D&B - British Airways SME Cluster Series 2014: Hyderabad

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D&B - British Airways SME Cluster Series 2014: Hyderabad, captures insights on the status and scenario of SMEs operating in the Hyderabad cluster in terms of their financing requirements and preferences, export challenges, outlook on growth prospects and various other parameters.

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D&B - British Airways SME Cluster Series 2014: Hyderabad

  1. 1. I Dun & Bradstreet India (D&B India), in association with British Airways reinforces its commitment towards the development of small and medium enterprises (SMEs) with the launch of its cluster- based report series, “D&B - British Airways SME Cluster Series 2014: Hyderabad”. This report focuses on SMEs from IT-ITeS and Pharmaceutical sectors in the Hyderabad region and offers insights on the status and scenario of the SMEs operating in the Hyderabad cluster, in terms of their financing requirements and preferences, export challenges, outlook on growth prospects and various other parameters. Some of the key findings from our study are as under:- • About 57% of the SMEs in the IT-ITeS sector expect industry to record moderate y-o-y growth of 5-10% during FY15. Among the Pharma SMEs, 46% expect industry growth of 5-10% during FY15. • Procuring funds does not seem to be a major challenge for the SMEs in Hyderabad. Nearly 41% of the respondents find it easy to procure finance. • Nearly 71% of the SMEs indicated that making collateral-free loans available to them will be the most important measure which can enhance funding to SMEs. • Around 42% of the SMEs estimate the share of their export revenue in total revenues to be in the range of 20-40% in FY14. Nearly 66% of the respondents indicated that collecting payments due is the biggest export related challenge faced by them. • SMEs in the Hyderabad cluster appear to be facing considerable issues while meeting their marketing objectives. Around 24% of the SMEs rated ‘Reaching out to target customers’ as ‘Difficult’. • Hyderabad was rated as ‘Reasonably Expensive’ by 55% of the respondents, in terms of cost of skilled labour, when compared with other competitive locations such as Chennai, Bengaluru and Mumbai. • Hiring people with specialised skills is the most critical human resource challenge faced by the SMEs in Hyderabad, with 36% of the respondents indicating this. • Around 58% of the respondents rated Hyderabad as a favourable destination for doing business, as compared to other competitive locations such as Chennai, Bengaluru and Mumbai. • Over 60% of the SMEs rated connectivity to roads and highways as Easy, and about 45% of the respondents rated access to ports and airports as Easy. • About 35% of the SMEs undertake 2-5 domestic business trips annually by airways, and around 29% of the SMEs undertake 2-5 international business trips annually. • Nearly half (i.e. 49%) of the SMEs allocate 3-5% of their companies’ total budgeted expenditure for their business airfare travel needs. Over the next one year, the SMEs plan to use the cheapest airline and reduce the number of staff travel, in order to manage their business travel costs. Key Findings
  2. 2. 1SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Hyderabad Cluster Insights Dun & Bradstreet India (D&B India) carried out a comprehensive study based on a primary survey of the small and medium enterprises (SMEs) operating and based in Hyderabad. The objective of the primary survey was to highlight the business trends of the SMEs operating in Hyderabad, in terms of their operations, financing, technology, exports, outlook on growth prospects and major challenges faced. Companies with a total income below ` 1,000 mn during FY13 were considered for the purpose of the survey. Hyderabad is recognised as the bulk drug capital of India, accounting for one-third of India’s total bulk drug production. The Hyderabad city is a model for IT industry, and is also known as Cyberabad or as Hitech City of India, as the city has one of the largest concentrations of software technology companies in India. Some of the key findings from our primary study are highlighted in this section. Hyderabad SME Cluster - SME Perspective Majority of the companies fall in the income bracket of ` 10-100 million. As per our survey, 68% of the SME respondents in the Hyderabad cluster earned annual income in the ` 10-100 million bracket during FY13. About 15% of the companies had earned income upto ` 10 million during FY13, and an equal percentage of companies had annual income in the ` 100-500 million bracket in FY13. A sectoral analysis shows that majority of the companies fell in the income bracket of ` 10-100 million, in the case of both IT-ITeS companies (60%) and Pharma (77%). Sector-wise income composition (%) Source: D&B Research In terms of annual performance in FY14, nearly 68% of the SMEs in the IT-ITeS sector indicated that they expect their sales turnover in FY14 to be higher than the sales turnover recorded in FY13. A considerable 27% of the companies indicated that they expect their sales turnover in FY14 to be at the same level as in FY13.
  3. 3. 2SME Cluster Series 2014: HyderabadHyderabad Cluster Insights On the other hand, among the surveyed companies in the Pharma sector, nearly 61% of the SMEs indicated that they expect their sales revenues in FY14 to be at the same level as in FY13. Only 36% of the Pharma SMEs indicated that they expect sales turnover in FY14 to be higher, as compared to FY13. Expectation on sales turnover in FY14 vs FY13 (%) Source: D&B Research Financing Trends Over 40% of the SMEs in Hyderabad find it Moderately Easy to procure funds and to have access to alternative source of finance. As per our survey results, procuring funds does not seem to be a major challenge for the SMEs in Hyderabad. Nearly 41% of the companies rated ‘Ease in procuring finance’ as Easy, while another 42% rated it as Moderately Easy. At the same time, 44% of the respondents rated ‘Access to alternative source of finance’ as Moderately Easy. When asked to rate ‘Documentation process to obtain finance’, 42% of the surveyed companies rated it as Easy. However, a significant 28% of the respondents rated ‘Documentation process to obtain finance’ as Difficult. Financing facility parameters Source: D&B Research
  4. 4. 3SME Cluster Series 2014: HyderabadHyderabad Cluster Insights As per the SMEs in Hyderabad, making collateral-free loans available would play a major role in enhancing flow of funds to the SMEs. SMEs in India typically face the double whammy of managing liquidity and raising loans for their operations on the one hand, and providing collateral security for raising funds. In line with this fact, our survey also revealed that the SMEs in Hyderabad believe that making collateral-free loans available to them will be the most important measure in enhancing SME funding. Nearly 71% of the SMEs indicated this. A significant 58% of the SMEs indicated that enhancing the credit limit of banks would be another important measure to boost SME funding, while an almost equal percentage (57%) of the respondents cited simplification of the documentation process as an important factor that would boost funding to the SMEs. Interestingly, less than half of the SMEs surveyed (41%) opine that making credit rating mandatory would help in enhancing funding to SMEs. Measures to boost SME funding (%) Source: D&B Research Human Resource Related Trends Hiring people with specialised skills emerged as the biggest HR challenge faced by the SMEs based in Hyderabad. Our survey revealed that hiring people with specialised skills is the most critical human resource challenge faced by the SMEs in Hyderabad, with 36% of the respondents citing this. High attrition rate and managing salary expectations emerged as the other major human resource challenges for these SMEs, with 23% and 21% of the respondents indicating this, respectively.
  5. 5. 4SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Critical HR challenges faced by the SMEs in Hyderabad (%) Source: D&B Research Among the surveyed SMEs in the IT-ITeS sector, hiring people with specialised skills emerged as the biggest human resource challenge, with as much as 41% of the SMEs indicating this. Surprisingly, only 7% of the IT-ITeS SMEs identified investing in training and development as a critical HR challenge. SMEs in the pharma sector also indicated hiring people with specialised skills as their biggest HR challenge (30% selected this). At the same time, a considerable 25% of these Pharma SMEs cited high attrition as an important HR challenge faced by them. Sector-wise HR Challenges (%) Source: D&B Research
  6. 6. 5SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Majority of the SMEs rated Hyderabad as Reasonably Expensive in terms of cost of skilled labour, as compared to other competitive locations such as Chennai, Bengaluru and Mumbai. As per more than half of the SMEs surveyed (i.e. 55%) , Hyderabad is ‘Reasonably Expensive’ in terms of cost of skilled labour, when compared with other competitive locations such as Chennai, Bengaluru and Mumbai. A substantial 35% of the SMEs rated Hyderabad as ‘Expensive’ with respect to cost of skilled labour. While a significant majority of the SMEs belonging to the IT-ITeS sector (i.e. 70%) rated Hyderabad as ‘Reasonably Expensive’ when it comes to the cost of skilled labour, 51% of the Pharma SMEs rated Hyderabad as being ‘Expensive’ in terms of cost of skilled labour. Rating of cost of skilled labour (%) Source: D&B Research When asked if they participate in the government’s various training and skill development programmes available for SMEs, 78% indicated that they do not participate in such programmes. And of the SMEs who do take part in such programmes, 53% indicated that they find such programmes Moderately Beneficial. In fact, a significant 35% indicated that they do not find these programmes beneficial. Participation in govt.’s training & skill development programmes (%) Source: D&B Research
  7. 7. 6SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Access to market and marketing For a significant proportion (i.e. 42%) of the SMEs, export revenues account for 20-40% of their estimated total revenues for FY14. Our survey revealed that for 42% of the surveyed SMEs in Hyderabad, their export revenues would be in the range of 20- 40% of their total revenues in FY14. Another 44% estimate the share of their export revenues in their total revenues of FY14 to be in the 0-20% range during FY14. Share of exports in total revenues in FY14 (%) Source: D&B Research Collectionofpaymentsdueandmeetinginternationalqualitystandardsemergedasthetwomajorchallenges faced by SMEs in the export markets. As per our survey results, collection of payments due is the biggest export related challenge faced by the SMEs based in Hyderabad; 66% of the SMEs indicated this. A significant 53% of the respondents indicated that meeting international quality standards is a major challenge while dealing in exports markets. The pharmaceutical industry is a highly regulated industry. Our survey results also mirror this fact, with as much as 72% of the Pharma SMEs surveyed indicating that meeting international quality standards is a major bottleneck in the export markets. Among the IT-ITeS SMEs surveyed, 63% indicated collection of payments as a critical export related challenge faced by them.
  8. 8. 7SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Major export related challenges (%) Source: D&B Research Reaching out to target customers was rated as ‘Difficult’ by one-fourth of the SMEs, while availability of skilled marketing and sales personnel was rated as ‘Difficult’ by 20% of the SMEs. SMEs in the Hyderabad cluster appear to be facing considerable issues while meeting their marketing objectives. About 29% of them rated reaching out to target customers as ‘Moderately Easy’, while 24% rated it as ‘Difficult’. Similarly, 44% of the SMEs rated availability of skilled marketing and sales personnel as ‘Moderately Easy’, and 20% rated it as ‘Difficult’. Among the SMEs belonging to the IT-ITeS sector, 25% rated reaching out to target customers as ‘Difficult’, while availability of skilled marketing and sales personnel was rated as ‘Difficult’ by 15% of the IT-ITeS SMEs. Similarly, about 23% of the Pharma SMEs rated reaching out to target customers as ‘Difficult’, while availability of skilled marketing and sales personnel was rated as ‘Difficult’ by 26% of the Pharma SMEs. Marketing related parameters (%) Source: D&B Research
  9. 9. 8SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Infrastructure Facilities Access to ports and airports, and roadways & highways connectivity was rated as ‘Easy’ by a significant proportion of the SMEs in Hyderabad. In terms of the status of infrastructure facilities in Hyderabad, connectivity to roads and highways was rated as ‘Easy’ by as much as 62% of the respondents. Similarly, access to ports and airports was rated as ‘Easy’ by 45% of the SMEs surveyed. A sectoral analysis reveals that access to ports and airports was rated as ‘Difficult’ by about 13% of the IT-ITeS SMEs and 15% of the Pharma SMEs. Infrastructure facilities in Hyderabad (%) Source: D&B Research SME Business Travel Trends One-third of the SMEs undertake only one domestic business trip by airways annually; whereas nearly 30% of the SMEs undertake 2-5 international business trips annually. Our survey findings revealed that about 33% of the SMEs surveyed undertake on an average, 1 domestic business trip by airways every year, while another significant 35% makes 2-5 domestic business trips by airways annually. Further, while 27% of the SMEs make an average of only one international business trip annually, a considerable 29% of the SMEs undertake 2-5 international business trips annually. Among the SMEs belonging to the IT-ITeS sector, one-fourth of the companies undertake 2-5 domestic business trips by airways annually, and about 37% undertake 2-5 international business trips. As per the survey results, 42% of the IT-ITeS SMEs did not undertake even 1 international business trip in a year. An analysis of business travel trends among the SMEs in the pharma sector revealed that a significant 46% of the companies undertake 2-5 domestic business trips annually. Further, with respect to international business trips, the single largest chunk of 41% of the pharma SMEs undertakes an average of one international business trip every year.
  10. 10. 9SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Trend of domestic & international business trips (%) Source: D&B Research Nearly half of the SMEs allocate 3-5% of their companies’ total budgeted expenditure for their business airfare travel needs. Nearly half (i.e. 49%) of the SMEs surveyed, as also the SMEs from the IT-ITeS and pharma sectors, allocate 3-5% of their companies’total budgeted expenditure for their business airfare travel needs. While the remaining 51% of the IT-ITeS SMEs allocate upto 2% of their total budgeted expenditure for their business airfare travel needs; for a considerable one-fourth of the pharma SMEs, their share of business airfare travel expenses is 6-10% of their companies’ total budgeted expenditure. Sector-wise: Budgeted allocation for business airfare travel Source: D&B Research An income-wise analysis of the SMEs’ expenditure on business travel by air reveals that among the SMEs falling in the income bracket of upto ` 10 mn, 67% allocate not more than 2% of their companies’total budgeted expenditure for business airfare travel. Whereas all the SMEs in the income bracket of ` 500-1,000 mn allocate 3-5% of their companies’total budgeted expenditure for business airfare travel.
  11. 11. 10SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Income-wise: Budgeted allocation for business airfare travel (%) Source: D&B Research Asia, followed by Europe and South America emerged as the most frequently travelled destinations by the SMEs. As per our survey of the Hyderabad SMEs, Asia is the most frequently travelled destination, with 84% of the respondents indicating this. Europe and South America emerged as the other most frequently travelled destinations, with 43% and 32% of the SMEs indicating this. Asia was identified as the most frequently travelled destination by nearly 95% of the Pharma SMEs surveyed, and 72% of the IT-ITeS SMEs surveyed. A significant 36% of the SMEs belonging to the pharma sector also identified Africa as a frequently travelled destination. Most frequently travelled destinations (%) Source: D&B Research
  12. 12. 11SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Various value-added services offered by airline companies topped the list of major benefits of choosing a particular airline. As per the SMEs surveyed, the various value-added services offered by airline companies are the biggest benefits derived by them upon choosing a particular airline, with 81% of the respondents selecting this. Reward points/corporate discounts and free lounge access were identified as the other significant benefits, with 77% and 75% of the respondents selecting these parameters, respectively. Benefits of choosing a particular airline (%) Source: D&B Research Using the cheapest airline, reducing the number of staff travel and using the services of a travel agency to get best deals emerged as the most important measures which the SMEs plan to take in order to manage their business travel cost over the next year. When asked upon how they plan to manage business travel costs over the next year, using the cheapest airline and reducing the number of staff travel emerged as the top choices. Using the services of a travel agency to achieve best deals was also identified as the next significant factor in managing travel costs going ahead. Plans to manage business travel cost over the next year Figs. denote the average rank; Ranking scale: 1 being the most preferred and 5 being the least preferred Source: D&B Research
  13. 13. 12SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Growth Strategies & Outlook SMEs in Hyderabad are moderately optimistic about industry growth prospects during FY15. As per the survey results, nearly 57% of the SMEs from the IT-ITeS sector expect their industry to record moderate growth of 5-10% during FY15. Also, a considerable 30% of the IT-ITeS companies expect the industry to post less than 5% growth in the coming fiscal year. Among the Pharma SMEs surveyed, 46% expect industry growth of 5-10% during FY15, although another 23% estimate industry growth rate of more than 10% in FY15. At the same time, about 16% expect the industry to record less than 5% growth, and 15% expect the industry to record flat growth during FY15. Outlook on industry growth for FY15 (%) Source: D&B Research Three-fourth of the SMEs in Hyderabad are likely to launch new products & services, and implement/ upgrade technology going ahead, as part of their future business growth strategy. More than three-fourth (i.e. 77%) of the SMEs in Hyderabad indicated that they are likely to launch new products and services during FY15, as part of their future business growth strategy. About 75% of the respondents also cited that they are likely to undertake implementation/upgradation of technology. Interesting, less than half of the respondents (i.e. 44%) indicated their intention of expanding operations in the value chain.
  14. 14. 13SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Business growth strategies (%) Source: D&B Research More than half of the respondents rated Hyderabad as a Favourable destination in terms of ‘Ease of doing business’, as compared to other competitive locations such as Chennai, Bengaluru and Mumbai. D&B India’s survey findings revealed that about 58% of the respondents rated Hyderabad as a favourable destination for doing business, as compared to other competitive locations such as Chennai, Bengaluru and Mumbai. Of this, nearly one-fourth (i.e. 24%) of the respondent SMEs rated Hyderabad as the ‘Best’destination in terms of ‘Ease of doing businesses’ as compared to its competitive locations. Ease of doing business in Hyderabad (%) Rating scale: 1 being the best and 5 being the worst Source: D&B Research SMEs in Hyderabad cited geographical advantage, access to ports & road connectivity, and setting up of planned industrial estates as the top three factors which have led to the emergence of Hyderabad as a major industrial hub. Our survey findings show that the SMEs in Hyderabad attribute the emergence of Hyderabad as a major industrial hub largely to the following three factors: its geographical advantage (66%), access to ports & road connectivity (62%), and setting up of planned industrial estates (61%).
  15. 15. 14SME Cluster Series 2014: HyderabadHyderabad Cluster Insights Factors for Hyderabad emerging as a major industrial hub (%) *As compared to other competitive locations;**including foreign players Source: D&B Research

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