WWW 2007 / Poster Paper Topic: Developing Regions Collaborative ICT for Indian Business Clusters Soumya Roy Motorola India Research Labs Bangalore, India Shantanu Biswas Motorola India Research Labs Bangalore, India roysoumya@gmail.com shantanu.biswas@gmail.com ABSTRACT Indian business clusters have contributed immensely to the country's industrial output, p overty alleviation and employment generation. However, with recent globalization these clusters can loose out to international comp etitors if they do not continuously innovate and take advantage of the new opp ortunities that are available through economic lib eralization. In this pap er, we discuss how information and communication technologies (ICT) can help in improving the productivity and growth of these clusters. Categories and Sub ject Descriptors K.4.3 [Computers and Society]: Organizational Impact ­ Automation, Computer supported Col laborative work, Employment General Terms Management, Design, Economics, Human Factors Keywords SME clusters, India, Emerging markets, ICT No of Clusters No Of Units Manufactured Exp orts from India 2042 1.5 million (avg: 700/cluster) 60% Table 1: Impact of SME clusters on Indian Economy 2. INDIAN CLUSTERS: CURRENT STATUS Clustering is a known phenomenon in Indian context and has played a significant role in the nation's industrial growth and diversification. In terms of employment generation, the business clusters are just second to agriculture. The impact of SME clusters on India's economy has b een tremendous as shown in Table 2. One very illustrative cluster [1] is Tiruppur cluster of Tamil Nadu. This cluster has around 7000 SMEs and contribute to 80% of the country's knitwear exp orts. Nevertheless, despite these striking figures, most Indian clusters are not p erforming to their full p otential [3]. Based on case studies of many clusters, main reason for underp erformance is lack of co-op eration among the cluster-actors. Multiple factors have led to this problem: (a) informal communication (lack of formal and legal framework for joint op erations leads to mistrust) (b) lack of understanding of the b enefits of simultaneous comp etition and co-op eration (c) lack of knowledge sharing (d) fear of loosing out in comp etition (e) lack of effort in developing collective goods and common activities. Only recently, through the intervention of external supp ort institutions like UNIDO, SIDBI, SIDO etc, there have b een strong cluster-development initiatives to forge strong intra-cluster network and establish external network linkages. ICT can significantly complement clustergrowth initiatives by formalizing cluster op erations and reducing transaction costs for common activities. However, till now, not much attention has b een paid to understand the p otential utility of ICT in achieving these. Therefore, we feel that this is the opp ortune moment to take a look at the p otential merits of ICT adoption and investigate whether a fresh approach is needed to build solutions sp ecific for developing regions like India. ICT adoption by the Indian clusters is extremely low. The industry estimates that the ICT adoption among small business in India is less than 30%, and if the IT firms in the SME segment are not considered, the numb er will b e significantly less. For example, in Karnataka, the IT p enetration is less than 1% among the 700,000 small scale manufacturing firms. The main reasons for low adoption are: 1. INTRODUCTION Clustering of small firms is much sought-after in promoting the growth of MSMEs 1 in developing and develop ed world [1]. MSMEs have employees ranging from 5 to ab out 500. Individual firms b ecause of small size cannot achieve economies of scale in production, advertising and sales, which are p ossible for large enterprises. However, the individual firms in a cluster can succeed by closely collab orating with other small firms of the same industrial sector and located in the same geographical area. At the cluster level, the enterprises can share orders and sub contract parts of the production where needs cannot b e supp orted individually. The biggest success stories of clusters have b een from Italy [2], where the small firms are leading exp orters of high-quality goods. In developing countries like India, the barriers of entry for large firms is high b ecause of several extraneous factors like limited resources, government p olicies, etc. Therefore, the clusters of small firms can b e the p erfect engines for industrial growth. 1 MSME: Micro, Small and Medium Scale Enterprises. According to Government of India, micro enterprises have investment up to $22K, small scale enterprises have investment of $22K-$220K, while the medium-scale enterprises have investment of $220K-$2.2 million. Copyright is held by the author/owner(s). WWW 2007, May 8­12, 2007, Banff, Alberta, Canada. ACM 978-1-59593-654-7/07/0005. 1115 WWW 2007 / Poster Paper 1. Reluctance to adopt technology : The first-generation small firm owners are not technology savvy and are extremely apprehensive to adopt new technology. 2. High cost of enterprise solutions and unsuitability for Indian markets : Current IT solutions from multi-national vendors are mainly stripp ed down versions of the solutions of the develop ed world and do not satisfy the sp ecific requirements of Indian business. 3. Low level of telecom density, especial ly in rural and semi-urban areas : Many clusters are located in semi-urban areas or rural areas and therefore, cannot avail the b enefits that communication can bring in. The telecom op erators do not find it profitable to run business in these areas. 4. Lack of funds : The small firms of India have significantly less funds compared to their counterparts of the western world and therefore, they cannot adopt any readily-available solution used in the develop ed nations. Topic: Developing Regions of the cluster immensely. There is a need for ubiquitous connectivity and formal integration of op erations to improve the supply chain op erations of the cluster. IT solutions like collab orative commerce can help the enterprises in the cluster to integrate processes and form an effective digital ecosystem [4]. The challenge is to build a cost-effective ICT solution, which can b e widely affordable and easily deployable within the cluster. Connectivity needs can b e supp orted by building an op erator-less collab orative network (Fig. 2), in which the cost of deployment can b e largely reduced by sharing exp ensive resources like sp ectrum, networking equipments, computing resources, storage, etc. Enabling technologies should also facilitate distributed management, decentralized ownership and chaotic deployments. SSE: Small Scale Enterprise MSE: Medium Scale Enterprise MR: Mesh Router client 4 MSE3 client 3 MR2 MR3 SSE 1 client 2 MSE4 SSE2 MSE2 SSE3 3. BELLARY CLUSTER: A CASE STUDY MR1 To understand the cluster requirements, we did a field study of Bellary Jeans cluster, located in north of Karnataka, India. Bellary consists of 800 small firms manufacturing jeans, which cater to the lower-middle market segment of South India. The merchant manufacturers buy fabric from local and Mumbai dealers, divide the jeans-making process into eight to ten op erations (e.g., sewing, washing, etc.) with each op eration b eing outsourced to small firms, and package the final products for sale. Fig. 1 describ es the supply chain of the Bellary Jeans cluster [1]. This has b een traditionally a very conservative cluster and suffers from multiple deficiencies: (a) lack of strong customer-supplier relationship (b) low quality (c) lack of planning, (d) high lead time (e) informal practices. However, recently the business owners, due to the opp ortunities of doing business with established garment retailers and increasing comp etition from China, Bangladesh, etc, feel the need to address these issues through co-op eration, public-private participation and formal linkages . MR4 INTERNET client 5 SSE4 client 6 MSE1 client 1 Figure 2: Operator-less Collaborative Network 4. CONCLUSION Here, we have brought into focus the imp ortance of providing ICT solutions to the Indian business clusters. Currently, there exists a digital divide b etween the small firms of India and corresp onding firms of the western world. Costeffective customized solutions are needed to suit the sp ecific needs of small firms in these clusters. Building such solutions needs knowledge from several disciplines like communications, networking, economics, social science and electronic commerce. 5. ACKNOWLEDGEMENTS We thank our colleague Sarita Seshagiri for her help during the field study. [1] United nations industrial development organization (unido). In www.smeclusters.org. [2] P. Bianchi, L. M. Miller, and S. Bertini. The italian sme exp erience and p ossible lessons for emerging countries. In Executive Summary, UNIDO, March 1997. [3] T. Sarkar. (Editor). Working together works: cluster case studies. Foundation for MSME Clusters, New Delhi, India, 2006. [4] A. Lavrin and M. Zelkoi. Knowledge Sharing in digital ecosystems for small and medium enterprises. In ISCC, Sardinia, Italy, June 2006. 6. REFERENCES Figure 1: Supply Chain at Bellary Jeans Cluster We also found that the usage of computer is very limited and the solutions used are only stand-alone accounting software. At present, the orders are procured informally and in an ad-hoc manner. This affects the productivity and growth 1116