SMBs – The Bridge of Resilience (Part 1)

Praveen: Thank you for joining this session today. I am Praveen Bhadada, Managing Partner at Zinnov and I will be your host today. In this episode of the Zinnov Podcast we will talk about the small and medium business segment in India also known as the SMB segment, or the MSME sector. India has more than 75 million SMEs (Small and Medium Enterprises) that form the cornerstone of India’s economic contribution upwards of 30% of the country’s GDP and employs over 130 million people. However, with the COVID crisis and the lockdown, the Small and Medium Enterprises sector has found itself in what we may call ‘The Fight for Survival.’

We recently released a combined thought leadership report with Cisco on the impact of COVID-19 on SMBs. So, today I have with me Sameer Garde, President of Cisco India and SAARC. Sameer has been focusing on the Small and Medium Enterprises segment for more than a decade and has a keen understanding of the technology and market opportunities that are available to the segment. Welcome to the show Sameer.

Sameer: Hey thank you Praveen. It’s a pleasure to be here.

Praveen: So, Sameer, the last six to eight weeks have been crazy all across the world. The planetary scale of the turbulence that COVID-19 has caused, a lot of businesses are starting to see the impact. What is your take on the Indian SMB market specifically in the context that they contribute a sizable base to the Indian economy, and they seem to be impacted the most? What are the trends you are seeing? And what’s your take on the overall segment from a short term and long-term perspective?

Sameer: So, I think, firstly, this is, like you rightly said, completely unparalleled. We’ve never seen anything like this in the history of the world, so to say. So before I get into how businesses will get impacted, I think the first thing that probably comes to my mind is that if 130 million people are employed by SMEs, out of probably around 500 million people in India who have jobs – that’s a pretty large population of people who are likely to get impacted pretty significantly, in the short and in my opinion, the medium to long term. So, I think the first thing that we need to figure out is how do we ensure that we keep these 130 million people in jobs in the short to medium term. In terms of the impact, it is different for different industries and segments, but I think it is reasonably secular in nature. When I say secular, I mean, there are probably fewer industries who have a positive impact, and many more industries which have a negative impact. I don’t want to sound pessimistic or discourage what the future will look like. But I think that is the reality for at least the next six to nine months, if not more, and one of the things that I feel very strongly about is, the manufacturing industry, which is a large proportion of the Small Medium Enterprises, around 15 billion out of 75. Massive disruption, low production, very little deliveries, in fact no deliveries.

The auto sector numbers which came out in April saw literally zero deliveries of automobiles. There is a whole host of Small Medium Enterprises in that sector that have been supplying to these large auto companies and they’ve been very significantly impacted. Anything which is non-essential in nature, and pretty much other than food and masks, everything else seems non-essential at this point. So, I expect kind of a wave of consolidation. You know, think of it like probably 100 boats, each representing, let’s say, a quarter of a million or three quarters of a million of SMBs going in a turbulent sea, and probably only 20 will make it on the other side of the shore. So, we got to go figure out how we help the remaining 80 to at least go closer to the shore. So that’s one. I think manufacturing clearly will get the biggest impact. The other impact I see, other than groceries and personal care, overall retail, will get disrupted significantly. It will have impact on consumer companies and their suppliers that typically operate on very thin margins. Right? You know, I don’t see us buying clothes, apparel is going to be massively impacted. I don’t see us buying non-essential items. Let me give you an example. I was looking for a tube light the other day and the grocery store guy says, “sir, we are not prioritizing that right now.” So, I think there are places and things which will get impacted. But in my opinion, I think the biggest impact is probably going to be on 2 industries. One is real estate. I don’t see, at least on the commercial real estate side, a very large uptake of properties by offices, or corporates, and any SME that supports the real estate industry is going to get impacted. The second big one is Travel. Most of us have cancelled most of our plans, at least for the next three to six months, if not more, and domestic travel is probably going to get impacted as much as international. If I were to put it this way, if demand comes back manufacturing might come back, but certain industries within manufacturing will continue to have an impact like auto. Retail, some of it might come back, but travel tourism, real estate, I think those are industries which will get severely impacted.

Praveen: Absolutely. In our conversations with some of the larger manufacturers, one of the things that bigger companies are trying to do is to diversify. How much of that is feasible in the SMB context, specifically when these businesses are very small and they depend on a few customers to keep the lights on. Is the pivot or is the diversification even a possibility, specifically in the Indian context? What are you hearing from your SMB customers in the manufacturing domain?

Sameer: You know, I think it cuts both ways, right? If you’re a small and medium business, you are more agile, and you may not have the cash at the same time. So, I would recommend starting with the customer. Pivoting is easier for services and even retail kind of people and SMEs, not so easy for the manufacturing folks, unless they can add things, which make it relevant. So, for example, if an air conditioning manufacturer adds things which will add hygiene, which is adding value, in terms of filters and stuff like that, that could be something. But I think the idea needs to be around talking and staying in touch with your customer. And customers and consumers will give you the ideas on how and where to pivot. A lot of people think I will think in a vacuum and figure out what’s next for my business. But in my opinion, it’s always best to continue to stay in touch with customers and ask them the question – What more do you want from us now?

Praveen: Yeah, so great. Sameer, I think your point on manufacturing as well as services and wholesale trade is spot on. In fact, in our conversations with SMEs in services as well as wholesale trade, we are seeing that they are increasingly leveraging technology to find their pivots or continue to engage with their customers. Now you specifically coming from that background and Cisco at the front and center of providing collaboration solutions to individuals and businesses. How are you seeing technology enabling SMBs to deal with the current pandemic situation and eventually come out of it?

Sameer: Yeah, I think technology has a spectrum, right? Typically, when you talk to someone like a Cisco, you would expect it to be the high-end enterprises and large government companies or departments using our technology. It’s not very easy to fathom how Cisco technology can be used for small and medium enterprises. But it’s interesting to say that nearly 20% of our business comes from SMEs and it is actually one of our fastest growing segments. And I think they’re probably the most resilient and agile in terms of adoption of technology. Personally, at this point in time, what you’re seeing is, if I can do it online, I will. I think that’s probably the biggest trend that we’re seeing. I think the new low touch economy is rising from the new rules of social distancing. Technology will and has to fuel this economy and it will be core to all that we do. I think what we are also seeing is a lot more customer acquisition happening through online, enhancement in terms of customer experience. You know, I used to trust one person when I was younger, right, the person used to come and deliver my letters, postman. So, I think there will be a higher incidence of trust versus the product itself to kind of ensure that you get delivery at home for anything that you need. We are seeing a lot of uptick on what we call crisis tracking and management, setting up crisis management platforms that leverage AI and predictive analytics, which can help SMEs. We are helping the Ministry of Health and we’re helping state governments as well.

Digital technologies can also enable MSMEs to increase efficiency. I think now, this is probably the time in the last 30 years where in IT companies have been talking about saying, do more with less. This is probably the right time for doing more with less. For instance, preserve cash and how do you use digital technologies to preserve cash. Become globally competitive, right. Online gives you the ability to access customers somewhere else within the company or access customers outside the country. I think, just adoption of online technologies, adoption of video technology – video is the new voice. In my opinion, it’s probably unprecedented, the usage of video that we have seen. For example, in the month of January we saw WebEx usage of around 7 billion minutes in a month. Last month, we saw globally around 28 billion minutes of WebEx views. 28 billion from 7 billion, so that’s four times increase in WebEx usage. A little less than 100 million people attended WebEx meetings in general. In the month of April alone, we had half a billion (5 times) people attending WebEx video. So I think people are very resilient people adopt technology very fast, when you are pushed to the wall, and then it becomes part of your DNA then it becomes part of your daily BAU (Business As Usual).

Praveen: I think that’s a great point, Sameer, the way the SMBs have showcased resiliency and adaptation by pivoting and by leveraging technology is phenomenal. Thank you so much, for those insights. However, I think we have barely scratched the surface when it comes to talking about the impact of COVID on the SME sector. So, we will continue our conversation in the second part of this podcast. Thank you, audience, for listening to the part one of this podcast. Do tune in to the second part to know about the role of government and technology companies in keeping the SME sector afloat. Thank you.