SMBs to invest $12 billion on net solutions this year

Small and medium businesses (SMBs) in India are set to invest up to $1.2
billion on beefing up their Internet infrastructure and solu­tions this year.
This would account for almost one sixth of the total IT spen­ding at $7.7
billion this year, according to a recent study by New York-based AMI-Partners.

Much of the impetus comes from the govern­ment itself, AMI-Partners found.
The central govern­ment finalized a policy - called Broadband Policy 2004 -
specifically to acce­lerate the growth of broad­band ser­vices in India. The
aim is to boost applica­ti­ons, inclu­ding tele-educa­tion, tele-medicine,
e-gov­er­nance, and entertainment. All these are achi­e­­ved through
government initiatives geared toward the improve­ment of infrastructure and
terrestrial telecom facilities: such as nationwide laying of fiber optic cables,
provi­ding tax benefits such as a five-year tax holiday to companies providing
Inter­net services, broadband networks, and other tele­com services.

Additionally, the govern­ment is encouraging multi­na­tional corporations
to capture this investment opportunity. “This policy has a two-fold benefit.
First, through its tax initiatives, it will facilitate the creation of new
business and employ­ment opportunities. Secon­dly, the technical infras­tructure
creation will boost the development and diffusion of high-speed Internet through
cable modems and DSL, as well as wireless Internet. The increased need for
Internet access has led to economies of scale for service providers which, in
turn, have brought down access and installation costs.” said Avimanyu Datta,
Analyst, AMI-Partners.

The
biggest spenders on Internet technologies among SBs are businesses in the retail
sector, and among MBs it is manufac­turing enterprises. The India economy grew
by a little over eight percent in 2005. “The country is fast becoming the
destination of business process and know­ledge process outsourcing for many
global corpora­tions such as GE, Dell, HP, Cap Gemini,” asserted Datta.
“The central govern­ment and several state governments are proacti­vely
encouraging such initiatives. This will further drive the demand for Internet
technologies, parti­cularly ones related to Internet access.” SMB spen­ding
on Internet access is forecasted to amount to nearly $830 million this year, a
24 percent jump from last year.

Almost all medium busi­nesses and more than half of PC-using SBs already
have access to the Internet. “However, close to a half of these SBs use
dial-up access and therefore an untapped market still exists in the broadband
Internet arena,” noted Datta. Website and

e-commerce penetration remains comparatively low among SBs. “The reason for
this low penetration is attributed to the products SBs sell. They operate on
very low margins, as their customers are usually me­dium businesses, not large
businesses,” commented Datta.

The Indian demography is also a growth driver for Internet adoption. Around
seven in 10MBs and 14 per­cent of SBs have multiple branches. Internet access
provides a cost-effective communication link bet­ween firms, and frees them
from setting up their own telecom infrastructure. In the future, owing to the
increase in business volu­mes, the number of bran­ches will increase and firms
that currently don't have multiple sites are anticipated to expand, thus
further boosting Internet demand.

Despite all these growth-enhancing factors, the Internet in India is yet to
be synonymous with business growth and opportunities among SMBs. “This is
because the Internet is still perceived as an enabler in India, rather than a
driver of business growth and opportunities,” said Datta.

DWQ News Bureau