growth trajectories

and deal with the economic crunch.

Gautam Munish


(The author is VP, Cisco Capital India) (Source: DQ)