MANAGEMENT CONSULTING

Impact of
e-commerce on
SMEs in India

kpmg.com/in

Foreword

Ashvin Vellody
Partner
ITA-CIO Advisory
KPMG in India

Small and Medium Enterprises (SMEs) are said to be the

backbone of Indias economy and I cannot imagine a more
interesting time for these enterprises. The future is full of
possibilities for SMEs and it is up for grabs by the virtue of
opportunities afforded by the e-commerce boom in India.
Online marketplaces have been hailed by many as a catalyst for
growth and this report, Impact of e-commerce on SMEs in India,
examines the profound influence of e-commerce on SMEs in
effecting efficiency gains and in changing the way they interact
in the global market. However, the existing digital divide which
inhibits adoption of e-commerce by SMEs calls for a concerted
effort by various players in the ecosystem including the industry
associations as well as regulatory bodies.
The analyses and point of view presented in the report have
been validated through discussions conducted by KPMG with
sector experts and industry associations.
I take this opportunity to thank the Snapdeal team for making
this endeavour possible by bringing in important insights and
industry perspective.
I hope you find this report helpful.

Impact of e-commerce on SMEs in India | 2

Small and medium enterprises (SMEs) are the engine of

economic development that create jobs and reduce poverty by
empowering the bottom of the pyramid. Sustained and healthy
growth of this sector is essential, since it is difficult to imagine
rising overall living standards and social peace without such
development.

Kunal Bahl
Co-founder and CEO
Snapdeal

The growing internet base, with more than 343 million internet
users has a direct correlation to the growth of commerce in the
country. The Indian entrepreneurs have started setting up their
shops online even before a physical set up. We are witnessing
a new trend with many SMEs taking the e-commerce route to
establish themselves in the Indian market and are using internet
not only as a marketing tool but also as a tool to enable them to
understand if a unique product has high demand in the market.
Indian SMEs are looking at e-commerce as an innovative tool to
build fresh business models.
The onus lies on the online marketplaces to enable these
SMEs to showcase their products across the country, giving
them access to a wider audience and helping them grow their
business. For sustainable business and economic growth,
all the e-commerce players should collaborate and reduce
business barriers for these SMEs to enable e-commerce
adoption.

03 | Impact of e-commerce on SMEs in India

Table of

contents

Impact of e-commerce on SMEs in India | 04

Foreword

01

Executive summary

06

e-commerce in India to cross USD80 billion by 2020

07

MSME/SMEs fuelling growth of the Indian economy

09

Impact of e-commerce too real to ignore

15

The e-commerce ecosystem steps up to support SMEs

21

All aboard full throttle

27

Closing thoughts

29

About KPMG in India

31

About Snapdeal (Jasper Infotech Pvt Ltd)

32

Impact of e-commerce on SMEs in India | 06

Executive summary

The e-commerce sector in India is projected to

cross USD80 billion by 2020 and USD300 billion
by 2030 and is already changing the way small and
medium businesses operate in India.1
The SME sector accounted for more than 17 per
cent of the GDP in 2014 while contributing to 45
per cent of the nations industrial output and 40 per
cent of the total exports2. The SMEs in India add
over 1.3 million jobs per year.3
By adopting e-commerce, SMEs shall achieve
significant advantages such as increased revenues
and margins, improved market reach, access
to new markets, cost savings in marketing and
communication spend, customer acquisition and
improved customer experience.

value when compared to SMEs using the internet

sparingly.4

Although SMEs in India may or may not have online

presence, 43 per cent of them participate in online
sales in India.5

The Indian regulators, industry bodies and

e-commerce players recognise the challenges
faced by SMEs and are doing their bit in enabling
thousands of SME sellers to explore a new channel
for marketing, sales and customer service.

The Indian governments initiatives such as Make

in India, Digital India and Skill India are all aimed
at facilitating growth of SMEs in the country,
and enable them to tap into the potential of
e-commerce.

SMEs that use the internet extensively tend to

export approximately twice as much by export

Source: KPMG in India analysis, Goldman Sachs 2015, industry discussions conducted by KPMG in India, 2015

1. India internet Unlocking the potential of a billion digital users, Goldman Sachs, 04 May 2015
2.

SMEs employ close to 40% of Indias workforce but contribute only 17% to GDP, Economic Times

3.

The Indian SME Survey, 2014-15, Firstbiz-Greyhound Knowledge Group Initiative

4.

The great transformer: The impact of the internet on economic growth and prosperity, Mckinsey Global Institute

5.

Indias SMEs: missing an online trick, Financial Times

07 | Impact of e-commerce on SMEs in India

01

e-commerce in India to cross

USD80 billion by 2020

Impact of e-commerce on SMEs in India | 08

e-commerce in India is on an unprecedented growth trajectory

The e-commerce sector in India is expected to be a
USD80 billion sector by 2020.1 Increasing internet
penetration, growing adoption of smartphones and
increased market awareness shall further accelerate
the growth of e-commerce in India. In the year 2014,
India had around 281 million internet users, and the
number is expected to increase to 640 million by
2019.2

India is projected to outpace the United States to

become the second largest internet user base by
20163. The number of mobile internet users is also on
the rise with 173 million users in 20142. This number
is projected to grow by more than 2.5 times to
touch 457 million in 20192. Availability of affordable
smartphones and dropping data tariffs have fuelled
the second screen phenomenon with 70 per cent
users accessing internet from their mobile phones.2

e-commerce market size in India (FY figures in USD billion)

Source: India Internet Unlocking the potential of a billion digital users, Goldman Sachs, 04 May 2015

The growth of the Indian e-commerce sector is

pivoted on a number of drivers but real and tangible
challenges exist which must be addressed for this
sector to boost the Indian economy as intended.
The key challenges faced by the sector include

1.
2.
3.

patchy internet connectivity due to underdeveloped

infrastructure, a general lack of awareness about the
benefits that e-commerce offers and a lack of trust
among organisations considering to go online.

India Internet Unlocking the potential of a billion digital users, Goldman Sachs, 04 May 2015
#shootingforthestars, FICCI-KPMG in India report on Media and Entertainment, 2015
India to have second largest online user-base after China by 2016, Business Standard, eMarketer, November 2014

09 | Impact of e-commerce on SMEs in India

02

MSME/SMEs fuelling the

growth of the Indian economy

Impact of e-commerce on SMEs in India | 10

SMEs: Backbone of the Indian economy

MSMEs/SMEs in India contribute around 17 per cent
to the countrys GDP. They also make a significant
contribution to Indias exports and industrial output at
40 per cent and 45 per cent respectively1. While the
definition of SMEs varies from country to country,
in India, SMEs are those establishments that have
limited investments in fixed assets and relatively low
operational costs.*

The countrys SME sector currently comprises of

1,157 industrial clusters and 6,000 micro-enterprise
clusters2. It is characterised as highly fragmented
and unorganised and is dispersed across vast
geographies.

* For detailed definition of MSMEs and SMEs refer to the figure below

SME definition in India is asset based

SME contribution to employment

Growth rate of
employment

Manufacturing

Services

Investment
in plant and
machinery

Investment in
equipment

Micro

Under INR25
lakh

Under INR10 lakh

Small

INR25 lakh to
INR5 crore

INR10 lakh
to INR2 crore

INR5 crore to
INR10 crore

INR2 crore to
INR5 crore

Profile

Medium

Source: Ministry of Micro, Small and Medium Enterprises, Annual Report 2013-2014 as
on 15th June 2015

Currently, there are approximately 48 million SMEs

operating in India and the sector employs around
40 per cent of the countrys labour.3. A large portion
of the employment generated by SMEs is in the
manufacturing and services sectors which are
growing at impressive rates of 18 per cent and 34 per
cent year-on-year, respectively4. SMEs contribution
of 17 per cent to Indias GDP is much lower when
1.
2.
3.
4.
5.
6.

Manufacturing

Growth rate
of number of
enterprises

18%

23%

34%

31%

Services

Source: Ministry of Micro, Small and Medium Enterprises, Annual Report, 2013-2014

compared to the corresponding figure in other major

economies but it is projected to touch 22 per cent
by 20205. In addition, the number of new entrants in
the SMEs sector is growing at an average of 23 per
cent in manufacturing and 31 per cent in the services
sector6.

SMEs employ close to 40% of Indias workforce but contribute only 17% to GDP, Economic Times
India SMB Market: Monetising Emerging Markets, Nasscom, Frost & Sullivan, 2014
The Indian SME Survey, Firstbiz-Greyhound, 2014-15
The new wave Indian MSME, KPMG and CII, 2014, Ministry of Micro, Small and Medium Enterprises (MSME) Annual Report 2013-14
http://www.business-standard.com/article/companies/smes-to-contribute-22-to-gdp-by-2020-govt-111112500165_1.html
The new wave Indian MSME, KPMG and CII, 2014

11 | Impact of e-commerce on SMEs in India

The achievements stated above have been made

possible, mainly, due to the increasing internet
penetration in India wherein the SME community
has begun exploring its options as online sellers who
have access to consumers and shoppers across
the country. Globally, cross-border e-commerce is
a major revenue opportunity which many SMEs are
eager to explore. The Government of India is also
taking initiatives to increase competitiveness of
SMEs in the international market.

Internet offers tangible benefits to SMEs

The internet has emerged as a game changer for
businesses across the world, during the last decade.
SMEs in India have traditionally been dependent
upon domestic trade but with access to internet
technologies they have started to explore the
opportunity to trade globally. Although, SMEs in India
may or may not have own online presence (such as
a website), 43 per cent of SMEs participate in online
sales in India. Web-enabled SMEs, in general, make
higher profits, have enhanced customer reach and
improved employment opportunities. As per a survey,
around 56 per cent of SMEs believe that the use of
internet technologies is critical for business growth
while 22 per cent are completely ignorant about
the potential of internet for their business7. It was
observed that high-web SMEs amongst SMEs in
India grew at 19 per cent (historical three year sales
growth), when compared with low-web SMEs who
registered a lower growth figure of 13 per cent8. A
similar pattern was observed across other countries
wherein the SMEs using a wide range of internet
tools to operate, registered higher growth rates
compared to SMEs having only a website or social
networking site or no web site at all. Further, SMEs
who use the internet extensively have also been
shown to export approximately two times more by
export value when compared to SMEs who use the
internet sparingly9.

2.9

billion internet
users worldwide

348

million internet users in

India in 2015

52

million new internet

users shall log into the
digital world by mid2015

50

million of the 100

million online shoppers
in India shall belong to
tier I and tier II cities in
2016

27%

of SMEs using
the internet
are engaging in
e-commerce

69%

of SMEs report
an increase in
customers due to
the internet

7.
8.
9.

The Status of e-commerce Among Indian MSMEs, SMEStreet Survey, 2015

The Internet Economy in the G-20, BCG Analysis
The great transformer: The impact of the internet on economic growth and prosperity, Mckinsey Global Institute

Source:
Statatisa.com, May 2015
e-commerce Rhetoric, Reality and Opportunity, KPMG-IAMAI
100 million online shoppers in India by 2016: Report, Livemint, November 2014
Unleashing the Potential, FICCI and Nathan Associates

Impact of e-commerce on SMEs in India | 12

Adoption of e-commerce among SMEs in India vis-a-vis other countries

SMEs have begun to recognise the potential of
e-commerce and understand that its adoption
could play a major role in enabling growth for their
business, both in domestic and international markets.
When Indian SMEs are compared to those from
other emerging countries such as China, Brazil and
Indonesia, it is found that on an average 100 per cent
of the high-web SMEs have a website, use the internet
for online advertising and transact using e-commerce10.

This is also at par with SMEs in developed countries

such as the U.S. and the U.K., wherein the high-web
SMEs showcase a similar pattern. However, when
compared with the SMEs in India who are considered
low-web, only 5 per cent of them have a website,
while approximately 50 per cent in the same category
own a website in the developed economies of the U.S.
(46 per cent) and the U.K. (53 per cent)11.

U.K.

U.S.

U.K.

U.S.

e-commerce

high-web SMEs

low-web SMEs

high-web SMEs - These companies use a wide range of internet tools to market, sell and support
low-web SMEs - These companies have a website or a social networking site or have no website at all
Source: The Internet Economy in the G20, BCG

Yet another important observation is that, while 100

per cent of Indias high-web SMEs have e-commerce
presence, 75 per cent of the low-web SMEs also
adopted e-commerce9. A similar trend can be
observed when drawing comparisons with other
developing countries as can be seen in the figure.
This implies that even SMEs with limited online
presence, at least in the developing markets, are
beginning to realise the potential of e-commerce
or having online presence. As the e-commerce
ecosystem develops and cross border trade
improves, the online export market shall also expand

10. The Internet Economy in the G20: The $4.2 Trillion Growth Opportunity, BCG Analysis
11. Commerce 3.0 for Development, eBay

for SMEs that leverage internet technology for

growth and sustenance.
While traditional SMEs have focussed on their core
operations without experimenting with new and
advanced technologies, e-commerce has helped
technology enabled SMEs to challenge the status
quo and grow significantly over the last few years.
While 98 per cent of technology enabled SMEs in
India participate in the countrys share of export
revenues, only 11 per cent of the traditional SMEs
export goods and services10.

13 | Impact of e-commerce on SMEs in India

In India 98 per cent of technology enabled SMEs participate in the export economy in India
98%

100%

100%

100%

100%

98%

100%

100%

98%

75%

25%
11%
India

Thailand

Jordan

19%

South
Africa

18%

Chile

15%
France

Technology enabled

15%
Peru

11%
Ukraine

10%
4%
Indonesia

2%
USA

Traditional

Source: Commerce 3.0 for Development, eBay

One of the primary reasons for the difference in

contribution to export by online vis-a-vis offline SMEs
is that e-commerce transcends geographic boundaries
and levels the playing field by enabling visibility and
trade across buyers and sellers who are located in
distant geographies. Further, online transactions
supported/enabled by reputed e-commerce

organisations also allay any fears rooted in perceived

trust deficit. With features such as rating systems,
feedback mechanisms, blacklisting, payment options
and tools, security and trust certificates, the online
ecosystem builds enough trust in the market, almost
immediately as compared to the years of effort
required in the offline market.

Impact of e-commerce in China: Drawing parallels

Over the last few years , China has witnessed an unprecedented growth in its e-commerce market and
currently stands as the largest e-commerce market in the world. At the same time, SMEs have been playing
a key role in the Chinese economic development. The number of private sector SMEs in China grew from one
million in 1990s to 400 million in 2012, out of which five million were exporters. Today, SMEs account for 90
per cent of all firms in China and contribute 60 per cent to the GDP, 75 per cent to urban employment, and 75
per cent to the industrial value addition of the country.
e-commerce has offered significant opportunities to SMEs, specifically for exporters, to enter distant
markets and to communicate globally with consumers, distributors and suppliers. SMEs engaging in
e-commerce have witnessed increased income, with their business income growing 1.35 times than that of
enterprises not engaging in e-commerce. The largest marketplace in China has a seller base of approximately
seven million, and has assisted aspiring entrepreneurs with little seed capital to tap into the national as well
as global market.
China acts as a good example, and holds useful lessons for the Indian e-commerce sector. By connecting
small businesses, including local artisans, to a national and global marketplace, e-commerce can help
cultivate a new class of entrepreneurs and create jobs for tens of millions of Indians.
Source: National Bureau of Statistics of China; Trade and Employment Chinas Development Process presentation at WTO Public Forum, October 2014; Forbes; International Journal of Economics and
Finance, 2014

15 | Impact of e-commerce on SMEs in India

03

Impact of e-commerce too real

to ignore

Impact of e-commerce on SMEs in India | 16

e-commerce: An agile engine for growth of SMEs in India

We have witnessed a remarkable transformation
in the way Indians shop and in the modus operandi
trading by SMEs. Despite significant contribution to
the Indian economy, SMEs are faced with a number
of challenges including competitive pressures,
locally, nationally and internationally. In this highly
competitive market, in order to keep their position
intact and their businesses sustainable, SMEs need
to improve access to new customer segments and

reach customers in all corners of the world. This

is where e-commerce comes in to improve their
competitiveness and provides businesses a platform
to acheive on a truly global scale. Eighty-five per cent
of the SMEs who adopted e-commerce believe that
it is a cost effective medium to grow sales1.

Key factors for e-commerce adoption among SMEs

Source: : SMEStreet survey- The Status of e-commerce among Indian MSMEs (MSME Insights), 2014

Around 77 per cent of the SMEs who have adopted

e-commerce were listed on online marketplaces1. It
has been found that SMEs who actively adopt the
internet for business activities boast 51 per cent

higher revenues, which results in 49 per cent more

profit and a 7 per cent broader customer-base than
their offline-only counterparts2. Despite this, only 27
per cent of online SMEs use e-commerce3.

SMEs who adopt the internet for business activity report

51%

49%

Higher revenues

More profits

Broad
customer
support

which results in...

1.
2.
3.

27%

7%

SMEStreet survey - The Status of e-commerce Among Indian MSMEs (MSME Insights), 2014
Unleashing the potential, internets role in the performance of Indias small and medium enterprises, FICCI and Nathan Associates
Industry discussions conducted by KPMG in India, May 2015

but only...

of online SMEs use

e-commerce

17 | Impact of e-commerce on SMEs in India

Potential benefits of e-commerce to Indian SMEs

Increase in revenues
Offline SMEs are limited by their geographical reach and
more often than not, make incremental efforts in expanding
the consumer base which is acquired over a long period
of time. e-commerce aids SME businesses in conducting
transactions at a global level by offering a platform that can be
accessed across geographies thereby increasing the volume
of sales handled and the revenue generated. The improved
speed to market, global consumer base and flexibility to
conduct business can potentially boost the SME revenues
to the tune of 51per cent along with e-commerce specific
advantages such as online referral systems for acquiring even
more customers, insight- based personalisation to improve
customer acquisition, service and feedback channels to
ensure all lessons learnt are immediately incorporated to
improve future sales experience4.

Lower marketing and distribution spend

Since competition in the e-commerce space has increased
significantly, e-commerce players are spending heavily on
both digital and traditional media for improving site traffic,
acquiring customers, building customer relationships, and
ultimately for improving sales. SMEs could reduce expenses
on call centres, trade shows and even offline advertising
thereby optimising the overall marketing and sales spend to
the tune of 60 to 80 per cent reduction in spend5. Additionally,
e-commerce adoption reduces the costs associated with
traditional marketing as well as any incremental cost required
for opening additional stores at multiple locations.

02

Increase in profit margins

Adoption of e-commerce enables SMEs to take advantage
of third party trading platforms (e-commerce marketplaces)
with limited or no investment in developing and hosting
online storefronts and in managing infrastructure/operations
for packaging, logistics, warehousing, etc. This may boost
the profit margins (up to 49 per cent) by reducing overhead
costs and upfront capital investment. Reduction in costs
allows for a more competitive pricing strategy, which, in turn,
can positively impact sales volumes. Increase in transaction
volumes further adds to overall profit values. e-commerce
platforms allow SMEs to engage directly with consumers
without the need for any middle man or agent which further
results in reduced transaction costs.

4.
5.
6.

SMEStreet survey - The Status of e-commerce Among Indian MSMEs, 2015

Industry discussion conducted by KPMG in India, May 2015
Future of e-commerce: Uncovering Innovation, ASSOCHAM, 2015

Improved geographic reach and

accessibility
The internet transcends all geographic boundaries and
provides an opportunity for SMEs to connect with several
buyers and sellers across geographies. This enables them
to enter international markets at a fraction of the cost and
gives them the opportunity to directly compete with global
giants within their industry, thereby contributing to the
governments Make in India campaign. Snapdeal has over
100,000 SMBs doing business on its platform currently,
thousands of these sell goods worth more than USD250,000
annually6. As geographical boundaries disappear in the virtual
marketplace, SMEs are selling 24x7 across the world without
any time zone restrictions, and with limited investments.

Impact of e-commerce on SMEs in India | 18

Shorter time to market

Improved customer experience

The window of demand for a particular product category

can be very short, and if companies fail to respond to the
demand in the given time, they could miss out on the
opportunity. The ability to introduce a product into the market
before a competitor does, could be a key success factor
and there are few sectors in which this is more conceivable
than in e-commerce. Adopting e-commerce enables faster
communications between SME sellers and buyers and
helps to avoid potential chaos in the supply chain. They can
streamline communications, eliminate redundant processes,
and improve order management capabilities, thereby
increasing the market relevance and product visibility.

Intense competition in the e-commerce environment nudges

and at the same time encourages the SMEs to operate within
the paradigm of customer first business philosophies. The
e-commerce companies support these SMEs in their quest
to offer better customer experience across the customer life
cycle by helping them institute customer-focussed processes
enabled by tools and technologies. Quicker response to
customer inquiries, interactive order taking processes and
better after-sales service to customers are just few of the
improvements which over a period of time lock-in a loyal
consumer base and eventually turn them into strong brand
advocates.

At SMEStreet, we are committed to understanding the issues and opportunities of

the MSME sector and in this regard, we conducted a survey on the topic of How
Indian MSMEs are consuming e-commerce. The data of this survey showed us that
the biggest driver for e-commerce among MSMEs is the fact that entrepreneurs from
smaller organisations want to evaluate maximum possible options for their buying or
sourcing needs. Secondly, from the sellers perspective, MSMEs want to reach out to
newer markets in a cost effective manner.
Faiz Askari
Editor and CEO
SMEStreet

7.

SMEStreet survey - The Status of e-commerce Among Indian MSMEs, 2015

19 | Impact of e-commerce on SMEs in India

Ignore e-commerce at your own risk

e-commerce in India is gaining traction at an accelerated
pace. SMEs who are offline may realise, albeit a tad bit late,
that adopting e-commerce could cause more good than the
perceived harm. Technology and innovation bring positive change
which can drastically improve the way small and mid-sized
businesses operate and not doing so may increase the effort to
stay in the game.

Not having an online presence or presenting a poorly designed

website can put the business at a serious disadvantage
especially in consumer centric sectors such as retail, export
and tourism.

Ignoring technology or adopting solutions which are not an

appropriate fit can leave the business crippled and without the
competitive edge it needs to survive in the market today.

An increasing number of SMEs today lack an organised

central database of customers and sales records. This makes
it difficult to carry out marketing and communication related
activities while a significant portion of the target segment
remains unaddressed.

e-commerce is no longer a passing trend but a business reality

that can no longer be ignored or contained. With the online
consumer demand already at an all-time high, the market
expects a fulfilling environment which is seamlessly on autopilot.
While e-commerce is only the bottom stair to this pyramid,
SMEs who remain oblivious or determined to ignore the online
transaction market may have to compete with organisations who
have capabilities far beyond theirs.

SMEs still wary of going online Understanding the adoption challenges

The Indian SME sector is on an ambitious growth curve.
Recent years have seen a progressive change in the
mind-set of SME business owners towards the adoption
of e-commerce. Despite its high potential, a large number
of Indian SMEs are still not ready to move away from the

traditional business model(s). The slow growth of e-commerce

adoption in SMEs has been attributed to several adoption
barriers which have been listed down in the subsequent
section below.

e-commerce provides vital commercial linkages for SMEs from marketing, sales and
procurement standpoint. This increased access to suppliers and customers can help SMEs
scale up their businesses at much lower levels of investments in fixed assets and human
capital, thus dramatically altering their cost structures. However, SMEs would need to
quickly make significant changes to their business models to suitably take advantage of the
opportunities presented by e-commerce.
Anand Ramanathan
Director
BPS-S&O-Strategy
KPMG in India

Impact of e-commerce on SMEs in India | 20

Technological cost transparency

Inadequate financing

A long held belief within the SME community is that

e-commerce is prohibitively expensive to implement and
operationalise. The belief is based on the perception that
technology adoption, traditionally, has been a capital intensive
affair and that the technology partners seldom clearly
elucidate the Total Cost of Ownership (TCO). This gives
way to apprehensions around the high cost of technology
maintenance and a related concern that the initial investment
may have to be written-off if upgrading to newer technologies
is considered. The notion, however, is far from reality since
SME businesses today can start leveraging digital platforms
and online marketplaces for as low as INR3,0008. There are
also other models available wherein an online presence can
be established with an investment of INR99 which includes
a customised domain name, professional email address and
24x7 support9. There is, however, a need to ensure that SMEs
understand a transparent and effective cost structure with a
clear picture on TCO and ROI when considering the adoption
of e-commerce.

SMEs in India face a significant financial gap where current

issues such as unavailability of desired loan collaterals, high
interest cost and lack of a systematic credit rating facility
has caused a rift between the organised lending sector and
the SME community. This in turn has caused SMEs to obtain
unorganised capital which is unsustainable and plagues the
ecosystem with lending practices which harm them in the
long run.

Lack of awareness
A large number of SMEs in India are unaware of the
potential benefits of e-commerce primarily due to lack of
exposure to IT products and services and the e-commerce
ecosystem as a whole. Several other ancillary factors such as
language barriers, preconceived notions about technological
complexities, etc. also inhibit adoption. The important reason
for lack of awareness, however, is the lack of a concerted,
nationwide SME engagement programme which spells out
the meaning and relevance of e-commerce along with its
benefits and impact stories. China, for example, spreads
awareness among its SMEs by using cluster education
programmes. Each SME cluster forms a microcosm of
its regional business (automobile manufacturing, textiles,
agriculture, etc.) and the SME community is invited to set
up their businesses, leverage common resources and share
success stories about their experience in e-commerce and
the benefits derived from it.

Approximately 41 per cent of SMEs in India do not have

access to bank loans or other products offered by financial
institutions with a financing gap of more than INR2.93 trillion
in the SME sector.10

Training and support

Any new technology in the market needs to prove its worth
before it is widely adopted by the target community and
e-commerce has been no exception. Although web-based
selling has proved itself in terms of an economic benefit in
the market, there are reservations held by business owners
regarding the benefits which can be visibly felt and the
means to track and attribute it. While measures to increase
awareness around e-commerce and its usage can help, the
community also needs continued training programmes and
support to help change its current myopic view of technology
which in all probability leads to skewed expectations of instant
gratification.
Despite the roadblocks that the SME e-commerce ecosystem
is faced with, there is a deliberate and widespread support
that the SME community has received in India recently. The
future of e-commerce adoption among SMEs is no longer
speculative and with the spotlight turned on, the ecosystem is
changing to pivot the SME communitys role in India.

e-commerce offers potential benefits in the form of enhanced participation in international

value chains, increased market access and improved efficiency, as well as low transaction
costs. From being a phenomenon mostly reserved for large enterprises, changes in the ICT
landscape are creating greater opportunities for SMEs. Therefore it is on the e-commerce
ecosystem players to collaborate and provide a conducive business environment so as to
enable adoption of e-commerce by SMEs.
Mehul Gupta
Associate Vice President
Internet and Mobile Association of India (IAMAI)

8. Internet has Transformed SMEs, Now its Time to Grow Beyond, SME Street, March 2015
9. GoDaddy and Microsoft Brings Unbeatable Offer for Indian SMEs, SME Street, February 2015
10. Indias 1st online financing platform for SME sector launched, The SME Times, November 2014

21 | Impact of e-commerce on SMEs in India

04

The e-commerce ecosystem

steps up to support SMEs

Impact of e-commerce on SMEs in India | 22

The ecosystem has launched several initiatives to boost e-commerce adoption

The importance of the SME sector has been recognised by the Indian Government, industry associations and
e-commerce players alike. Its growth and e-commerce enablement have been adopted as key themes across
policy reforms, industry initiatives and e-commerce partnerships.
Barriers addressed
#

Initiative

Awareness

Technology

Financing

Training

Initiatives by industry bodies

1

An industry association representing digital businesses in India

organised an event titled Free for SMEs, in collaboration with one of
Indias leading B2B marketplaces.

A non-government, not-for-profit, industry-led and industry-managed

organisation, playing a proactive role in Indias development process
collaborated with a global online marketplace and signed a MoU to
foster greater economic engagement between Chinese and Indian SMEs.

Federation of Indian Exports (FIEO) Organisation entered into an

MoU with leading e-commerce ecosystem players to promote export
opportunities among SMEs.

Initiatives by e-commerce players

4

An e-commerce player launched a capital assistance programme which

offers low cost financing options to sellers transacting on its platform.

A leading marketplace player has tied up with Federation of Indian Micro

and Small andMedium Enterprises (FISME) and National
Centre for Design and Product Development(NCDPD) to guide SMEs
on brand building and product marketing.

e-commerce players are partnering with various institutes, such as

National Institute of Electronics and Information Technology (NIELIT) and
National Institute for Entrepreneurship and Small Business Development
(NIESBUD) to support skill development within SMEs, consequently
contributing to Governments Skill India initiative.

Government initiatives
7

The Technology Centre Framework initiative aimed at facilitating

access to various transformative technologies such as cloud-based
platforms for SMEs.

The Digital India initiative targets to drive internet accessibility across

the country. The successful implementation of this programme is
expected to boost Indias GDP by 20-30 per cent by 2025.

23 23
| Impact
| Impact
of e-commerce
of e-commerce
on on
SMEs
SMEs
in India
in India

e-commerce players focus on SME growth

Initiatives launched by leading e-commerce players are helping SMEs across key Indian states connect to a
larger, global audience while improving sales and sector awareness:

Himachal Pradesh

North-East

Development of a special e-commerce

zone in Dharamshala to promote traditional
handicrafts produced in the state by
bringing local artisans on the marketplace,
conducting workshops to educate them to
online selling processes, and setting-up
a special pick-up facility to transport their
products across the country.

Association with the North Eastern Handicrafts and

the Handloom Development Corporation (NEHHDC),
for selling traditional handicrafts on an exclusive
e-commerce website.

Odisha
Collaboration between the Odisha State Co-operative
Handicraft Corporation Ltd and a leading handicraft
corporation in the state to sell its products online.

Uttar Pradesh

04

Collaboration with weavers from

Varanasi in order to link SMEs with
their large customer base online.

Rajasthan

Tie up with the Government

of Rajasthan Small Industries
Corporation (RAJSICO),
government of Rajasthan, for
online promotion and selling
of traditional handicrafts,
through an exclusive store.
Madhya Pradesh
Tie up with the non-profitDigital
Empowerment Foundation to monetise
sales across verticals including textiles,
handicrafts, weaving, etc.

Maharashtra
Association with a not-for-profit
organisation for an online handicraft
e-commerce portal to source and offer
products created by local craftsmen and
artisans from Dharavi.

Puducherry
Collaboration with Puducherry State Co-op
Handloom and Handicrafts Federation to
assist local artisans with technical and
operational insights to enhance SME reach.

Karnataka
Partnership with the government
of Karnataka to develop a seller
platform where SMEs can
connect and sell their products.

Tamil Nadu
Partnered with the Tamil Nadu Handicrafts
Development Corporationto give exposure
to rural artisans and enable online sales.

Impact of e-commerce on SMEs in India | 24

Testimonials: The online marketplace impact

Connecting with consumers: 7 years to 2 days
When we started doing business with one of the leading online marketplaces in India, we
had 50 units to sell. Now we have over 4000 products and 18 different categories to cater to.
In offline markets, creating a brand presence is very tough which is why we chose an online
model to directly connect to our customers. We are thankful since the technology provided by
the marketplace allows us to run 18 disparate businesses from a single laptop.
Category: Multiple

Business scales from 300 to 1000 orders a day

After joining hands with one of the leading online marketplaces in India, in July 2014, the
growth has been remarkable. Initially I had listed about 500 products which gave me about
400 orders a day but now I have listed more than 1000 products online which gives me almost
800 to 900 orders a day. With services enabling sellers to stock inventory at fulfilment centre
that make shipment possible within two hours, the sales have definitely improved. The team
takes care of all back office operations such as packaging, quality checks, etc. giving me time
to focus on the product itself.
Category: Home furnishings
A decade old offline business grows 8x with one of the leading online marketplaces in
India
One of my main concerns with conducting business online was that I was unsure of the
payment terms and delivery schedule. But after partnering with with the online marketplace
we have noticed that not only have our sales grown by more than eight times, all our
payments and delivery schedules are ahead of time.
Category: Apparel

300 per cent Quarter on Quarter(Q-o-Q) growth

Growth is always measured by sales figures and I am highly motivated when I see a 300
per cent quarter-on-quarter growth in my sales number after partnering with an e-commerce
organisation who has been a pioneer in the online markeplace model in India. I am very
confident that they will help me build the future I envision and help transform my local
commodity into an international brand
Category: Kids clothing

Turning casual businesses into serious business ventures

This was a business idea inspired by my four year old. I have seen the number of orders
grow from five to six a day to 70 orders in a few hours after partnering with one of the leading
online marketplaces in India. Within a span of two short years, my business has seen an
astronomical growth of over 2000 per cent and it now operates on a 24X7 basis and caters to
a national consumer base.
Category: Toys and games

Source: KPMG in India analysis based on industries discussion, 2015

25 25
| Impact
| Impact
of e-commerce
of e-commerce
on on
SMEs
SMEs
in India
in India

SMEs innovate to stay ahead of the curve

Small businesses across the country are experimenting with innovative business models to grow or survive in the
e-commerce era. Retail businesses that face competition from e-tailers are also adopting online route.

SME shuts down offline operations and moves to e-commerce

Take the case of an SME apparel retailer, who moved his business online to overcome slow growth
and high operating costs. The Mumbai based company focusing mainly on sarees, started selling
online in 2013. The company almost doubled its revenues from 2013 to 2014 because of online sales.
By the end of 2014, the company decided to close all of their stand-alone stores and focus only on
online growth. The company currently sells through multiple online websites.
Source: : Retailers shut brick-and-mortar stores, go online to offset slow growth, Livemint, 2014

Small businesses focusing on manufacturing or export are registering as sellers with leading e-commerce
marketplaces in their own respective verticals to gain a wider reach across the country and globally.

04

Small retail stores expand their geographic reach

A Gurgaon based start-up (mobile app based services) focusing on hyperlocal delivery of groceries,
ensures delivery of groceries within two hours. Instead of an inventory based model which would
include high fixed costs of maintaining warehouses, high inventory and logistics cost, they work
with an asset-light model, where they partner with local stores to create customer centres that are
relatively organised to satisfy household needs. The partner stores that supply the company with
inventory pay a commission on sales. This player is also helping small retail stores expand their
catchment area by piggybacking on the companys logistics services.
Source: : Retailers shut brick-and-mortar stores, go online to offset slow growth, Livemint, 2014

Although it has often been debated that FDI in B2C

retail or e-commerce would cause Indian mom and pop
stores to shut down, study of developed markets where
e-commerce has been in existence for more than quarter
of a decade, suggests otherwise. As per KPMG in Indias
analysis, Indias e-commerce presence is miniscule
when compared to the offline expanse of the kirana
stores. This coupled with issues of last mile connectivity,
high payment costs, diminished profits, limited skilled
manpower and regulatory barriers keep the competition
at bay. However, the mom and pop stores offer a value
proposition which is very different from that offered by
the e-commerce players. The kirana stores are hyperlocal in nature and tend to focus their attention on the
loose and unbranded products which can be customised
as per the consumers requirement as opposed to online
e-tailing which focuses on the sale of standardised
products to an organised market. The kirana stores
also depend of catchment areas of a few kilometres,
the dominance of which can never be challenged by
organised retail.

Women in low-income countries like India often seek

additional means of income to support themselves
and their family and look for opportunities for selffulfilment and independence in decision-making.
However, traditionally Indian women have faced multiple
challenges such as lack of finance and education, family
ties, and low risk-bearing ability, while starting their
own ventures. 54 per cent of women entrepreneurs do
not have enough knowledge of what the start-up life
entails, 63 per cent have self-funded or bootstrapped
their venture, and 42 per cent feel that starting-up a
business is difficult. Low entry barriers provisioned
by the e-commerce industry such as low set up costs,
audience reach, work-life balance and better margins
when compared to offline sales, are helping women gain
financial independence, and are also attracting them
from sectors like farming, textiles, and construction.
Due to this, 20 per cent of the online seller base today
constitutes of women entrepreneurs.
Source: How women entrepreneurs are gaining big from the online retail revolution, Economic Times,
2015; What you dont know about women entrepreneurs in India, YourStory, June 2014; KPMG
in India analysis, 2015

Impact of e-commerce on SMEs in India | 26

The interim Budget 2014 came in with a number

of announcements that were indicative of the
positive intent of policymakers to promote digital
and e-commerce adoption. The Technology Centre
Framework was one such initiative that was aimed at
facilitating access to various transformative technologies
such as cloud-based platforms for SMEs. The B2C
marketplace - MSMEShopping.com was launched in
2014 and it is estimated that the platform would have
over 3,000 to 5,000 suppliers on board by the end of
20151. SMEcorner.com is another initiative that offers a
financing platform that will make borrowing easier for
SMEs.
Various other initiatives including the Digital India, have
been introduced to drive internet accessibility across the
country. The successful execution of this programme is
expected to boost Indias GDP by 20-30 per cent by end
of 20252. Internet and technology adoption are being
perceived as a catalysts for growth among the countrys
MSME sector and the economy as a whole. The Indian
governments announcement on expansion of scope
of the Make in India programme by adding five more
sectors including SMEs shall aid the growth of the
sector in 2015.
Initiatives by the Indian government are supported
by efforts of leading e-commerce players in India.
Innovative features like scan and sell enable SMEs to
scan and add their product to the online marketplace
in less than five minutes3. Another large e-commerce
player is working towards promoting weavers from
various parts of India with the help of National Institute
of Fashion Technology (NIFT) by providing a platform for
SMEs in the textile segment.

Complementing the launch of its own e-commerce

portal by the National Small Industries Corporation
(NSIC), the Indian government has taken several steps
in the last few years to boost SME participation in
e-commerce. These include:
Digital India: The initiative is an umbrella programme
launched to improve internet accessibility across
India and make the growth story more inclusive. The
successful implementation of this programme is
expected to boost Indias GDP by 20-30 per cent by
the end of 20252, providing further impetus to the
digitisation of the SME sector in India.
Make in India: Realising the need to indigenise
manufacturing, cut imports and boost product and
services exports, the Indian government launched
the Make in India campaign which aims to support,
among others, the SME community in India. The Indian
SMEs, equipped already with ICT and other digital policy
announcements, hope to leverage these initiatives
to create an online presence for themselves, localise
sourcing and cater to a larger and more global audience.
Skill India: In parallel with the Make in India campaign,
the government also announced a supplementary
initiative called Skill India to boost manpower training
and skills with a special focus on the SME sector in
India. The Government is expected to launch a federal
programme to impart skill-based training to SMEs
including the use of technology and conducting online
business.

1. MSMEShopping.com, Govts Unique e-commerce Portal For SMEs, July 2014

2. Digital India plan could boost GDP up to $1 trillion by 2025: McKinsey, The Economic Times, December 2014
3. http://blog.snapdeal.com/snapdeal-com-introduces-unique-scan-sell-feature-sellers/

27 | Impact of e-commerce on SMEs in India

05

All aboard full throttle

Impact of e-commerce on SMEs in India | 28

All aboard - full throttle

The way ahead for the e-commerce ecosystem: Enabling a brighter future for Indian SMEs
Stakeholder involvement
Recommendation

Focus area

Industry
associations

e-commerce
players

Bridge the information gap

Value awareness

Cluster-based resource sharing

Value awareness

Collaborating with NBFCs

Financing

Collaborating with technology providers

Technology support

Shared infrastructure

Technology support

Transparent payment structure

Business practice

Think long-term

Business practice

Stronger enforcement of government policies and

initiatives

Regulatory environment

The future of Indias internet and e-commerce story

seems encouraging. Pioneering initiatives by the
government, proactive support from existing players
in the market and improved awareness among SMEs
is helping to increase the adoption of e-commerce by
them. In a country as diverse and geographically vast
as India, a collaborative effort between all ecosystem
players is imperative for the successful and seamless
integration of SMEs as an important component - a
move that can benefit existing players, SMEs and the
Indian economy.

Regulatory
bodies

Conclusion
With the collaborative and proactive participation
of e-commerce players and sustained support and
focus from the government as well as associated
bodies, SMEs shall smoothly integrate into the
ecosystem and realise envisaged benefits. In a
country that is increasingly going online, assuaging
fears of obsolescence will depend on equal
opportunity creation across the board for SMEs even
in the most remote locations and by enabling them
to tackle the challenges of adoption.

29 | Impact of e-commerce on SMEs in India

Closing thoughts

Sanjay Aggarwal
Partner
Markets
KPMG in India

The Indian economy presents a significant

opportunity for SMEs to achieve double digit
business growth over the next decade. The
policy reforms, infrastructure and defence
spends, significant higher FDI numbers, Make
in India initiative and many more catalysts
shall provide growth opportunities to small and
medium businesses in India. In order to seize
these opportunities, Indias SME businesses
have to transform and adopt the emerging
trends in technology. This requires a careful
understanding by SME promoters and their key
management teams of what these technology
trends are and how they can add value to their
business model, operations and to all the
stakeholders of the business, whether internal
or external. With new advances in technology
and various procurement and deployment
options, investments in technology shall

Impact
Impactofofe-commerce
e-commerceon
onSMEs
SMEsininIndia
India| 30
|2

further become more affordable, justifying

its ROI and business case. In addition to
human resources, technology shall be one
of the key differentiators for successful
growth, valuation and sustainability of SME
businesses.
It is essential to evaluate e-commerce as a
strategic channel for brand communication
and for developing unique customer
experiences. SMEs have to consider
this and look beyond to understand that
e-commerce is more than a mere retail
channel. Promoters should invest time in
understanding the power and potential of
these platforms and the possibilities of using
them as game changers. In an environment
where customer needs and preferences
are changing rapidly, communicating value

proposition and differentiation is becoming

a critical success factor for business
sustainability. Digital marketing spends for
top global corporations are expected to be
30 to 40 per cent of their annual spends on
advertisements over the next two to five
years emphasing the need for such a distinct
channel to communicate with stakeholders
and deliver differentiated interactions and
experiences.
It is therefore essential to overcome
inhibitions and perceptions and get hands
on understanding of the strategic aspects of
technology and the platforms that can shape
the future of your business.

About KPMG
KPMG in India, a professional services firm, is
the Indian member firm of KPMG International
and was established in September 1993. Our
professionals leverage the global network of
firms, providing detailed knowledge of local laws,
regulations, markets and competition. KPMG has
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Chandigarh, Chennai, Delhi, Hyderabad, Kochi ,
Kolkata, Mumbai and Pune. We strive to provide
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and technology enabled services, which reflect a
shared knowledge of global and local industries
and our experience of the Indian business
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providing Audit, Tax and Advisory services. We
operate in 155 countries and have more than
155,000 people working in member firms around
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Our Audit practice endeavors to provide robust
and risk based audit services that address our

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processes.
KPMGs Tax services are designed to reflect
the unique needs and objectives of each client,
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About Snapdeal
Snapdeals vision is to create Indias most impactful
digital commerce ecosystem that creates life-changing
experiences for buyers and sellers. In February 2010,
Kunal Bahl along with Rohit Bansal, started Snapdeal.
com - Indias largest online marketplace, with the widest
assortment of 15 million+ products across 500+ diverse
categories from thousands of regional, national, and
international brands and retailers. With millions of users
and 200,000 sellers, Snapdeal is the shopping destination
for internet users across the country, delivering to 5000+
cities and towns in India. With its acquisition of Freecharge
in 2015, a leading mobile transactions platform, Snapdeal
has become the largest m-Commerce company in the
country. In its journey till now, Snapdeal has partnered
with several global marquee investors and individuals such
as SoftBank, BlackRock, Temasek, eBay Inc., Premji Invest,
Intel Capital, Bessemer Venture Partners, Mr. Ratan Tata,
among others.
For further information, visit www.snapdeal.com

KPMG in India contacts:

Snapdeal contacts:

Nitin Atroley

Kunal Bahl

Partner and Head

Sales and Markets
T: +91 124 307 4887
E: nitinatroley@kpmg.com

Co-founder and CEO

T: +91 11 4914 6666
E: pressoffice@snapdeal.com

Ambarish Dasgupta

Farheen Akhtar

Partner and Head

Management Consulting
T: +91 33 4403 4095
E: ambarish@kpmg.com

Head, Public Relations

T: +91 11 4914 6666
E: pressoffice@snapdeal.com

Ashvin Vellody

www.snapdeal.com

Partner
ITA-CIO Advisory
T: +91 80 3065 4592
E: ashvin@kpmg.com

Anupama Arya
Associate Director
ITA-CIO Advisory
T: +91 124 307 4125
E: anupamaarya@kpmg.com

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