How E-commerce Has Become MSMEs' Lifeline As we celebrate National Small Industry Day today, here is a look at how e-commerce is driving MSMEs in India and vice versa

As e-commerce platforms adopt Micro, Small and Medium Enterprises (MSMEs) friendly policies, MSMEs are expected to drive $50 Bn of e-tailing sales by FY2027, says a recent report by Redseer Strategy Consultants. According to the consulting and advisory firm, the retail market in India is projected to burgeon to $ 1.4 trillion by 2027, and MSMEs are poised to account for an impressive 65-75% of this market share.

On the other hand, e-commerce has also helped MSMEs drive profits. "While offline MSMEs face challenges such as intense competition and financial burdens, the adoption of online channels has emerged as a viable solution. The integration of e-commerce platforms has unlocked new avenues for MSMEs, allowing them to tap into a global consumer base," it says.

In 2001, the government of India declared August 30 as National Small Industry Day. Since then, it has been celebrated every year to appreciate the work done by small industries and their contribution to the Indian economy.

On this special occasion, here is a look at the factors pushing MSMEs to sell online in the post-pandemic world, and the benefits henceforth for both MSMEs and e-commerce growth in India.

What led to the significant shift

"Online sales has helped me scale up significantly because of higher female customers on the platform and has improved my profits with cheaper sourcing. Moreover, it has a strong seller support system, resolving my claims timely, in the most efficient manner" says a Meesho seller whose annual turnover is INR 16 crores, as quoted by Redseer. The platform sells women's sarees

The post-pandemic world has witnessed a significant shift in consumer behavior and business operations, prompting many MSMEs to embrace online selling. Somdutta Singh, founder and CEO, Assiduus Global Inc and an LP investor lists out several key factors driving this:

• Evolving behavior: The pandemic has accelerated the adoption of online shopping as people turned to e-commerce for safety and convenience. MSMEs recognize the need to meet changing customer preferences and reach a wider audience.
• Wider reach: Selling online breaks down geographical barriers, allowing MSMEs to access national and even international markets. This automatically adds to expanded reach, increased sales and business growth.
• Diversification, and resilience: The pandemic highlighted the importance of diversification. MSMEs are recognizing that having both physical and online sales channels can provide greater resilience against future disruptions.
• Cost-effective: Today, setting up an online store is more cost-effective than maintaining a physical storefront. MSMEs can save on expenses and several resources while also potentially reducing marketing costs through targeted online advertising.
• Access to data: Online selling provides valuable customer data and analytics. This information can be used to understand customer preferences, track trends, and make informed decisions to improve products and services.
• Flexible and convenient: Online selling allows businesses to operate with greater flexibility. They can manage their stores remotely, provide 24/7 shopping options, and cater to customers' needs on their own terms.
• Competition: MSMEs may feel the need to keep up with competitors who are already selling online to avoid losing market share.
• Supply chain adaptation: The disruptions caused by the pandemic highlighted the importance of flexible and adaptable supply chains. Selling online can provide MSMEs with more control over their inventory and distribution.

Role of digital lending

The MSME digital lending space seems to be growing like never before, which has also helped MSMEs accelerate their online selling. According to the NeoGrowth MSME Insight Report 2022, MSMEs credit demand in Bengaluru and Chennai has exceeded pre-pandemic levels and the MSMEs have bounced back stronger post-pandemic.

The pandemic provided further impetus to MSMEs to digitize and accept the digital lending route to meet their credit needs. "Digital lending has become more accessible and accepted. This is further simplified through the ecosystem-based approach to lending that functions on the basis of partnerships at both the demand and supply sides of the lending spectrum," said Alok Mittal, CEO and co-founder, Indifi Technologies.

Digital lending to MSMEs is projected to increase between 10 and 15 times by 2023, scaling up to Rs 6-7 Lakh Crore ($80-100 billion) in annual disbursements. "As per many surveys conducted on the MSMEs recently, 60-80 per cent of Indian MSMEs either sell or collect online. The pandemic accelerated the pace of technology adoption for MSMEs in accounting, bookkeeping, online selling and transacting. Likewise, we see over 1,00,000 merchants discovering us digitally per month and trusting the seamless credit experience. 100 per cent of the collections are digital and a substantial amount of customer journeys are automated," said Manish Lunia, co-founder, Flexiloans.

A win-win for e-commerce platforms

E-commerce platforms have also benefited a lot by supporting MSMEs. MSMEs collectively contribute to a diverse range of products and services and by onboarding a variety of MSMEs, e-commerce platforms can attract a larger customer base, leading to increased sales and revenue, say experts.

Supporting MSMEs offers e-commerce platforms multifaceted advantages, forging a symbiotic relationship. "Integrating MSMEs enriches the product spectrum, broadening appeal and user engagement. Under the vision of Atmanirbhar Bharat, many Indian shoppers also prefer purchasing from local businesses. Hence, unique MSME offerings differentiate platforms, drawing distinct customer segments. And overall these enterprises boost platform traffic, catalyzing cross-selling. Empowering MSMEs fosters economic growth, extending their impact and enhancing platforms' role as industry leaders, and such collaboration is likely to infuse fresh concepts, attracting newer segments of customers," said Madhukar Bhardwaj, Principal, Physis Capital.

MSMEs also often offer unique and niche products that might not be available from larger retailers. This diversity of products can attract more customers looking for specialized items, enhancing the platform's appeal. "Also, MSMEs often have a more personal and direct approach to customer engagement leading to higher customer satisfaction and loyalty, as customers feel a stronger connection to the sellers on the platform. Fourth, A mix of established brands and small businesses on an e-commerce platform can enhance its credibility and reputation. The presence of legitimate and unique MSMEs can make the platform more trustworthy in the eyes of consumers," said Singh.

Digitization adopted by MSMEs is also democratizing the e-commerce space in India. A huge credit goes to e-commerce enablers that have made establishing an online presence easy for small businesses. Today, these businesses are not only able to chase profits with ease, but they are also helping e-commerce platforms touch a wider customer base from across cities and towns, thereby pushing the entire e-commerce sector to the fore.