With rapid digitization, the Indian Tech SMEs have grown in prominence and are contributing towards the growth of the overall tech sector. To deep-dive into the tech SME landscape nasscom, in collaboration with ProHance has today released its report titled “India’s Tech SMEs: Rising in the Global Digital Arena”, on the sidelines of the nasscom SME Confluence 2023. The report showcases the growing expectations from the tech SME segments and highlights how the sector is leveraging digitalization and offering new-age digital solutions to their customers, globally. It also shares the need for tech SMEs to take up a digital-first approach to overcome strong headwinds.
Tech SMEs have long formed the backbone of the Indian tech industry. The sector is increasingly offering digital solutions to global clients, many of which are world leading products and services. With growing tech demand, the sector is expected to contribute 7–9% to the overall FY23E tech industry revenue at $15 Bn – $20 Bn, higher than the pre-pandemic share of the tech industry at 4-6%. The segment is also diversifying digital offerings across geographies. North America accounts for 50-55% of the Indian tech SMEs revenue with specific focus around niche cloud, AI, IoT and SaaS products. This is followed by Europe at 19-20%, and the domestic market at 17-18%, in FY23E. SMEs have also increased their presence in the APAC region by making inroads into non-traditional Japanese and Australian markets and are exploring deeper penetration into middle east markets like UAE and Saudi Arabia.
Increased investment in cloud, migration, Saas, and AI-based solutions have led to significant growth of 4X in digital technology SMEs since FY19. These SMEs generate 80% of their revenue from cloud, AI/ML, analytics, and digital services. Further, the demand for digital has led to a sectoral diversification for the tech SME sector in India, particularly in the retail and ecommerce verticals that grew during the pandemic in the backdrop of higher digital consumption. However, BFSI & FinTech continues to drive maximum revenue share at 50-55%. The sector is also witnessing wider partnerships from tech start-ups, who in turn are leveraging the tech SME ecosystem in India for product development support, AI/ML data tagging, testing, product engineering services.
In terms of headcount, the Indian tech SME sector is estimated to close FY23 with 740K employees, with hiring for digital skills growing 2X faster than traditional tech talent in FY20. Areas such as Cloud, Digital Engineering Services, Advanced AI/ML & Analytics and IoT & Blockchain constitutes key digital talent areas for the sector in FY23E.
Speaking at the launch, Debjani Ghosh, President, Nasscom said, “The Indian tech sector has more than 10,000 SMEs dedicated to provide traditional & digital services to tech buyers globally as well as domestic. The thrust to digital services has also led innovative digital SME betting on deep-tech solutions that either vertically integrate functions, or horizontally integrate value chains. However, for traditional tech SMEs to navigate headwinds, shift to digital is eminent. Fast tracking innovation, supportive government policies & incentive schemes and dedicated SME – industry – academia connects will further augment the sector’s growth and help achieve double digital revenue growth vision by FY30E.”
Although, the digital tech SMEs are growing rapidly on the back of IT modernization and increasing digital demand, the segment still operates at a lower base compared to traditional SME sector. Lack of leadership pipeline, limited enterprise clients, and no sustained product innovation are some of the growth headwinds faced by tech SMEs today, resulting in slower growth and range-bound pricing. To address these challenges and enhance their competitive positioning, SMEs can make focused shifts aided by government policies and industry initiatives. These include fast-tracking innovation, building favorable government tech procurement policies, improving financing and credit access, expanding global showcases, and facilitating SME-industry-academia connections for rapid innovation.
With the Tech SME sector in India projected to double revenue and reach $40bn by FY30, there is significant potential for growth. The sector’s digital revenue share is also expected to grow rapidly due to the increasing demand for dedicated Cloud, AI/ML, or IoT service providers. However, Traditional Tech SMEs may face risks due to a temporary market shrink caused by a global slowdown. By addressing the challenges and making the necessary shifts, SMEs can capitalize on the growth potential and improve their overall competitiveness.