Trends for SMEs to watch in 2023

As 2022 draws to a close, it’s time for reflection and to look ahead. Like all others in the community, the SME sector is hoping for a year bereft of disruptions, but full of stability and growth.

Let’s take a look at the trends for SMEs this year.

Industry Outlook

A breakout 2023 is projected for several sectors such as green energy investments, digital inclusion, electric mobility, and for the Indian manufacturing sector.

Green Energy: With the government committed to reaching net zero emission, it is encouraging initiatives that would meet its target of generating 500 gita watts (GW) of capacity through non-fossil fuels and generating 50% of the country’s energy requirements by renewable sources by 2030. Solar, hydro, and wind energy-focused startups and SMEs stand to benefit from the massive uptick in demand.

Digital Inclusion: A wave started during the pandemic, digital inclusion shows no sign of abating. Digital transformation is now a way of life for every business. With AI, data analytics, data science, and big data taking the front seat and customer experience being the top priority, digital inclusion is here to stay. 5G launch has been announced, and telecom operators and network infrastructure providers are ramping up for a nationwide rollout. A successful rollout of this promises to change the landscape significantly, with increased internet penetration and better bandwidth leading to new opportunities for growth in ringing in the next wave of consumer, ecommerce, and payments-focused SMEs.

E-Mobility: The Government of India's net zero emission target by 2070 requires the phasing-off of all Internal Combustion Engine (ICE) vehicles by then. This requires encouraging and producing alternative fuel vehicles, of which EVs are the frontrunners. The government’s efforts are further complemented by state government initiatives to increase EV production and sales. The government will continue to focus on this in 2023. 

Manufacturing Demand: China has long been considered the “World’s Factory” due to its central role in global manufacturing and supply chains, offering low labour and production costs. However, the country’s zero-COVID policy has resulted in extended industrial shutdowns and supply chain disruptions, forcing multinational companies to diversify into other countries to mitigate the risk of relying solely on China for production. Companies like Apple, Samsung, and TSMC have already begun committing billions in funding to contract manufacture in India, which could result in a ripple effect for manufacturing SMEs and startups.

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Investor Outlook

According to a recent industry report, Indian startups received a record investment of $38 billion in 2021, with 84% of founders reporting a positive experience during the funding process. However, a funding winter seems to have set in as we approach. Indian startups should not be too perturbed as we are well-positioned to weather this potential downturn. Many top-tier funds have raised record funding this year, indicating that intense investment cycles may continue. Founders seeking funding should focus on profitability, reduce low-priority expenditures, carefully monitor high-priority costs, and adopt a more mindful approach to ongoing operational costs. It is also important to remember that a market downturn should not hinder expansion plans.

Government Support

As the 2023 budget approaches, the government has been engaged in extensive discussions to develop policies and allocate funding for various sectors that could benefit startups in the coming year. The industry has requested a range of concessions, including reduced Goods and Services Taxes (GST) for certain services and revised TDS rates for sectors such as ecommerce. There have also been reports that the government is considering launching funds offering low-interest loans and tax incentives to agritech startups in the upcoming budget. 

In particular, the government has encouraged startups to explore emerging opportunities in climate change and agriculture. The startup ecosystem has been supported over the last few years by initiatives such as production-linked incentives and the GENESIS scheme, which aims to promote over 10,000 startups in the next six years. The new budget could bring many changes crucial in supporting startups and SMEs, especially those feeling the pinch of the funding winter.

Digital Transformation

Although small businesses have made progress in adopting digital technologies and products, 57% of small business owners believe they still need to upgrade their IT infrastructure to streamline their operations. Implementing tech solutions can add efficiency to processes and scale the business’s ability to achieve its goals. Investments can vary from legacy businesses looking to provide a digital experience for customers to digital-only companies seeking to improve their technology stack to increase efficiency and reduce costs.

Investments in Sustainability

According to a recent survey conducted by QuickBooks, small businesses are committed to positively impact the environment. Of those surveyed, 95% believe that sustainability is vital for the economy's future, and more than 60% reported that they are already taking steps to reduce their environmental impact. These efforts often include recycling, investing in renewable materials, and sourcing materials locally. Businesses are not the only ones focused on sustainability. Based on a study from Deloitte, the number of customers opting for sustainable lifestyles has seen a sharp increase in 2022. While sustainability has been the talk for over a decade, 2023 is shaping to be the year of action.

Hiring and Retention

In 2023, the challenge of finding and retaining skilled talent will continue, particularly due to the ongoing trend of widespread resignations. But this will be more difficult for small businesses, as hiring and training costs are the highest. Therefore, it will be crucial for these companies to focus on engaging and motivating their employees to stay. With smaller budgets than larger companies, small and medium-sized businesses (SMBs) will need to consider alternative strategies beyond traditional benefits to attract talent. These may include opportunities for career advancement, work-life balance, health and wellness support, mentorship, and a flexible, hybrid workplace environment.

Conclusion

In 2023, small businesses may face additional economic challenges, and hence need to be flexible and adaptable to thrive. Maintaining strong relationships can be crucial, especially during challenging times. It is essential to keep communication lines open with staff and customers to provide updates on the situation and how it is being managed.