Digital Transformation: What are the Challenges for MSMEs

The road to digital transformation in MSMEs is riddled with challenges.

Known as the backbone of the Indian economy, SMEs contribute more than 30 percent of the GDP and 45 percent of all manufacturing. The malaise brought in by the virus left a spell of uncertainty to the MSMEs that forced them to innovate and adapt. The businesses had to keep aside the conventional mode and experiment with digital methods to run their businesses. The MSMEs are a thriving section where several businesses work at the grassroots or rural level where they apart from assistance in capital loans and skill development largely require technical skill development and upgradation. MSMEs are not shying away from digital transformation but now they need to take a more long-term approach to bring the transformation. A report from Mckinsey, says that the success rate of digital transformation has been less than 30 percent. Also, as per their findings, only 16 percent say that their organisation’s performance has improved from digital transformations and also equipped them to sustain changes in the long term. The MSMEs face specific social and perception challenges when it comes to the digitisation of their businesses. What are they?


A report from Mckinsey, says that the success rate of digital transformation has been less than 30 percent.

Digital transformation: Challenges that every business owner faces

  • Peer pressure: Adapting to technology is sometimes a social challenge that leads several businesses to digitalisation without even knowing if it is needed. The competition around them is so fierce that it forces them to go for it. Before a business decides to digitally transform, they should ask questions such as what and how can your offerings be delivered digitally? Is the target audience tech-savvy enough to buy products through the digital medium? For instance, say a small handmade pickle business uses organically grown spices, condiments, and ingredients to make a bottle of pickle, with its target audience mainly the Indian housewives. Do you think that the business should invest heavily in an omnichannel customer experience platform to understand how a single range of products such as pickle will engage conversations among people?

  • Invest in big: What makes the MSMEs shy about investing in technologies that bring in digital transformation is that one should invest big. This makes the MSME owners afraid because of the magnitude of work and investment. Few businesses invest too much but fail to reap any benefits. Digitally transforming the business is a trial and error process where one needs to try out several small things before adopting a specific strategy. Experimentation with several digital ideas, collection of data, and then charting out the best plans to keep and invest.

  • How to begin: Most MSMEs are not aware of where to begin the transformation. Though the business owners are convinced about adopting, there is no such framework to guide them about where to begin the digital transformation and how to start. A digital strategy involves three stages, where the first stage is to digitalise the sales team, the second stage is about increasing efficiency and reducing wastage and the third stage is about using digital tools to create new business models or new products/services. e.g., a subscription service or an e-commerce platform. Therefore the SMEs must assess the stage in which their business is at and find out the appropriate digital transformation needed.

Digital transformation in MSMEs is filled with hurdles such as lack of skills, tech apprehension, and lack of knowledge of business-specific solutions. This creates the demand for technologies that are simple to understand, manage and scale. To aid in harnessing the potential of digital transformation in MSMEs, several startup and technology companies are mushrooming focused on providing new-age technology solutions such as providing, data insights, artificial intelligence (AI), augmented reality (AR), Machine learning (ML), and Internet of Things (IoT).

Shalmoli Sarkar
Shalmoli Sarkar
An MBA in marketing and a BTech in chemical engineering, Shalmoli writes on marketing strategies and business technology for new and aspiring entrepreneurs.

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