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CHAPTER 2 SMALL AND MEDIUM ENTERPRISES (SMEs) IN INDIA 2.1 SMEs IN INDIA With the advent of planned economy from 1951 and the subsequent industrial policy followed by Government of India, both planners and Government earmarked a special role for small-scale industries and medium scale industries in the Indian economy. Due protection was accorded to both sectors, and particularly for smallscale industries from 1951 to 1991, till the nation adopted a policy of liberalization and globalization. Certain products were reserved for small-scale units for a long time, though this list of products is decreasing due to change in industrial policies and climate.SMEs always represented the model of socio-economic policies of Government of India which emphasized judicious use of foreign exchange for import of capital goods and inputs; labour intensive mode of production; employment generation; nonconcentration of diffusion of economic power in the hands of few (as in the case of big houses); discouraging monopolistic practices of production and marketing; and finally effective contribution to foreign exchange earning of the nation with low import-intensive operations. It was also coupled with the policy of de-concentration of industrial activities in few geographical centers. It can be observed that by and large, SMEs in India met the expectations of the Government in this respect. SMEs developed in a manner, which made it possible for them to achieve the following objectives: • High contribution to domestic production • Significant export earnings • Low investment requirements • Operational flexibility • Location wise mobility • Low intensive imports • Capacities to develop appropriate indigenous technology • Import substitution • Contribution towards defense production • Technology – oriented industries • Competitiveness in domestic and export marketsAt the same time one has to understand the limitations of SMEs, which are: • Low Capital base • Concentration of functions in one / two persons • Inadequate exposure to international environment
• Inability to face impact of WTO regime • Inadequate contribution towards R & D • Lack of professionalism In spite of these limitations, the SMEs have made significant contribution towards technological development and exports. SMEs have been established in almost all-major sectors in the Indian industry such as: • Food Processing • Agricultural Inputs • Chemicals & Pharmaceuticals • Engineering; Electricals; Electronics • Electro-medical equipment • Textiles and Garments • Leather and leather goods • Meat products • Bio-engineering • Sports goods • Plastics products • Computer Software, etc. As a result of globalization and liberalization, coupled with WTO regime, Indian SMEs have been passing through a transitional period. With slowing down of economy in India and abroad, particularly USA and European Union and enhanced competition from China and a few low cost centers of production from abroad many units have been facing a tough time. Those SMEs who have strong technological base, international business outlook, competitive spirit and willingness to restructure themselves shall withstand the present challenges and come out with shining colours to make their own contribution to the Indian economy.
IV How SME’s good for Economic Growth in India How is entrepreneurship good for economic growth? This question would seem to have a simple answer: Entrepreneurs create new businesses, and new businesses in turn create jobs, intensify competition, and may even increase productivity through technological change. High measured levels of entrepreneurship will thus translate directly into high levels of economic growth. However, the reality is more complicated. If, by “entrepreneurship,” one allows inclusion of any type of informal self-employment, then high levels of entrepreneurship may actually mean either that there are substantial bureaucratic barriers to formally creating a new business, or simply that the economy is creating too conventional few wage-earning job
opportunities. Under these circumstances, we might reasonably hypothesize that high levels of “entrepreneurship” would correlate with slow economic growth and lagging development. Moreover, the relationship between necessity entrepreneurship and economic development is most likely negative in low income countries while the relationship between entrepreneurship and economic development in high income countries is mostly likely positive(Joltan K. ACS,2007). This must be further balanced by the fact that some low income countries like India and China have high levels of opportunity entrepreneurship, at least in certain part of the country, and countries like Japan have very low levels of opportunity entrepreneurship and low The small scale sector in India has particularly emerged as a vibrant and dynamic segment of the economy. It is a matter of pride that India has a distinct position of its own among the developing countries, particularly in the area of small scale industries, India has a vast reservoir of scientific and technical manpower, occupying third position Contribution of SSI in the industrial production and GDP in the world as far as technical man power is concerned. Over the last five decades, the small scale has acquired a place of prominence in the economy of the country. It has contributed significantly to the growth of the Gross Domestic product , employment generation and exports. The sector now includes not only the SSI units but also the small service and business enterprise (SSSBEs) and is thus referred as small enterprise sector. During 2002-03 to 2006-07 sector has registered continuous growth in the number of units, production, employment and even exports. During this period the average annual growth in the number of units was around 4.1%, while employment grew by 4.2% annually. Further, the average annual growth in production is at 12.6%. SME registered 20.8% growth in terms of Exports.The small enterprises sector, however faces several problems, which hamper it achieving it in achieving its full growth potential. Some of the major problems faced by the sector are access to timely and adequate credit, technological obsolescence, infrastructural bottlenecks, marketing constraints and plethora of rules and regulations.
Role of sme: Production
The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition of ten percentage points. The small-scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units has increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small-scale sector.
Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 (P)
Target Achievement 3.0 5.0 7.0 9.1 9.1 9.1 * * * * 3.1 5.6 7.1 10.1 11.4 11.3 8.43 7.7 8.16 8.90
P-Projected (April-December) * Target not fixed at constant prices
Employment
SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the small-scale sector generates employment for four persons. Generation of Employment - Industry Group-wise Food products industry has ranked first in generating employment, providing employment to 0.48 million persons (13.1%). The next two industry groups were Non-metallic mineral products with employment of 0.45 million persons (12.2%) and Metal products with 0.37 million persons (10.2%). In Chemicals & chemical products, Machinery parts except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by these eight industry groups being 49%. In all other industries the contribution was less than 5%. Per unit employment Per unit employment was the highest (20) in units engaged in beverages, tobacco & tobacco products mainly due to the high employment potential of this industry particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu. Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in Repair services line. Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas. However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal industries per unit employment was higher in rural areas as compared to metropolitan areas/urban areas.
In urban areas highest employment per unit was in Beverages, tobacco products (31 persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic mineral products (12). Location-wise Employment Distribution - Rural Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared between them 17.5%. Urban As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment. Machinery parts except electrical, Non-metallic mineral products, and Chemicals & chemical products between them accounted for 26.2% of employment. In metropolitan areas the leading industries were Metal products, Machinery and parts except electrical and Paper products & printing (total share being 33.6%). State-wise Employment Distribution Tamil Nadu (14.5%) made the maximum contribution to employment. This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the total share being 27.7%. Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) and Punjab (5.6%) together accounted for another 27.4%. Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and Dadra & Nagar Haveli. It was 12 in Maharashtra, Tripura and Delhi. Madhya Pradesh had the lowest figure of 2. In all other cases it was around the average of 6. Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 Target Achievement Growth rate (lakh nos.) (lakh nos.) 128.0 133.0 138.6 144.4 150.5 165 170.1 175.4 134.06 139.38 146.56 152.61 160.00 167.20 171.58 177.3 3.28 3.28 5.15 4.13 4.88 4.50 2.61 3.33
P-Provisional
Export
SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. It would surprise many to know that non-traditional products account for more than 95% of the SSI exports. The exports from SSI sector have been clocking excellent growth rates in this decade. It has been mostly fuelled by the performance of garments, leather and gems and jewellery units from this sector. The product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products. The SSI sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO. Year Exports (Rs. Crores) (at current prices) 29,068 (14.86) 36,470 (25.50) 39,249 (7.61) 43946 (11.97) 48979 (10.2) 53975 (10.2)
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 (P)
P-Provisional
Major Export Markets An evaluation study has been done by M/s A.C. Nielsen on behalf of Ministry of SSI. As per the findings and recommendations of the said study the major export markets identified having potential to enhance SSIs exports are US, EU and Japan. The potential items of SSIs have been categorised into three broad categories. More.. Export Destinations The Export Destinations of SSI products have been identified for 16 product groups. More..
Opportunity
The opportunities in the small-scale sector are enormous due to the following factors: • • • Less Capital Intensive Extensive Promotion & Support by Government Reservation for Exclusive Manufacture by small scale sector
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Project Profiles Funding - Finance & Subsidies Machinery Procurement Raw Material Procurement Manpower Training Technical & Managerial skills Tooling & Testing support Reservation for Exclusive Purchase by Government Export Promotion Growth in demand in the domestic market size due to overall economic growth Increasing Export Potential for Indian products Growth in Requirements for ancillary units due to the increase in number of greenfield units coming up in the large scale sector. Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification.
By its less capital intensive and high labour absorption nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. This is the opportune time to set up projects in the small-scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bugbear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation coupled with Government support will therefore, attract the infusion of just these things in the sector. Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification. By its less capital intensive and high labour absorbtion nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. So this is the opportune time to set up projects in the small scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bug bear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation will therefore, attract the infusion of just these things in the sector.
National Small Industries Corporation Ltd (NSIC) NSIC, since its inception in 1955 has being working with its mission of promoting, aiding and fostering the growth of micro and small enterprises. The Corporation has been introducing several new schemes from time to time for meeting the change aspirations of micro and small enterprises. The main objective of all these schemes is to promote the interest of the micro and small enterprises and to put them in competitive and advantageous position. The
information pertaining to the schemes planned to be continued/implemented in the XI plan period by NSIC with Government support is given hereunder: I.Performance & Credit Rating Scheme:NSIC, in consultation with Rating Agencies and Indian Banks Association, has formulated Performance & Credit Rating Scheme for Small Industries. The scheme is aimed to create awareness among small enterprises about the strengths and weaknesses of their existing operations and to provide them an opportunity to enhance their organizational strengths and credit worthiness. The rating under the scheme serves as a trusted third party opinion on the capabilities and credit worthiness of the small enterprises. An independent rating by an accredited rating agency has a good acceptance from the Banks/Financial Institutions. Under this scheme, rating fee to be paid by the SSIs is subsidized for the first year only and that is subject to maximum of 75% of the fee or Rs. 40,000/-, whichever is less. II.Marketing Assistance Scheme:This is an ongoing old scheme. Marketing, a strategic tool for business development, is critical for the growth and survival of SSIs in today’s intensely competitive market. One of the major challenges before the SSIs is to market their products/services NSIC acts as a facilitator to promote marketing efforts and enhance the competency of the small enterprises for capturing the new marketing opportunities by way of organizing and participating in various domestic and international exhibitions/trade-fairs, buyers-sellers meet intensive campaigns, seminars and consortia formation at the subsidized rates. In addition, the Ministry has three National Level Entrepreneurship Development Institutes namely, Indian Institute for Entrepreneurship (IIE), Guwahati, National Institute for Entrepreneurship and Small Business Development (NIESBUD), Noida and National Institute for Micro, Small and Medium Enterprises (NIMSME), Hyderabad. NSIC: INTRODUCTION The National Small Industries Corporation Ltd., (NSIC), an ISO 9001 certified company, since its establishment in 1955, has been working to fulfill its mission of promoting, aiding and fostering the growth of small enterprises in the country. With passing of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, NSIC has also included medium enterprises in its ambit for providing assistance under some of its schemes. ORGANISATIONAL SET UP: NSIC operates through 9 Zonal offices, 35 Branch Offices, 17 SubOffices, 5 Technical Services Centres, 3 Extension Centres, 2 Software Technology Parks and 1 Office outside India – at Johannesburg (South Africa). SCHEMES OF THE CORPORATION: To enhance the competitiveness of micro & small enterprises, NSIC provides integrated support services under Marketing, Technology, Finance and other Support Services. Marketing Support: Marketing, a strategic tool for business development is critical to the growth and survival of small enterprises in today’s intensely competitive market. NSIC acts as a facilitator to
promote the products of small enterprises and has devised a number of schemes to support small enterprises in their marketing efforts, both in and outside the country. These schemes are briefly described as under:l . Raw Material Distribution: NSIC has made arrangements with bulk manufacturers like M/s. Steel Authority of India Ltd. (SAIL), M/s. Rashtriya Ispat Nigam Ltd. (RNIL), M/s. National Aluminium Company Ltd. (NALCO) and Sterlite group for procuring raw materials. These arrangements are aimed at providing the raw material alongwi th financial assistance, as per the requirements of small enterprises. 2. Consortia and Tender Marketing : Micro, small & medium enterprises in their individual capacity face problems to procure and execute large orders, which inhibit and restrict their growth. NSIC,accordingly adopts Consortia approach and forms consortia of units manufacturing the same products, thereby easing out marketing problems of small enterprises. The Corporation explores the market and secures orders for bulk quantities. These orders are then distributed to small enterprisesin tune with their production capacity. Testing facilities are also provided to enable small enterprises to improve and maintain the quality of their products conforming to the standard specifications. 3. Single Point Registration for Government Purchase: NSIC operates a Single Point Registration Scheme under the Government Purchase Programme, wherein the registered small enterprises get purchase preference in Government Purchase Programme, exemption from payment of Earnest Money The small enterprises registered under this scheme get the following facilities : Ø Issue of tender sets free of cost. Ø Advance intimation of tenders issued by DGS&D. Ø Exemption from payment of earnest money. Ø Waiver of security deposit up to the monetary limit for which the enterprise is registered. Ø Issue of competency certificate in case the value of an order exceeds the monetary limit, after due verification. 4. Exhibitions and Technology Fairs: To showcase the competencies of Indian micro, small & medium enterprises and to capture market opportunities, NSIC participates in select International and National Exhibitions and Trade Fairs every year. NSIC facilitates the participation of the small enterprises by providing concessions in rental etc. Participation in these events exposes small enterprises to international practices and enhances their business prowess. 5. Export of Projects: NSIC is a exporting projects of micro & small enterprises to other countries. The major areas of operation are: Ø Supply of Small Industry projects on turnkey basis and Ø Export of IT solutions from India through Software Technology Parks. Technology Support Technology is the key to enhancing a company’s competitive advantage in today’s dynamic information age. Micro, small & medium enterprises need to develop 54 MSME and implement a technology strategy in addition to financial, marketing and operational strategies and adopt the one that helps integrate their operations with their environment, customers and suppliers. NSIC offers micro, small & medium enterprises the following support services through its Technical Services Centres and Extension Centres: Ø Material testing facilities through accredited laboratories; Ø Product design including CAD; Ø Common facility support in machining, EDM, CNC, etc.; Ø Energy and environment services at selected Centres and
Ø Practical training for skill upgradation l Incubators for Small Enterprise Establishment: Enterprise development is one of the thrust areas for nurturing the development and growth of micro and small enterprises in the country that is being facilitated by providing handholding support to micro and small enterprises in every field of business. Incubator is one of the tools to achieve this as it provides the necessary facilities for prospective / potential entrepreneurs and start-up companies to learn product manufacturing processes coupled with technology development under one roof. NSIC has set up Incubation Centres for small enterprise establishment at its Technical Centres, wherein low cost projects depicting appropriate technologies are displayed in working conditions. These incubation centres provide comprehensive package of services including on the job training and other support services to establish own ventures. At these incubators for enterprise establishment, NSIC facilitates the trainees / first generation entrepreneurs in: Ø Getting training in basic business and entrepreneurial skills; Ø Getting practical exposure on the machines; Ø Selecting the projects; Ø Preparation of the project reports / profiles; Ø Identification of plant and machineries / equipments for the project; Ø Procuring the plant and machineries / equipments; Ø Installation of the machineries; and Ø Other support services to establish their enterprises. Credit Support 1 NSIC facilitates financing for micro, small & medium enterprises in the following manner: l Meeting credit needs of Micro, Small & Medium Enterprises through tie-up arrangements with Banks One of the major challenges faced by micro, small & medium enterprises is inadequate access to finance due to lack of financial information and non-formal business practices. In this direction, NSIC launched a new scheme for facilitating sanction of loans for small enterprises from commercial banks. NSIC has entered into tie-up arrangements with eight banks (i.e. United Bank of India, UCO Bank, Oriental Bank of Commerce, Central Bank of India, Bank of Maharashtra, YES Bank, UTI Bank (now Axis Bank) and HSBC) for sanction of term loan and working capital facilities to the micro, small & medium enterprises as per their requirements. Such arrangements facilitate smooth credit flow to micro, small & medium enterprises. l Financing for Procurement of Raw Material (short term): NSIC supports micro, small & medium enterprises by procuring and MSME supplying raw materials like Steel, Aluminium and Copper etc. Along with financial assistance as required by them. NSIC procures raw material from bulk producers and distributes the same in the requisite small quantities to micro, small & medium enterprises ensuring timely delivery thus, playing a role of the catalyst agency. l Financing for Marketing Activities (short term) NSIC facilitates financing for marketing activities such as Internal Marketing, Exports and Bill Discounting to micro, small & medium enterprises. l Performance and Credit Rating Scheme for Small Enterprises NSIC had formulated the “Performance & Credit Rating Scheme” for small enterprises and as its implementing agency, is operating the scheme through accredited rating agencies i.e. CARE, CRISIL, D&B, FITCH, ICRA, ONICRA and SMERA. The fee to be paid by the micro, small
& medium enterprises for the rating, is subsidized by the Government to the extent of 75% up to a maximum of Rs. 40,000/-. The scheme has become quite popular now and getting good response from the micro, small & medium enterprises. The rating serves as a trusted third party opinion on the unit’s capabilities and credit worthiness. A good rating enhances the acceptability of the rated unit in the market and also makes their access to credit quicker and cheaper and thus helps in economizing the cost of credit. Support Services l .Infomediary Services Information plays a vital role in the success of any business. Recognizing the importance of information and its relevance to micro, small & medium enterprises, NSIC provides Infomediary Services to small units. Besides hosting a website (www. nsic.co.in), NSIC hosts sector specific portals for focused information dissemination. Under this scheme, micro, small & medium enterprises can become members and avail a number of value added services. Some important services are: Ø Supplier database; Ø Market intelligence; Ø Technology providers; Ø Information providers; Ø Linkages with relevant institutions; Ø E to E services; Ø E to B services and Ø Value additions like directories of machinery makers and component manufacturers, spare capacity bulletin boards, discussion forums, virtual exhibitions, etc.57 Annual Report 2007-2008 2. Insurance of Export Credit for Micro, Small & Medium Enterprises under strategic alliance between NSIC and ECGC NSIC has entered, into an arrangement with Export Credit Guarantee Corporation of India Ltd. (ECGC) for facilitating small and medium enterprises to insure their export credits. Micro, small & medium enterprises would be helped in insuring their export credits through any office of the Corporation, located all over the country. This arrangement shall strengthen promotion of exports from small enterprises. 3. International Cooperation For the last five decades, NSIC has acquired various skill sets in the development process of small enterprises. The inherent skills are being networked to offer consultancy services for other developing countries. The areas of consultancy are as listed below: Ø Capacity Building; Ø Policy & Institutional Framework and Ø Business Development Services One of NSICs objectives is to facilitate sustainable international partnerships. The emphasis is on sustainable business relations rather than on one-way relations. Since its inception, NSIC has contributed to strengthen enterprise-toenterprise cooperation, southsouth cooperation and to share best practices and experiences with other developing countries, especially those in African, Asian and Pacific regions. Important initiatives are through setting up of institutional frameworks for promotion of micro, small & medium enterprises; conducting techno-economic assessment surveys; setting up industrial estates, provision of common facility services; support and extension services; supply of machinery, equipment and transfer of technology; ancillary development and subcontracting relationships and technical and entrepreneurial training. NSIC’s initiatives in this area are:
Exchange of business / technology missions with various countries for facilitating enterprise-toenterprise cooperation, joint ventures, echnology transfers and other forms of sustainable collaboration. Exploring new markets and areas of cooperation through: - Identification of new export markets by participating in sector-specific exhibitions all over the world. - Identification of countries in which India has potential to export its technology, products and projects, such as the sub-Saharan countries, 58 MSME Central Asia the Indo-China region etc. - Assistance to these countries in formulating their policy and institutional framework.
Small Business Management
Small Business Management is nothing but sales, marketing and advertising management for a small business. Sales and Marketing are lifelines of a small business. So, sales and marketing management is very much needed for the stability and growth of the small business enterprise. A successful Marketing Management requires: Proper Analysis of Target Market-For every small business there should be a target group of customers. Identifying the specific customers and the target market for the business is very much important to take up a focused product campaign. Otherwise, the market campaign and the promotional expenses targeting all general public is a sheer waste of energy and money. If the target market is known the task of devising promotional plans become simple and affordable. Quick Financial Investment-Firstly, owner or manager of a small business should have a well chalked out planned budget for market campaigning and he should follow the budget accordingly. Quick Financial Investment is very important in this case. There are many marketing strategies, which can be undertaken by proper and quick financial investment like TV advertisement and Banner advertisement. This kind of quick financial investment in return brings more sales and more business. Marketing Promotional Tools-A small business owner should use marketing promotional tools so that the business can progress steadily. Manager of a small business should promote marketing tools, which are simple, innovative and low cost. These can be brochures, business cards, business gift items that do not require heavy investment. Use of Information Technology-Proper use of Information Technology can enable a small business to grow at a much faster pace than any other promotional project can do. Internet is a medium used by huge number of people everyday. So, promoting the small business on the Internet by means of web pages can give the small business a sharp edge over others. E-mail marketing is another marketing tool which improvises customer relation, increases sales but is very cheap Referral System-This system needs nothing but maintenance of a consistent good relation with other business. Most of the customers are inclined to the products that are referred to them by anybody. So, by maintaining Referral System manager of the small business can
promote his products by other companies (as the other companies refer the product) and can earn a good name in the industry. Use of Innovative Schemes-In this age of simplicity and creativity, the managers of small business should use original and innovative marketing techniques. Costly market campaigns can be replaced with creative low cost ones, which has potential to attract the customers. Proper Management of Sales Activities of the business requires dynamism and creativity. A good Sales Manager should have the following qualities: Excellent Communication Skill-This includes excellent verbal skill as well as good listening skills. A person who manages the sales has to use appropriate words in an appropriate manner so that the messages are conveyed clearly and the irate customers are easily handled. Skill of Motivating Employees-The sales manager should know how to motivate employees so that they can work towards achieving great success. Skill to Tackle Problems before they arise-A good sales manager should have the foresight to see the problems that can arise in the future and should take appropriate safeguard. Time Management Skills-As a sales manager has to work under tight schedules and has to keep up to the deadlines fixed by the clients, he has to have exceptional time management skills. Skill of Mediating Internal Conflicts-A sales manager has to be diplomatic and tactful so that he can easily mediate the internal conflicts that arise time to time in every company. Negotiating Skills-A sales manager has to negotiate properly with the customers as well as with the employees.
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Small and Medium Enterprises (SMEs): Issues in the changing global economic environment (part IV) :global competitiveness
- Dr B. Yerram Raju •
[Dr Raju is Dean of Studies & Senior Faculty Member at Administrative Staff College of India at Hyderabad. He is foremost authority on Development Banking in India & is in advisory group of banknetindia.com]
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Problems facing the SSI sector
The SSI sector confronts several problems despite its strategic importance in any industrialisation strategy and its immense potential for employment generation. The problem which continues to be a big hurdle for the development of the sector is lack of access to timely and adequate credit. The Abid Hussain Committee on SSIs (1997) examined the problems of the SSI sector and recommended a package of policies to restructure the industry in the context of current global economic changes. The Expert Committee was of the view that the existing institutional structure for delivering credit to SSEs needs a thorough overhaul. It endorsed the recommendations of the Nayak Committee and urged the RBI to implement the same. The Committee recommended restructuring of financial support through SFCs and SIDCs, tapping of other sources of funding for SSEs, extending credit rating servcies to small units, and addressing the credit needs of tiny units to ensure that they are not bypased by the commercial banking system. The overall credit availability for SSIs during 1991-1996 amounts to only 13%
of the value of production (AIMA figures). The Nayak Committee had recommended a desirable norm of 20% of the value of production to be made available by way of working capital through termlending institutions and commercial banks A norm of 75% was set for fixed capital assets whereas actual availability is only 55%. Lack of finance has been one of the major causes of sickness in the SSI sector, blocking access to technological modernisation and other growth possibilities. There is an urgent need to enlarge flow of credit to the SSI sector from institutional sources. The creation of a facilitating environment for SSIs will centre on access to credit. The Ninth Five Year Plan (1997-2002) estimates additional working capital funds at Rs. 1420 to 1460 billion for the small sector. Lowering interest-rates, specifying a time-frame to clear loan applications and adherence to norms set down by the Nayak Committee are some of the minimum measures that need to be taken. Legislative measures have a role to play with regard to funding and financing of small scale units. There are measures which can basically ensure that impediments to credit availability are removed. (Gopal Choudary). These measures include: Right to reasonable credit from commercial banks as per RBI guidelines framed after consultation with representative Board Protection against non-normative demands for security Appeal and enforcement by Ombudsman/Board Access to public funds by way of debentures, deposits, securities Government guarantee for loans from banks The measures to support Marketing and Competitiveness are as follows: State to exempt from contract security Prompt return of contract securities in case of others Prompt payment measures Protection against undue bundling of contracts by the state Protection against restrictive and monopolistic trade practices Ombudsman/arbitral services for enforcement Impact of WTO The emerging challenges to the small-scale sector are to come from the impact of the Agreements under WTO to which India is a signatory along with 134 member countries. The setting up of the WTO in 1995 has altered the framework of international trade towards non-distortive, market-oriented policies. This is in keeping with the policy shift that occurred worldwide since the early 1980s in favour of free market forces and a tilt away from State regulation/intervention in economic activity. This is expected to lead to an expansion in the volume of international trade and changes in the pattern of commodity flows. The main outcomes of WTO-stipulated requirements will be brought about through reduction in export subsidies, greater market access, removal of non-tariff barriers and reduction in tariffs. There will also be tighter patent laws through regulation of intellectual property rights under the TRIPS Agreement which lays down what is to be patented (both products and processes), for what duration (20 years instead of the present 7 years under India's 1970 Patent Law), and on what terms. The responses by trading countries and the reframing of domestic economic policies which will result from the impact of WTO and the repercussions on the global economy of all these changes are highly uncertain as they involve several unforeseeable factors. However, there are certain
indications of the shape of future trade patterns. Increased market access to imports (of around 3% of domestic production to be raised to 5%) will mean opening up the domestic market to large flows of imports. The removal of quantitative restrictions (QRs) on imports has been speeded up to 2001. At present 714 items are in the restricted category but imports of these items will soon be freed from all restrictions as announced in the recent EXIM policy. Increased market access under WTO requirements will also mean that our industries can compete for export markets in both developed and developing countries. But the expected surge in our exports can come about only if the SSI sector is restructured to meet the demands of global competitiveness which is the key to the future of small industries in the present context.
• Inability to face impact of WTO regime • Inadequate contribution towards R & D • Lack of professionalism In spite of these limitations, the SMEs have made significant contribution towards technological development and exports. SMEs have been established in almost all-major sectors in the Indian industry such as: • Food Processing • Agricultural Inputs • Chemicals & Pharmaceuticals • Engineering; Electricals; Electronics • Electro-medical equipment • Textiles and Garments • Leather and leather goods • Meat products • Bio-engineering • Sports goods • Plastics products • Computer Software, etc. As a result of globalization and liberalization, coupled with WTO regime, Indian SMEs have been passing through a transitional period. With slowing down of economy in India and abroad, particularly USA and European Union and enhanced competition from China and a few low cost centers of production from abroad many units have been facing a tough time. Those SMEs who have strong technological base, international business outlook, competitive spirit and willingness to restructure themselves shall withstand the present challenges and come out with shining colours to make their own contribution to the Indian economy.
IV How SME’s good for Economic Growth in India How is entrepreneurship good for economic growth? This question would seem to have a simple answer: Entrepreneurs create new businesses, and new businesses in turn create jobs, intensify competition, and may even increase productivity through technological change. High measured levels of entrepreneurship will thus translate directly into high levels of economic growth. However, the reality is more complicated. If, by “entrepreneurship,” one allows inclusion of any type of informal self-employment, then high levels of entrepreneurship may actually mean either that there are substantial bureaucratic barriers to formally creating a new business, or simply that the economy is creating too conventional few wage-earning job
opportunities. Under these circumstances, we might reasonably hypothesize that high levels of “entrepreneurship” would correlate with slow economic growth and lagging development. Moreover, the relationship between necessity entrepreneurship and economic development is most likely negative in low income countries while the relationship between entrepreneurship and economic development in high income countries is mostly likely positive(Joltan K. ACS,2007). This must be further balanced by the fact that some low income countries like India and China have high levels of opportunity entrepreneurship, at least in certain part of the country, and countries like Japan have very low levels of opportunity entrepreneurship and low The small scale sector in India has particularly emerged as a vibrant and dynamic segment of the economy. It is a matter of pride that India has a distinct position of its own among the developing countries, particularly in the area of small scale industries, India has a vast reservoir of scientific and technical manpower, occupying third position Contribution of SSI in the industrial production and GDP in the world as far as technical man power is concerned. Over the last five decades, the small scale has acquired a place of prominence in the economy of the country. It has contributed significantly to the growth of the Gross Domestic product , employment generation and exports. The sector now includes not only the SSI units but also the small service and business enterprise (SSSBEs) and is thus referred as small enterprise sector. During 2002-03 to 2006-07 sector has registered continuous growth in the number of units, production, employment and even exports. During this period the average annual growth in the number of units was around 4.1%, while employment grew by 4.2% annually. Further, the average annual growth in production is at 12.6%. SME registered 20.8% growth in terms of Exports.The small enterprises sector, however faces several problems, which hamper it achieving it in achieving its full growth potential. Some of the major problems faced by the sector are access to timely and adequate credit, technological obsolescence, infrastructural bottlenecks, marketing constraints and plethora of rules and regulations.
Role of sme: Production
The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition of ten percentage points. The small-scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units has increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small-scale sector.
Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 (P)
Target Achievement 3.0 5.0 7.0 9.1 9.1 9.1 * * * * 3.1 5.6 7.1 10.1 11.4 11.3 8.43 7.7 8.16 8.90
P-Projected (April-December) * Target not fixed at constant prices
Employment
SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the small-scale sector generates employment for four persons. Generation of Employment - Industry Group-wise Food products industry has ranked first in generating employment, providing employment to 0.48 million persons (13.1%). The next two industry groups were Non-metallic mineral products with employment of 0.45 million persons (12.2%) and Metal products with 0.37 million persons (10.2%). In Chemicals & chemical products, Machinery parts except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by these eight industry groups being 49%. In all other industries the contribution was less than 5%. Per unit employment Per unit employment was the highest (20) in units engaged in beverages, tobacco & tobacco products mainly due to the high employment potential of this industry particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu. Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in Repair services line. Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas. However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal industries per unit employment was higher in rural areas as compared to metropolitan areas/urban areas.
In urban areas highest employment per unit was in Beverages, tobacco products (31 persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic mineral products (12). Location-wise Employment Distribution - Rural Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared between them 17.5%. Urban As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment. Machinery parts except electrical, Non-metallic mineral products, and Chemicals & chemical products between them accounted for 26.2% of employment. In metropolitan areas the leading industries were Metal products, Machinery and parts except electrical and Paper products & printing (total share being 33.6%). State-wise Employment Distribution Tamil Nadu (14.5%) made the maximum contribution to employment. This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the total share being 27.7%. Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) and Punjab (5.6%) together accounted for another 27.4%. Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and Dadra & Nagar Haveli. It was 12 in Maharashtra, Tripura and Delhi. Madhya Pradesh had the lowest figure of 2. In all other cases it was around the average of 6. Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 Target Achievement Growth rate (lakh nos.) (lakh nos.) 128.0 133.0 138.6 144.4 150.5 165 170.1 175.4 134.06 139.38 146.56 152.61 160.00 167.20 171.58 177.3 3.28 3.28 5.15 4.13 4.88 4.50 2.61 3.33
P-Provisional
Export
SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. It would surprise many to know that non-traditional products account for more than 95% of the SSI exports. The exports from SSI sector have been clocking excellent growth rates in this decade. It has been mostly fuelled by the performance of garments, leather and gems and jewellery units from this sector. The product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products. The SSI sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO. Year Exports (Rs. Crores) (at current prices) 29,068 (14.86) 36,470 (25.50) 39,249 (7.61) 43946 (11.97) 48979 (10.2) 53975 (10.2)
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 (P)
P-Provisional
Major Export Markets An evaluation study has been done by M/s A.C. Nielsen on behalf of Ministry of SSI. As per the findings and recommendations of the said study the major export markets identified having potential to enhance SSIs exports are US, EU and Japan. The potential items of SSIs have been categorised into three broad categories. More.. Export Destinations The Export Destinations of SSI products have been identified for 16 product groups. More..
Opportunity
The opportunities in the small-scale sector are enormous due to the following factors: • • • Less Capital Intensive Extensive Promotion & Support by Government Reservation for Exclusive Manufacture by small scale sector
• • • • • • • • • • • •
Project Profiles Funding - Finance & Subsidies Machinery Procurement Raw Material Procurement Manpower Training Technical & Managerial skills Tooling & Testing support Reservation for Exclusive Purchase by Government Export Promotion Growth in demand in the domestic market size due to overall economic growth Increasing Export Potential for Indian products Growth in Requirements for ancillary units due to the increase in number of greenfield units coming up in the large scale sector. Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification.
By its less capital intensive and high labour absorption nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. This is the opportune time to set up projects in the small-scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bugbear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation coupled with Government support will therefore, attract the infusion of just these things in the sector. Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification. By its less capital intensive and high labour absorbtion nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. So this is the opportune time to set up projects in the small scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bug bear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation will therefore, attract the infusion of just these things in the sector.
National Small Industries Corporation Ltd (NSIC) NSIC, since its inception in 1955 has being working with its mission of promoting, aiding and fostering the growth of micro and small enterprises. The Corporation has been introducing several new schemes from time to time for meeting the change aspirations of micro and small enterprises. The main objective of all these schemes is to promote the interest of the micro and small enterprises and to put them in competitive and advantageous position. The
information pertaining to the schemes planned to be continued/implemented in the XI plan period by NSIC with Government support is given hereunder: I.Performance & Credit Rating Scheme:NSIC, in consultation with Rating Agencies and Indian Banks Association, has formulated Performance & Credit Rating Scheme for Small Industries. The scheme is aimed to create awareness among small enterprises about the strengths and weaknesses of their existing operations and to provide them an opportunity to enhance their organizational strengths and credit worthiness. The rating under the scheme serves as a trusted third party opinion on the capabilities and credit worthiness of the small enterprises. An independent rating by an accredited rating agency has a good acceptance from the Banks/Financial Institutions. Under this scheme, rating fee to be paid by the SSIs is subsidized for the first year only and that is subject to maximum of 75% of the fee or Rs. 40,000/-, whichever is less. II.Marketing Assistance Scheme:This is an ongoing old scheme. Marketing, a strategic tool for business development, is critical for the growth and survival of SSIs in today’s intensely competitive market. One of the major challenges before the SSIs is to market their products/services NSIC acts as a facilitator to promote marketing efforts and enhance the competency of the small enterprises for capturing the new marketing opportunities by way of organizing and participating in various domestic and international exhibitions/trade-fairs, buyers-sellers meet intensive campaigns, seminars and consortia formation at the subsidized rates. In addition, the Ministry has three National Level Entrepreneurship Development Institutes namely, Indian Institute for Entrepreneurship (IIE), Guwahati, National Institute for Entrepreneurship and Small Business Development (NIESBUD), Noida and National Institute for Micro, Small and Medium Enterprises (NIMSME), Hyderabad. NSIC: INTRODUCTION The National Small Industries Corporation Ltd., (NSIC), an ISO 9001 certified company, since its establishment in 1955, has been working to fulfill its mission of promoting, aiding and fostering the growth of small enterprises in the country. With passing of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, NSIC has also included medium enterprises in its ambit for providing assistance under some of its schemes. ORGANISATIONAL SET UP: NSIC operates through 9 Zonal offices, 35 Branch Offices, 17 SubOffices, 5 Technical Services Centres, 3 Extension Centres, 2 Software Technology Parks and 1 Office outside India – at Johannesburg (South Africa). SCHEMES OF THE CORPORATION: To enhance the competitiveness of micro & small enterprises, NSIC provides integrated support services under Marketing, Technology, Finance and other Support Services. Marketing Support: Marketing, a strategic tool for business development is critical to the growth and survival of small enterprises in today’s intensely competitive market. NSIC acts as a facilitator to
promote the products of small enterprises and has devised a number of schemes to support small enterprises in their marketing efforts, both in and outside the country. These schemes are briefly described as under:l . Raw Material Distribution: NSIC has made arrangements with bulk manufacturers like M/s. Steel Authority of India Ltd. (SAIL), M/s. Rashtriya Ispat Nigam Ltd. (RNIL), M/s. National Aluminium Company Ltd. (NALCO) and Sterlite group for procuring raw materials. These arrangements are aimed at providing the raw material alongwi th financial assistance, as per the requirements of small enterprises. 2. Consortia and Tender Marketing : Micro, small & medium enterprises in their individual capacity face problems to procure and execute large orders, which inhibit and restrict their growth. NSIC,accordingly adopts Consortia approach and forms consortia of units manufacturing the same products, thereby easing out marketing problems of small enterprises. The Corporation explores the market and secures orders for bulk quantities. These orders are then distributed to small enterprisesin tune with their production capacity. Testing facilities are also provided to enable small enterprises to improve and maintain the quality of their products conforming to the standard specifications. 3. Single Point Registration for Government Purchase: NSIC operates a Single Point Registration Scheme under the Government Purchase Programme, wherein the registered small enterprises get purchase preference in Government Purchase Programme, exemption from payment of Earnest Money The small enterprises registered under this scheme get the following facilities : Ø Issue of tender sets free of cost. Ø Advance intimation of tenders issued by DGS&D. Ø Exemption from payment of earnest money. Ø Waiver of security deposit up to the monetary limit for which the enterprise is registered. Ø Issue of competency certificate in case the value of an order exceeds the monetary limit, after due verification. 4. Exhibitions and Technology Fairs: To showcase the competencies of Indian micro, small & medium enterprises and to capture market opportunities, NSIC participates in select International and National Exhibitions and Trade Fairs every year. NSIC facilitates the participation of the small enterprises by providing concessions in rental etc. Participation in these events exposes small enterprises to international practices and enhances their business prowess. 5. Export of Projects: NSIC is a exporting projects of micro & small enterprises to other countries. The major areas of operation are: Ø Supply of Small Industry projects on turnkey basis and Ø Export of IT solutions from India through Software Technology Parks. Technology Support Technology is the key to enhancing a company’s competitive advantage in today’s dynamic information age. Micro, small & medium enterprises need to develop 54 MSME and implement a technology strategy in addition to financial, marketing and operational strategies and adopt the one that helps integrate their operations with their environment, customers and suppliers. NSIC offers micro, small & medium enterprises the following support services through its Technical Services Centres and Extension Centres: Ø Material testing facilities through accredited laboratories; Ø Product design including CAD; Ø Common facility support in machining, EDM, CNC, etc.; Ø Energy and environment services at selected Centres and
Ø Practical training for skill upgradation l Incubators for Small Enterprise Establishment: Enterprise development is one of the thrust areas for nurturing the development and growth of micro and small enterprises in the country that is being facilitated by providing handholding support to micro and small enterprises in every field of business. Incubator is one of the tools to achieve this as it provides the necessary facilities for prospective / potential entrepreneurs and start-up companies to learn product manufacturing processes coupled with technology development under one roof. NSIC has set up Incubation Centres for small enterprise establishment at its Technical Centres, wherein low cost projects depicting appropriate technologies are displayed in working conditions. These incubation centres provide comprehensive package of services including on the job training and other support services to establish own ventures. At these incubators for enterprise establishment, NSIC facilitates the trainees / first generation entrepreneurs in: Ø Getting training in basic business and entrepreneurial skills; Ø Getting practical exposure on the machines; Ø Selecting the projects; Ø Preparation of the project reports / profiles; Ø Identification of plant and machineries / equipments for the project; Ø Procuring the plant and machineries / equipments; Ø Installation of the machineries; and Ø Other support services to establish their enterprises. Credit Support 1 NSIC facilitates financing for micro, small & medium enterprises in the following manner: l Meeting credit needs of Micro, Small & Medium Enterprises through tie-up arrangements with Banks One of the major challenges faced by micro, small & medium enterprises is inadequate access to finance due to lack of financial information and non-formal business practices. In this direction, NSIC launched a new scheme for facilitating sanction of loans for small enterprises from commercial banks. NSIC has entered into tie-up arrangements with eight banks (i.e. United Bank of India, UCO Bank, Oriental Bank of Commerce, Central Bank of India, Bank of Maharashtra, YES Bank, UTI Bank (now Axis Bank) and HSBC) for sanction of term loan and working capital facilities to the micro, small & medium enterprises as per their requirements. Such arrangements facilitate smooth credit flow to micro, small & medium enterprises. l Financing for Procurement of Raw Material (short term): NSIC supports micro, small & medium enterprises by procuring and MSME supplying raw materials like Steel, Aluminium and Copper etc. Along with financial assistance as required by them. NSIC procures raw material from bulk producers and distributes the same in the requisite small quantities to micro, small & medium enterprises ensuring timely delivery thus, playing a role of the catalyst agency. l Financing for Marketing Activities (short term) NSIC facilitates financing for marketing activities such as Internal Marketing, Exports and Bill Discounting to micro, small & medium enterprises. l Performance and Credit Rating Scheme for Small Enterprises NSIC had formulated the “Performance & Credit Rating Scheme” for small enterprises and as its implementing agency, is operating the scheme through accredited rating agencies i.e. CARE, CRISIL, D&B, FITCH, ICRA, ONICRA and SMERA. The fee to be paid by the micro, small
& medium enterprises for the rating, is subsidized by the Government to the extent of 75% up to a maximum of Rs. 40,000/-. The scheme has become quite popular now and getting good response from the micro, small & medium enterprises. The rating serves as a trusted third party opinion on the unit’s capabilities and credit worthiness. A good rating enhances the acceptability of the rated unit in the market and also makes their access to credit quicker and cheaper and thus helps in economizing the cost of credit. Support Services l .Infomediary Services Information plays a vital role in the success of any business. Recognizing the importance of information and its relevance to micro, small & medium enterprises, NSIC provides Infomediary Services to small units. Besides hosting a website (www. nsic.co.in), NSIC hosts sector specific portals for focused information dissemination. Under this scheme, micro, small & medium enterprises can become members and avail a number of value added services. Some important services are: Ø Supplier database; Ø Market intelligence; Ø Technology providers; Ø Information providers; Ø Linkages with relevant institutions; Ø E to E services; Ø E to B services and Ø Value additions like directories of machinery makers and component manufacturers, spare capacity bulletin boards, discussion forums, virtual exhibitions, etc.57 Annual Report 2007-2008 2. Insurance of Export Credit for Micro, Small & Medium Enterprises under strategic alliance between NSIC and ECGC NSIC has entered, into an arrangement with Export Credit Guarantee Corporation of India Ltd. (ECGC) for facilitating small and medium enterprises to insure their export credits. Micro, small & medium enterprises would be helped in insuring their export credits through any office of the Corporation, located all over the country. This arrangement shall strengthen promotion of exports from small enterprises. 3. International Cooperation For the last five decades, NSIC has acquired various skill sets in the development process of small enterprises. The inherent skills are being networked to offer consultancy services for other developing countries. The areas of consultancy are as listed below: Ø Capacity Building; Ø Policy & Institutional Framework and Ø Business Development Services One of NSICs objectives is to facilitate sustainable international partnerships. The emphasis is on sustainable business relations rather than on one-way relations. Since its inception, NSIC has contributed to strengthen enterprise-toenterprise cooperation, southsouth cooperation and to share best practices and experiences with other developing countries, especially those in African, Asian and Pacific regions. Important initiatives are through setting up of institutional frameworks for promotion of micro, small & medium enterprises; conducting techno-economic assessment surveys; setting up industrial estates, provision of common facility services; support and extension services; supply of machinery, equipment and transfer of technology; ancillary development and subcontracting relationships and technical and entrepreneurial training. NSIC’s initiatives in this area are:
Exchange of business / technology missions with various countries for facilitating enterprise-toenterprise cooperation, joint ventures, echnology transfers and other forms of sustainable collaboration. Exploring new markets and areas of cooperation through: - Identification of new export markets by participating in sector-specific exhibitions all over the world. - Identification of countries in which India has potential to export its technology, products and projects, such as the sub-Saharan countries, 58 MSME Central Asia the Indo-China region etc. - Assistance to these countries in formulating their policy and institutional framework.
Small Business Management
Small Business Management is nothing but sales, marketing and advertising management for a small business. Sales and Marketing are lifelines of a small business. So, sales and marketing management is very much needed for the stability and growth of the small business enterprise. A successful Marketing Management requires: Proper Analysis of Target Market-For every small business there should be a target group of customers. Identifying the specific customers and the target market for the business is very much important to take up a focused product campaign. Otherwise, the market campaign and the promotional expenses targeting all general public is a sheer waste of energy and money. If the target market is known the task of devising promotional plans become simple and affordable. Quick Financial Investment-Firstly, owner or manager of a small business should have a well chalked out planned budget for market campaigning and he should follow the budget accordingly. Quick Financial Investment is very important in this case. There are many marketing strategies, which can be undertaken by proper and quick financial investment like TV advertisement and Banner advertisement. This kind of quick financial investment in return brings more sales and more business. Marketing Promotional Tools-A small business owner should use marketing promotional tools so that the business can progress steadily. Manager of a small business should promote marketing tools, which are simple, innovative and low cost. These can be brochures, business cards, business gift items that do not require heavy investment. Use of Information Technology-Proper use of Information Technology can enable a small business to grow at a much faster pace than any other promotional project can do. Internet is a medium used by huge number of people everyday. So, promoting the small business on the Internet by means of web pages can give the small business a sharp edge over others. E-mail marketing is another marketing tool which improvises customer relation, increases sales but is very cheap Referral System-This system needs nothing but maintenance of a consistent good relation with other business. Most of the customers are inclined to the products that are referred to them by anybody. So, by maintaining Referral System manager of the small business can
promote his products by other companies (as the other companies refer the product) and can earn a good name in the industry. Use of Innovative Schemes-In this age of simplicity and creativity, the managers of small business should use original and innovative marketing techniques. Costly market campaigns can be replaced with creative low cost ones, which has potential to attract the customers. Proper Management of Sales Activities of the business requires dynamism and creativity. A good Sales Manager should have the following qualities: Excellent Communication Skill-This includes excellent verbal skill as well as good listening skills. A person who manages the sales has to use appropriate words in an appropriate manner so that the messages are conveyed clearly and the irate customers are easily handled. Skill of Motivating Employees-The sales manager should know how to motivate employees so that they can work towards achieving great success. Skill to Tackle Problems before they arise-A good sales manager should have the foresight to see the problems that can arise in the future and should take appropriate safeguard. Time Management Skills-As a sales manager has to work under tight schedules and has to keep up to the deadlines fixed by the clients, he has to have exceptional time management skills. Skill of Mediating Internal Conflicts-A sales manager has to be diplomatic and tactful so that he can easily mediate the internal conflicts that arise time to time in every company. Negotiating Skills-A sales manager has to negotiate properly with the customers as well as with the employees.
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Small and Medium Enterprises (SMEs): Issues in the changing global economic environment (part IV) :global competitiveness
- Dr B. Yerram Raju •
[Dr Raju is Dean of Studies & Senior Faculty Member at Administrative Staff College of India at Hyderabad. He is foremost authority on Development Banking in India & is in advisory group of banknetindia.com]
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Problems facing the SSI sector
The SSI sector confronts several problems despite its strategic importance in any industrialisation strategy and its immense potential for employment generation. The problem which continues to be a big hurdle for the development of the sector is lack of access to timely and adequate credit. The Abid Hussain Committee on SSIs (1997) examined the problems of the SSI sector and recommended a package of policies to restructure the industry in the context of current global economic changes. The Expert Committee was of the view that the existing institutional structure for delivering credit to SSEs needs a thorough overhaul. It endorsed the recommendations of the Nayak Committee and urged the RBI to implement the same. The Committee recommended restructuring of financial support through SFCs and SIDCs, tapping of other sources of funding for SSEs, extending credit rating servcies to small units, and addressing the credit needs of tiny units to ensure that they are not bypased by the commercial banking system. The overall credit availability for SSIs during 1991-1996 amounts to only 13%
of the value of production (AIMA figures). The Nayak Committee had recommended a desirable norm of 20% of the value of production to be made available by way of working capital through termlending institutions and commercial banks A norm of 75% was set for fixed capital assets whereas actual availability is only 55%. Lack of finance has been one of the major causes of sickness in the SSI sector, blocking access to technological modernisation and other growth possibilities. There is an urgent need to enlarge flow of credit to the SSI sector from institutional sources. The creation of a facilitating environment for SSIs will centre on access to credit. The Ninth Five Year Plan (1997-2002) estimates additional working capital funds at Rs. 1420 to 1460 billion for the small sector. Lowering interest-rates, specifying a time-frame to clear loan applications and adherence to norms set down by the Nayak Committee are some of the minimum measures that need to be taken. Legislative measures have a role to play with regard to funding and financing of small scale units. There are measures which can basically ensure that impediments to credit availability are removed. (Gopal Choudary). These measures include: Right to reasonable credit from commercial banks as per RBI guidelines framed after consultation with representative Board Protection against non-normative demands for security Appeal and enforcement by Ombudsman/Board Access to public funds by way of debentures, deposits, securities Government guarantee for loans from banks The measures to support Marketing and Competitiveness are as follows: State to exempt from contract security Prompt return of contract securities in case of others Prompt payment measures Protection against undue bundling of contracts by the state Protection against restrictive and monopolistic trade practices Ombudsman/arbitral services for enforcement Impact of WTO The emerging challenges to the small-scale sector are to come from the impact of the Agreements under WTO to which India is a signatory along with 134 member countries. The setting up of the WTO in 1995 has altered the framework of international trade towards non-distortive, market-oriented policies. This is in keeping with the policy shift that occurred worldwide since the early 1980s in favour of free market forces and a tilt away from State regulation/intervention in economic activity. This is expected to lead to an expansion in the volume of international trade and changes in the pattern of commodity flows. The main outcomes of WTO-stipulated requirements will be brought about through reduction in export subsidies, greater market access, removal of non-tariff barriers and reduction in tariffs. There will also be tighter patent laws through regulation of intellectual property rights under the TRIPS Agreement which lays down what is to be patented (both products and processes), for what duration (20 years instead of the present 7 years under India's 1970 Patent Law), and on what terms. The responses by trading countries and the reframing of domestic economic policies which will result from the impact of WTO and the repercussions on the global economy of all these changes are highly uncertain as they involve several unforeseeable factors. However, there are certain
indications of the shape of future trade patterns. Increased market access to imports (of around 3% of domestic production to be raised to 5%) will mean opening up the domestic market to large flows of imports. The removal of quantitative restrictions (QRs) on imports has been speeded up to 2001. At present 714 items are in the restricted category but imports of these items will soon be freed from all restrictions as announced in the recent EXIM policy. Increased market access under WTO requirements will also mean that our industries can compete for export markets in both developed and developing countries. But the expected surge in our exports can come about only if the SSI sector is restructured to meet the demands of global competitiveness which is the key to the future of small industries in the present context.
