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The ongoing global economic crisis, which began from the financial markets, has spared no segment of the Indian economy, be it the biggest conglomerates and corporate establishments or the small and medium businesses (SMBs). While the large corporates have been very vocal about their liquidity concerns and are collectively pursuing their demands with financial institutions, it is our countrys SMB sector which has had to bear the brunt silently. With a size of more than 7.6 mn businesses, it was this sector that was at one point taking the countrys economic prowess to newer highs. It is indeed sad to see that today the sector is struggling to find its feet.

In order to survive in these tough times, all companies are exploring ways to increase competitiveness and productivity. According to a recent survey, more than two thirds of SMBs believe that bettering the local competition is their greatest challenge, followed by increasing customer satisfaction and loyalty, and improving employee productivity. Most Indian SMBs have realized the need for IT solutions to help address their current shortfalls, but budget constraints coupled with high interest rates of loans are proving to be major obstacles. These findings are also corroborated in AMIs latest quarterly tracking study. According to this study, 40% of Indian SMBs seeking to leverage technology to reduce costs, make processes more efficient, and improve employee productivity. It is interesting to note that despite the slowdown, the total annual technology spend by SMBs stands at $5.8 bn.

Filling the Gaps
Even prior to the onset of recessionary conditions, many SMBs found it difficult to bridge the gap between technology requirements and budget availability. The cost limitation has only worsened in the wake of the economic slowdown. Leasing options could provide the answer and may prove to be a win-win formula for both SMBs and technology providers.

Any comprehensive technology adoption or upgrade requires large monetary commitments. In a scenario characterized by limited budgets, SMBs have been studied and found to invest in point solutions. While these solutions may solve the SMBs immediate needs, sooner or later these individual products, which are often not fully integrated or compatible with one another, begin to affect productivity. Upgrades and changes of technology are also crucial requirements as the company grows and market dynamics change. It is thereby important to explore the leasing and financing offerings that allow technology usage by SMBs without the need for a capital budget allocation.

Technology providers, targeting the SMB market, should develop and market financially-friendly and easy-to-understand lease and loan solutions to aid in the development and growth of business.

Technology providers can create innovative, flexible financing solutions in differing forms. These may be created to alleviate cash flow issues, allowing the SMB to spread the cost of purchase over a number of years, or to open up flexible repayment terms, so that it can match its costs to the technology benefits over time. Operating leases, offered by technology providers, capital expenditures to turn into operating expenditures over time. Flexible financing could easily be a boon for the SMB sector as technology providers have a sound understanding of customer requirements and are sometimes able to customize their offerings as per customer requirements, or even design products and solutions from the ground-up.

Counting on Leasing
Leasing provides the option to reduce upfront investment by focusing on a usage model, where the costs of equipments are matched to business revenues. This allows businesses to spread the cost of equipment and services over several years, thereby freeing cash for alternative growth opportunities. At the same time, businesses can avoid technology obsolescence and opt for flexible upgrade options being provided by technology players.

A Gartner Dataquest report titled Will SMBs Ever See the Value of Leasing IT? outlined the benefits that leasing can offer to SMBs. It stated that leasing provides an alternative means of funding that preserves capital. Thus, SMBs can use existing sources of capital funding to grow their businesses. Further, leasing allows better cash flow management by converting payments into predictable, regular periodic expenditures. It also provides flexibility to refresh technology when needed, allowing SMBs that want to change or replace their IT assets on a specific and systematic basis. Additionally, it allows an SMB to implement some form of IT hardware and software standards, and to rethink, streamline, and standardize organizational processes for acquiring, deploying, and retiring IT assets.

Added to that, often as a by-product, TCO is reduced as IT hardware and software standards are introduced, and SMBs begin to proactively plan lifecycles for IT assets. Thus, SMBs are often able to minimize ongoing support costs, improve productivity and maximize the usefulness of their assets. The benefits of leasing and financing, however, are not necessarily just for SMBs.

Technology providers have a significant role to play in providing leasing solutions for SMBs. For their part, they stand to gain from the increased value that customers will associate with their brand. By providing a solid business case and road map for the introduction of new technologies (or for the refreshing of aging equipment), technology providers can effect a huge difference in buying decisions. They sometimes bring the added incentive of being able to offer interest rates that are at or below market rates and other incentives as they utilize their existing funds.

Among the prominent technology providers offering leasing for SMBs in India are Cisco, IBM, and HP. In the near future, we can expect to see financial options such as leasing becoming a key deciding factor for SMBs in choosing one technology solution over another.

Cisco Capital functions as a business enabler and a consultant that can help SMBs acquire the technology they need to help drive productivity, profitability, and competitive advantage. Most importantly, we ensure that the SMB gains access to this technology when it needs it. Through Cisco Capital, an SMB can get financed for not only Cisco equipments, but also third-party solutions, and also get the soft costs associated with integration and support services. In addition, Cisco capitals creative leasing plans include incentives that make it easy for a company to upgrade its existing equipment and afford the very latest advances in networking and communications technology. Finally, Cisco has been the pioneer in the area of business-to-business e-commerce over the Internet. Hence, Cisco Capital has developed the ability for SMBs to conduct most of their online transactions on Ciscos website. This is done by submitting all the requisite financial information to enable Cisco to complete credit underwriting process, etc.

Under recessionary market conditions, while adequate spending on technology is indeed the need of the hour, companies need to constantly question themselves if they are spending wisely. Leveraging financial instruments, such as customized leasing, can provide a one-stop solution to their technological needs while at the same time freeing capital for other business opportunities. With a proper technology road map in place, SMBs can sustain their growth trajectories and deal with the economic crunch.

Gautam Munish
The author is vice president, Cisco Capital India maildqindia@cybermedia.co.in

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