Wednesday, December 17, 2008

SME scenario in India


The small-scale industrial (SSI) sector accounts for 95% of industrial units in India. The sector accounts for 39-40% of value-addition in the manufacturing sector. Not only that, SSIs account for more than 30.0 percent of total exports from India. SSIs also account for 6-7% of Gross Domestic Product (GDP). More than 190 lakh persons have been employed by the SSIs. The sector produces roughly around 7500 items. Information technology (IT) is perceived to play a crucial role in transforming not only big but also small-and-medium enterprises (SMEs). Enabling policies on the part of government in order to provide incentives to SMEs for usage of IT is quite essential. It is expected that the National Manufacturing Competitive Council (NMCC), Limited Liability Partnership Bill, Micro, Small and Medium Enterprises (MSME) Bill and OP Bhatt and SP Gupta Committee Reports, are geared towards strengthening the SME sector. Some argue that instead of protection being given to the SMEs, the government should help the SMEs by providing them opportunities to access technology and capital. But how far the SMEs can succeed at the global level when there is cut-throat competition is a moot question in the backdrop of trade liberalization, particularly after the creation of World Trade Organisation in 1995. The proposed Limited Liability Partnership Bill brings in the much required capital infusion, which does not spoil the texture of the SMEs and is designed to have the best elements of corporates with the flexibility of partnerships. The Limited Liability Partnership Bill is expected to provide the right framework and the vehicle in order to encourage investment in innovations. During October, 2008 the Limited Liability Partnership Bill was introduced in the Upper House of the Indian Parliament. The provisions relating to no limit on number of partners, one partner’s liability not affecting another and the easy walk out are considered to be highly enabling and encourage entry of professional management into the SME sector. The three business segments likely to benefit most from this Bill include professionals such as accounting and law firms, small businesses--both proprietary and partnership firms, and the knowledge and innovation industry, which is dependent on this legislation. One must add here that during the recent times, it is the knowledge process outsourcing (KPO) industry, which has gained edge against business process outsourcing (BPO) industry.



Important organisations associated with small-scale industry are: Small Industries Development Organisation (SIDO), Small Scale Industries Board (SSIB), National Small Industries Corporation Ltd. (NSIC), Confederation of Indian Industry (CII), Federation of Indian Chamber of Commerce and Industry (FICCI), PHD Chamber of Commerce and Industry (PHDCCI), Associated Chamber of Commerce and Industry of India (ASSOCHAM), Federation of Indian Exporters Organisation (FIEO), World Association for Small and Medium Enterprises (WASME), Federation of Associations of Small Industries of India (FASII), Consortium of Women Entrepreneurs of India (CWEI), Laghu Udyog Bharti (LUB), Indian Council of Small Industries (ICSI), Indian Institute of Entrepreneurship (IIE), National Institute of Small-Industry Extension Training (NISIET), National Backward Caste Finance Development Corporation (NIESBD), National Institute for Entrepreneurship and Small Business Development (NIESBUD), Small Entrepreneurs Promotion and Training Institute (SEPTI), Small Industries Development Bank of India (SIDBI) etc.



It is perceived that registration of companies (those which come in the SSI and SME sector) becomes essential in order to raise capital via the stock market. IT or Internet-enabled environment helps in fast and accurate decision-making by the SMEs due to increased mobility. The critical components before SMEs are speed of services, access to information, empowering employees in terms of skill and delivering highest valued services at competitive cost. SMEs need IT-based solutions in terms of multi-tasking, expanding customer base, raising productivity, controlling cost, working remotely, fast and accurate decision-making and facilitating collaboration. SMEs have various needs in order to function in an aggregative manner to reach out for value addition by keeping in mind the variable cost model. IT usage by the SMEs raises productivity of the sector in particular and the economy in general. Product leadership, operational excellence and customer relationship, which SMEs look at while using IT-based solutions is essential. SMEs have to be good decision-makers, planners and strategy-makers regarding the type of technology, which they are adopting. There is the need for best manufacturing practices in the SME sector. Innovation, design development and validation by the SMEs in the face of globalisation and rapid technological advancement, to stay afloat during competition are the essentials. There is also the need for investment in infrastructure i.e. roads, ports and power, and effective fiscal interventions by the government so as to promote SMEs. Instead of IT use being limited to accounting or some in-house activities, there is the need to use IT to look at inventories and capacity utilization. TQM, TPM, 6 sigma, ISO et al are essential for effective standardization of the SMEs. The framework has to move beyond built-to-print to art-to-part, where ERP (enterprise resource planning) has a possible role. SMEs instead of adapting to proprietary software like Microsoft Office can rely upon free and open source software (FOSS) like Open Office, Linux Red Hat et al for cost reduction. It has been found ERP software such as NAVISON can reduce operational cost drastically. Other web-enabled ERP vendors are BaaN and IFS. ERP is considered as an integrated system, which allows information to enter at a single point in the process and update a single, shared database for all functions that directly or indirectly depend on this information. ERP solutions cover human resource, corporate finance, production planning and control, materials management, quality management, plant maintenance, services management, quality management, plant maintenance, services management, and sales and distribution. Accounting softwares like Tally helps in financial management of an organization. Integrated Transactional Information Systems such as Radix, MakeESS, Octopus-E, Tech Solutions etc. can also help the SMEs. SCM (Supply Chain Management) software help in raising productivity and efficiency of inventory controls. KM (Knowledge Management) systems help to organize and share the knowledge of its employees. CRM (Customer Relationship Management) is considered to integrate people and technology to maximize external relationships. The emphasis should be not only on cost efficiency and quality, but also on speed and innovation. However, SMEs need to invest in clean and efficient technologies. The role of SME cluster formation cannot be ignored at all but it is essential to take into consideration issues like environment impact assessment (EIA), displacement of local people, dispute settlement between management and labour etc. Re-utilization of industrial wastage by the SMEs becomes an important strategy to overcome environmental degradation.


Local small-and-medium enterprises (SMEs) are essential because they can help alleviate poverty by increasing income levels and creating jobs. SMEs are expected to be labour-intensive compared to the big businesses. Governments in developing nations should thus promote the growth of SMEs in order to avoid monopolistic and oligopolistic markets with the right kind of policies and regulatory frameworks. Since the global economy becomes increasingly reliant on information communication technologies (ICTs) in order to receive, process, and send out information, SMEs in developing countries are expected to go for ICTs. It is said that SMEs face competition from global giants due to which they ask for protection, and technological and financial support from the State. SMEs in the developing nations should integrate into the global supply chain, bid for outsourcing businesses, and increase their own productivity. In the course of time, however, their reliance on the informal sector of the economy for fetching raw material and informal goods should not become exploitative in nature. SMEs have great potential to drive economic growth, so governments should remove constraints and create an enabling environment. In the backdrop of global financial crisis, the Reserve Bank of India has taken several steps in order to promote economic growth and avoid recession, which include easy credit facilities and appropriate credit pricing for SMEs. It has cut cash reserve ratio (CRR), and short-term lending and borrowing rates in the recent past so as to infuse liquidity in the financial market despite the problems of food and fuel price inflation.

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