Indian SME sector is growing rapidly driven by factors like e-commerce, m-commerce, government initiatives and easy SME lending. Self-finance has traditionally been the major source of financing for SMEs, but government and financial institutions are now providing more financial assistance through schemes and credit guarantee funds. The IT-SME sector, including e-commerce, m-commerce and fintech, is attracting significant investment from domestic and foreign investors to support areas like logistics, social commerce, cyber security, and digital payments.

1. SME in India:
Opportunities for VARs and SIs
in the mid-market segment
For India ICT Reseller Channel Summit 201
Manesar, September 2017
Prepared by Spire Research & Consulting
1

2. TABLE OF
CONTENT
2
About SPIRE
Overview of Indian IT market & digitization
IT spending and investment in India
Opportunities in Indian SME sector
Financing in Indian SME sector
Investment trends in Indian ‘IT’ (SME)
Government’s Digital India initiatives
In-depth interviews with SIs and VARs
Value chain of SI-VAR companies
Products & Services offered by SI-VAR companies
Growth projection for SI-VAR SMEs
Challenges for SIs and VARs in India
Impact of GST on SI-VAR segment

3. About ‘SPIRE’
3

4. 4
Spire Research and Consulting
The leading research-based consultancy in emerging markets
We were founded in the year 2000.
We have 100 employees in nine full-service offices.
We serve Global Fortune 1000 firms, governments and other
leading organizations.
Our opinions frequently appear in print, television and radio
media.
We provide a broad spectrum of research and consulting solutions
for market growth and entry.

5. 5
Research and Consulting Solutions
COMPETITOR
ANALYSIS
BUSINESS
PARTNER
SELECTION
CORPORATE
SOCIAL
RESPONSIBILI
TY
CONSULTING
CHANNEL
HEALTH
MANAGEMEN
T
SUPPLY
CHAIN
MANAGEMEN
T
CONSULTINGKNOWLEDGE
PROCESS
OUTSOURCIN
G
GEO-
MARKETING
SALES LEAD
HANDLING
MARKET
SIZING AND
FEASIBILITY
PRICE
RESEARCH
MARKET
ENVIRONMEN
T RESEARCH
THOUGHT
LEADERSHIP
CONSULTING
CUSTOMER
DECISION
DYNAMICS
ANALYSIS
COUNTRY
RESEARCH
CONSUMER
RESEARCH
VALUE CHAIN
ANALYSIS
ANTI-
COUNTERFEIT
CONSULTING
HOLISTIC MARKET
ENVIRONMENT
RESEARCH
ETHNOGRAPHY
CROSS-
BORDER
CONSULTING
GO-TO-
MARKET
PLAYBOOKS

6. 6
Yamada Business Consulting (YBC) network
YBC’s network is currently spread over 7 prefectures in
Japan including Sendai, Nagoya, Osaka, Kyoto, Kobe,
Fukuoka, with its headquarters in Tokyo. YBC also has
its branches and representative offices located in
Singapore, China, Thailand and Malaysia.
Sustainable growth
consulting
Business revitalization
consulting
M&A consulting
Business succession
consulting
Business overseas
consulting
Medical & healthcare
institute consulting
Human resources
consulting
Group company
reorganization
Foreign Investments
YBC’s Consulting Services

7. 7
Brazil
United states
Saudi Arabia
Russia
Japan
KoreaChina (Beijing)
China(Shanghai)
Taiwan
Philippines
Malaysia
India
Vietnam
Australia
New Zealand
Indonesia
Singapore
Hong Kong
Pakistan
Sri Lanka
Bangladesh
Thailand
Brunei
Cambodia
Poland
Argentina
Mexico
Kenya
Great Britain
Italy
Germany
South Africa
Egypt
Turkey
Peru
Columbia
UAE Laos
Myanmar
Spire full services offices
Countries with locally-based Spire Research Associates
Yamada Business Consulting Office
Yamada Group office
Ecuador
Morocco
Czech Republic
Hungary
Tunisia
Iraq
Iran
Nigeria
Timor Leste
Mangolia
Spire and YBC network & coverage

8. SI-VAR Market
Research Report
8

9. Indian ‘IT’ market and Digitization
24 29 32 32 32
48 52
50
59
69
76
86 98.5
108
19
15
7
9
24
9
FY10 FY11 FY12 FY13 FY14 FY15 FY16E
Market Size of IT Industry in India
(USD Billion)
Domestic Export Growth
India’s IT industry growth was significant – the industry size
more than doubled from 2010 to 2016. Overall industry size
grew from USD74 Billion to USD160 Billion during 2010-16
period.
2015 has seen the highest ever growth in IT industry –
registered at a 24% growth in market size year-on-year
basis.
Where export was driver for all these years, increasing
domestic growth is visible in recent years.
India’s top 5 IT services export companies are TCS, Infosys,
Wipro, Cognizant and HCL.
As projected by NASSCOM (National Association of
Software and Services Companies), the trade association of
Indian IT and BPO companies; the revenue of IT industry
will reach USD 350 Billion by 2025 – doubling it’s revenue
from the current year.
The growth in the IT industry will be driven by SMAC
(Social, Mobility, Analytics, Cloud) – an enterprise
Information Technology model, the Internet Of Things (IOT),
robotics and automation.
USD 350
Billion
‘IT’ sector revenue by 2025
9

10. ‘IT’ Spending & Investment in India
Irrespective of global market volatility, IT spending in
India remained stable in last few years and as expected,
will increase in upcoming years.
[Data source: www.statista.com]
Demand of telecom services was higher than other
categories, followed by demand of Devices and IT
services.
2 2 3 3 3
4
4
4 4 5
22 22 22 20 21
10 11 10 11
12
29 28 30 30
30
FY13 FY14 FY15 FY16* FY17*
Category wise IT spending in India
by end-users (USD Billion)
Data Center Systems Software
Devices IT services
Telecom services
(67) (67) (69) (68) (71)
FDI Inflows in Indian IT sector
USD 24.67
Billion
Amount of FDI attracted by Indian software and
hardware sector between 2000 and 2017 (March).
Mauritius has highest contribution in this sector in the
same period.
[Data source: DIPP (Department of Industrial Policy
and Promotion)]
Total >
10

11. Opportunities for Indian SME sector
USD
25.8
Billion
Size of SME sector
by 2020
Financial and technical support to SMEs will rise as
government and respective agencies have started incentivizing
manufacturing sector – it is expected that by 2025, growth of
manufacturing will be 12%-14% per annum from 8% and GDP
share will increase to 25% from 17%.
Government initiatives such as ‘Public Procurement Policy’,
‘Pradhan Mantri MUDRA Yojana’, ‘Make in India’, ‘Startup India’,
and ‘Skill India’ have helped SMEs to grow as well in last few
years.
Apart from manufacturing, Banking, NBFC and Commerce –
with the help of Fintech companies – is bound to drive the
Indian midmarket as well.
Amalgamation of
‘e-commerce’ and
‘m-commerce’
Rise of ‘e-commerce’
Easy availability
of SME lending
Government initiatives
Factors
behind
SME’s
up-rise
11

12. Financing in Indian SME sector
78%
7%
2%
1%
1%
11%
Self Finance
Financial Assitance from Govt. sources
Borrowing from Financial Institutions
Borrowing from non-institutions / money lenders
Loan from Self-help group
Donations / transfers from other agencies
As per Sixth Economic Census of 2013, ‘self finance’ (78%) was the
major source of financing in SMEs, followed by financial assistance
from government sources (7%). Borrowing from financial and non-
financial sources remained as low as 3%.
Due to decrease in financial assistance in past years, both
government and financial institutions have stepped up financial
assistance to SMEs.
Financial Facilitation Centres are to ensure availability of credit to
the MSMEs and National Small Industries Corporation (NSIC). It has
further established seven Finance Facilitation Centres at Ludhiana,
Jalandhar, Guwahati, Bangalore, Hyderabad, Chennai and Jaipur.
The NSIC has also reduced lending rates on raw material assistance
by 1% on micro units and by 0.5% on small industries.
The Credit Guarantee Fund Trust for Micro and Small Enterprises,
run by the government and SIDBI, provide guarantee on up to 85% of
sanctioned loan facility availed by such enterprises for a fee. This
guarantee enables both existing and new SMEs to get collateral-free
loans at lower rates. This has further helped financial institutions to
provide loans to SMEs.
As on May 31, 2016, a total of 24.31 lakh proposals from micro and
small enterprises have been approved for guarantee cover for
aggregate credit of INR1.13 lakh crores.
Sources
of
Finance
12

13. Investment trends in Indian ‘IT’-SME
(E-Commerce & M-Commerce)
KartRocket, a Delhi based e-commerce
enabler has completed its USD8 million
funding round by raising USD2 million
from a Japanese investor, which will be
used to enhance Kraftly, a mobile-first
online-to-offline marketplace targeting
small sellers, individuals and home-based
entrepreneurs in India in product
categories such as apparel and
accessories.
Sagoon Inc, a social network and e-
commerce start-up, has filed mini-initial
public offering (IPO) papers with the US
Securities and Exchange Commission
(SEC), to raise around USD20 million,
which will be used to set up a campus in
India, expand its team in India, the US and
Nepal, as well as support marketing and
branding and other general activities.
PurpleTalk Inc, a US based mobile
solutions company, has invested USD1
million in Nukkad Shops, a Hyderabad
based local commerce platform that helps
neighbourhood retail stores take their
businesses online through a mobile app.
13
E-COMMERCE AND M-COMMERCE TRENDS :
E-commerce and m-commerce
industry in India continue to evolve
rapidly and attract many domestic
as well as foreign investors with
fresh investments; mainly in
buzzing startups and SMEs
Xpressbees, an e-commerce logistics firm
operated by Busybees Logistics Solutions
Private Limited, has raised USD12.5
million in a Series A funding, led by its
existing investors SAIF Partners, IDG
Ventures, Vertex Ventures and Valiant
Capital.

14. Investment trends in Indian ‘IT’-SME
(FINTECH)
14
TREND IN FINTECH :
Fintech SMEs are tapping into the
high potentiality of the sector and
raising funds through series of
events for further advancement
Kratikal Tech Pvt Ltd, a cyber-security
start-up, has raised around USD500,000 in
seed round of funding led by Mr Amajit
Gupta, former director of Microsoft India,
which will be used for product
development and framing training
modules.
Helpshift Inc, which makes customer
support software for mobile apps,
announced raising USD2 million from
Cisco Investments, in addition to working
with Cisco to integrate its in-app customer
support with Cisco’s contact centre
solutions.
Gurgaon-based digital wallet start-up
MobiKwik, which is owned and operated
by One MobiKwik Systems Private
Limited, has raised USD40 million from
Nasdaq-listed firm Net1, a South African
payments technology company.
Bengaluru-based fintech company
ZestMoney, owned by Camden Town
Technologies Pvt. Ltd, has raised USD6.5
million in a series A round of funding led
by Naspers-owned PayU; and will invest
the funds in technology and product
development.
TREND IN CYBER SECURITY :
Massive reach of internet and
mobile devices raised the issue of
cybersecurity in India. It has also
given reasons for startups and
SMEs in the sector to grow

15. Government’s Digital India initiatives
AADHAR ID
- Largest enabler for digitization,
that has a reach to all citizens of
India.
ESIGN
- Facilitates digital signing of
documents by those who have
AADHAR ID.
PayGov
- Common platform to avail
government services through online
transactions.
Digital Locker
- Help citizens in storing important
documents such as PAN Card,
Passport, Mark Sheets, Degree
Certificates using AADHAR ID.
E-Bhasha
– Conversion of all government
websites from bi-lingual to multi-
lingual.
BaharatNet
– Will connect and provide internet
services to 1,50,000 ‘gram
panchayats.’
National Digital Literacy
Mission - The idea is to create
digital awareness across the
country.
Jan-Dhan Yojana
- Biggest financial inclusion
initiative that enables easy transfer
of money across India.
E-TTAL
- Provides platform for quick view of
transactions done by various e-
governance projects.
Digital India Initiatives
1
2
3
4
5
6
7
8
9
15

16. Value chain of SI-VAR companies
OEMs SIs / VARs Customer
s
OEMs SIs / VARs Customer
s
Direct
Dealers
Value Chain – Type 1 Value Chain – Type 2
In Type 1, System Integrators and Value
Added Resellers buy equipment directly
from Manufacturers, supply them to the
customers after further value additions i.e.
inclusion of additional features and
services.
In Type 2, System Integrators and Value Added Resellers
buy equipment from Dealers, rather than buying directly
from Equipment Manufacturers. Most of the small size
firms have this model of value chain.
Source: In-depth Interviews with industry representatives
16
OEM – Original Equipment Manufacturer

17. TELECOM &
NETWORKING
Setup, installation and
maintenance of
LAN
WAN
Router
Modem / WIFI
IP Telephony
IT SYSTEM
ASSEMBLING
Setup, installation and
maintenance of
Computers & laptops
Additional software
Additional hardware
Printers & Scanners
Audio / Other devices
AUDIO-VISUAL
Setup, installation and
maintenance of
Projectors
Sound system
Video conference
Command control
LED Video wall
Products & Services in Demand
SERVICE
ELEMEN
T
Service is an integral part of deliverables – technical support is the most common form
of services offered. Installation, setup and maintenance are three stages of technical
support, that are provided to the customers.
Most SIs and VARs keep trained software and hardware specialists, either as permanent
workforce or on contractual basis, to provide continual support to their customers.
Customization of products & services and timeliness in service delivery ensure
longevity of business-customer relationship.
Source: In-depth Interviews with industry representatives
SECURITY &
SURVEILLANCE
Setup, installation and
maintenance of
CCTV
Access Control System
Fire prevention system
Alarm sensors
17

18. Growth projection for SI-VAR SMEs
GROWTH TRIGGERS
INNOVATION DIGITIZATION DEMAND
Source: In-depth Interviews with industry representatives
Small sized SIs and VARs, that are
having long term relationship with
their customers, expect to double
their revenues in next two years.
Medium sized SIs and VARs are
expecting to have 15-25% growth
in year-on-year basis for next two
years.
18

19. Learning new technologies:
Due to continuous evolution of IT space, SIs and
VARs are investing significantly in learning new
technologies and in giving training to the workforce.
Due to limited manpower, they are paying opportunity
cost in terms of less sales when
Learning new skills.
Connecting to monolithic systems:
Many customers still have monolithic systems in India.
Though they are not replacing older models, the
adoption rate of new technology is on the rise.
Technically, it is tough to integrate new technology
into earlier systems.
Challenges for SIs & VARs in India
Competition from OEMs:
SIs and VARs, that are coming out of SME fold,
are facing direct competition from OEMs. OEMs
approach bigger customers directly and offer
incentives in service offerings. To deal with such
scenario, SIs and VARs are putting effort in
innovation and in providing customized solution.
Choosing right tool for integration:
There are plenty of tools available in the market that
promise to deliver the best integration experience.
Choosing the right tool for an enterprise is a
challenge. Hybrid integration allows on premise
applications to seamlessly integrate with cloud-based
applications.
Doing fast or doing better:
A system integrator must find balance in providing a
quick fix solution and in providing a solution that
ensures long term performance of the systems.
Cost of new technology adoption:
Higher cost of new technology adoption leads to
competitive disadvantage to smaller players. As the
technology space is highly innovative, sustaining the
changes – that include training to manpower, setting
up of new products, creating awareness of new
functionalities – is most important.
19

20. Impact of GST on SIs & VARs (SME)
SHORT TERM CHALLENGES LONG TERM
OPPORTUNITIES
Source: In-depth Interviews with industry representatives
Source: https://cleartax.in/s/impact-of-gst-on-it-sector
New tax system has created hassles to the sector
due to limited knowledge of it.
Unregistered companies face problems in bidding
for new projects.
Complexity in tax rates creates hindrances in
billings.
Filing of taxes has become more cumbersome
and complex.
Higher tax rates in some segments has created
unfavourable business propositions for service
providers.
GST: Goods and Service Tax
Due to uniformity of taxes across states,
expansion of business will become less tedious.
Companies will increase their profit margin as
supply chain will improve efficiency to bring cost
benefits.
Services provided within a state has more
benefits. They will face less of a burden due to
GST compliance compared to those functioning
in multiple states.
Input Tax Credit (ITC) will be available on Annual
Maintenance Contracts (AMCs) post GST
implementation. Previously, companies could not
claim service tax paid on AMCs.
20

21. In-depth interviews with SIs and VARs
21
SPIRE conducted in-depth interviews with System
Integrators and Value Added Resellers in India.
Total Interviews
conducted:
10
System
Integrators:
7
Value Added
Resellers:
3
Small
Enterprises
(<50 emp.):
7
Medium
Enterprises
(50-250 emp.):
3
Yearly
revenue
(<10 Cr):
7
Yearly
revenue
(10-50 Cr):
2
Yearly
revenue
(100-150 Cr):
1
Classification by
‘business type’
Classification by
‘revenue’
Classification by
‘size of enterprise’

22. 22
Spire Research and Consulting
Unit 501-502, DLF City Court, DLF Phase III, Sector-24,
Gurgaon - 122 002, India| www.spireresearch.com
Telephone: (91) 124 646 0466/124 421 6144
E-mail: india.info@spireresearch.com *Images courtesy: Google