Transforming Opportunities for SMEs in India

Executive Summary
The entire e-commerce ecosystem is being enhanced by the Open Network for Digital Commerce
(ONDC), which offers great potential prospects for small and medium-sized enterprises (SMEs) in
India. This case assesses how ONDC is going to contribute to the change in the face of digital
commerce and what it is going to mean for SMEs. It analyzes the potential effect of this
decentralization on the market strategies of SMEs, their innovation potential, and the wider Indian
economy. Because ONDC is a developing concept, it will also be one of the main issues for the
different e-commerce stakeholders moving toward the growing situation of SMEs.

Introduction
The Indian e-commerce market is dominated by a few, large corporations, which have ample
resources in their hands, hence hampering the activities of SMEs. With the ONDC, which is being
tested at the moment, we are hoping to get rid of barriers to accessing digital commerce and
consumers. ONDC has a chance to create business models and encourage the creation of small
companies by enabling SMEs to access a massive customer base without the hegemony of large e-
commerce firms.

This case study studies the barriers and constraints of SMEs working within the ONDC, the challenges
and positives of working within the ONDC, and the relevant consequences of that framework for the
economies of India as an entire.

Reshaping the E-commerce Landscape

The ONDC model breaks the barriers present in the e-commerce model and gives SMEs the freedom
to serve customers through any number of buyer-facing apps. As opposed to traditional platforms,
with control and restricted realms in the ecosystem, the decentralized structure of ONDC offers more
space for SME operation. That’s why in this case businesses from different fields can reach broader
consumer bases without the need for a middleman to reach out to a larger mass.
With the growth of ONDC, the promise of a change in the e-commerce dynamics is obvious. ONDC
makes it easy to access logistics, payments, and marketing; this creates competition and creativity. At
its best, the democratization of digital commerce may help create a level playing field for SMEs.
Opportunities for SMEs to Innovate
The potential for ONDC to offer market coverage to deprived SMEs is perhaps the most encouraging
aspect. Conventional e-commerce systems pose many challenges and most SMEs cannot simply
establish a connection with clients that are scattered outside their geographical boundaries. ONDC
helps micro enterprises feature their products to a national and international audience on multiple
sites. By allowing SMEs to explore new markets and enhancing growth such an opportunity can
occur.

Example: Varanasi is home to a small handicraft business that is one of the few producers of
traditional Banarasi silk sarees, catering to a niche yet plausible market. This business was previously
limited to local customers, but thanks to ONDC it has been able to spread its wings to go online and
sell its product to international customers. This way, the business saw a rise in its clientele many
times over and its revenue soared over 150% over the first year of supporting ONDC, indicating just
how the digital channels can accelerate SME growth.

Fostering Collaboration and Ecosystem Development

The ecosystem that ONDC encourages is between the SMEs, service providers, and other
stakeholders and this should encourage innovation and sharing of knowledge. For instance, the
cooperative model used in the Karnataka Coorg region is how small coffee producers get together to
register a collective brand. Through marketing and logistics pooling they could compete with the
bigger brands. ONDC is generating similar collaborations in which SMEs can build up collective
market positions.

Case Study: Over 50 small coffee producers of the Coorgi Coffee Collective have increased their
market presence via branding and joint marketing initiatives. Combining their efforts in this way gave
them access to both domestic and overseas markets and the revenue grew by a steady 30% year on
year since joining the cooperative. The success shows the strength of collective branding and co-
operative strategy to improve SME competitiveness.
Challenges and Limitations for SMEs on ONDC
ONDC certainly presents opportunities but also challenges itself. To harness the platform's potential,
SMEs must navigate several hurdles:

Fragmentation result of Decentralization

ONDC’s decentralized manner could result in fragmentation, making the customer experience
complicated. So, they might find it difficult to have so many partnerships and be sure about a
seamless experience with different service providers. While it separates service integrations, unlike
traditional e-commerce platforms, on ONDC, SMEs will need to keep liaising between different
logistics and payment systems.

Example: So, let’s take a small grocery store in Maharashtra that has joined ONDC. This Application
will need to deal with relationships with multiple delivery service providers, payment gateways, and
several marketing platforms. If a customer is not delivered on time, or if payment processing goes
wrong, a customer can make the grocery store look bad. This fragmentation of customer experience
is another point authenticating the requirement for smooth operational management.

Complexity of Digital Tools

ONDC's digital tools, however, may prove daunting for many SMEs, particularly those in the throes of
moving from traditional models. Coming to terms with SEO, analytics, and site marketing methods
can be treacherous. However, urban SMEs may be more readily adapted, whilst for those in the rural
sector with limited technical experience significant obstacles exist.

Case Study: Yet rural Uttar Pradesh’s Sanjivani Organic Farms produces some of the best organic
vegetables in India but lacks the knowledge of digital marketing to establish a presence online.
Although the organic farm has a high demand for produce, its inability to market its produce
reasonably online deprives it of opportunities to earn money to the fullest extent. This shows the
need for tailored training programs to give power to SMEs concerning the use of digital tools.

Digital Literacy and Adoption Gaps

SMEs in rural areas particularly face a big digital literacy hurdle. Most small businesses do not
possess the needed knowledge and capabilities to take advantage of digital tools efficiently. Just like
joining ONDC, SMEs need to be equipped to use the different features of this platform.

Example: The Digital Saksharta Abhiyan aim of the government is to improve digital literacy in rural
India. That's achieved through training and resources that allow small business owners and their
employees to gain the skills needed to harness the power of digital tools. Case studies corroborate
the fact that post-training the participants report business revenues as high as 40%.

Customer Service and Brand Identity Challenges

A dilution of brand identity for SMEs may be possible through the ONDC framework. Having your
product listed across multiple buyer-facing platforms provides more exposure but comes with
different branding and customer experience. To increase customer recognition, SMES must maintain
a cohesive brand identity.

Example: Furthermore, when ecommerce products are presented differently, for instance, the
organic skincare products sold by an SME, can generate problems. This causes customers to be
confused by variations in the descriptions, images, and prices as well. Therefore, brand integrity stays
at stake without clearly defined guidelines for product representation for a particular brand from one
platform to the other.

Also, individual businesses are put in charge of customer service, and can put a strain on already
stretched resources, in terms of logistics and payments passing through 3rd party providers.
Customer complaints and inquiries are damaging to customer trust and loyalty from SMEs.

Risk of Large Corporations Dominating the Platform

Although ONDC was designed to create a playing field, SMEs may get themselves trampled over by
large corporations. The bigger players can afford to pay for more advanced marketing logistics and
data analytics, which gives them an advantage over ONDC.

Example: Amazon India’s dominance in this arena is a case in point of risk. Since the company has
the market position it has extensive resources which it leverages to keep the competition as small
players to limit their efficiency at keeping pace with the company. This potential leaves the field open
for other corporations to overtake the SMEs, which poses a huge question as to the possibility of the
platform fulfilling its purpose.

Addressing Competitive Disparities

Risk mitigation will require policymakers and industry leaders to provide ONDC as an accessible and
beneficial medium for SMEs. Policies that promote fair competition (for instance, confronting by
limiting the market share of big corporations or motivating an SME to take on digital tools) will have
to be implemented. In addition, a culture of SME collaboration can give SMEs the power to compete
with the bigger players.
Opportunities for SMEs on ONDC
With ONDC, new innovations among the SMEs are likely to take place. This open framework enables
businesses to build customized solutions appropriate to their needs. SMEs can run experiments on
new business models, novelty marketing, and collaborations with service providers in creating new
customer experiences.

Example: The subscription box of unique handmade jewellery comes supplied by a local artisan in
Jaipur. Through this use of ONDC to touch artisanal product users, the business can explore beyond
traditional sales channels. Such flexibility enables SMEs to respond speedily to the ongoing
fluctuating customer needs as well as to enhance uniqueness in a competitive marketplace.

Leveraging Digital Marketing and E-business Tools

If SMEs want to do well on ONDC they need to spend money on digital marketing and e-business
tools. With more businesses competing on the net, there is going to be a huge advantage for brands
that utilize efficient online marketing techniques.

Key Strategies

• Personalized Marketing: ONDC provides SMEs with a digital marketing platform to develop
highly targeted campaigns that connect with their brand evangelists and make them regular
purchasers.

• SEO and Marketplace Optimization: With more and more competition in the market, you
also need to optimize the product listing so that it stands out for search results. To improve
visibility and increase conversion rates, SMEs should concentrate on keywords, high-quality
images, and detailed descriptions.

Case Study: One of the startups that we frequently talk about is Chumbak, a small business that sells
quirky souvenirs online, and it shows us how crucial effective SEO strategies are. A product
description and targeted keyword optimization were invested in by Chumbak initially for organic
traffic. The visibility gains and the sales and brand awareness that came from this strategy were
enormous. Gaining lessons from Chumbak's experience, SMEs can prioritize SEO efforts and also use
ONDC’s capabilities.
• Data-Driven Decision Making: With ONDC, SMEs can track customer behavior, sales
performance, and marketing effectiveness via its analytics tools. Companies can use data
analysis to give them a basis for making decisions on pricing, product offerings, and
promotional strategies.

Example: Data analytics were leveraged by Bamboo India, a startup shipping bamboo toothbrush, to
figure out what customers wanted in one. Bamboo India increased their sales by 200% in a year by
focusing on this popular product and extending their offerings to include additional bamboo-based
items. A major point to be made here is that data-driven decisions are made to deliver more and
tailor marketing strategies to meet customer needs.

Access to Financial Support and Resources

This is the one factor in ONDC’s structure that is open for SMEs to access the various financial
support mechanisms. SMEs have the opportunity to explore the funding opportunities, grants, and
affordable loans they have available, through partnerships with financial institutions, for digital
transformation initiatives.

Example: ONDC has worked with banks and financial technology companies to set up special loan
programs for SMEs that are part of the network. The idea is that these loans are meant for digital
marketing, inventory management systems, and logistics improvements. The reports state that after
financing, the average SME has experienced a 25 percent increase in its revenue.

Implications for the Broader Indian Economy

ONDC’s successful implementation is linked to the Indian economy. ONDC can put more jobs,
economic diversification, and competition in the e-commerce arena, by supporting SME growth.

Job Creation
ONDC will help SMEs expand their operations and they will hire more people to satisfy the demand.
The Ministry of Micro, SMEs (MSME) report suggests the creation of an average of one and a half
new jobs in the economy from each new SME job created.

Economic Diversification
An interesting outcome of this is encouraging SMEs to innovate and discover new markets. For
instance, ONDC will support a more balanced economy by discouraging imported merchandise until
we can rely more on local products, including handicrafts, organic food, and regional textiles.

Enhancing Competition
With more smaller enterprises participating in ONDC, competition will heat up which will result in
improved quality and better customer service that spans the entire e-commerce domain. An array of
richer available choices will be enjoyed by consumers as SMEs begin harnessing innovative practices
and unique products.
Conclusion
India has an opportunity to leapfrog due to ONDC, a new Open Network for Digital Commerce, that
will disrupt the way small and medium-sized enterprises will exist in India. As an important first step,
the initiative makes it unique with an opportunity for growth and innovation to create new market
space, however, SMEs will face challenges in terms of fragmentation, digital literacy, and competitive
disparities.

For ONDC to truly realize its potential as a vehicle for both SME empowerment, and the growth of
the economy, stakeholders, government entities, financial institutions, and industry associations will
have to work together in providing not only the enabling resources, training, and infrastructure, but
indeed the required critical mass factor by way of a large number of participating SMEs thereby
increasing the extent of being ‘digital’ whilst lowering the inherent costs of ‘transacting on-line’.

Finally, ONDC’s success will not only make SMEs more capable than ever but will also bolster an
inclusive and trajectory-driven e-commerce ecosystem in India that will help nurture sustainable
economic growth and agility.

Data Summary Table

Table: ONDC's Impact on SMEs and Rural Reach (2024)

The analysis of ONDC's potential to support SMEs through digital commerce, and identifying ways of
procedural and technological collaboration to ensure that the full potential of digital commerce is
realized, is grounded in this comprehensive analysis. ONDC provides SMEs with windows of
opportunity to go beyond the challenges of the modern marketplace and ensure sustainability and
resilience in the ever-changing economic landscape.