SMEs must target IT as a business driver

Rohantha ATHUKORALE

I visited some of the key Industrial Estates in Sri Lanka as a Board member of the Industrial Development Board of Ceylon. Given that my previous experience had been in core industrial sectors such as Apparel, Tea and Tourism, meeting small time enterprises in the furniture and the bakery industry was an eye opener on the very high quality standards of our Small and Medium Enterprises (SMEs) in Sri Lanka.

The professionalism and resiliency is commendable. In my view the SME sector will be the future growth engine of Sri Lanka.

When I took a look at the statistics for last year, what I saw was that the fast growing small and medium enterprises (SME) segment was contributing in sizable chunk to Sri Lanka's GDP and it was getting more focused attention from the policy makers. I guess with the firming of key policy document- the SME policy in the next few months the policy framework required for this sector become the engine of growth will be in perspective.

It is clear that the focused intervention by the Government is because GDP growth outside the Western Province can only be driven with the establishment of more Industrial estates in remote parts of the country in the North-East so that the contribution of the industrial sector can be increased from the current twenty nine percent to may be thirty five percent in the years to come.

A point that we must note is that the service sector that was 47.7 percent in 1990 to the total GDP is today 57.7 percent as at 2009.

However, while the Industrial sector is only a 29.7 percent to the total GDP, it employs over a million plus people and almost 95 percent of them work in the manufacturing sub sector.

This means that this is one segment that can absorb the youth that the Universities produce yearly.

An amazing revelation in the industrial sector is that across all the provinces the top ten industries are the same. Namely food, beverage, non metallic mineral products, apparel, wood products, mining, quarying, rubber, plastics and printing products.

Focusing on the SME sector it is important to note that to remain competitive in the global market place, one has to embrace IT as a business driver, than an information filing system which is what is currently happening in my observation.

Sri Lanka SMEs

Of the Seven billion dollar export earnings last year, the SME sector accounted for a sizable chunk registering double digit growth which is indicative of the resiliency of the SMEs to drive Sri Lanka's GDP growth in the post war era.

It is estimated that the small enterprises will double its business turnover the next two years provided that the Banking Industry can be more focused to lending to the private sector than the current skewness to government projects.

I see many IT companies targeting this segment but a point to remember is that one needs to carefully understand the needs of each of these organizations and develop customized software solutions keeping in mind that they are SMEs.

The objective of the IT companies should be initially to simplify their businesses, so that cost can be controlled. It is only once that confidence is established, that one needs to develop systems to drive competitiveness.

As Sita Yahampath the owner of Kandygs Handlooms once told me "IT came in handy at the time of the company's diversification from spinning to dying, printing and garmenting. As we grew we were getting more orders and needed intricate IT tools to serve our customers".

It has also brought in more transparency in data and information management' she said which aptly tells us the burning need for IT in SMEs and all that is required is for companies to spend time and develop tailor-made solutions that can make their life simpler.

Why IT

IT systems normally enable companies to respond faster and more effectively to customer requirements. However, if we are to do justice to the moneys that a SME invests on IT, the key delivery should be a robust and dependable IT software system so that with the increasing customer and overall business requirements it can be used as driver of business than just being used for data storage.

This is all the more important given that technologies in the financial services get outdated quickly and we need a platform that is robust with dependable is my view.

Hence its paramount that the IT platform that one recommends must be able to deliver infrastructure that is in line with the challenging environment in the market place but fitting into the ambitious growth strategy of the enterprise.

IT players

In the recent past companies such as SAP, Novell and Hewlett Packard (HP) have launched products specifically targeting the SME businesses.

SAP has launched an ERP solution for SME's that handles finance, inventory, purchasing and also looks at manufacturing and HR.

SAP have targeted companies which have a small turnover and the initial feed back is very encouraging.

HP on the other hand has launched a software for backup and data recovery that would provide the full suite of servers to a small business.

A typical new entrant has launched a web model to facilitate the use of ERP for SMEs in India which is a development that Sri Lankan IT companies must be cognizant of so that may be it can extend with a modified and better version to Sri Lankan SMEs.

SME growth

Adopting IT solutions to help SMEs is now a forgone conclusion. The logic being that as and when businesses start growing a rudimentary enterprise planning system which was manual will not be able to keep pace with the dynamism in the market place and hence it will be paramount that a fully fledged business infrastructure will have to be in place.

While software and IT solutions have been around for a long time, the difference now is that with the focus on the SME sector, the solutions are now being customized for SMEs keeping their needs in mind.

A typical Card Manufacturing SME in the Gampaha area said they cannot afford to have full time IT backend and need a company who can give that support on a contractual basis which again is an interesting trend that is unfolding in Sri Lanka. It is also logical as with this kind of mentality a typical SME can focus what he knows best to do and allow a IT provider be a common provider of services to many such SMEs.

This will help keep the cost base competitive too with the entrenched price was from Bangladeshi and Chinese enterprises.

ERP solutions

I feel that most ERP solutions for small businesses would necessarily be able to scale up along with the business as it grows. It is also important that small companies that feed off large companies have an order book and inventory level that is up to date specially is one is in the apparel sector of Sri Lanka. Hence, they need to be connected with the larger company all the time so that overall supply chain management between inventory levels demand which can set a chain reaction for manufacturing to commence. With a proper IT system in place this decision can be more systematic for a SME than through traditional methods of communication such as e-mail or even a telephone call in a more word organization.

Investment

It's important to keep in mind that convenience comes at a price. SMEs have to invest money to be competitive in today's world. It will make one's life simpler and efficient. The typical investment would be around Rs 200,000 depending on the solution that is required but can vary.

It might be even cheaper in the near future with the local development of the IT sector on the knowledge hub philosophy.

But a point to note is that the cost can be recovered through savings resulting from cutting down on losses that are incurred due to slow response.

With the increasing industrial zones that will emerge from different parts of the country that will also offer tax incentives, an enterprising SME may have three to four manufacturing facilities in different parts of the country. In such a situation, it will be nearly impossible to manage inventory without a good software solution. For instance raw material needs to be managed efficiently to reduce working assets with a just in time system(JIT).

This will also help keep the overall operational cost down. The software solution can support the efficient management information system that can drive quicker decision-making thereby instigating stronger growths.

We witnessed this when a furniture manufacturer at Ekala Industrial estate said that some buyers from overseas send their designs via e-mail and then the operational process commences automatically than having to sit at lengthy meetings.

Next steps

The keys to a successful IT system is for an SME to outline their needs and their budgets for the IT solution. Thereafter analysing the products in the market place will help identify the IT solution that can best fit the needs of the SME business.

SMEs should also ensure that there is local customer support both on the web as well as offline so that IT drives business growth with efficiency. This attitudinal change can change the perceptions of IT from the current application of it just being a filing cabinet. I guess the SME policy that will be launched in the near future will help for a stronger and powerful SME sector to evolve, in the post war Sri Lanka landscape together with IT.

(The writer is a marketeer and is the National Portfolio Development Head in the United Nations Office (UNOPS) for Sri Lanka and the Maldives.)