Hitesh Kumar, 39, runs Shri Balaji Online Store, which makes sofa covers, chenille sofa fabrics and tissue curtains, from Panipat in Haryana. The former IT professional decided to digitise the business in 2019, and after looking at various options, took his store online with Walmart Vriddhi, a programme by the US-based retailer to digitally empower small and medium businesses. Now, he sells on Flipkart. Earlier, he was restricted to 8-10 cities. Now, he can sell in the entire country, with online accounting for 45-50% sales. “Online opens new markets,” says Kumar.

Like Kumar, Vandana Batra, who runs Fairy Tales Creation, a garment store in Noida in Uttar Pradesh, found hope on the web. Batra pivoted online by signing up for the Local Shops on Amazon programme after her business started struggling during the pandemic. Her order book soared 40 times. “Going online meant opening our store to the entire country. Now, we receive orders from all over India. We are competing with top brands,” she says.

Digitisation of business operations is not a novel concept. Big businesses have been at it for decades. Several small and medium businesses, too, started adopting digital technologies five-seven years ago. However, the trend turned into a wave after the pandemic as lockdowns disrupted work flow of companies, especially the smaller players.

Digitisation, of course, is a broad term. While a simple transition to selling products or services online is digitisation, so are addition of latest technology capabilities like automation, cloud and artificial intelligence (AI).

Vinod Kumar, president of India SME Forum, which represents 97,000 small and medium businesses, says 55% members had digitised operations before the pandemic. Today, the number is nearly 75%, he says. “They have to be online for customers. For enterprises, digitisation happened in two ways—they digitised their systems and moved online,” he says. Also, as many as 300 small and medium companies have gone D2C (direct-to-consumer) over the last two years through own websites. “The average year-on-year increase in their turnover has been 76%,” says Kumar.

The gains have been huge. So has been the range of technologies being adopted by businesses.

Businesses Going Digital

A large number of companies have digitised a considerable part of operations ranging from supervision of manufacturing processes and order dispatch to data collection. Some are also using technology to revamp consumer buying processes. For instance, a big chunk of companies is tapping e-commerce and building omni-channel distribution networks. Some are even experimenting with emerging technologies like blockchain. “Today, a company has to go digital to reach customers. The case for digital transformation has become a no-brainer,” says Ashvin Vellody, partner at Deloitte India.

The pandemic, say businesses, has been the big trigger. Take Paras Spices. It started digitisation five-six years back. However, it digitised the bulk of operations only after the outbreak of Covid-19. Today, almost 70% business functions, ranging from production and accounting to quality control, have been digitised, says director Paras Budhiraja. For instance, Paras furnishes real-time crop and related inputs to farmers in five states with whom it has entered into contracts. “Remaining connected with such a large number of farmers is a challenge. This is where we thought technology could help,” says Budhiraja. The company has also digitised supervision of manufacturing processes, data collection and shop floor audits. “Digitisation is a necessity. Remote working has made process automation indispensable,” he says. Paras is also building in-house apps. For instance, it has launched an app on which it shares all farm-related data with farmers. It is developing a similar app for retail customers too. Its consumer brand Orika already sells premium spices, spice mixes and seasonings through online and offline channels.

Even decades-old businesses have been touched by the trend. Orientbell Tiles, a 45-year-old company, is using technology to digitise the buying process. A feature on its website enables consumers to see how a room will look in tiles of their choice. “A large number of customers are using the feature. Consumers are spending more time online. Their expectations from dot.com businesses and traditional businesses are the same,” says Alok Agarwal, chief marketing officer, Orientbell Tiles. The company is also equipping ‘channel partners’ with digital marketing tools. “Dealers leveraging digital are seeing 8-10% higher growth in business,” says Agarwal. The company has also digitised transport management starting from hiring of trucks to loading and weighing them before dispatch. “Digitisation has improved efficiency. Technology is here to stay and we hope it is adopted by more businesses,” says Agarwal. The company is even present on the cloud. “A lot of internal processes are on the cloud. It is the best way to ensure that information and relevant applications are available on mobiles,” says Agarwal.

Paras and Orientbell are not alone. A Salesforce research conducted in September 2021 found that nearly 100% small and medium businesses that had some operations online deepened their digital presence in 2021. The list of digital converts includes even legacy businesses dealing in such stuff as edible oils and spices. Pansari Group, says managing director Shammi Agarwal, is more than willing to spend on technology. “Adoption of digital has helped us increase efficiency, smoothen operations and get real-time data,” he says. The group, which makes spices, oils and other food items, has digitised all processes right from production monitoring to order dispatch. It has equipped phones of employees with technology that allows them to remotely supervise production. It has also made huge investments to replace traditional servers with cloud storage. “Our investments in digitisation have gone up by four times. We have to keep ourselves updated,” says Agarwal. The company plans to add chatbots and automated sales calls as well. Pansari, which sells to e-commerce businesses like Blinkit and BigBasket through its B2B app, says online business has more than doubled in last few years. “Sales have moved online via e-grocery platforms. We will get our products listed on all online platforms,” he says.

Business success, after all, is all about reach. That is why shoe-maker Woodland has made its entire 500-store network omni-channel. Harkirat Singh, managing director of Aero Club, which owns Woodland, says before the pandemic, the company used to service pan-India online orders through its Delhi warehouse. Now, all outlets have been equipped to fulfil online orders and provide after-sales service. The entire inventory has been digitised. “We have deployed new software to integrate stores, supply chain network and manufacturing processes. The operations are now much more streamlined,” says Singh. Online now accounts for about 35% sales compared to 20% earlier. “We expect to be at 50:50. We are earmarking more funds for digital marketing,” says Singh. All businesses will have to keep adopting new technology, especially with concepts such as metaverse kicking in, he says.

Talking about metaverse, some companies are already working at the cutting edge of technology. MF Utilities —the mutual fund industry’s ‘shared services’ initiative—says it is keen on incorporating computer vision capabilities to reduce incorrect data entries. It says it is closely watching developments in AI and blockchain and will deploy them whenever it spots opportunities.

Ecosystem Enablers

A decade ago, digitisation was tough for small and medium businesses due to shortage of resources, lack of awareness and inability of owners to grasp the concept and its implications. But today, building technology capabilities is not as difficult, thanks to a booming ecosystem of enablers. Instamojo, for instance, is helping small and medium businesses leverage the Internet to expand reach. It sets up online storefronts and organises product catalogues. It also facilitates digital payments, offers logistics services, arranges short-term capital and helps companies develop digital marketing tools. COO & co-founder Akash Gehani says number of small and medium businesses signing up for Instamojo has doubled during the pandemic. The firm says it has digitally enabled more than a million businesses over the last two years. As many as 50,000 merchants have been subscribing to the platform every month for the last six-twelve months. “We expect at least 8-10 million small and medium businesses to go online in the coming years. Having your business online is a basic requirement today. It opens new horizons,” says Gehani.

SaaS (software-as-a-service) firm NowFloats services a number of businesses in retail, hospitality, manufacturing and healthcare sectors. It creates differentiated marketable content for small and medium businesses and enables them to share it on social media channels like Instagram, Facebook and WhatsApp. It also solves the problem of discoverability by mapping businesses on Google Maps and WhatsApp. Services start from ₹300 a month and go up to ₹900. Co-founder Ronak Samantray says customer base has risen six times during the pandemic. The company equips businesses with scale and helps them digitise inventories and create product catalogues. “Going online is no longer a differentiator. What sets businesses apart is differentiated content,” says Samantray.

The Public app, a location-based social networking app where businesses can market products, goes a step ahead. It uses hyper-localisation and geo-targeting to help businesses reach their target consumers. “Digital marketing enables brands to target the right set of customers at a much lower cost. Brands with low marketing budgets can opt for online advertisement depending on funds they would like to allocate. One can start advertising digitally with even ₹100,” says Tarun Arora, chief operating officer, Inshorts Group, which owns the Public app.

Marketing, sales and operations are not the only areas where technology companies are becoming enablers of businesses. Fintech start-up Khatabook provides small and medium businesses a ledger app to record credit to customers. It also helps businesses manage accounts, staffing, inventory and sales. For instance, it has tools to digitally manage workforce with records of monthly/hourly wages, attendance, payslips and salary calculation and payments. “The pandemic has accelerated digital adoption. We saw more and more MSMEs generating QR codes on Khatabook app to activate digital payments in 2020. Tier-II, III and IV areas and beyond saw higher digital adoption,” says CEO & co-founder Ravish Naresh. Khatabook claims over 10 million monthly active users, present in almost every district.

Global giants are not far behind. Amazon Web Services (AWS) launched Amazon Digital Suite last year to help small and medium businesses take functions such as accounting, customer support and human resources online. It covers a wide range from compliance to solutions such as AI, machine learning and internet of things. Separately, Amazon established a digital brick and mortar kendra in Surat last year. It wants to use these centres to bring tools, support and services closer to small and medium businesses. Amazon has also rolled out a programme called Spotlight Northeast to expand the benefits of e-commerce to small and medium businesses in the region. “Since 2020, over 4.5 lakh new sellers have joined Amazon.in. Just for perspective, it took us nearly 6.5 years to go from 100 sellers to 5.5 lakh sellers and just 23 months to go from 5.5 lakh to over a million,” says Sumit Sahay, director, Selling Partner Services, Amazon India.

“Technology has not only helped MSMEs meet short-term business continuity challenges but is also helping transform every aspect of business right from increasing efficiencies and accessing new markets to customer feedback, delivery and creating a pan-India market for their products,” says Nidhi Munjal, vice president, International Partnership Services at Walmart.

The Challenges

Internal resistance to change has been the biggest barrier to adoption of technology in traditional establishments. “The teams are used to working in a certain way. Persuading my team and educating myself about benefits of new technology have been challenges,” says Budhiraja of Paras. There is also skepticism about the potential of technology. “After all, businesses have worked for years without digital. It does take time to buy in,” says Agarwal of Orientbell Tiles. Pansari Group’s Shammi Agarwal says they had to train employees in use of technology. Woodland also undertook reskilling programmes for staff. “Teams have to adapt to new systems,” says Singh.

NowFloats’ Samantray says digital literacy is a big handicap in small and medium enterprises. Within digital, only payments have been able to reach masses as demonetisation unleashed a ‘digital financial revolution.’ “Digital payments are the first step towards digitisation, but beyond that, it is a challenge,” says Samantray, whose firm hosts webinars to educate small and medium businesses. These sessions are conducted in English and Hindi. The company wants to add regional languages too. Instamojo runs online skilling platform mojoVersity that equips small and medium enterprises with business acumen using video-based courses that cover a range of subjects such as tax filing, social media skills and WhatsApp marketing.

Kanan Subbiah, senior VP & CTO at MF Utilities, says data protection and cybersecurity issues will also take centre stage once small and medium businesses adopt digitisation at a larger scale. He says cyber attacks and complying with laws and policies will require companies to build mechanisms which entail considerable, if not hefty, costs. In fact, small and medium businesses seem to be already bearing the brunt of cyber attacks. A study by Cisco published in September 2021 that sampled about 1,014 local businesses showed that about 74% small and medium businesses had faced a cyber incident in past 12 months. “At the end of the day, digital is here to stay, and nobody can ignore that. I am sure the service segment will evolve to offer solutions at affordable prices,” says Subbiah.

Costs, after all, are a big factor for smaller companies, though companies are more than willing to spend on adding technology capabilities due to high return on investment.

Bang For The Buck

For Pansari Group, tech has enabled live mapping of production, which reduces errors and allows swift implementation of corrective measures. “Just to give a perspective, if my cost has increased four times, my efficiency has improved ten times,” says Agarwal. “Due to adoption of tech, our operational costs have gone down. If per unit cost of production falls, it leads to savings,” he adds.

Small and medium businesses typically spend about 1% revenues on technology solutions. The bulk of the investment goes into cloud, automation and modern infrastructure, say analysts. “Specifically, within cloud, SaaS adoption is seeing acceleration as it entails lower costs and entry barriers,” says Abhinav Johri, director and practice head, digital consulting, EY. “Incorporation of such solutions is driven by the fact that small and medium enterprises are cost sensitive and look for opportunities to improve margins. Automation and cloud reduce expenses,” says Johri. He expects the share of tech investments by small and medium enterprises to touch 1.5-2% of revenues in a couple of years.

Orientbell’s Agarwal testifies to high return on investment. “It (digitisation) requires upfront investment but is one-off and not a concern. Tech has helped us realise our business targets well in advance. We have achieved in three months what we would have achieved in two to three years,” he says.

Paras Spices agrees. The company has a team of agronomists to collect data from farmers. Earlier, data points used to be recorded manually, which restricted the scope of its studies to limited number of farmers. Deployment of technology has facilitated easy data storage. “If earlier we were working with 1,000 farmers a month, today, we are working with more than 6,000-7,000 farmers with the same manpower,” says Budhiraja.

Experts say the local technology market has also expanded considerably and can now offer solutions at various price points. India SME Forum’s Kumar says most cloud-based HR software offer low-cost and effective solutions. “The market has grown. We have a huge number of products at affordable prices,” he says.

Deloitte’s Vellody says a number of local organisations are building affordable technology solutions for small and medium enterprises. However, there is still room to make pricing more open and simplified, he says. “Pricing of technology solutions has come down but that is a journey half-travelled,” says Vellody.

If costs continue to fall at the same pace, we may be looking at a completely digitised small and medium business ecosystem.

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