Tuesday , January 01, 2013

'Outsourcing will improve the credit worthiness of SMEs'

Publication:Business Standard, Edition:Chandigarh, Page No:14, Location:Top-Left Size(sq.cms): 240

'Outsourcing will improve the

credit worthiness of SMEs'
Small and medium-sized enterprises in India suffer multiple handicaps - poor access to
credit, inadequate managerial resources, a low technology base, lack of marketing
expertise and a complex regulatory regime. CRISIL SME Ratings Director YOGESH DIXIT
explains to Rajiv Shirali why SMEs would benefit immensely by outsourcing their non-
core functions. Edited excerpts:
cer ( CFO) a more economical
solution than having a salaried CFO
keepi ng an eye on cash fl ows. An
external CFO can focus on complex
complianceprocedures and give key
i nput s t o dr i ve accurate financial
i nf or mat i on t o s uppor t bus i nes s
decisions.
It is argued that cloud-based solutions
can provide SMEs IT at a low cost.
Aren't Indian SMEs yet to be convinced
about the all-roundbenefitsofadopt-
ing IT?
I don't think that's necessarily true. There is
awarenessamongsmallbusinesses that IT is a
critical business enabler and differentiator. We
don't see companies shying away from adopting
technology. But, as with other types of
outsourcing, IT outsourcing is a new concept
here and will take time to gain ground. It is in their
interest to do so for a number of reasons.
Enterprise technology is a fast-changing
areaanditmaybedifficultforsmaller
enterprises to keep up with the latest
developments.Secondly,insomesectors, it is
riskytomakelargeITinvestments, since newer
technologies tend to make the previous ones
obsolete at an alarming rate. Thirdly, outsourcing
helps save costs, as companies don't have to
spendontheirowndatacentres,networks and
software. Our analysis shows that by adopting
cloud-based solutions, an enterprise can cut its
IT expenses by around 40 per cent.
Creditworthiness and access to credit are
among the biggest problems of SMEs. What
impact can an outsourcing strategy have on
these issues?
An organisation's creditworthiness depends on
its business performing capability and financial
s t r e ngt h. By o u t s o u r c i n g t i me-
c o n s u m i n g a n d e x p e n s i v e
pr oces s es and f unct i ons , t he t op
management of an ent er pr i se can
cr eat e mor e bandwi dt h t o f ocus
on t hi ngs t hat r eal l y mat t er and
make t he or gani sat i on mor e cost-
e f f i c i e nt , be t t e r-o r g a n i s e d a n d
r esul t-or i ent ed. Al l t hese pl ay an
i mp o r t a n t r o l e i n i mp r o v i n g
b u s i n e s s p e r f o r m a n c e a n d
f i nanci al st r engt h key f act or s
c o n s i d e r e d b y l e n d e r s i n
d e t e r mi n i n g a n o r g a n i s a t i on' s
credi t wort hi ness. In which operational areas can an
outsourcing strategy be expected to
bring SMEs the greatest benefits?
ThefinanceandHRfunctionsinmid-
sized companies devote as much as 87
Theoretically, outsourcing enables
management to stay focused on core
functions. But, given the disadvantages
that Indian SMEs suffer from, how
practicable is it?
Running an organisation in India is a
daunting task, considering the complex
regulatory and compliance regime or
creakyinfrastructure.Insuchanenvi-
ronment, outsourcing is indeed the
mostpracticalsolutionforSMEs,pro-
vi ded t he ent repreneur i s adept at
negot i a t i n g we l l wi t h s e r v i c e
pr ovi der s f or f avour abl e ser vi ce
chargesandconditions of contract. It
i s s i mpl y not pos s i bl e f or t he
management to spread itself thin on a
whole range of issues.
SMEs in India are thought to be opaque
in their functioning. Can outsourcing
be an answer to this?
I am convinced this is changing fast
and my convi ct i on i s based on my
interact i o n s w i t h s e v e r a l
entrepreneurs and bankers across the
count ry. The change i s al so bei ng
drivenbyatightercompliance regime
(particularly on the taxation side) and
t he desi r e t o br eak f r ee f r om t he
complexwebofopaquecontrolstruc-
tures. People have started believing
that wealth can be generated while still
being compliant, as the opportunities in
most sectors look attractive
owing to strong latent demand.
Anot her fact or dri vi ng t hi s
c h a n g e i s t h e y o u n g e r
generation of business owners.
Al t hough I woul d not cal l
outsourcing a tool that will
usherintransparency, it will
de f i ni t e l y he l p c r e a t e a n
e n v i r o n me n t f o r b e t ter
businessandcorporategovernance
and drive openness. In the longer term,
things may start looking more direct and
professional.
per cent of their time in processing
routine transactions. Outsourcing of
account i ng back-office, personnel
mana g e m e n t , t e c h n o l o g y
development, helpdesk, etc.
are some areas that enterprises
could focus on outsourcing to
thirdparties. Many SMEs
nowoutsource HR functions
l i k e h i r i ng, t r a i ni ng,
managi ng t he performance
ma na ge me nt s ys t e m a nd
payr ol l pr ocessi ng. Thi s
not only frees up their internal HR
t e a m' s s t r a t e g i c b a n d wi d t h , i t
gi ves t hem access t o t he st at e-o f-
t h e-a r t s y s t e ms a n d p r o c e s s e s
us ed by l ar ge cor por at i ons at an
affordable price.
SMEs are al so i ncreasi ngl y
l ooki ng at havi ng an out sourced
chief financial offi-