Strategies for sustainable development of SMEs Contents Indias economy at a glance Industrial situation-present
SMEs-characteristics Issues and challenges Technological issues Management challenges Sustainability outlook Way forward Indias Economy $ 2 trillion size to reach $ 6 trillion by 2020
Growth rate6-8% pa Sector wise contribution (%) Agriculture 17 Industry Services Population: million % Supports 1/6th of World Population in 2.3% of landmass 0-14 age group % age group % % Indian Industry Industrial production measures the output of businesses integrated in industrial sectorsuch as manufacturing, mining, and utilities Current situation of IIP and Mfg growth declining IIP ofAugust 2013 stands at 165.7, which is only 0.6% higher as compared to the level in the month of August 2012. Manufacturing growth rate declined to during Apr-Aug 2013-14 from 0.0 during the same period previous year. Decline of growth in the manufacturing sector is largely dueto Sluggish growth of investment Squeezed margins of the corporate sector Deceleration in the rate of growth of credit flows and The fragile recovery of global economies Growth in industrial production 1992-2012 SMEs current situation
Growing with problems: Despite showing a robust growth rate of over 10% over the last 5 years, the SME sector is beset with operational problems due to size and nature of business. Potent enough to contribute to national economy SME sector if properly guided can help realise the target of the proposed National Manufacturing Policy of raising the share of the manufacturing sector in GDP from 16% at present to 25% by the end of 2022 MSMEs India 361.8 lakh units 3000 medium 16.64 lakh regd MSMEs
Employment lakhs Mfg& services 45% of industrial prodn Exports 40% 4th All India Census of MSMEs SMEs-Why sustainability matters?
Large volume of manufacturing MSMEs accounts for about 45 per cent of manufacturing output, Large number of units: 450 lakh units 95 % of the total industrial units Gross output: Rs 18.3 lakh Cr Big exporter:40 per cent of totalexports. Large employer: To 10 Crpeople, mostly in the rural areas Largest employer next toagriculture sector. Development of this sector holds key to Inclusive growth and Sustainable development of the country. Sustainable development of SMEs
SMEs are to be guided to pursue green growth strategies as a prelude to combating global environmental issues. Environmental burden of their production shall be reduced Creation in the green markets market for environment friendly products and services SME entrepreneurs awareness to be aroused towards a green and low carbon economy SME knowledge and skill gaps in relation to green technologies, practices and business models shall bereduced SME access to the emerging markets of environmental goods and services increased Key characteristics of Indian MSMEs
High contribution to domestic production Significant export earnings Low investment requirements Operational flexibility Location wise mobility Capacities to develop appropriate indigenous technology Import substitution Contribution towards defence production Technology-oriented industries and Market competitiveness Textiles Ceramic Tiles & Sanitary Auto Components Dyes & Pigments
SME CLUSTERS TextilesCeramic Tiles & Sanitary Auto ComponentsDyes & Pigments Leather ProductsPumps & accessories Machine ToolsGems & Jewellery Rice MillsRe-Rolling Mills Plastic Products Poultry Packaging Refractories Food ProcessingSea- Food CoirRubber ChemicalsPetrochemicals HandloomsHandicrafts SME Issues & Challenges
Technical Technology & Production Infrastructure& utilities EH&S issues R&D efforts Management Credit flow Market reach & competition HR and Skill upgradation Government support/regulation Inter institution linkages Technology & Production
No access to state of art technologies-Most operate at Low level technologies High cost of production, low productivity, wastage Shall move to appropriate and affordable technologies Barriers: Propriety technologies- closely guarded Poor Technology transfer, lack ofoptimization of operating units- energy, safety, water, environment audits, ICT usage in procurement, contracting & marketing Poor technological development in SME sector- support to acquire modern technologies. CSIR labs/NRDCnot rising to expectations- need based R&D Little efforts towardsadoption of BATs Global Benchmarking Increased Industry-Institution linkage Govt , IAs, Professionalbodies, Trade & Industry associations Infrastructure & Utilities
Most SME industry estates, parks and clusters are grossly deficient in all kinds of basic infrastructure Common infrastructure for SME clusters to be built Develop transport network- railways, waterways, roadways and airways Warehouses- suitable to different industry segments Efficient communication facilities- telecom, internet Reliable supply of water, power, captive & emergency power Environment management set up-CETPs Waste recycle facilities Tool rooms, Testing house, Design centres, Training schools Combined efforts of Central/State and Local Govt needed for development of Physical & knowledge infrastructure. EHS issues Weak environmental performance of SMEs
Better environment management contribute to efficiency, profitability, and competitiveness for the unit Sectors having large scale EHS impact include speciality chemicals, food processing, dyes, printing, paper, textiles, leather, timber, metal articles etc Major concerns are effluents, toxic waste, air pollution, ozone depletion, waste management, fire and explosion andwork place safety Technological improvements- in-house and acquired Modern environment management techniques source reduction, conservation, recycle & reuse Common ETPs Product Stewardship: Responsibility for the product through the value chain from raw materials to end use Financing SMEs-Credit flow
Cost of finance is high compared to large corporate/overseas manufactures Despite budgetary increase in SME lending Banks remain reluctant. This needs to be addressed. Consider public equity to reduce cost of capital Turnaround SIDBI/State FCs to enable funding SMEs Relook at the CGTMSE so that SME funding become easy anddepend onlyon project viability and without insisting collaterals. Cluster specific soft loan support scheme. Industrial financing Source SMEs Corporate Internal funding 15 47
Banks/ FI s Capital Market Others* *Others include trade credit, local money lenders which are costly ISB survey 2010 Marketing SME products
Innovative marketing strategies needed to compete in the global market. Technology solutions, internet, social media, direct marketing tools Trade fairs Competition mapping & re-engineering Go beyond traditional marketing approaches create brand equity and compete globally. Avail Govt purchase preferences Development support for exposure to overseas markets. NMCPassistance for adoption of bar code, technology upgradation in packaging and skill development for modern marketing techniques HR and Skill upgradation
The biggest challengeof SMEs fortalent attraction and retention Partly due toinability to pay competitive compensation packages andinadequate employer branding. Competence and Skill development Gap between performance and potential Strengthen employee Communication, Training & Development Reform redundant labour laws Develop All India Management Cadre for SMEs Succession planning GovernmentSupports Energize industrial promotion agencies in Govt towards SME development Simplify procedures, widely publicize available Govt supportsand render it easy to avail forgenuine SME developers Specific support for energy conservation, waste reduction, Start ups, innovation, employment generation may be given Involve Industry associations in related policy making Institutional linkages
Develop strong bonding betweenindustry, Universities and R&D institutions to work together Encourage patenting of technologies, practices Entrepreneurshipdevelopment shall be part of curriculum of professional courses Start up encouragement Sustainability outlook
As bulkof manufacturing output is from the SME sector It has a strong bearing on theglobal environment in terms of CO2 and other GHG emissions leading to climate change Thus life cycle analysis of products shall contribute to little environment burden Most raw material inputs are sourced from nature. Resource depletion is to addressed properly Waste generation from large number of widelydistributedunitsis a major issue. Treatment of multi component waste streams need utmost care Way forward National policies directed towards environmental sustainability and combating climate change shall have a thrust on the SME sector Technology missions needed to focus attention onin critically polluting and energy intensive SME manufacturingsectors and develop new strategies SMEs to foster traditional knowledge and manufacturing capabilities