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Business
SME Associations
Need
to Recast Their Service Menu
by V.N. Prasad
The business environment for micro and small enterprises in India has
completely changed during the past decade and a half due to
globalization and liberalization of Indian economy. The new business
environment has also opened new opportunities for technologically sound
small enterprises to expand their market base and forge linkages with
large enterprises amidst challenges. Small enterprises have no other
option than to build their capacities and capabilities to survive in the
highly competitive environment for which all stakeholders, particularly
industry associations, must necessarily extend the needed support.
The message of new rules of game, ushered in by the World Trade
Organization (WTO) agreements to SME associations is quite clear and
loud that they have to change their work approach in order to emerge
as an effective support institution in the present competitive
environment. They are, consequently, faced with new challenges and
are required to recast their service menu.
Associations, no doubt, have been espousing the cause of SSIs (now
called SMEs) from a very long time, but if we look at their general
history it would be clear that issue (s) confronted by the SMEs
largely determined the nature and type of service (s) rendered by an
association until recently. Thus, focus of most associations has
been to protect the interest of their members and obtain for them
all possible concessions and help from the authorities, which, in
turn, made them dependent on authorities.
Despite country being into reforms process for 15 years now, many
associations, unfortunately, still continue to adhere to their old
philosophy. Even when the government itself has shifted its approach
from ‘protection’ to ‘promotion’ of SMEs, several associations still
keep on voicing their concern at the dilution of list of items
reserved for production by manufacturing segment of SMEs, and lack
of protection in the highly charged environment! They do not realize
that such an approach could prove suicidal for SMEs as competition
is no longer at the doorstep of the market but has already
penetrated deep into the home turf.
There is no point in crying wolf, when it has already entered our
home. Rather, we need to see how to arm SMEs to fight the wolf. And,
this casts a heavy responsibility on associations to build the
competitive strength of their members. The single most important
challenge before SMEs today is to understand WTO agreements and
their implications. In addition, SMEs need to appreciate
developments like new uniform custom practices to be effective from
July 2007 and World Customs Organization's SAFE Framework of
Standards.
What do SMEs Need?
In order to better appreciate the issue, it would be helpful to
briefly look at present status of the SSI sector. According to the
Third Census of SSIs (2001-02) data released by the Office of
Development Commissioner (SSI), the sector consists 10.5 million
enterprises, employs 25 million persons, accounts for 35 per cent of
country’s foreign exchange earnings and account for 40 per cent of
the gross value addition in the manufacturing sector. Such an
important economic player has come under heavy pressure to improve
their competitiveness in order to survive and grow in the new open
economic ambience.
That the SMEs have problems in adjusting their operations to new
market conditions is reflected in an observation of the third Census
of SSIs that a sizeable number of SMEs cited lack of demand and
marketing problems as two major reasons for their incipient
sickness.
SMEs present afflictions stem from two sources: internal and
external to them. Former relates to inherent limitations of an SME –
originating mainly from the earlier protectionist approach - which
are too well known to be repeated, and, latter encompass policy
changes, dictated by international developments, which calls upon
SMEs to improve their competitiveness if they wish to be part of the
new paradigm.
Several SMEs, no doubt, do recognize that protection no longer is an
answer to their problems, but want an effective support in becoming
strong in every respect: understanding complications and
implications of WTO agreements and other developments; technology
up-gradation; product development/innovations; marketing; modern
enterprise management skills; etc. In this scenario, associations
need to be more pro-active and provide a variety of services to SMEs.
Business Development Services
In addition to ensuring easy access to finance – a very major
concern, SMEs need a host of non-financial supports, called business
development services (BDS), which can improve their overall
performance, access to markets, and their ability to compete
effectively in the highly charged business environment. These
services include educating about and training on new international
trade and investment regime and other related aspects, use of IT as
a business tool and Intellectual Property Rights; product-oriented
supports (e.g. identification; proto-type development; modification,
etc.); technical services, comprising also skill and technology
up-gradation and incubators for start-ups; marketing support,
including fostering linkages with large enterprises; information;
guarantees; networking; consultancy; counseling; and advocacy. It
would not be exaggerating to say that several SMEs in developed
countries owe their growth to the availability of such support
services.
Common Facilities
Associations could also establish common facility centres (CFCs) to
help SMEs reduce their expenses on certain aspects of production
process. Though a SME cluster (about 320 in country) is ideal choice
for establishing CFC, the concept could be extended to other centres
with varied type of enterprises. It is common knowledge that there
are several engineering products, for example, which involve
common/similar processes like shaping, grinding, surface finishing
and drilling and testing facilities, and a Centre with these kinds
of facilities would be of a great assistance to the SME sector.
Another common service that could be thought of is providing
warehousing facilities. Since provision of many of above mentioned
services would entail a cost to associations, they need to price
them on ‘no-loss and no-profit basis’.
Do Associations have capacities?
But a major question that arises is: are associations equipped to
render these services? Barring larger organizations such as FICCI,
ASSOCHAM, PHD Chambers and CII, which do have SSI
Committee/Division, scores of SME associations are practically a
‘one-man show’, like a small-scale unit itself, working even without
a proper Secretariat! One can then easily imagine what kind of a
supportive role such associations can play in gearing up their
members to face the new challenges.
Management bodies of several associations themselves first need to
understand the nitty-gritty and implications of the new economic
order with a view to serving their members in an effective way. They
need to realize that no enterprise can survive today without having
a global vision. This means that associations themselves need to
build their capacities to render the ‘market-dictated’ services.
Towards this, the Ministry of Small Industries, government of India,
recently introduced a special financial support programme to
building the capacity of industry association. Reports say that
already about Rs. One crore has been sanctioned to 32 associations.
Some associations, no doubt, have, overhauled their services to meet
the aspirations of their members, as necessitated by the market
conditions. Federation of Indian Micro and Small & Medium
Enterprises (FISME), Association of Lady Entrepreneurs of Andhra
Pradesh (A-LEAP), Association of Women Entrepreneurs of Karnataka
(AWAKE), Indian Industries Association (IIA), Karnataka Small Scale
Industries Association (KASSIA) and Tamil Nadu Small Scale and Tiny
Industries Association (TANSITA) are just a few to name.
TANSITA, for example, has set up a Services Centre with the
assistance of Friedrich Naumann Foundation, Germany to provide a
basket of support services to the micro and small enterprises in the
State. These include training, consultancy, escort, information,
project profiles, Net presence and market surveys. The Centre is
also actively involved in entrepreneurship promotion, capacity
building of small enterprises, development of enterprises and wealth
creation in rural areas. Similarly, KASSIA assists SMEs in obtaining
ISO certification. FISME’s activities revolve chiefly around key
issues emerging from WTO and its challenges. AWAKE has established
incubators.
There could be more such examples, but, generally, it has been
observed that a majority of SME associations have their own
limitations. Another area that all associations need cater to and
take care of is service enterprise segment, which now dominates SME
sector.
Associations are required to strengthen themselves to be more useful
to their members; otherwise many of them may lose their relevance in
the new economic environment.
SME associations, therefore, need to re-visit their service list as
they, rather than the government, have a greater role in making
their member- constituents stronger and confident in the present
competitive environment. The government, on its part, as a
facilitator, is willing to extend all possible support to
associations to enable them play a more proactive role (visit site:
www.laghu-udyog.com for details), and this ‘public-private
partnership’ augurs well for SMEs’ growth and development.
May 27, 2007
V. N. Prasad, Consultant, World Association
for Small and Medium Enterprises, Noida, U.P, India. Views are personal
and not that of WASME. Can be reached at
vnpj@yahoo.com
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