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)