Scope and Growth of SME Business in India

Posted by SME Consulting on March 16th, 2021

The Scope and Growth of SME Consulting in India, as compared to the country's overall economy has been the subject of a lot of research. The main finding is that while the vast majority of Indian companies are largely untapped and have a relatively small market share, there are a few exceptions. The country's key services sectors, like BPO and IT, have the most potential for large-scale growth and commercialization, but this is yet to happen.

India's services sector, including BPO and IT, have the potential for high-tech and innovative outsourcing to several Asian countries like India, China and the Philippines. This, in turn, provides a much greater scope for SMEs to expand their business internationally. Outsourcing activities help Indian SMEs cut costs by acquiring certain expertise not currently available in the domestic market. For instance, BPO activities in India enable BPO firms and their outsourcing partners to gain access to the highly-skilled services of engineers and other technological experts of these countries, thereby, allowing them to offer more value-added services.

The outsourcing boom in India can also be attributed to the country's recognition of its critical need to modernize its economy. According to a recent McKinsey report, "In India, weaknesses in productivity growth were holding back the growth of private enterprise, reducing domestic output and creating inefficiencies across the public and private sector." Furthermore, as compared to other countries like China and Vietnam, Indian SMEs is relatively closed and remains largely dependent on Chinese counterparts. Indian firms are reluctant to take risks, and remain wary of foreign competition, even if they are able to cut costs by leveraging their own domestic resources.

Though India has the world's third-most rapidly growing economy, it lags behind other major countries in terms of scale and complexity of its BPO sector. The services sector remains relatively immature, with little experience of international trading and very limited foreign direct investment (FDI). Even in the emerging BPO market, there are few large players, with significant local presence. As a result, competition in this sector remains fierce, and companies often struggle to sustain operations. Moreover, even if companies do manage to get a foothold in the market, they may not be able to draw the kind of ROI (return on investment) that is required to make a significant dent in the Indian market.

On the contrary, China - the largest country in the world by economy - has long been a preferred outsourcing destination for many BPO companies. Unlike India, China does have a developed IT and BPO sector and boasts of more advanced infrastructure and highly qualified professionals. Furthermore, the country's rapid growth and increasing global influence have also made it an attractive destination for BPO projects. Moreover, a large number of Chinese companies are now conducting business in India.

For BPO companies in India, the benefits of working in India are many. For starters, the country offers cost-effective labor, competitive and quality service - a lot different from what you would get from western countries. Additionally, compared to other countries in Asia, India is a fast-growing and technologically advanced country, providing low cost outsourcing solutions to its corporate clients.

However, India still faces a number of issues, such as a weak domestic market and a lack of government support. While there is no doubt that the country has great potentials for expanding its business, these obstacles can hold up the progress of the outsourcing sector in India. At present, the country's political and economical setup is not conducive for effective and timely implementation of business-oriented policies. This is why most BPO companies are looking to outsource to countries like China, Malaysia and the Philippines.

Outsourcing to these countries presents a very favorable scenario for companies that are looking to expand their business scope and boost their revenues. Compared to India, the population is also much larger in these countries, which results in a more vibrant economy and a larger pool of skilled professionals to draw resources from. In addition, the quality of life in these areas is higher, making the cost of living considerably lower. These factors, coupled with the different policies of the respective countries, make outsourcing to these countries as a viable business option for companies.

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