Markets are becoming interconnected. Cloud, virtualization, mobility and social media are changing how people work and interact. These technologies are transforming how goods and services are created and distributed. They are restructuring how manufacturers price their products, what they choose to produce and what they invest in. But the most significant change has become apparent only recently: technology that once helped businesses become more productive so that they could compete in open markets are now changing the very nature of what constitutes competition—moving from fighting competitors to fighting market transitions. Global companies are quickly learning that they need to be ahead of expanding markets in the Third World. These are markets that are rapidly changing and are erratic and unpredictable. They promise tremendous growth, but they also place an equal amount of pressure on organizations that are not flexible and cannot re-shape themselves. Global leaders have learned that they cannot ignore product, service and business model innovation in Third World markets. They cannot risk blindly applying models that have been refined over decades in prosperous First World economies.
Learning from SMBs What can businesses do to stay healthy, successful and gain leadership positions in markets that are in the throes of continuous transition? Louie Fernandes, COO, SevaSys Technologies India, thinks that businesses would do good to take home lessons from SMBs. His company focuses on deploying enterprise grade IT infrastructure at affordable prices for SMBs in developing markets. SevaSys is not alone. A number of IT providers are aligning themselves with the demands of the attractive global SMB segment. In the US alone, according to the Small Business and Enterprise Council, SMBs with less than 20 workers made up 89.7 percent of businesses and those with less than 500 workers made up 99.7 percent of businesses[i]. For a Third World market like India, the figures are interesting. In 2013, SMBs in India employed about 40 percent of the workforce, contributed 17 percent to the GDP and accounted for 40 percent of total exports[ii]. This indicates there is considerable room for growth in GDP contribution (the situation is almost identical for most other developing markets). SMBs sense the opportunity and know that the growth can come from innovating around the use of technology. Fernandes points out that "SMBs are in the process of transitioning from the old world on-site to Cloud- based infrastructure and services. Flexibility is key to this transition process, and is best achieved by using Open Source software as most proprietary software licensing models are not Cloud friendly. While proprietary software claims to be Cloud ready, most of the time their licensing model and architecture is not. This makes them extremely expensive, especially for SMBs. From the architecture perspective, a decade ago most licensed and ERP software claimed to be 'Web enabled' and with little or no change in their architecture, they now claim to be Cloud ready." But SMBs are getting smarter. They are not buying large monolithic solutions. Instead they are showing the way with mobile, cloud and social technologies. They are renting or using only what they need and what is missing in their IT infrastructure —and they are doing this on subscription-based models to beat larger players relying on legacy systems.
Four classic SMB strategies to follow Examining SMBs provides an insight into the dos and don'ts for competing against markets in transition:
- Start with flexible technology: Markets are unpredictable. Don't invest in technology that cannot be re-shaped; instead opt for Cloud-based infrastructure, SaaS models and pay-as-you-go agreements for infrastructure.
- Partner with the experts: SMBs can sense market changes very quickly because they are deeply connected to their customers. For large businesses, it is important to have local partnerships that can sense the same changes and offer technology to leverage the change rather than fight it.
- Elevate the role of customer insight: SMBs know their customers intimately. Businesses operating in transitioning markets must know the pulse of their customers equally well. Invest in data and analytics with a customer focus.
- Stay networked, invest in collaboration: SMBs live in a highly networked economy, using partnerships to overcome the gaps in their capabilities (marketing, sales channels, distribution, promotions, etc. —that mimics a distributed organization). Invest in collaborative technologies —with an emphasis on mobile technologies—that keep suppliers, producers, distributors and vendors updated in real time.
Are you keeping a close watch on SMB behavior in Third World markets? How is this going to impact your outsourcing strategy? Will you opt for outsourcing partners who have experience in delivering to the needs of SMBs? And will you ensure your own IT team begins to think like an SMB? For global organizations used to large scale outsourcing contracts, it may be time to try smaller ones and see how the experiment goes.
[ii] SMEs employ close to 40% of India's workforce, but contribute only 17% to GDP, June 9, 2013: http://articles.economictimes.indiatimes.com/2013-06-09/news/39834857_1_smes-workforce-small-and-medium-enterprises