Nearly 85% of ecommerce-integrated MSMEs saw increase in total sales, profit margins: Report

Over 85% of surveyed integrated enterprises reported an increase in total sales and profit margins after integrating with ecommerce channels, with most reporting growth of up to 30%, a survey revealed.

According to an annual survey by the Indian Council for Research on International Economic Relations (ICRIER), ecommerce integration has brought several significant benefits to India's micro, small, and medium enterprises (MSMEs).

The survey added that improved market access was the most widely reported benefit, expanding the reach of MSMEs to a broader customer base.

ICRIER surveyed 2,007 MSMEs between November 4, 2022, and January 20, 2023. Of the total sample, 65% were micro firms, 19% were small, and the remaining 16% were medium enterprises. At the time of the survey, 1,005 enterprises were already integrated with ecommerce platforms, while the remaining were not.

Besides collecting information on key performance indicators, including sales, employment, and profitability, the survey also captured the characteristics of the businesses and their owners to make a comparative assessment of those transacting on platforms and those that are not.

These MSMEs, registered on the Udhyam Portal, were selected across six product categories—sports goods (16.7%), toys (15.7%), processed and preserved food products (16.9%), apparel (17%), furniture (17.6%), and handicraft products (16.1%). The survey covered Ahmedabad, Bhubaneswar, Delhi, Jaipur, Lucknow, Ludhiana, Jalandhar, Agra, Meerut, Saharanpur, and Chennai.

The survey also aimed to understand the engagement of the MSME sector, especially manufacturing MSMEs, with ecommerce platforms. The survey is a continuation of ICRIER’s previous report, MSMEs Go Digital, released in March 2022, which examined the performance of MSMEs in select manufacturing sectors that were integrated with ecommerce platforms.

Key findings

The results shed light on several key findings regarding the integration of Indian MSMEs with ecommerce platforms.

According to the survey, MSMEs with younger and more educated owners were more likely to be integrated with ecommerce platforms, underscoring the role of owner demographics in ecommerce adoption.

Meanwhile, women-owned MSMEs demonstrated a commendable level of integration, despite their underrepresentation in the sector, highlighting the potential for gender equality in ecommerce adoption.

Firms with an export-oriented focus were more likely to integrate with ecommerce platforms, indicating a positive relationship between export orientation and ecommerce adoption.

Ecommerce integration has led to investments in training, equipment, machinery, and software, with companies improving their designs, introducing new products, and adopting innovative business practices. A minority (14%) of integrated firms reported hiring new employees.

A majority of integrated enterprises expect to increase the share of ecommerce sales in their total sales, indicating an untapped potential for online sales growth.

Further, about 42% of integrated enterprises obtained loans easily after integration. Only 12.3% of MSMEs accessed loans from fintech companies or NBFCs by linking their ecommerce earnings to loan accounts, eliminating the need for collateral. A majority (75%) believed that having a presence on ecommerce platforms would have improved their ability to raise external finance.

The survey suggested that firms not integrated into ecommerce platforms face challenges in accessing markets, creating disparities between integrated and non-integrated MSMEs.

To bridge this divide, policymakers and stakeholders must invest in technology, digital skills, information, and infrastructure services, it said. Additionally, providing financial and managerial support, along with training, can enhance the competitiveness of non-integrated MSMEs, enabling them to harness the benefits of online sales.