SME Consulting Market pt.1: Analyzing Supply & Demand
Introduction
The old playbook for SMEs has been rewritten by structural changes in economy. For example, in the past, barriers to entry, economies of scale and the difficulties of accessing foreign markets led to domination of MNCs & conglomerates. Today, there are many new and proven avenues and technologies which provide SMEs with stable and cost effective ways to grow their businesses.
COVID-19 made Governments around the world realize that threats to SMEs are threats to economies and societies. Between Feb 2020 and Apr 2021, 70-80% of SMEs across 32 countries lost between 30-50% of their revenues. Yet Institutions, Governments and Companies, stepped up support for SMEs' financing, internationalization, digitalization, tech upgradation, skills building and more.(1)
Such factors are combining to create an environment where small (really) is beautiful: potentially ushering the era of the SME.
Executive Summary
The future of India, the world's largest SME market, holds promise with SMEs' anticipated growth in numbers, contribution to GDP, and job creation. But a recent chat with a school friend running an SME left me in distress. SMEs face several challenges and hesitate to seek external support. Let's probe:
what makes these co-exist with little overlap - a vast underserved 'blue ocean' demand base of SMEs and cut throat competitive 'red ocean' supply pool of consultants.
Its not often that one gets to do 'consulting work' on the consulting market! As it seems, evolution of consulting would need to focus on trust-building, leverage sector-specific expertise, foster long-term relationships, and ultimately aid SMEs in overcoming their unique challenges. In part 2, we'll probe the bold teams and innovations that are bridging this gap, including through AI.
Consulting in India: Some Market Size, Share & Growth statistics
TPCI reported in 2021, consulting services revenues saw double-digit growth in all sectors with an overall market growth of 15.2%, rebounding quickly from the pandemic-led crisis. Anand Dewan, Gr. CEO at BYLD points new growth areas to explore, "ESG is a case in point which is expected to grow at a CAGR of 25% between 2020 and 2025."
As of 2023, there are over 47,000 Indian consulting firms that offer a wide range of services, including IT, engineering, manufacturing, finance and healthcare consulting. There are also 7,000+ R&D institutions and laboratories supporting several domestic consulting firms directly or indirectly at a reasonable cost.(3)
Most of the ‘Big Five’ focus on the top 100 FTSE or S&P 500 companies. Ravi Raina, Director Grail Consulting Services noted, "...Big 4 consulting firms have 85-87% market share because of the resources they have. They are able to capture the projects and market. Smaller and medium-sized (consulting firms) do not have that kind of reach." What is the big 4/5/MBB approach? For 'helping SMEs thrive' McKinsey(1) touches:
digitalization, internationalization, decarbonization, talent acquisition topics and endorses government run one-on-one 'National Champion' programmes with rigorously selected few SMEs. But isn't every SME a champion in their own way?
Compared to mid- and large-caps, SMEs' situation, perception and perspective make their issues both different and more pronounced.
In 2022, serving EVP of Wadhwani Foundation, Samir Sathe noted, "Few (SME) consultants have been honest to acknowledge that the majority of evidence is mixed at best and counter-productive, at worst. Secondly, the consulting industry for SMEs itself is in its infancy, with most value adds splintered between tall promises with weak implementation and feel-good conversations and few knowing what it takes to deliver a thorough and full-scale transformation of MSMEs through a mentoring journey."(2)
Supply side perspective: in the Practicing Consultants shoes
TPCI, Insights Success and Partha Roy, Principal Consultant at Flipcarbon and Fractional CHRO note many challenges that Consultants encounter in delivering services to SMEs, including:
Those who are pioneers in SME consulting are placing big bets on innovative consulting models. For instance, Surat headquartered consulting company 'The Proxperts' announced expansion through two pivotal models: Online Consultation and Franchising. The Proxperts believe they are poised to create new avenues for local entrepreneurs in their mission of empowering MSMEs.(8)
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Demand side perspective: from Small & Medium Enterprises lens
Several studies connect the market gap in SME consulting services to weak demand from SMEs. Research by Wadhwani Foundation indicates that 68% of the SMEs face growth and demand challenges, but 3/4th of them would like consulting and mentoring support for efficiency-related problems.
"SMEs driven by the entrepreneurial drive... have a deep belief in their efficacy. Therefore, while growth is a dominant challenge, few seek the help of an outsider to solve growth problems."
Limited financial resources and a propensity for autonomy are few other reasons discouraging SMEs from using external support.(6)
SMEs also fear radical changes within the organization, disrupting the organizational ethos, which often they have built up from scratch.(9)
Further, the image SMEs project in their chosen marketplace is vital to attract the right customers. Finally, funding often becomes a major part of ensuring a business is successful. Thus, helping define and exploit an SME’s competitive advantages and access to resources is part of this new consulting paradigm. The key issues of SMEs are:
Traditional consulting approaches have been less effective. A usual criticism of management consulting is its tendency to focus on the operational performance of SMEs without entirely considering the context in which they operate.
Many consulting firms also have 'pet ERP systems' and simply go in search of clients willing to use it.
“SAP is the answer, now what was the question?”
But a robust and efficient operation is not about technology; it is firstly about process. Clients also complain of being allocated consultants that were “on the bench”, rather than the ones that were anticipated during contract negotiation.(5)
Trust, experience and expertise seem to be the keywords. The experience and expertise of support providers and the trust relationship built on a long-term basis with the SME make the real difference. Consultants who provide unique and creative solutions strictly linked to their commitment to gain SMEs’ trust and build strong ties, overcome the distrust and autonomy propensity of SMEs.
Looking forward to the future
India is the largest SME market in the world. We have close to 75 million SMEs and that is projected to grow to 95 million or more in the next few years with $2tn of GDP and 50mn jobs from SMEs by 2024. All organizations need some form of help and advice as they grow and develop.
Support providers are important and varied with, among others, government agencies, Chartered Accountants and CFAs, strategy boutiques, accelerators, market-making platforms, consulting agencies, coaches and trainers with hybrid classes, and on-demand functional professional specialists.
Most SMEs are usually able to orient quickly to changes, but they struggle to manage the resourcing issues surrounding change, simply due to lack of know-how and bandwidth. They are unlikely to gain sustainably from prescriptive methodologies of the management consulting industry meant for larger firms, and nor from putting the onus on government-run programmes' red tape.
Recruiting, retaining and retraining people are typically the problems SMEs face. Timely and adaptive injection of expertise can potentially help SMEs create wealth, employment and the value-addition needed. Having a trusted agency that can quickly provide the best people in a range of roles adds considerable value to any SME. EuropeanCEO article notes that:
“Modular providers” with a specific expertise on a limited basis are going to replace general “integrated solution shops”.
Support provided on a long-term basis, by building a trust relationship, and a deep specialization in the sector of activity of the SME matters to them. Successful consulting firms shall create long term mutually beneficial relationships, helping the CEOs of SMEs build capable and sustainable Champions, credible investment vehicles to pass on to the next generation.
Founder @THE PROXPERTS & @Crea8iveQ | Internationally Certified Trainer & Keynote Speaker | Strategic Business Coach | Regional Trainer @BNI Surat | Associate Director @Corporate Connections
9 个月Thank you Saahil Bhanot for considering the insights from THE PROXPERTS for the growth of SMEs. Your ability to identify the pain points of SME, highlights on expectations mismatch and guiding them for right path through various research is truly commendable. Looking forward to seeing the positive impact of your efforts.