B2B E- Commerce - A Key Factor in MSME Growth in India
An overview of MSME sector in IndiaThe Micro, Small and Medium Enterprises (MSMEs) sector in India has been experiencing steady growth and is expected to mature into a firm foundation for the economy at $3.5 trillion by 2020. Offering financial inclusion and employment generation, the sector’s notable contribution to the country’s GDP speaks volumes about how MSMEs have charted a distinct success story so far. Given the potential of MSME sector in India, several government initiatives have been launched to create a conducive business environment in the current scenario. Campaigns like Digital India, Skill India, Startup India and Make in India aim to provide MSME players with a level playing field and a definitive push towards enhanced productivity. We can’t deny the fact that past few years have been years of intense movements in the MSME sector.
Along side the government sector, several developments have been witnessed in the private business segments and the MSME sector has gained importance among these players as well. This scenario has fuelled growth of the B2B ecommerce players, who have not only emerged to provide niche service for MSMEs but are also serving as catalyst to growth of the MSMEs and India’s GDP.
The symbiotic relation for economic growth | B2B ecommerce and MSME
A CII and Deloitte India LLP report states that, India’s B2B e-commerce which is worth Rs 19.13 lakh crore ($287 billion) as of today, is estimated to grow by 2.5 times to Rs 45 lakh crore ($700 billion) by 2020.’ A new yet important channel for commercial transactions, B2B ecommerce in India is growing at an annual rate of 51% – the highest in the world (source: ASSOCHAM-Forrester study paper.) Internet penetration, customer’s familiarization with digital payments and other digital habits fuelled by B2C ecommerce players approximately a decade back is a key factor for early adoption of B2B ecommerce service in India; And MSME players stand to gain tremendously by leveraging the exponential growth of the e-commerce sector as most B2B e-commerce players have emerged to address long existing MSME challenges, with their unique business models as solution.
Some of the solutions that B2B players have been able to provide to MSMEs in short span are:
1. Easy access to timely finance by FinTech players
Given the nature of their work and the labour that they employ, MSMEs are in perpetual need of liquidity. Often, they run into difficult times vis à vis working capital that affects the smooth supply of raw material. The B2B e-commerce players have been lending a helping hand just when a MSME needs a courtesy convenient access to timely finance through their tie-ups with new-age non-banking finance (FinTech) companies.
• New age evaluation process and collateral free loans
The FinTech players have been able to bring change at various levels of lending processes. One of the most important aspect here is providing collateral free loans.
Small business owners do not always have collateral to offer in lieu of a loan that they have applied for. Inconsistent financial history and lack of collateral are major reasons why traditional banks shy away from endorsing loans for MSMEs. On the contrary, a B2B e-commerce platform evaluates an MSME via strength of their cash flows, customer relationships, management, etc.
2. Digitization of supply chain for shorter logistics turnaround time
Ensuring timely deliveries and production deadlines become difficult when there are innumerable delays in receiving and dispatching raw materials and finished goods. Logistics are thus a key factor in limiting the productivity of MSMEs. E-commerce players have countered this issue by deploying technology and human capital. Apart from addressing the logistics issue, B2B e-commerce players with large suppliers as partners enable SMEs to access quality raw material.
3.Adding value to supply chain with cost saving services
MSMEs rarely have a direct connect with their suppliers and customers. Buying from suppliers or selling to customers usually requires a long chain of middlemen, adding to costs and complexities of the purchase and sale. With the advent of online marketplaces, an MSME can cut through unnecessary cost and chain of middlemen to directly connect with its suppliers and customers.
4. Customer outreach via e-commerce
Expanding the customer base often requires investments that an MSME may find hard to do. However, taking their business to an online marketplace enables an MSME to widen its customer base to a large extent.
The emerging symbiotic relationship between the B2B e-commerce sector and Indian MSMEs is a good start towards addressing some of the traditional issues in the sector. One can clearly see the building of trust and flexibility in both parties as B2B e-commerce platforms offer smarter, hassle-free and unique solutions to small enterprises.
Continuous innovations like digital payments, hyper-local logistics, analytics-driven customer engagement and digital advertisements have enabled the e-commerce industry in India to grow at a much faster rate. Consequently, we are seeing a rising number of small enterprises jumping onto the e-commerce bandwagon. From utilising discounts as a strategy to focusing on profitability through convenience, to easy return policies, customisation, time-bound services and easier digital interface, B2B e-commerce has come a long way.
How government’s tech platform TReDs can help address delayed payments issue:
The issue of delayed payments is adversely affecting the MSME sector and its growth. As per a recent study by Knowledge and News Network, some of the biggest enterprises in India collectively owe Rs. 10, 000 crores to MSMEs, which if paid dully will certainly help MSMEs to function smoothly. In order to address this big issue, government must make their tech platform TReDS which brings together MSME sellers, corporate buyers and financers onto single platform. Primarily, TReDS is a bill discounting platform. However, government can make it a powerful platform with below mentioned value adds mechanisms:
• Supply bills and receivables could be offered for discounting by MSMEs to banks and other financing institutions like NBFCs and factoring companies. This platform should facilitate the banks and financing institutions and other interested parties to offer their competitive discounting rates for the MSMEs and MSMEs should be able to opt for the best financing sources.
• Further, MSMEs supplying to various corporate and other buyers should be able to get their bills realised on due dates as per agreed terms or within a maximum of 45 days and in case of delay, government should also make the buyers pay the interest which is paid by the banks/NBFCs.
The whole mechanism of these platforms should be made in such a way that not only does discounting of bills or receivables but also transfers the burden of interest payment for the period of delay beyond 45 days or the agreed period upon the buyers automatically.
Alongside the government sector, several developments have been witnessed in the private business segments and the MSME sector has gained importance among major players as well
2. Digitization of supply chain for shorter logistics turnaround time
Ensuring timely deliveries and production deadlines become difficult when there are innumerable delays in receiving and dispatching raw materials and finished goods. Logistics are thus a key factor in limiting the productivity of MSMEs. E-commerce players have countered this issue by deploying technology and human capital. Apart from addressing the logistics issue, B2B e-commerce players with large suppliers as partners enable SMEs to access quality raw material.
3.Adding value to supply chain with cost saving services
MSMEs rarely have a direct connect with their suppliers and customers. Buying from suppliers or selling to customers usually requires a long chain of middlemen, adding to costs and complexities of the purchase and sale. With the advent of online marketplaces, an MSME can cut through unnecessary cost and chain of middlemen to directly connect with its suppliers and customers.
4. Customer outreach via e-commerce
Expanding the customer base often requires investments that an MSME may find hard to do. However, taking their business to an online marketplace enables an MSME to widen its customer base to a large extent.
The emerging symbiotic relationship between the B2B e-commerce sector and Indian MSMEs is a good start towards addressing some of the traditional issues in the sector. One can clearly see the building of trust and flexibility in both parties as B2B e-commerce platforms offer smarter, hassle-free and unique solutions to small enterprises.
Continuous innovations like digital payments, hyper-local logistics, analytics-driven customer engagement and digital advertisements have enabled the e-commerce industry in India to grow at a much faster rate. Consequently, we are seeing a rising number of small enterprises jumping onto the e-commerce bandwagon. From utilising discounts as a strategy to focusing on profitability through convenience, to easy return policies, customisation, time-bound services and easier digital interface, B2B e-commerce has come a long way.
How government’s tech platform TReDs can help address delayed payments issue:
The issue of delayed payments is adversely affecting the MSME sector and its growth. As per a recent study by Knowledge and News Network, some of the biggest enterprises in India collectively owe Rs. 10, 000 crores to MSMEs, which if paid dully will certainly help MSMEs to function smoothly. In order to address this big issue, government must make their tech platform TReDS which brings together MSME sellers, corporate buyers and financers onto single platform. Primarily, TReDS is a bill discounting platform. However, government can make it a powerful platform with below mentioned value adds mechanisms:
• Supply bills and receivables could be offered for discounting by MSMEs to banks and other financing institutions like NBFCs and factoring companies. This platform should facilitate the banks and financing institutions and other interested parties to offer their competitive discounting rates for the MSMEs and MSMEs should be able to opt for the best financing sources.
• Further, MSMEs supplying to various corporate and other buyers should be able to get their bills realised on due dates as per agreed terms or within a maximum of 45 days and in case of delay, government should also make the buyers pay the interest which is paid by the banks/NBFCs.
The whole mechanism of these platforms should be made in such a way that not only does discounting of bills or receivables but also transfers the burden of interest payment for the period of delay beyond 45 days or the agreed period upon the buyers automatically.
