Digitisation drives business, generates employment for SMEs: Report

Smaller enterprises such grocery stores, wholesale retail trader, small-scale manufacturers and homes businesses, have benefited from using some form of digital technology and e-commerce, according to findings of a research report released by Tata Institute of Social Sciences (TISS), Mumbai.

With the outbreak of Covid-19, e-commerce became pivotal to Indian retail across regions. While more consumers switch over to digital platforms for purchases, many micro and small enterprises participate in the emerging value chains, the report said.  This adoption contributed  significantly to business expansion, market coverage, labour productivity, and workplace modification for small businesses.

The report said that over 40% of the enterprises had digitalized their business amid the covid pandemic.  They are likely to continue the practice for the rest of their business tenure. Among the new platform adopted by small and micro enterprises, in tier-1 cities, their sales increased by 42% while revenue increased by 11% percent. In tier-2 cities, their sales increased close to 40% revenue increased by 13.4%. For users of digital technologies, value addition is 1.5 times higher than it is for non-users, it said.

The report has been written by Bino Paul, Unmesh Patnaik, Sumesh P Soman, professors at TISS, Mumbai, who mapped  the impact of e-commerce and digital technologies on small enterprises and employment.  Tata Institute of Social Sciences surveyed 361 small and medium enterprises across four regions and 16 cities looking at their engagement with e-commerce platforms including marketplaces, payment gateways and other B-2-B technologies, last mile delivery etc.

The fieldwork for the research, conducted December 2021 to March 2022,  covered businesses such as grocery stores, wholesale retail trade, small-scale jewellery makers, small-scale food processing units, crockery shops and online tuitions etc.

“Those who adopt digital platforms for business and selling activities, particularly micro and small enterprises, they perform better than non-users of such performance,” said Bino Paul, professor, School of Management and Labour Studies, TISS Mumbai.

The study found positive impact of digital adoption and e-commerce on small businesses both in their employment generation as well as revenues. Findings reveal that businesses that have adopted digital technologies have witnessed 40% more employment than those who did not; 15% SMEs have hired new employees through their e-commerce participation. Digitized SMEs provide 33% more jobs than non-digitized enterprises with 67% jobs in tier-1 cities.

Meanwhile, labour productivity in digitized firms is 133% higher than that of non-digitized enterprises. E-commerce platforms have increased women’s employment, especially in the self-employed category (59%) and women business owners (nearly 91%), it said.

“Another crucial outcome is the development of new products. A few units began exporting after the adoption of new technologies. Across generations, the adoption of digital technologies yields better payoffs. Participation of women is higher for technology users,” it said.

Interestingly, the costs involved in running a non-digitized business is 25% higher in tier-1 cities and 42% higher in tier-2 cities than a digitized business.

The report also assessed the impact and usage of e-commerce platforms and their impact on small businesses. The use of communication-based e-commerce platforms for value creation is higher than the paid e-commerce platforms, it added. Nearly 20% of those surveyed used WhatsApp for business, and nearly 15% used WhatsApp, Instagram, and Facebook. Amazon, Flipkart, and Myntra are the market leaders among the paid and subscribe e-commerce models. There is a good number of entrepreneurs who use own websites to find sales. Among digitalized firms—7.4% had their websites.

However, the report also highlighted the wide digital-access gap that exists in the market.

The majority of small and micro enterprises in the country are in technological backwater and do not participate in e-commerce—many cited age and level of literacy that hinders their adoption towards digital technologies, the report added.

While digital technologies positively impact micro-enterprises and self-employment, their potential remains unutilized in India. Making digital transformation an inclusive process is crucial to harness the potential, it added.