Home Finance News ‘Time is ripe for SMEs to focus on foreign markets via e-commerce and then quickly move to direct exports’

‘Time is ripe for SMEs to focus on foreign markets via e-commerce and then quickly move to direct exports’

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By Rajendra Prasad Sharma  

Trade, import and export for MSMEs: The Covid-19 pandemic impacted the SMEs that contribute significantly to the Indian economy as the backbone. Before the advent of online market platforms, SME exporters needed a significant investment of their time and money to participate and promote their business abroad. They needed participation in international trade fairs and exhibitions to connect with prospective buyers and generate inquiries (leads) from the importers and book orders. Then, they struggled to arrange logistics, receive payments, and handle sales returns and customer services. Now, e-commerce helps them accomplish this seamlessly.  

The online opportunity 

The pandemic led to consumers shifting to online shopping for contactless payments and deliveries, accelerating the usage of e-commerce worldwide. The internet penetration, the increasing number of connected devices, and the surge in the search by the 80 per cent of the population living outside India prompted the Indian SMEs to go online. Negative consumer reviews for made-in-China products too made a solid case of ‘made-in-India’ ethnic brands breakout by the SMEs to the Indian diaspora and other consumers abroad. Further, the US-China trade war also fueled the entry of Indian SMEs into international marketplaces due to their recognition and image for offering quality products meeting global standards at competitive prices. With the government’s push for ‘Make-in-India’ products through ‘Atmanirbhar Bharat,’ the world has a keen interest in offerings from India.  

The rise of e-commerce 

The e-commerce platforms are an indirect route to exporting, enabling the SMEs to transcend boundaries and sell to customers worldwide who usually search for products they wish to buy. Small enterprises with no footprint in the host country markets find e-commerce easy to adopt and scale-up. They reduce dependence on traditional overseas buyers, whose buying practices are much less transparent due to their negotiation tactics. Online marketplaces make the SME export cycle seamless. The time is ripe to concentrate on exploring the foreign markets through e-commerce and then quickly move to direct exports.  

Several Indian direct-to-consumer (D2C) brands explore their global reach with inbound marketing, lead generation, booking orders, invoicing, receiving payments, dispatching finished goods, and service support. They are witnessing significant demand in international markets across products and service categories. Certain products from India are competitive and still meet global standards, which works towards getting SMEs access to international marketplaces. 

E-commerce has democratized international business opening the doors for SME exports without any restriction on location. SME’s target market is no more only the domestic customers. E-commerce offers a robust platform for conducting business and entering into transactions at a national and international level. With the help of e-commerce, SMEs can reorganize, cut expenses, and even explore expansion opportunities for achieving higher growth and profits through optimal utilization of resources. They can access a broader market for promoting their products and services since e-commerce offers technological advancements and a broader customer base through the internet.  

E-commerce affects the growth of SMEs as well as their internationalization. Although e-commerce fetches billions of dollars every year, it has many drawbacks that impact SMEs. While e-commerce sales are growing faster than physical ones, physical stores account for at least 90% of total retail sales in India. The main benefit of physical stores is the see, touch, and try aspect, which is not always possible in the case of online shopping. 

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E-commerce platforms: An evaluation  

Prima facie, compared to e-commerce platforms, traditional SME exporters will have a stronger connection and relationship with their customers. However, e-commerce websites can attract more customers and transactions even though the operational costs and profits could be lower due to the commoditization of brands.  

E-commerce is proving to be a boon. It brings the buyers and sellers together by acting as a mediator or facilitator between the two. Further, online retailers can take care of the payments and logistics. Even service-based SMEs have a level playing field with large service providers in telemedicine, consultation, psychotherapy, yoga, wellness, and others.   The benefits include wider reach, enhanced revenue, and reduced hassles. 

India is home to several well-established foreign-origin and Indian-origin e-commerce players, including Amazon, Flipkart, Myntra, Shopclues, etc. operating in the B2C markets apart from the likes of India Mart Alibaba, and several other trade portals in the B2B markets. With several small SMEs lacking knowledge about foreign customers, their culture, skills to promote their businesses abroad, and the staying power to bear losses due to the risks related to payments and logistics, e-commerce comes to their rescue. Even the SMEs who lack funds to set up their online store for such expansion can gain an initial experience in the international markets.  

The way forward 

It is a timely opportunity for the Indian government to pivot SME exports through e-commerce. Our e-commerce policy framework needs to provide a level-playing field to benefit the SMEs and put them on a new growth trajectory. To accelerate the e-commerce exports by Indian SMEs further, the government needs to support the SMEs with some significant policy changes to get more competitive in quality and prices. Availability of finance and logistics support is equally crucial for SMEs to adopt the D2C route. Usually, there arises a question about the best way for a small business to sell online in the international markets. For SMEs aspiring for global expansion, joining some well-established e-commerce platforms can be the first easy step for testing the foreign waters before starting an independent D2C presence for deeper engagement in the chosen markets.  

In short, SMEs need a 360-degree hand-holding by the government and online business facilitation. Educating SMEs on global value chains and quality compliance would further help them leverage the e-commerce platforms to grow their business. Besides this, SMEs without sound technological expertise need protection against cyber malpractices. States can set up Export Facilitation Cells (EFCs) to identify the products and markets and meet the export compliances by involving the District Industries Centers (DICs).

Rajendra Prasad Sharma is the Professor & Head, MDP, Indian Institute of Foreign Trade, Kolkata. Views expressed are the author’s own.

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