Title: An Analysis of the Impact of National Regulations on Price Competition Amongst

SMEs in the IT Industry of Emerging Countries. The Case Study of IT SMEs in India.

Chapter 1 Introduction
This chapter presents the background of the research, the research question, its aim and key
objectives.
1.1. Background of the Research
Small and Medium Scale enterprises (SMEs) have been broadly been defined by Kirkpatrick
(2011) as units employing less than 500 people with annual revenues of less than $ 250,000.
In India, SMEs are those units whose annual turnover do not exceed more than $ 20 mn
(Kumaranayake, 2013). SMEs play a vital role in the economies of developing countries.
They employ as many as 22% of the total adult population in these countries and account for
10% of annual GDP (Hilary, 2012). One of the elements of the marketing mix against which
they compete vis--vis other SMEs is on price. The main focus of this paper is to trace the
impact of government regulation on pricing mechanisms of IT SMEs in developing
countries.
According to Arnold and Cannister (2014) regulation is defined as laws and policies through
which the government exerts control of the operations of firms such as SMEs. It is through
these regulations that governments manipulate price, quantity and quality of products.
Regulation is one of the means through which governments achieve sustainable socioeconomic outcomes, protect and assist SMEs (Laffont, 2010). Regulation prevent against
market failures and protect consumers from exploitation and unfair competition. However,
Tolento (2014) points out that for regulation to have the greatest impact in terms of assisting
SMEs, their impact should be based on cost of compliance and resultant impact on pricing
impact on SMEs. Egorov (2007) indicates that regulation must be so designed so as to not
create more regulation but lead to more efficient and effect operations of the SME firms. In a
developing economy, regulation must provide a stable and competitive environment for
firms, stimulate investment, eliminate ambiguity, promote innovation and R&D and facilitate
exit and restructuring. The regulatory regime must promote competition, innovation and
generate jobs and economic growth as well.
While there is extensive literature on the impact of regulation on SMEs operating in other
sectors such as retail and manufacturing in developing countries, there is very little literature
on the impact of regulatory mechanisms on IT SMEs in developing countries. One of the
findings in the literature is that SMEs are disproportionately impacted by the high cost of
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compliance which puts severe pressure on pricing mechanisms which threatens their
competitiveness. Even here, there is very little literature on the processes through which
regulations impact SMEs operating in the IT sector in developing countries. It is this gap in
the research that this paper will bridge.
1.2. Rationale for the Research
This research will focus on the IT SME sector in India which is a developing economy.
Mehta (2015) points out that IT and IT Enabled Services (ITeS) are the largest contributors to
the services sector of India. It is the largest employer in India employing 10 million persons
(Mohan, 2015). The IT sector generated $ 119 bn of revenues in 2014-15 with the export
market alone being worth $ 100 bn (Nasscom, 2015). It contributes to 8% of the Indian GDP
(Nasscom, 2014). One of the latest developments in the IT industry is the rapid growth of
technology start-ups. These start-ups fall under the ambit of SMEs as they employ less than
500 persons. Almost 3100 IT SMEs were established over the period 2012-2014 with the
software exports generated from these establishments slated to grow at 14% annually for the
next five years (Panagariya, 2015). Heeks (2014) points out that these technology start-ups
are slowly, but surely forming the backbone of the IT industry in India and are all set to play
a key role in the economic growth of the country.
It may be inferred here that there is an urgent need to examine the impact of current
regulatory environment on the pricing mechanisms of IT SMEs in India. The various areas in
which government regulation impacts IT SME cost of operations have to be examined. To the
extent the cost of complying with government regulations is more, to that extent will the
SMEs be compelled to quote higher prices which threatens to render them uncompetitive.
Given this reality on the one hand, and the lack of research on impact of regulatory
environments on pricing mechanisms of IT SMEs in India, this research assumes critical
significance.
1.3. Research Question
Does the national regulatory environment influence price competition amongst SMEs in the
IT Software Industry in an emerging economy? The Case study of the IT SME Sector in
India.

1.4. Aim of the Research

The aim of this research is to examine the various ways in which regulatory environment
results in higher costs of operations for IT SMEs and how this impacts pricing and their
ability to compete.
1.5. Research Objectives

To examine the various aspects of government regulations in emerging economies

To study how these aspects impact IT SME operations and incur higher costs
To analyse the impact of higher costs on pricing mechanisms of IT SMEs.

1.6. Research Flow

The first chapter is the introduction which presents the background of the research and the
research question. The second chapter is the literature review which examines how regulatory
environment impacts costs of operations and pricing mechanisms. The third chapter is the
methodology which explains the quantitative method followed in this dissertation. The fourth
chapter analyses key findings with respect to the literature review. The fifth chapter is the
conclusion chapter which summarizes key findings, makes recommendations and identifies
future scope for study.

Chapter 2 Literature Review

4

This chapter examines how national regulations impacts price competitiveness amongst
Small / Medium IT firms in emerging countries.
Pricing Impact
Robson and Gallagher (2013) point out that conventionally, SMEs have always been
sheltered from competition in developing countries. However, the development of an IT SME
sector presupposes that the country of operation has adopted a policy of liberalization and
come under the ambit of economic reforms sponsored by the IMF and World Bank. Liedholm
and Mead (2014) point out how these reforms precipitated various policy changes in
government regulations in order to encourage efficiency in the domestic markets. Some of
these policy reforms include withdrawal of subsidies and removal of protectionist policies
towards the SME sector. This effectively means that there is more competitive pressures on
IT firms, particularly those operating in the SME sector, to not only growth their share in the
domestic markets but more importantly in the international markets. Fitch (2011) says that
competition is in fact a healthy phenomenon and can lead to efficiencies in production.
However, competition from large, established IT firms may pose a threat to small and
medium sized IT firms and lead to a decline in output and in profits. In such a scenario,
unfettered competition is actually not a desirable phenomenon for developing countries. This
is true for the IT SME sector also operating in these countries. In such countries, unfettered
competition can lead to price wars and rivalry.
Harvey (2009) points out that while IT SMEs are necessary vehicles for growth in a
developing nation and play a vital role in providing employment and in poverty alleviation,
their ability to compete each other and to survive in the global markets in the more liberalized
economies of developing countries, will depend on the regulatory environment in which they
operate. To the extent that this regulatory environment enables them to lower costs and quote
cheaper prices for IT projects undertaken by them, to that extent will these firms be able to
compete in the global arena. There are various aspects to be considered in the way the
regulatory environment of developing countries impacts costs and hence pricing of IT SMEs.

Costs & Pricing

According to Annsley (2015), regulatory mechanisms differentially impact IT SMEs as

compared to IT majors because of the small size of the former firms. Complying with
regulatory procedures incurs costs such as the cost of registering the business, fees paid to
auditors as well as transaction costs paid to regulatory firms. These costs are more expensive
for SMEs are compared to larger firms. Thus fulfilling their regulatory obligations entails
higher actual cost of transaction for SMEs which is a disadvantage vis--vis their larger
counterparts in the IT sector who have the resources to perform the various compliance and
administrative tasks associated with regulations. Egorov (2007) classifies national regulations
into three types including (i) economic, (ii) social and (iii) administrative.
Impact of Economic Regulations
Brownbridge (2011) says that government economic regulations for the IT sector govern
registration procedures, policies, licensing laws, regulations, form, location and operational
parameters of business. These are the restrictions on entry and exits to domestic markets and
can be very restrictive and hinder the development of IT SME sector. Harvey (2009) indicates
how SMEs incur very high start-up costs due to costs of compliance with registration and
licensing, dispute / claim settlements and high legal fees. The entire process of obtaining
licenses to establish the SME is cumbersome due to excessive bureaucracy and red-tapism
and sheer volumes of administrative work involved. Emerging economies do not have antitrust legislation or adequate property rights both of which unduly favour larger firms and preempt SMEs from accessing foreign technology (Fisseha, 2012). This increases costs of
operations which forces them to quote higher prices as compared to large firms which are
able to leverage more economies of scale.
Monetary and credit regulations cover such as aspects as inflation, rules of credit as well as
policies on interest rates, collateral, security, banking and financial transactions (Fitch, 2011).
SMEs routinely borrow from specialized credit schemes and from informal financial markets
with higher rates of interest. In addition requirements for collateral and security restrict
growth of SMEs. Given that SMEs are considered to be risky investments, lending
institutions demand collateral in the form of landed properties and this difficulty in getting
credit for start ups can hinder both operational working capital requirements as well as
further expansion (Laffont, 2010). High costs of borrowing and bank lending ceilings further
pressurize IT SME pricing mechanisms reducing their competitiveness. Fiscal policies impact
exchange rates and capital controls. Currency rates of developing countries that have
6

liberalized their exchange rates have witnessed appreciation of their currency which have the
negative consequences of making their IT exports uncompetitive.
Trade regulations covering import and export routines in emerging nations increase
transaction costs of IT SMEs (Heeks, 2014). This is on account of volumes of paper work,
bribes, cost of subcontracting, customs and port procedures. Moroever, these latter
procedures are cumbersome as compared to those of developed countries.
Impact of Social Regulations refers to regulations implemented by governments to protect
employee and social rights.
Impact of Health and Safety Laws
Government regulations regarding health and safety are necessary in order to protect
employees from any detriment. However, Biggs and Snograss (2008) say that insofar as these
regulations are related to worker compensation and to mechanisms that ensure their
workplace health and safety, they incur a cost which are higher for SMEs to bear. In
addition, there are the additional associated costs such as penalty for non-compliance with
employee related health and safety regulations. IT SMEs also fall under the government
ambit of environmental regulations that regulate waste disposal and use of machinery / office
equipment to minimize pollution. Because of their larger number, IT SMEs are collectively
considered to be significant polluters by governments even if they do not pollute the
environment substantially at the individual levels (Gayi, 2011). Complying with
environmental norms, especially for firms with fewer financial resources, are additional and
significant costs.
Impact of Labour Regulatory Laws
Regulation with respect to labour laws comprise of policies on remuneration, labour
legislation and systems of training. The government sets out legal frameworks that govern
method of dispute settlement, stoppages of work, strikes and union activity. Government
legislation lays down the minimum conditions under which labour works, hours of work,
payment for work on holidays, severance and compensation and benefits (Daniels and
Ngwira, 2013). Such legislation defines scope of employment for women. Aryeetey and
Nissanke (2010) point out that in developing economies, such laws are generally inflexible
and involve indirect costs which impact SME costs of business and their ability to be flexible
and adapt. Goodman (2014) classifies all labour legislation even for IT SMEs into three
7

categories, (i) laws related to minimum wages, (ii) to mandatory non monetary benefits and
(iii) guarantees of job security.
Minimum wages for the workforce in IT SMEs is high in emerging economies and this
deters SME firms from hiring more workers required for expansion. Such minimum wages
result in higher indirect transaction costs for SMEs even in cases of temporary hiring.
Minimum wage related disputes between the government, employees and government
officials increase operational costs (Tripathi and Mishra, 2014). In addition, there are nonwage related costs associated with hiring that in countries of Latin America can be very
expensive.
Not all wages are in the form of cash. Compensation to IT workers often take the form of
bonuses, housing, transportation, family wage allowances, payments on maternity benefits,
employee insurance, sick pay, reward & recognition payments etc (Udell, 2010). These are
additional labour related costs which place additional accounting and administrative burdens
on SMEs. It is for this reason that most SMEs rely on temporary labour. However, this is a
risky proposition as training such labour is both risky and expensive and this in turn can
impact productivity of the labour force.
Governments attempt to provide job security to IT workers in the form of legislation related
to severance pay, laws related to hiring and termination of workers, etc. It may be noted that
severance payments take the form of direct costs, which can be very high especially in time
of economic downturns (Zorpette, 2015). Even when workers are dismissed on such charges
as excessive leave taking, theft, sabotage and insubordination, they are entitled to full
severance packages. Tolento (2015) points out that this is especially so in African and South
American countries. Poor performance is seldom included in the charges for dismissal as it is
difficult to prove in court of law. In addition, such dismissals have the effect of creating
disputes in labour courts which in turn increases costs of transaction to businesses (Schware,
2014). Such costs constrain IT SMEs from hiring permanent labour. Impact of severance
pay-outs can be especially high during times of adverse economic conditions when there are
retrenchments. Lideholm and Mead (2014) indicate that government legislation in fact
increases the cost of exit which in turn has its impact on pricing, competition and SME
development.

Impact of Administrative Regulations

Administrative regulations cover the manner in which Governments collect and manage
revenue accruals in the form of taxes from IT SMEs. Such taxes are meant for the provision
of those administrative facilities that will further promote the efficiency of the IT sector. Gayi
(2011) points out that this includes taxation related patents, laws related to intervention
protection, govern product design and creation, protection for copyright, trademarks and
legislation related to bankruptcy.
Government policy on taxation significantly impacts SMEs. Some of the tax related
elements cover investments made by the firm, incentives on tax, taxation related to starting
and operating the business, capital taxes and income related taxation. Taxes on the one hand
stimulate economic activity and on the other place significant transaction cost related burdens
on SMEs in developing countries. Tripathi and Mishra (2014) point out that because tax
systems are complicated and complex, more business resources need to be allocated for
calculation and for compliance with tax legislations. According to Goodman (2014) there are
four factors that potentially complicate taxation especially to IT SMEs who have fewer
resources to allocate for their administration. These include the number of taxes, the timing of
reporting and payment of taxes, the base taxes to be paid and the number of exemptions. The
larger the numbers of direct revenue and payroll related taxes imposed by the government,
the more complex the tax system. For example in Brazil, there are over 50 tax laws and levies
governing payroll payments (Gayi, 2011). Complex tax systems force the firms to hire
expensive accountants and auditors all of which pose extra operating costs.
Biggs and Sno grass (2008) indicate that where costs of enforcement of tax laws, related costs
can be an inevitable burden on the SME firms. In countries like Thailand where
enforcement is weak, such cost burdens can be avoided. However, there is always the risk of
additional costs related to bribery, corruption and avoidance. Daniels and Ngwira (2013) say
that the stability of the tax regime imposed by the government has also to be taken into
account. Where rules of taxation constantly change, there are additional transactional costs of
leaving old systems and complying with new systems. Even where the rules are fixed and
their application discretionary, there are increased transactional costs imposed on account of
long term planning and the required co-ordination and information gathering.

Conceptual Diagram
The conceptual diagram that may be formulated on the basis of the literature review above is
indicated in figure 2.1.

Figure 2.1. Conceptual Diagram Regulations, Competitiveness and SMEs

Figure 2.1 summarizes all the factors related to impact of government regulation on IT
SMEs. It may be inferred that the primary impact of these factors is to increase operational
costs and costs of transactions for IT SMEs. This in turn puts immense pressure on their
pricing mechanisms which makes them less competitive, pre-empts further growth,
expansion, reduces formation of new business, profits, employment generation, revenue and
economic growth. It may also be inferred that size of the firm is a critical factor. The larger
the firm, measured in terms of amount of business turnover and number of employees, even
within the IT SME sector, the less the impact of government regulations on costs of operating
and transacting. The higher the cost impact, the less competitive the firms and conversely the
less the costs impact of these government regulations the more the ability of the firms to

10

devise competitive pricing mechanism both for the domestic market as well as for the
international markets.
Chapter 3 Methodology
This chapter presents the quantitative techniques that will be used in this dissertation.
3.1. The Process of Research
According to Zikmund (2003), research in order to be valid, must be conducted according to
scientific processes whilst the phenomena of interest is being studied. Saunders (2010)
extended this argument by formulating the Saunders Research Onion as shown in figure 3.1
which clearly outlines all the steps to be followed in a process of scientific inquiry.

Figure 3.1. Saunders Research Onion (Saunders, 2010)

As indicated in figure 3.1, research is a sequential inside-out process. During the first stage,
an appropriate resaerch is selected which will guide the research. Once the nature of the
reseach is ascertained through the philosophy, the correct research approach is selected
during the second stage. During the third stage the appropriate primary data collection
processes are identified followed by the selection of the correct tools that will be used to
analyze the data. During the fifth stage the data is analyzed while during the sixth stage, the
data is explained with respect to the literature review and the key findings presented.
3.2. Selecting the Research Philosophy
According to Wegner (2008), the main reason for the application of philosophy to research is
to ascertain the nature of the research that is to be conducted and then to select appropriate
11

strategies that will lead to the fulfilment of research objectives. There are three schools of
philosophy including the positivist, interpretivist and realistic schools of thought. According
to the positivist school of thought, research to be valid must be objective, use numeric data
and statistical software for analysis. Interpretivism believes that natural phenomenon are
extremely complex. Hence, it is not possible to analyse them completely objectively as
various realities are capable of different explanations. Realistic school of thought attempts a
compromise between these two views by stating that reality is complex and that there is a gap
between what all can be known about that reality and what is actually known. The task of
valid research therefore is to reduce this gap about the reality being studied as much as
possible.
This research will follow the positivist school of thought. The main aim of this paper is to
examine the impact of the regulatory environment on the pricing mechanism of IT SMEs in
India. Insofar as there are a definite set of regulations and pricing mechanisms are
mathematical in nature, it may be inferred that only statistical tools will be able to analyse the
impact of regulations on pricing in an objective manner. The researcher would like to extend
the findings of this research to all IT SMEs operating in developing countries. For this, the
results of this research have to be as objective as possible. In the interest of securing objective
results, the researcher has chosen the philosophy of positivism.
3.3. The Case Study Research Approach
The case study approach has been used in this dissertation. Wegner (2008) points out that
case study approach is most appropriate whenever there is a need for a detailed analysis of
the particular phenomena being studied. The case study must be typical of the phenomenon
being examined. In this research the requirement is to examine the impact of the regulatory
environment on pricing of IT SMEs in an emerging economy like India. The company
chosen as the case study is Zenith Software systems located in Koramangala, Bangalore city.
This firm has morphed from being a manufacturer of computer hardware to an exporter of
software, primarily to the United States. It employs about 250 persons and hence falls under
the definition of an Indian IT SME. For these reasons, Zenith Software Systems has been
chosen as being typical of Indian IT SMEs.
The case study approach includes the theoretical and empirical stages. These are explained in
the next section.

12

3.3.1. The Theoretical Stage

In the theoretical stage, secondary data is used to identify various aspects related to regulation
and price competitiveness. The sources of secondary data include scientific books, journals,
publications as well as sources of data on the internet. The study of this theoretical data led to
the formulation of the literature review, development of a conceptual model. The broad
hypothesis that may be formulated on the basis of the theoretical study is given below:
Hypothesis: The Regulatory Environment in Developing Countries Do Not Allow IT SMEs
to compete on the basis of Price.
In this hypotheses regulatory environment is a function of several independent variables
including size, registration, monetary, credit, trade, health, safety, minimum wage, non-wage,
complexity, enforcement and stability, all of which have been obtained from the conceptual
diagram. The dependent variable is price competitiveness
However, it may be noted that this hypothesis is just a postulate and has to be verified during
the empirical stage.
3.3.2. The Empirical Stage
During the empirical stage, primary data is used to validate the hypothesis. There are two
sub-stages in the overall empirical stage. During the first stage, primary data is collected and
during the second stage, this data is analysed.
The Primary Data Collection Stage
Primary data used in this research will be collected using a questionnaire.

The Questionnaire

The questionnaire was chosen as the primary data collection tool on the basis of the
recommendations of Anderson et al., (2005) who identified several advantages associated
with it including speed of collecting data, economies of scale involved in the process and
because it is more practical as compared to other methods of data collection such as
interviews, surveys and focus groups. The questionnaire can be answered at the convenience
of the respondents and under condition of anonymity.

13

The questionnaire used in this research consists of 15 close ended questions. A close ended
questionnaire has been chosen as it can be used to collect numeric data. This data can
subsequently be used for statistical analysis. The questions can be answered by indicating a
0 for a no or a 1 for a yes. Other questions could be answered along a 4 point Likert scale
where 1=Strongly Disagree, 2 = Disagree, 3 = Agree and 4 = Strongly Agree. This indicates
how much respondents agree or disagree with any particular option in the questionnaire.

The Sampling Procedure

According to Wegner (2008), sampling is the method of selecting those respondents whose
answers would be most relevant to the research being conducted. The purposive sampling
method will be used in this research which involves choosing from a larger population of
respondents, only those whose views and answers would be most appropriate and useful to
the research. This ensures the validity and accuracy of the results as well. The researcher will
contact the head of human resources of Zenith Software systems and explain to him the
nature and purpose of the research. The researcher will ask permission to conduct the
research at Zenith and ask for introductions to managers and to other personnel in Zenith who
will be able to inform on the impact of regulations on their pricing mechanisms. The author
hopes to interview at least 50 personnel in the firm in this regard.
Once the managers are identified, the author will obtain their email IDs and send them the
questionnaire over email, asking them to fill in the questionnaire and send it back to him
within 5 days time. As and when the filled in questionnaires come in, the author collates the
data in an excel summary sheet prior to analysis.

Statistical Tools Used for Primary Data Analysis

The statistical tool of Microsoft Excel is the data analysis tool. Both frequency and weighted
mean will be the two statistical parameters used. Frequency indicates the percentage of
respondents who selected a particular answer option while weighted mean indicates the
extent to which respondents agreed or disagreed to any particular option. The results of this
analysis will be presented in graphical / tabular format with each graph / table being followed
by the analysis explanation.

Validity of Data Analysis

14

According to Wegner (2008), validity is very important if the results of the research are to be
credible. Credible results are considered to be more accurate and truthful. In this research, the
independent variables include size, registration, monetary, credit, trade, health, safety,
minimum wage, non-wage, complexity, enforcement and stability, all of which have been
obtained from the conceptual diagram. The dependent variable is price competitiveness.
Since these variables have been derived from the literature, they may be considered to be
valid. The questionnaire has been formulated according to the literature review. This means
that what is being tested is not guesswork or based on whim and fancy but on research
conducted by other scholars.

Reliability of the Research

If the results of a particular research are to be considered to be reliable, the same method if
used again must yield similar results (Wegner, 2004). In order to ensure the reliability to this
research, the author will first conduct a pilot or trial run of the questionnaire amongst 10 of
the respondents. The respondents will be asked as to what problems or difficulties they
encountered whilst answering the questionnaire and what confused them. This will indicate
whether the questions are clear or not or if there are any ambiguities. On the basis of
feedback given by the respondents suitable corrections will be made. This will eliminate any
ambiguities whilst answering the questionnaire and ensure objective and reliable results.
3.4. Ethical Behaviour
As far as possible, the literature review and the conceptual model will be based on data
gathered from peer reviewed articles. This is to ensure reliability, credibility and validity of
the data used. The researcher will not copy or plagiarize from any other research paper. The
researcher will not reveal the identities of the respondents. This will ensure confidentiality of
respondent identity. There will be no attempt on the part of the researcher to influence the
respondents as they answer the questionnaire. The respondents will be contacted only through
official channels of telephone and email. The researcher undertakes to follow all the rules and
regulations of the university while conducting the research.

15

3.5. Gantt Chart

16

3.6. Mind Map

17

Questionnaire
Section A Demographics
1. Please indicate your age by ticking the relevant slot below:
25-35 years
36-40 years
41-45 years
46-50 years
More than 50 years
2. Please indicate your gender by ticking the relevant slot below:
Male
Female
3. Please indicate your educational level by ticking the relevant slot below:
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Non Graduate
Graduate
Post Graduate
4. What is your total experience in the IT industry?
Less than 1 year
1 5 years
6 10 years
More than 10 years
5. What is your tenure in this firm?
Less than 1 year
1 5 years
6 10 years
More than 10 years

Section B Regulatory Framework

1. In what way do regulatory compliances make you uncompetitive with respect to other SMEs
or larger firms. Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

Particulars

Strongly
Agree

SMEs do not have the capacity to deal with

problems of complying with multiple regulations
Bigger firms are able to hire many personnel to tackle
administrative tasks associated with compliance
The per unit cost of compliance is higher for SMEs
as compared to larger firms
19

Agree

Disagree

Strongly
Disagree

Cost of regulatory compliance is the same

irrespective of size of firm
I believe size of the firm is an important determinant
of impact of regulatory compliances
2. How do you believe that regulations that restrict entry and exit to domestic / international
markets impacts your ability to compete on price? Please rate the following options according

to the scale:
1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree
Particulars

Strongly
Agree

Agree

Disagree

Strongly
Disagree

Costs of registering and licensing are very high

Costs of settling disputes and claims are very high
High labour costs involved in administrative work
Policies in India are very restrictive and hinder our
growth and development
Government bodies in India suffer from excessive
burecarcy which hinders foreign investments
There are no benefits from being legally compliant to
start our business. We only do this to avoid penalty
The government regulations in fact prevent our
access to foreign technology

3. How do you believe that regulations relating to monetary / credit policies in India impacts
your ability to compete on price? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

Particulars

Strongly
Agree

We do not get loans to fund our growth and development

due limitations on lending limits to SMEs
Banks ask for collateral against loans which we do not
have to give and which prevents further expansion

20

Agree

Disagre
e

Strongly
Disagree

Strong rupee rates are making our software exports more

expensive
Government regulations make it difficult for us to secure
loans from foreign banks
If IT SMEs are to be competitive credit policies have to
be far less restrictive than they currently are
4. What do you perceive to be unfair monetary policies that prevent you from quoting
competitive rates for your products? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

Particulars

Strongly
Agree

Agree

Disagre
e

Strongly
Disagree

It is easier for larger IT firms to secure bank funding to

fuel growth and expansion than it is for smaller firms like
ours. They can invest in technology that enables them to
become more competitive
Banks focus on lending for sectors such as agriculture
rather than to the IT sector
We believe that shortfalls in loan collections in other
sectors such as agriculture and manufacturing are made up
by collecting from IT SME sector
Lending to IT SMEs is at rates higher than those
extended to other sectors.
Loans to IT SMEs have always to be secured against
collateral before credit is extended. However, this is not
the case with other sectors.

5. When you export your software products, the following aspects of associated regulation are
added costs that impact your pricing making your firm less competitive. Please rate the

following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree
Particulars

Strongly
Agree

Export procedures are very cumbersome. We have to hire

external resources to take care of the documentation
21

Agree

Disagre
e

Strongly
Disagree

We have to bribe officials to clear our export papers

Delays in securing clearances and delayed deliveries
results in dissatisfied clients who do not come back to us
again
SMEs export in smaller quantities and hence are more
negatively impacted by cost of exports

6. How do you believe that regulations related to health and safety of your workforce make you
more competitive price wise? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

Particulars

Strongly
Agree

Agree

Disagre
e

Strongly
Disagree

Investing in health and safety of workers makes them

happier , more productive and the firm more competitive
Investing in health and safety standards are very
expensive and far outweigh any benefits accruing on
employee productivity if any
We do not believe that health and safety regulations in any
way secure employee happiness. They are just a cost that
takes away from our ability to quote lower prices
Health and safety regulations are an excuse for the
government to harass us and elicit bribe and penalty
forcing us to increase our prices

7. How do you believe that regulations related to the environment make you less competitive
price wise? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

Particulars

Strongly
Agree

22

Agree

Disagre
e

Strongly
Disagree

We believe that because we consume resources and

contribute to environmental pollution, government has the
right to collect environmental tax from us
Environmental regulations are of limited use as the
software industry does not pollute the environment as
much as other sectors such as chemicals or manufacturing
Governmental regulations do not have any measure to
quantify the amount of pollutants emitted by our sector
and hence penalty and tax in this regard is unfair
Environmental tax accounts for a significant portion of
our operating expenses which prevents us from quoting
lower prices

8. How do government regulations on minimum wages impact your pricing mechanisms? Please

rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree
Particulars

Strongly
Agree

Agree

Disagre
e

Strongly
Disagree

Minimum wages are set at higher rates for the software

sector and this increases our cost of labour
There are frequent disputes that need to be settled with
regard to minimum wage payments that are added costs
Government officials routinely harass us on minimum wage
rules, exacting bribes and unfair penalties.
Minimum wage payments must not be binding constraint
Because of this minimum wage stipulation, we are forced to
look for temporary labour and this decreases our
productivity as temporary labour is not committed to our
firm

9. How do government regulations on non wage compensation impact your pricing

mechanisms? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

23

Particulars

Strongly
Agree

Agree

Disagre
e

Strongly
Disagree

Government regulations stipulate that we pay transport,

housing and family wage allowances in addition to the
wages paid and this adds to our overall cost burden
Non wage costs also impost administrative and accounting
burdens which makes it difficult to conduct formal business
The burden imposed by these non-wage related stipulations
force us to go for temporary / contract labour which is not
tenable in the long run
Cost of searching for, hiring and training temporary labour
are prohibitive and impose an additional burden for us

10. How do government regulations on job security for workers impact your pricing
mechanisms? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

Particulars

Strongly
Agree

Agree

Disagre
e

Strongly
Disagree

Government regulations mandate that we secure

employment of our employees. We feel that this is unfair as
employee retention should depend on their performance.
Hiring and firing decisions must be made on the basis of
performance and this will enthuse employees to be more
productive as well instead of being complacent.
Severance pay rates are too high to be justified especially
for employees who are terminated for non-performance
Government regulations on exit are frequently the cause of
expensive dispute and legal fees

11. How do you believe that tax regulations are configured to make IT SMEs in India more
competitive in terms of pricing? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

24

Particulars

Strongly
Agree

Agree

Disagre
e

Strongly
Disagree

Tax related regulations and compliances are extremely

complex and complicated requiring the allocation of
expensive business resources for their handling
The sheer numbers of tax laws make compliance with them
very difficult
There are different times for complying with different tax
stipulations and such payments at different times is very
difficult
We know that there are exemptions for SMEs, but we are
rarely able to avail of this benefits due to complexity of
understanding these exemption laws

12. How do you believe that the way tax regulations are enforced make IT SMEs in India more
competitive in terms of pricing? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

Particulars

Strongly
Agree

Agree

Disagre
e

Strongly
Disagree

Enforcement is very strict in India and this makes

compliance a must and very expensive as well
We can get away with enforcement by paying the necessary
bribes, but even this adds to our costs of operation
13. Do you believe that the tax regimes in India are stable? How does this impact
competitiveness of pricing? Please rate the following options according to the scale:

1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree

Particulars

Strongly
Agree

Tax regulations in India are extremely stable and do not

vary for long periods of time.
We prefer tax regulations that change from time to time. At
least in this way we can hope for a simpler tax regime and
lower rates of taxation

25

Agree

Disagre
e

Strongly
Disagree

14. The following is the negative impact of regulation on Indian IT SMEs which makes
them uncompetitive on price? Please rate the following options according to the scale:
1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree
Particulars

Strongly
Agree

Agree

Disagree

Strongly
Disagree

Increased transaction costs deters entry or formation

of new business
Increased transaction costs reduce profitability
Increased transaction costs are a threat to the
viability of the SME and impacts stability of
employment
We believe that government regulation has achieved
the goal of weeding out inefficient firms and make
existing ones more competitive
15. How do you believe that regulation can be improved and help the IT SME sector
become more profitable? Please rate the following options according to the scale:
1=Strongly Disagree, 2 = Disagree, 3 = Agree, 4= Strongly Agree
Particulars

Strongly
Agree

Making the regulatory agencies more autonomous

Making allocations for larger budget
Hiring knowledgeable, good quality personnel
Reducing inference from political agencies
Reducing complexities of compliance
Reducing costs of compliance

26

Agree

Disagree

Strongly
Disagree

27

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