Relevance: GS-3: Indian Economy, mobilization of resources, growth, development and employment.

Key Phrases: Digital Transformation, MSMEs, GST regime, Inventory Management, Supply chain disruptions, Social Media, Email and Remote Communication, Hybrid Models, Training and re-structuring employee, Digital training, ICT interventions.

Why in News?

• An opportune time for digital transformation of MSMEs.

Context:

• There is way too much hype around the term ‘digital transformation.’ For many it conjures a tectonic disruption to all aspects of a business. The idea of such extreme change can be intimidating and is often one reason why MSMEs (Micro Small and Medium Enterprises) are in two minds when evaluating digital solutions i.e. they fear a lack of resources or a complete reset. However, the truth is that these enterprises can embrace digital transformation in small, incremental steps.

Identifying Core Areas For Digitization

• The pandemic has brought to the fore digital-first or digitally native players. Though this development might be a bit overwhelming for traditional small businesses, they can take solace from the fact that all businesses have at their core the need to build customer trust. Traditional businesses that have survived for many years have a definite edge over new businesses on this count.
• Such SMBs can begin their digital transformation by identifying the core problems and categorizing them based on priority. This helps to rally the company around a shared understanding of problems and why they need to tackle them. The process will also give insights on how companies can phase their digital transformation journey.
• A recent example was when businesses quickly digitized and automated their bookkeeping when the GST regime came into effect. The pandemic has brought about a much larger shift in adapting to further change:
  • Be it automating workflows.
  • Shifting to ecommerce.
  • Converting to D2C brands.
  • Using payment gateways.
  • Remote communication tools etc.
• A good place to start a revamp would be a business process like inventory management. Supply chain disruptions have become a common pain point during the pandemic, and always-on inventory and supply chain management have helped some businesses get an edge over others. In the B2C space, businesses have gained by going online from offline quickly.
• Many businesses started managing their social media presence directly instead of leaving it to agencies. Social media marketing has become an integral part of their brand communication.
• For example, Shalini J, who owns Nangai Home Made Food, recently shifted her catering business online. She uses social media tools and live chat software to engage her audience. Digital tools also help her know her customers better and offer them specialized services.

Embracing Hybrid Models that Ease The Organization

• Another big myth of recent times is how digital-only is the future. The reality is traditional businesses have the flexibility to choose physical or virtual as their mainstay or also opt for a hybrid model.
• One example from the retail world is how online ecommerce stores and platforms have gone about establishing physical stores. In India too, this is evident: popular online furniture stores have established physical ‘experience’ centres in major cities and towns. Customers still prefer to experience certain products or services, and in-person meetings create the most important trust factor ahead of a sale. Though there might still be many aspects of the business that are automated by digital tools, traditional businesses do not need to see digital transformation as a form of shape shifting. It is more adapting to the times.
• Conversely, physical furniture stores have also started establishing their own websites i.e. away from digital platforms, in a bid to ‘own their customer databases.’

Training and re-structuring Employee Roles

• Digital transformation of course requires some training and re-structuring. Business owners can designate leaders to train the team and drive the usage of tools. Getting everyone on board is important.
• Most entrepreneurs and small business owners hire generalists that wear multiple hats. Hiring a few specialists helps develop long-term digital capacities. Effective businesses also re-organize themselves and re-designate their staff to bring about clarity in terms of functioning.

Digital Training

• Given the demographic profile and labour market conditions prevailing, there exists a need to increase the scale and scope of digital training in India. A three-pronged strategy for this is given below.
  • First, as there exists variations in the benefits accrued across age, location of residence and income of the participants a more decentralised programme for training with community participation needs to be designed.
  • Second, there is a need to ascertain what specific barriers rural entrepreneurs experience before engaging in large scale ICT interventions and training for small businesses.
  • Third, in designing such interventions institutions need to take into account the medium-term nature of training programmes as a single one time training might not yield desired results. These could help in deriving benefits of the phrase ‘digital literacy’ in the broader sense of the term.

Way Forward:

• A constant reminder that will help MSMEs during this ‘transformation’ phase is that their core business does not change. They are still the same group of people creating the same product or service. It is just that some digital tools have made this entire process easier and more efficient for them.
• The opportunities that lie ahead for the MSME sector are immense. But the post-pandemic landscape has clearly given them a direction to move towards, and with the right support, this transition is achievable.
• The government should take the special care by addressing the importance of Micro Firms in terms of providing more and more Micro Firms Registration advantages by implementing better regulations and enable financial institutions to lend more credit at less interest rate for sustainability of this sector.

Source: The Hindu BL

Mains Question:

Q. Identify the core problems related to digital transformation of MSMEs. Suggest measures to solve these problems. Comment.