Digitalisation was a key coping mechanism for MSMEs to overcome mobility restrictions during the pandemic. COVID led to a surge in the share of online sales of MSMEs that are integrated with e-commerce platforms, thereby boosting their revenues and spurring hiring, finds a survey-based report by ICRIER, one of India’s premier economic think tanks.
The report titled ‘MSMEs Go Digital – Leveraging Technology to Sustain during the Covid-19 Crisis’ supported by a grant from Walmart, is the first to examine the effect of digitalisation on MSMEs integrated with e-commerce platforms, during the Covid-19 pandemic. This report presents a synthesis of the findings from a survey of 1,537 MSMEs (manufacturing units) across 10 states. It captures the impact of e-commerce on the volume of business, supply chain linkages and employment of MSMEs integrated with e-commerce platforms.
The report suggests that MSMEs are increasingly embracing digital technologies, with online sales accounting for 27 per cent of the total sales of surveyed MSMEs in 2020-21, up sharply from 19 per cent in 2019-20 and 12 per cent in 2018-19. The MSMEs that have adopted the e-commerce platforms have experienced an increase in sales, turnover, and profits. This has also led to increased hiring. However, while e-commerce has been associated with improved employment opportunities for MSMEs, the share of women’s participation in the workforce in the surveyed firms remained significantly low.
Tanu M. Goyal, principal author of the report said, “The pandemic caused severe disruptions in the MSME sector, and existing studies report significant distress in manufacturing sector MSMEs. Our survey revealed that COVID led to a surge in the share of online sales and growth in the business of MSMEs that are integrated with e-commerce platforms. Whether this is a structural shift or a cyclical blip, needs to be evaluated further. The next phase of the study will dwell deeper into these issues.”
About 80 per cent of all firms surveyed reported an increase in the volume of sales and turnover, while close to 70 per cent reported an increase in profits. The share of positively affected respondents was highest in the case of the smallest-sized (micro) enterprises. Selling through e-commerce platforms during the pandemic helped MSMEs to improve sales, provided better market linkages and enabled scaling up. About 70 per cent of the firms that sold through e-commerce platforms during Covid experienced an increase in the volume of sales, 65 per cent experienced an increase in turnover and 54 per cent reported an increase in profits.
Co-author, Prateek Kukreja, expressed that “While existing evidence suggests that the pandemic led to significant job losses amongst workers employed in MSMEs, our findings indicate that for MSMEs that were linked to e-commerce, it in fact served as an opportunity, as overall employment in the surveyed firms increased between 2019-20 and 2020-21.”
Most MSMEs surveyed are dependent on third-party platforms for selling online. The study showed that only 12 per cent of the total MSMEs surveyed have their own e-store and a majority of them depend on platforms to sell online. Out of those that have a dual presence, going forward, a majority (53 per cent) would like to completely sell through third-party platforms while some would like to sell through both (27 per cent).
“Our study points towards the early signs of a structural shift in the digitisation of MSMEs. To enable this transition, the ecosystem must be supported by upskilling and training of MSMEs, providing access to working capital and protecting genuine sellers from competing counterfeit products. Platform customisation may also be necessary for niche product categories such as handicrafts,” said Mansi Kedia, co-author of the report.
While MSMEs are going digital, they still face multiple challenges such as targeting the right customer, followed by customer retention, dealing with competition, timely feedback, low participation of women in the workforce and lack of digital marketing skills, among others. Moreover, MSMEs need skills development and training. While there are ongoing initiatives, this requires collaborative efforts by the private sector and the state and local government, and MSMEs’ own willingness to participate in these.