MSMEs not integrated with e-commerce platforms face survival threat: ICRIER

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The micro, small and medium enterprises (MSMEs) that are unable to integrate with e-commerce platforms may find it increasingly difficult to access the market as the technology represents a ‘survival threat’ to them, says a latest study by the Indian Council for Research on International Economic Relations (ICRIER).

“While there are gains to MSMEs by integrating with e-commerce platforms, it is important to recognise that for firms that are unable to join e-commerce platforms, technology may represent a survival threat rather than an opportunity. Firms that are not integrated with e-commerce platforms are likely to find it more challenging to access markets at a time when integrated firms are making deeper inroads into markets by leveraging platforms,” said the study titled ‘Annual Survey of MSMEs in India: Leveraging E-commerce for the Growth of MSMEs’.

In contrast, units that have integrated with the e-commerce platforms have witnessed significant gains in the form of increased sales, profitability and investments. Of the integrated MSMEs, the report notes that 63 per cent units are export-oriented, as compared to 48 per cent among non-integrated firms.

Similarly, 35.5 per cent integrated MSME firms reported a turnover between Rs 10 million and Rs 500 million in financial year 2021-22, whereas among the non-integrated firms, the share of firms having a turnover between Rs 10 million and Rs 500 million stood at 15.6 per cent in the same period.

“The results of the survey suggest that MSMEs have witnessed significant gains by integrating with e-commerce platforms. Improved market access is the most widely reported benefit of integration. Therefore, it is unsurprising that a majority of integrated enterprises report their willingness to increase the share of e-commerce sales in their total sales in the future,” the study noted.

The study surveyed 2,007 MSMEs registered on the UDYAM portal across six product categories—sports goods, toys, processed and preserved food products, apparel, furniture and handicraft products in 11 cities that included Ahmedabad, Bhubaneshwar, Delhi, Jaipur, Lucknow, Ludhiana, Jalandhar, Agra, Meerut, Saharanpur and Chennai. Of them, 1,005 enterprises were integrated with e-commerce platforms, while the remaining 1,002 were not integrated.

Besides, the share of permanent employees is higher in integrated units as 40.8 per cent integrated units reported having over 50 per cent of their workforce composed of permanent employees, as compared to only 32.9 per cent non-integrated firms having the same level of permanent workforce. In terms of profitability, approximately 40 per cent of integrated MSMEs reported profit margins of 15 per cent or below, while among non-integrated firms, the corresponding share was 58 per cent.

“Firms also reported that they had launched new products, made improvements in existing product design and adopted new business practices and organisational methods since they integrated with e-commerce platforms. This suggests that integration with platforms may have fostered investment and innovation at the firm level,” the study said.

MSMEs also enhanced their digital footprint through integration with e-commerce platforms, as they are able to establish their creditworthiness and access formal finance. Approximately 42 per cent of integrated enterprises reported that obtaining a loan has become easier after integrating with e-commerce platforms, while around 75 per cent of non-integrated firms believed that their ability to raise external finance would have been greater if they had a presence on e-commerce platforms.

The study notes that the decision to not integrate, in large part, is due to a lack of knowledge and information about digital technologies and e-commerce platforms. However, the decision of a firm to join e-commerce platforms is not simply a function of whether it has knowledge and information about the platform but also the firm’s own internal capabilities, which determine whether it stands to benefit from joining e-commerce platforms.

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Pooja Gupta

CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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