February 18, 2009

Mobile Phones Facilitating SME Growth in India

In previous posts in this blog, I discussed the findings of a Vodafone Policy Paper on the benefits mobile phone use in India. In my post, "The Impact of Mobile Phones on India's Agriculture Sector," I highlighted how farmers are able to obtain weather, price information, crop-advisory, government schemes, and relevant news via voice or SMS-text messages. This post will focus on how small and medium-sized enterprises (SMEs) can use mobile phones to facilitate business growth by improving communication with customers, increasing productivity, and better monitoring of business operations including inventory control.

"SMEs are central to the process by which the economic benefits of growth are distributed among the large part of the population," according to Dr. Mahesh Uppal, Director of Com First (India) Private Ltd, a consultancy specializing in policy, regulation, and strategy, and Rajat Kathuria, Professor of Economics at ICRIER and professor at the International Management Institute (IMI), New Delhi. As SMEs grow, employees have a growing need for mobility, which "is the main driver of the increasing adoption of mobiles by enterprises in India. Employees need to keep in touch with their offices, shops etc., with other colleagues in the field, and with customers and contacts outside the company."

Dr. Uppal and Mr. Kathuria “distinguish between two ways in which SMEs can use mobile telecommunications. Firstly, and most directly, SMEs can build specific business models around mobile services e.g., developing applications for WAP or SMS-based booking services, or information services (e.g. BookMyShow, JustDial). The mobile phone is enabling more creative and service-oriented business models that are directly creating employment opportunities."

"Second and indirect kind of impact of mobile. How can SMEs in general use mobiles to enhance their productivity and the efficiency of their value chain? Small businesses often face challenges in scaling up their businesses. This may be due to lack of funds or inadequate access to markets but it can also be due to the basic problems of communications and interrelationships as their businesses grow."

Many SMEs are classified as informal businesses, but mobile phones are enabling SMEs to integrate into the formal economy. Integrated SMEs are finding the following benefits of using mobile phones:
  • Increased income and revenues due to improved access to customers;
  • Better control of costs, whether due to reduced travel or co-ordination time, improved monitoring of work-flow, or better inventory control; and
  • Improved quality of products and services, and better customer service, in turn creating the scope to raise prices and earnings.
Most SMEs in India consists of a single self-employed person or a sole trader. As SMEs expand and hire employees, many SMEs "forgo the specialization of larger businesses which have dedicated persons for specific functions such as sales, marketing, management and information technology (IT). Those working in an SME must routinely resort to multi-tasking. A mobile phone can be a powerful device can help relieve many of daily pressures that SMEs face as a result."
Dr. Uppal and Mr. Kathuria conclude with the following benefits mobile phones offer to SMEs:
  • A more convenient and customized service for clients, with the potential for higher charges in some cases as more value is delivered to customers;
  • Improvement in quality of work through better monitoring and through retention of better quality staff;
  • Savings in time and cost, from the avoidance of travel to co-ordinate work or supplies, or from improved inventory control;
  • Higher incomes as work can be scheduled more efficiently (and more work fitted into working hours) or a higher-value service delivered;
  • Disintermediation or direct contact between SMEs and actual users of their services, which removes risks of dealing with intermediaries who often interface between SMEs and their more important clients;
  • Increased income from improved access to new customers;
  • Greater security for those in SMEs whose work is away from normal workplaces such as shops and offices; and
  • Better co-ordination of work and home life, especially for those working long and/or irregular hours.
The authors, however, explain there remains an urban-rural divide in India. While the benefit of mobile phones applies to urban areas where teledensity is highest, SMEs located outside of urban areas, where mobile coverage is more limited, will not fully enjoy the same advantages.
Second, the lack of education and familiarity with mobile technology remain a major obstacle in bridging the urban-rural divide. Some of the services offered through mobile phones (i.e., SMS-test messaging) require a basic level of literacy that may "not be found in more rural areas where illiteracy and the prevalence of local languages will inhibit the ability to execute these mobile-enhanced business models."
It is important to increase mobile coverage in less-developed to address India's rural-urban divide. Increased communications will allow greater access to literacy and other education programs.

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