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Page 1: Challenges and Opportunities in the SMEs Market - Bridging ... · to enhance management capabilities From the view- point of the telecom operator and IT services provider, the SME

SMALL BUSINESS DEVELOPMENT

It is widely recognized that informationcommunications infrastructure is one ofthe foundations for the development ofan information society, and that SMEs(Small and Medium sized Enterprises)are one of the main forces in economicgrowth and job creation, not only indeveloped countries but also indeveloping and emerging economies.

OECD (Organization for EconomicCooperation and Development) statisticshave shown that SMEs, accounting formore than 95 % of the total employmentin most countries, are the main source ofnewly created jobs, especially inadvanced technology sectors, and alsofunction as the engine of economicgrowth and performance.

However, despite the SMEs numbers andimportance for economic growth only asmall portion, especially in thedeveloping countries, have access tosophisticated information andcommunication services that arecommonplace in large enterprises,creating a digital divide in addition to,and reinforced by:

❑ Barriers to finance access,

❑ Difficulties in exploitingtechnology related to insufficientmanagerial capabilities, training, andhuman resource development ❑ Low productivity andregulatory burdens.

Bridging the Digital Divide

According to recent surveys the rolloutof broadband access can help bridge the'digital divide' that exists between SME’sand large organizations. Bridging thedigital divide is so important foreconomic growth that internationalorganizations such as United Nations,through the Information andCommunications Technologies (ICT)Task force, are leading the developmentand implementation of ICT pilot projectsacross the world. In Latin America andCaribbean, the UN ICT task force istesting innovative ICT applicationssolutions for SMEs, primarily in the areasof value chain integration, workplaceproductivity and efficiency, and overallmarket penetration. It is also expectedthat a large number of SMEs will benefitfrom the new services and solutionsdeveloped through the dissemination and

replication of the "best practices" and"lessons learned" from the pilot projects.

Potential solutions and services that canbe generated by the pilot projects include:

❑ e-Commerce and e-Businessapplications

❑ e-Productivity applications forindividuals and organizations

❑ Infrastructure and accessenhancing systems

❑ Knowledge management anddistribution systems

❑ Mobile (including satellite-based) applications and services forbusinesses

❑ Long-distance learning and educationto enhance management capabilities

From the view- point of the telecomoperator and IT services provider, theSME market size and needs, especiallywith regard to broadband access, canprovide a profitable opportunity forgrowth.

Challenges and Opportunities in the SMEs Market -Bridging the Digital Gap

It is widely recognised that SMEs (Small and Medium sized Enterprises), are one of the mainforces in economic growth and job creation. SMEs are responsible for 52% of the BrazilianGDP, but only 10% utilize information and communications technology to increase theircompetitiveness, creating a digital gap compared to larger organizations. Special, costeffective, solutions and content are needed to meet the needs of SMEs. This, and broadbandaccess, can bridge the ‘digital divide’ between SMEs and larger organisations.

Victor Reis is Unisys Brazil's first Brazilian President and General Manager. Unisys Brazil is one of the UnisysCorporation's most important subsidiaries. During his 30 year career at Unisys, Mr. Reis has worked in mostof the company's business units. He started in 1973 as a banking services sales trainee. Before becoming thechief executive, he served for a year and a half as the director of the Public Sector Group. The Group grew by80 per cent during this period, due in part to his winning bid to create the system of 76,000 electron ballotboxes that computerised, for the first time, Brazil's national electrons. In 1993 Mr. Reis was named Directorof the Commercial Industry Group. In this position he built Unisys into one of the key players in the market.His overall reorganisation of the company's southern geographic business unit doubled its revenue in the firstyear. Mr. Reis graduated as an electronics engineer from Sao Paulo's Makenzie University. He is married andhas two sons.

by Victor Reis, President Unisys do Brasil

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Page 2: Challenges and Opportunities in the SMEs Market - Bridging ... · to enhance management capabilities From the view- point of the telecom operator and IT services provider, the SME

SMALL BUSINESS DEVELOPMENT

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The Brazilian SME market

Brazilian information technology and

telecommunications sectors in the 90’sgrew at double-digit rates. By 2002,Brazil had 38 million of fixed telephonylines installed and near 32 million ofmobile phones. The number of Internetaccounts, another record, reached morethan 14 million of residential subscribers.Telcos traditionally have been focusingon solutions to the Large Enterprise nichebut more and more telecoms are alsofocusing on a market representing 52%of Brazilian GDP, the SMEs.

According to the Yankee GroupResearch Institute, the Brazilian marketcan be classified into 4 groups of

enterprises:

❑ Large: 500 employees or more

❑ Medium: between 100 and 499employees

❑ Small: between 10 and 99 employees

❑ Micro: between 0 and 9 employees

The figure below depicts the Brazilianmarket according to this classification aswell as the products and services offeredby operators and IT service providers toeach segment.

The attractiveness of the SME market.

The following data give an idea of whythe SMEs market is so attractive totelecom operators

❑ Brazil has 1.9 million of companieswith less than 250 employees

❑ SME’s generate 52% of Brazil’s GDP

❑ 97% of the companies do not havehuman resources management solutions

❑ Only 1.7% have permanent trainingprogrammes for their employees

❑ The SMEs will duplicate the usage ofcorporate credit cards in 2003

❑ Source: Sebrae, IBGE, Credicard andIDC

It is important to note that despite thegreat number of Small and MediumEnterprises, only 10% have access tosophisticated services that are

commonplace in large enterprises. Theprofile of Small and Medium Enterprisesis completely different from that of Large

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SMALL BUSINESS DEVELOPMENT

Enterprises. SMEs’ needs are related tobasic solutions like voice facilities, tollfree access, stable Internet connections,faxes and e-mail communications. Thecurrent low penetration of these servicesshows this market has great potential but,in order to offer products and services tofit the needs of those companies, one hasto take some important facts into account.

Barriers to new technologies

Despite the market’s attractiveness, thereare some factors that help to create abarrier and challenge SMEs when thewish to adopt new technologies:

❑ Lack of knowledge about services:the majority of technological providers,IT suppliers and telecom operatorsusually do not have the expertise to offerproducts and services to SMEs that needhelp in the process of technologyadoption, since SMEs do not haveprofessionals dedicated exclusively tomanaging their information technologyand telecom infrastructure.

❑ Lack of expertise and training ofemployees to adopt and use newtechnologies

❑ Contract formats: Contracts are madeto fit the needs of large enterprises.SMEs need more flexibility because theyhave simple purchasing procedures andlow cost structures.

❑ Service and products features: ForSMEs, support by the supplier of newtechnologies is more valuable than thebrand or level of service.

Avoiding the high tech hype andfocusing on solutions

In general, SMEs are looking to investonly what is necessary to run theirbusinesses effectively. Investments intechnology to increase theircompetitiveness are focused on specificneeds.

Addressing these needs requirecustomized services and products. SMEsdo not buy technologies or wantsupertech products or services; they wantcost effective solutions to match theirbusiness.

Also, SMEs do not have huge budgets to

introduce new technologies and theyneed to resolve the financial hurdle, i.e.,they need cash flow to finance newprojects. In addition, they do not havespecific training programmes or strategicanalysis areas to provide impact analyses,to create business cases for increasedcompetitiveness or to introduce newtechnologies.

It is important to understand howapplications, content and access arerelated to solutions for SMEs.

Content and applications are the maincomponent of solutions. Applicationsused to be built to support the interactionof final users with content. Theinformation the final user sees can bedisplayed using any kind of terminal, forexample, via a computer monitor or amobile phone display. To connect theterminal with an application, we have touse a network that is connected throughgateways that adjust the presentationformat to the terminal format. Theintegration of these components isimportant to customize services forSMEs.

The figure below shows the keycomponents of a service solution and theneed for integration of content,application, markup language andgateways.

The gateways and the markup languageare the most important part of the processof fitting the interactions of anapplication to the user. In SMEs manyemployees and customers have littleexpertise in the use of technologies, andit is important to show applications andcontent using pictures and friendlygraphic interfaces. Because of the heavydemands of this sort of graphic interface,the connection between end user terminaland applications must use broadbandaccess.

The total solution cost is anotherimportant issue. The cost of the solutionsmust be acceptable to SMEs. Costreduction, scalability and flexibility areextremely important to these businesses.Scalability will depend upon theflexibility with which the solutions canbe customized for each cluster ofcustomers. In order to provide adequateprices for broadband access, telecomoperators have to leverage their current

network using ADSL (AsymmetricDigital Subscriber Line) for fixednetworks and wireless broadband access,and provide services with lowimplementation cost and providewidespread geographical accesses usingsuch solutions as VPN (Virtual PrivateNetworks) over IP networks.

Broadband Offerings to SMEs marketin Brazil

The three Brazilian fixed line incumbentoperators - Telefonica, Telemar andBrasil Telecom - are offering thebroadband services to SME’s.Telefonica, the first telco to deploysolutions to SMEs market, has beenacting in Sao Paulo offering broadbandaccess, leased lines and datacommunications to 1 million micro and150 thousand small and mediumenterprises. The three telcos have alsocreated special areas to deal with SMEsand are expanding their current portfolioto include Internet access, co-locationand hosting and, recently, VPN servicesusing their IP networks. Long distanceoperators - Embratel and Intelig - are alsoproviding solutions tailored for the SMEmarket. The new entrants GVT, Vesperand mobile operators are also followingthe same path.

Summary

It is widely recognized that SMEs (Smalland Medium sized Enterprises), are oneof the main forces in economic growthand job creation, not only in developedcountries but also in developing andemerging economies. However, despitethe importance of SMEs, only a smallportion, mostly in the developingcountries, have access to thesophisticated information andcommunication services that arecommonplace in large enterprises; thishas created a digital divide. The roll-outof broadband access can help bridge this'digital divide' between SMEs and largeorganizations and provide an opportunityfor growth. However, to address thismarket, it is imperative to map theSMEs’ real needs, support requirementsand cost perceptions. It will be essentialfor players aiming at winning in thismarket to design solutions that meet theSMEs’ financial needs.◆

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