India Sees Big Growth From Small Net Players
Indian small and medium businesses (SMBs) are set to dump a ton of cash into upgrading their Internet infrastructure this year, according to a study by New York-based AMI-Partners. The study predicts SMBs in the country will invest up to US $1.2 billion for this initiative, or about one-sixth of global IT spending at $7.7 billion.
AMI-Partners says much of the impetus comes from the Indian government itself, as it finalizes its Broadband Policy 2004, designed to accelerate the growth of broadband services in India.
With the aim of boosting applications like tele-education, tele-medicine, e-governance, and entertainment, the government expects these goals to be accomplished through fiber optic cable deployment, a five-year tax holiday for Internet companies, and broadband network build out.
“This policy has a twofold benefit,” says Avimanyu Datta, a Kolkata-based analyst at AMI-Partners. “First, through its tax initiatives, it will facilitate the creation of new business and employment opportunities.
“Secondly, the technical infrastructure creation will boost the development and diffusion of high-speed Internet through cable modems and DSL, as well as wireless Internet. The increased need for Internet access has led to economies of scale for service providers which, in turn, have brought down access and installation costs.”
AMI-Partners says the biggest small-business spenders on Internet technologies are in the retail sector; among medium-sized businesses, it is in manufacturing. Growth in both sectors have spurred an economy growing by over 8 percent.
“The country is fast becoming the destination of business process and knowledge process outsourcing for many global corporations such as GE, Dell, HP, Cap Gemini,” said Datta.
“The central government and several state governments are proactively encouraging such initiatives. This will further drive the demand for Internet technologies, particularly ones related to Internet access.”
SMB spending on Internet access is expected to be $830 million this year, a 24% jump from last year. Datta said much of this spending will come from small businesses as nearly half of them still use dial-up access.
“The reason for this low penetration is attributed to the products SBs sell. They operate on very low margins as their customers are usually medium businesses, not large businesses. As contact with end consumers increases, website and e-commerce penetrations are likely to correspondingly increase alongside the margins,” he said.