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Indian Tech Smes Face Existential Crisis As Artificial Intelligence Revolution Changes Global Landscape
The Indian tech small and mid-sized (SME) industry is at a crossroads, facing an unprecedented challenge with the advent of artificial intelligence (AI). For decades, these firms have thrived on a low-cost delivery model that relies heavily on cost arbitrage, a strategy that has enabled them to compete in the global market. However, as AI continues to transform industries and disrupt traditional business models, Indian tech SMEs are being forced to rethink their entire survival playbook.
According to industry experts, this shift is unlike any previous technology wave that the country has witnessed. “The Indian tech SME industry has weathered many technology waves,” said Irshad Syed, partner at consultancy Slingshot. “But this AI wave questions the very basis of the predominant business model, which is based on cost arbitrage. Hence, this warrants a first principles approach.” This realization is prompting many SMEs to take a step back and reassess their strategies, investing heavily in research and development (R&D) to stay ahead of the curve.
The impact of AI on Indian tech SMEs cannot be overstated. According to Nasscom’s latest report, SMEs are expected to contribute 6-7% of India’s technology sector revenues by FY25, a whopping $280 billion. This represents a significant increase from previous estimates and underscores the potential for these firms to play a major role in driving India’s technological growth.
However, the journey ahead will not be easy. Indian tech SMEs face intense competition from larger players who have deeper pockets and more resources. Moreover, AI requires significant investments in R&D, training, and talent acquisition, which can be a barrier for smaller firms. As such, many are turning to partnerships and collaborations with larger companies or venture capitalists (VCs) to access the necessary funding and expertise.
One of the most significant challenges facing Indian tech SMEs is adapting their business models to incorporate AI-driven services. This requires a fundamental shift in how they approach product development, marketing, and customer engagement. “The traditional model of creating low-cost software solutions that are easily scalable has been disrupted by the emergence of AI-powered platforms,” said Rohan Bhattacharya, CEO of Bengaluru-based tech firm, Eclat Solutions. “To stay relevant, we need to pivot towards more value-added services that leverage AI and machine learning (ML) capabilities.”
Another critical aspect is talent acquisition and development. The AI wave requires specialized skills in areas like ML, natural language processing (NLP), computer vision, and data science. However, the Indian tech job market is facing a severe shortage of skilled professionals with these expertise. As such, many SMEs are investing heavily in training and upskilling their existing employees to stay competitive.
The government has taken notice of the changing landscape and has launched initiatives to support Indian tech SMEs. The Prime Minister’s Office (PMO) has set up a dedicated cell to promote innovation and entrepreneurship among SMEs. Additionally, the government has introduced several policies aimed at encouraging R&D investments in the sector, such as the Patent Amendment Act, 2019.
To overcome these hurdles, industry experts recommend that Indian tech SMEs adopt a more iterative approach to R&D, focusing on incremental innovation rather than trying to leapfrog to AI-powered solutions. “We need to encourage experimentation, prototyping, and testing of new ideas,” said Syed. “This will help us identify the right opportunities for growth and development.”
Indian tech SMEs have already begun to ride the AI wave. For instance, Bengaluru-based Saurabh Agarwal-founded company, Appy Pie, has developed an AI-powered platform that enables non-technical users to build web and mobile apps without coding knowledge. Similarly, Delhi-based firm, Fintech2U, offers a range of AI-driven services for small and medium-sized businesses in the fintech space.
As India’s technology sector continues to grow, it is crucial that SMEs play a significant role in driving this growth. With their innovative approach and ability to deliver cost-effective solutions, Indian tech SMEs have the potential to be major winners in the AI era. The government’s initiatives and industry experts’ recommendations offer a promising roadmap for these firms to navigate the challenges posed by AI and emerge as leaders in the global technological landscape.