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.
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.
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 firstname.lastname@example.org