MSMEs Perform Better Post E-Commerce Integration

Unable to effectively utilize digital technologies due to a lack of knowledge is the key factor that refrains many of India’s micro, small, and medium enterprises (MSMEs) from using e-commerce platforms, says a recent survey conducted by the Indian Council for Research on International Economic Relations (ICRIER).

E-commerce platforms have immense potential to make markets accessible for MSMEs that remain confined to local markets and help them reach customers in a wider geographical market through new sales channels.

The Covid 19 pandemic propelled businesses to rapidly adopt digital ways for sustainability amid the change in market dynamics. E-commerce platforms also witnessed MSMEs’ accelerated participation across the globe. However, a major part of the MSME sector remained hesitant about going online and preferred selling through traditional avenues.

ICRIER carried out a survey of 2,007 MSMEs covering 11 cities—Agra, Ahmedabad, Bhubaneswar, Chennai, Delhi, Jaipur, Jalandhar, Lucknow, Ludhiana, Meerut, and Saharanpur—across the country. Of the surveyed firms, 65 per cent were micro firms, 19 per cent were small, and the remaining 16 per cent were medium in size. At the time of the survey, 1,005 enterprises were integrated with e-commerce platforms, while the remaining 1,002 were not.

Survey Findings

Nearly 43 per cent of the surveyed 1,002 firms that are not integrated with e-commerce platforms cited not having the required knowledge to engage with digital platforms.

Of the total non-integrated firms facing knowledge barriers, 48 per cent were micro enterprises, 21 per cent were small, and 31 per cent were medium-sized firms.

Around 13 per cent of the non-integrated MSMEs said they often faced problems when customers tended to return the products sold through e-commerce platforms. Eight per cent of the firms were dealing with the issue of unskilled staff, while seven per cent MSMEs wanted to continue selling through traditional avenues. Only 11 (less than one per cent) non-integrated firms were those which earlier opted for e-commerce platforms but due to scant knowledge about selling their products online, they backed out.

Interestingly, less than five per cent of the surveyed non-integrated firms had high profit margins by selling their products offline.

Integrated MSMEs’ Performance

Firms integrated with e-commerce platforms have claimed that the market reach of their products has improved. Of the 1,005 surveyed integrated enterprises, about 43 per cent of them reported that e-commerce integration enabled them to enhance their market reach. Approximately 40 per cent of the firms invoked the convenience factor in terms of selling through e-commerce platforms and transactions. Nearly 34 per cent of integrated firms pointed out that higher profit margin was an important benefit of selling through e-commerce platforms.

Increase In Total Sales After Using E-Commerce Platforms

Doing business via e-commerce has resulted in an increase in total sales for 86.5 per cent of surveyed integrated enterprises.

Approximately 34 per cent of integrated MSMEs reported an increase of less than 10 per cent in total sales, 27 per cent firms reported a 10–20 per cent jump, and 15 per cent of integrated enterprises reported an increase in the range of 20–30 per cent of their total sales.

As per the report, small enterprises have relatively done better in terms of sales performance, with 54 per cent reporting a sales increase in the range of 10–30 per cent compared to 39 per cent micro and 32 per cent medium-sized enterprises.

Easy Access To Loans

Association with e-commerce platforms makes it easier for MSMEs to access loans. Approximately 42 per cent of integrated enterprises have found taking credit easier post integration. The percentage is slightly higher among female-owned enterprises, with nearly 48 per cent reporting that loan accessibility was easier after joining e-commerce platforms.

A rise in digital financial services, including providing credit to small businesses and consumers, is directly connected with the growth of e-commerce platforms. The rise of embedded financial solutions has enormous potential to enhance access to finance for MSMEs integrated with e-commerce platforms, leading to decreased expenses and increased productivity in the digital economy.

Initiatives By E-Commerce Platforms

Various large e-commerce platforms have been collaborating with the government in order to create an enabling trade environment and bridge the gap between integrated and non-integrated MSMEs. For instance, Flipkart, through its ‘Samarth programme’, aims at supporting artisans and craftsmen of different states by digitizing their businesses and increasing market access.

“Bridging the gap between integrated and non-integrated firms will not only require investments in technology, digital skills, information, and other factors that are complementary to e-commerce adoption, but also enhance the capabilities and productivity of MSMEs by providing them with infrastructure services, financial services, managerial and business skills, enterprise support, and training,” the report noted.

Conclusion

While there are gains for MSMEs by integrating with e-commerce platforms, it is important to recognize that for firms that are unable to join e-commerce platforms, technology may represent a survival threat rather than an opportunity.

Adaptability is the key to survival, and MSMEs that are not integrated with e-commerce platforms must focus on the changes happening around them, especially post pandemic. Non-integrated firms are likely to find it more challenging to access markets as compared to integrated firms that are making deeper inroads into markets by leveraging digital platforms. Given that integrated firms are better off on average than non-integrated firms, such differences in market access on account of e-commerce platforms can exacerbate inequities between these firms.

Policymakers and other stakeholders must be mindful of these potential inequities and seek to bridge the divide between integrated and non-integrated firms. This requires a comprehensive understanding of the factors that impede firms from joining platforms. In the sample, non-integrated firms indicate that in large part, their decision to not join platforms is due to a lack of knowledge and information about digital technologies and e-commerce platforms. Implementation of different skill development programmes and other government initiatives for MSMEs must be monitored extensively to improve productivity.