India is home to nearly 63 million small businesses called micro, small and medium enterprises (MSME). These firms are considered to be the growth engine of the country’s economy as these contribute 30% to the GDP, and 45% to the manufacturing output. Despite the segment’s huge importance, the inconvenient reality troubling policymakers is that, while the rate of adoption of digital technologies has increased substantially because of Covid, most MSMEs are still a long way from achieving digital transformation.
According to experts, the sector’s low success rate in terms of digital transformation can be attributed to various structural handicaps. Studies have documented that larger firms often have an advantage when it comes to embracing digital transformation compared to their smaller counterparts.
Let’s talk about the biggest differentiator: lack of financial resources.
In India, larger firms typically have access to more financial resources to invest in digital transformation initiatives. They can allocate a significant budget for acquiring and implementing the necessary technology infrastructure, software systems, and skilled personnel. On the other hand, smaller firms may have limited financial capabilities, making it challenging to make substantial investments in digital transformation.
Register for Regional Summits and the Virtual Conclave of ETRIse World MSME Day 2023. Digital literacy is another important factor where smaller firms significantly lag. Industry observers say that the level of digital transformation varies among MSMEs, which creates difficulties for those who have already undergone the transformation to extend the same training and benefits to their downstream firms.Confirming this, Anil Bhardwaj, Secretary General of the Federation of Indian Micro and Small & Medium Enterprises (FISME), says MSMEs are not a homogenous group and different segments are at different levels of adoption. The ones that are GST compliant and who are connected to global or local value chains (auto, export-oriented sectors, etc) are ahead of others. “To be fair, the Indian business environment and regulatory ecosystem also need to evolve for businesses to adopt Industry 4.0. Regulations on data privacy, retail and e-commerce are still under discussion. MSMEs owners also worry about full-fledged adoption of cloud-based services in modes such as IaaS, SaaS, PaaS, etc, due to lack of norms on data portability and interoperability of different service providers,” says Bhardwaj. He adds that financing on hardware and the upgradation of legacy systems are also bottlenecks and some form of soft funding will be very helpful to this effect.
Gaps in data access
Data plays a crucial role in pushing digital transformation, as it enables organisations to gain insights and make decisions. Experts also highlight that the manufacturing operations can be substantially scaled up with greater efficiency and reduced cost through the usage of data and digitisation of operations, supported by data analytics. Larger firms typically have access to more extensive and diverse data sets due to their larger customer base and wider market reach. This abundance of data allows them to leverage advanced analytics techniques, like machine learning and artificial intelligence, to drive actionable insights. This isn’t something MSMEs can do easily.
Saket Dalmia, President, PHD Chamber of Commerce and Industry (PHDCCI), says that while MSMEs are trying to adopt the Industry 4.0 tools, their pace of transformation remains slow because of these structural issues. He lists a few basic issues hurting MSME firms’ digital transformation pursuits.
First on his list is the lack of awareness about the appropriate technologies and the resultant benefits of their adoption because of which there is fear of uncertainty among the MSME owners with lesser push for this transformation. Second: Lack of adequate financial and manpower resources for deployment in Industry 4.0 operations. Third: Concerns about the safeguards in the deployment of IT tools and their success potential vis-à-vis the required investments. And fourth: Concerns about post-Industry 4.0 operations, their interoperability and cyber security. Additionally, inadequate and unattractive promotional schemes of the government with rigid and cumbersome rules for availing them.
So, to promote faster adoption of Industry 4.0 by MSMEs, what solutions can be tried?
A number of things can be tried to ensure that MSMEs keep up with the pace of technological advancements. Experts say to promote faster adoption of Industry 4.0 by MSMEs, potential solutions include providing financial support, offering capacity building and training programmes, establishing favourable regulations, ensuring access to infrastructure, offering industry-specific support, and creating knowledge sharing platforms. Implementing these solutions can help accelerate the adoption of Industry 4.0 and enhance the growth and competitiveness of MSMEs.
According to Dalmia, creating more awareness and knowledge about the benefits and outcomes related to Industry 4.0 implementation through the right exposure, training and sharing the success stories can help the sector. Another practical idea worth implementing could be reorienting schemes for promoting the adoption of Industry 4.0 technologies by linking incentives with their success outcomes.
“Implementing digitisation and automation through IT-enabled technologies through the use of artificial intelligence and machine language and designing smart factories from the product design stage to effective customer service with targeted outcomes through a strategic plan can also work,” Dalmia suggests. He further adds that embracing Industry 4.0 systems for the support systems, besides manufacturing operations, to integrate the entire enterprise towards achieving efficiency, is the need of the hour.