Cluster development: a key strategy for enhancing productivity, competitiveness of MSMEs

Lack of satisfactory and timely banking finance, unavailability of needful technology, low production capacity, limited knowledge, toothless marketing strategy, non-availability of skilled labour, etc are not the only challenges faced by the micro and small medium enterprises (MSMEs). As liberalization prevails in the global economy, small firms are also under tremendous pressure of other factors like innovation, restructuring of operations and problem in achieving production efficiencies.

The competition between a small and big firm is not only in price and size, but also compete on the basis of their ability to innovate. Hence, in order to maintain sustainability in this ever-changing global economy, SMEs should also adopt innovative techniques and should undergo with continuous improvement in their product, process, like big players. However, non-availability of resources is the major roadblock in the growth of SMEs. Analysts feel that 'cluster development' has potential to address the issue of resource-gap.

 

 

 

A 'cluster' is a sectoral assemblage of enterprises which are facing common opportunities and challenges. MSMEs can access skilled and highly educated labour and pooled business services via enterprise clusters and networks MSMEs having particular interests.

 

 

 

UNIDO, the UN specialized industrial agency, defines a cluster as “a sectoral and geographical concentration of small/medium enterprises facing common opportunities and threats”.

 

 

 

Objectives of a cluster development scheme:

 

Cluster development programme is aimed to mitigate various challenges faced by the Indian industry, primarily by the small industries. The main objectives include:

 

-  Extending support to boost MSMEs’ businesses by addressing general issues like improvement of technology, skills and quality, market access, access to capital, etc.

 

-  Building MSMEs' capacity with the formation of self help groups, consortia, upgradation of associations, etc

 

- Creating and upgrading infrastructural facilities in the new/existing industrial areas/clusters of MSME

 

- Setting up of common facility centres for testing, training, complementing production processes, etc.

 

In addition, clustering of units also helps services providers, like banks and credit agencies, to facilitate their services to small firms.

 

 

 

Cluster Composition

 

The process of cluster development usually consists of the following steps :-

- Choosing Cluster Development Agent

 

- Diagnostic Study

 

- Developing action plan

 

- Smoothening the process of technology shift from producer to end user

 

- Setting up of Common Facility Centres (CFCs)

 

- Organising workshops, seminars, training and reaserch visits for faster dissemination of technology across the cluster of small enterprises

 

 

 

Cluster Development Programmes

 

As mentioned earlier, industrial clusters are recognised as an effective means of business development and promotion of small firms. The easy reach to specialized suppliers of raw materials, parts and components, machinery, skills and technology as well as other supporting services can enable enterprises to improve competitiveness. Cluster development not only improves the competitiveness of industry, rather it also acts as an instrument for alleviation of poverty, generation of sustainable employment, fostering innovation, enabling better, effective and sustainable credit flow.

 

Cluster development enables SMEs to establish a strong position in the global market in a number of traditional products such as shoes, leather handbags, knitwear, apparel, furniture, tiles, musical instruments, food processing and also in the industries which supply machinery to these sectors.

 

In India, there are around 7,000 clusters in traditional handloom, handicrafts and modern SME industry segments. As per the estimations, there are about 2500 unmapped rural industry clusters in the country.

 

 

 

Cluster Development Initiatives in India

 

Citing the benefits of cluster development and in attempts to extend support to the small firms, several institutions in India have taken up Cluster Projects. The major institutions involved with cluster development initiatives in India include the following:

 

- National Small Industrial Corporation Ltd (NSIC) – NSIC was established in 1955 by the Government of India with a view to promote, aid and foster the growth of small Industries in the country.

 

- Development Commissioner (Handicrafts), Ministry of Textiles - The Baba Sahab Ambedkar Hastshilp Vikas Yojana Scheme (AHVY) has been launched under this institution. The scheme is aimed at promoting Indian handicrafts by developing artisans clusters into professionally managed and self reliant community enterprises.

 

- Small Industries Development Bank of India (SIDBI) Technology Upgradation Programme - SIDBI implements various measures/activities aimed to make the Indian SME sector more competitive. Its cluster development work started as early as 1991 and SIDBI has intervened in around 30 clusters till date.

 

- National Bank for Agriculture & Rural Development (NABARD) – NABARD is a development Bank. It is aimed is to strengthen existing clusters towards sustainable competitive advantage through technology upgradation/ transfer, raw material access, skill development, managerial inputs, credit and market support.

 

- Khadi and Village Industries Commission (KVIC) - KVIC implements programme for promotion of Village Industries Cluster- Rural Industry Service Centre (RISC) for Khadi and Village Industries activity. 

 

- United Nations Industrial Development Organisation (UNIDO) - UNIDO Cluster Development Programme (CDP) which is aimed to contribute to the overall performance and collective efficiency of the small and medium enterprise clusters for sustainable development by assisting selected local communities of firms and associated institutions in the clusters.

 

- Department of Science & Technology, Ministry of Science & Technology

 

- Textiles Committee of India, Ministry of Textiles

 

- National Institute for Small Industry Extension Training (NISIET) [supported by DC(MSME)]

 

- State Bank of India (SBI) UPTECH Programme

 

- Entrepreneurship Development Institute of India

 

- Coir Board

 

Besides these central and national support institutions, some other institutions also have their respective cluster development initiatives:

 

- Grameen Development Services (GDS) – Incepted in 1993, GDS is working for the welfare and development of the poor and disadvantaged. Its cluster development approach has been designed to address poverty alleviation.

 

- Rajasthan Chamber of Commerce and Industry (RCCI) - RCCI has about 600 corporate members. It is aimed to develop an effective institutional framework, to modernise textile and gem and jewellery sub-sectors, to conduct need based training programs for small enterprises, to promote the products of SMEs, nationally as well as internationally and to focus on environmentally sustainable development process in the region.

 

Some state governments which actively adopted cluster development initiatives include Andhra Pradesh, Gujarat, Kerala, Madhya Pradesh and Tamil Nadu.

 

Some of the larger clusters in India include:

 

- Panipat Cluster accounts for 75% of the total blankets production in India

 

- A cluster in Tirupur  is responsible for 80% of the country's cotton hosiery exports

 

- Agra cluster produces nearly 150,000 pairs of shoes per day with a daily production value of 1.3 million dollars and exports worth US $ 60 million per year

 

- Ludhiana is a lone contributor of 95% of the India’s woolen knitwear, 85% of the country's sewing machines and 60% of the nation's bicycle and bicycle parts.

 

In spite of such feats and advantages, various small scale industry clusters are experiencing significant constraints like dearth of information, poor product quality, pitiable market linkages and insolvent management systems.

 

 

 

Conclusion

 

In order to maintain sustainability in this ongoing liberalized era of the Indian economy, it is essentially required that the small units in India come up with novel approaches and ideas in the market. Here the ‘cluster development initiative’ plays a vital role as clustering and networking among enterprises not only promotes enterprise competitiveness but also enhances access to global markets. Hence, both private and public sector institutions at the Central as well as the state levels should progressively undertake and promote the cluster development initiatives.

Access to financing for SMEs: What are the options?

Every article, book or feature focused on small and medium enterprises (SMEs) underlines the vital contribution made by the sector in the country's economy. Small businesses account for several contributions like uplifting economy, generating new jobs, reducing poverty besides bringing innovative products and techniques to the market. Although SME sector, the second largest manpower employer overall after agriculture, has received some attention from the government since independence, but still they suffer from the most common problems like lack of access to market information and technology, the low quality of human resources and the lack of access to capital.

Of the all obstacles, 'financing gap' acts as a biggest hindrance and is seen as a big turn off to all small sized entrepreneurs as in the initial stage every business start-up faces the problem of raising money.

Financing & SMEs

SMEs play a very significant role in the economic growth of both industrialised and developing countries, hence providing all needful assistance to them should be on priority of the government. SMEs need financial aid in setting up and expanding their operations, in employee recruitment, expanding production facilities etc.

There are various funding approaches for SMEs:

1. Angel Funding - An angel investor is the one who provides capital to one or more startup companies. The individual is usually affluent or has a personal stake in the success of the venture. Such investments are characterized by high levels of risk and a potentially large return on investment. Such types of investors are also known as a business angel or an informal investor. The increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.

2. Venture Capital (VC) – This type of financial capital is an important source of funding to early-stage, high-potential, high risk, growth oriented startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc.

In brief, venture capital is a capital that is invested in a project or in a business where there is a considerable risk relating to the future creation of profits and cash flows. Risk capital is invested as shares rather than as a loan and the investor requires a higher rate of return to compensate him for his risk.

It has been generally seen, the venture capitalist prefers to invest in entrepreneurial businesses which are aiming to grow rapidly to a significant size.

3. Private Equity - Private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange. Such type of investment will generally be made by a private equity firm, a venture capital firm or an angel investor. Not only the financing required to create a business is covered under private equity, but it also includes financing in the subsequent development stages of its life cycle.

The firms involved in private equity investment seek out for companies with the potential for growth and with the aim to put in place the capital, talent and strategy needed to strengthen the company and raise its value.

Private equity is also often grouped into a broader category called private capital, generally used to describe capital supporting any long-term, illiquid investment strategy.

4. Government Schemes - There are slew of government schemes and sops offering enhancement and support to the business activities of the small units, but a majority of small traders fail to avail them due to lack of mindfulness and awareness about the schemes. Government schemes could be of great help to SMEs and the most viable ways to finance a business. The assistance comes in the following ways.

Throwing light to five most important financial assistance schemes being offered by the government aimed to intensify the growth of the small scale units that can help them to find a beneficial solution to their financial problems...

(A) Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) - The scheme is aimed to provide collateral-free credit to both existing and new micro and small enterprise (MSE). The plan covers term loans and working capital facilities of up to Rs 100 lakh per borrowing unit and can be prolonged without any collateral security or third party guarantee to a new or existing MSEs.

(B) Credit Link Capital Subsidy Scheme for Technology Upgradation - Credit Linked Capital Subsidy Scheme (CLCSS), provides technology upgradation assistance to the SMEs primarily in the Small Scale Industries (SSI). All entities, including sole proprietorship, partnership, cooperative, private and public limited companies, are eligible for the scheme.

(C) Mini tools room and training centre scheme – The scheme is focused to develop more tool room facilities intended to provide technological support to MSMEs. One such training centre entails the cost of Rs 15 crore.

(D) Market Development Assistance Scheme for MSMEs - The Ministry of Commerce operates Market Development Assistance Scheme for MSMEs in a view to encourage exporters to expand their reach in overseas markets. The scheme renders financial assistance for participation by manufacturing MSMEs in international trade fairs/ exhibitions under MSME India stall.

Besides these aforementioned schemes, the government also offers various beneficiary SME-focussed schemes for the elevation of the SME sector.

5. Banks – In the lending process of banks, an accurate information about the borrower is a critical input for decision-making to lend the prospective borrower. Generally, banks consider the details like promoter (vintage, competency, networth, track record), industry (growth, risk, cyclical trends, profitability), business unit (turnover, profitability, debt/ equity, liquidity) and transaction history (overdues, cheque returns, statutory overdues etc) and security (type and quality of collateral).

For lending loans, bankers generally prefer the flourishing SME sectors like bulk drugs, knitwear and auto-ancillary goods, textiles, pharmaceutical companies, chemicals and dyes sectors. Companies like seafood processing, sports good, gems and jewellery etc are not preferred by the banks as lenders have risks of suffering with huge non-performing assets (NPAs) on account of lending to these sectors.

An entrepreneur can secure bank loans by charge of collateral property, current assets and promoter's personal guarantees. In case borrowers fail to return the loan, the banks either cease the security or follow the legal procedure. The details of defaulters are also advised to Reserve Bank India (RBI), which maintains a defaulters list and banks are not allowed to lend to companies with promoters who find mention in the defaulters list.

Conclusion:

In addition, there are various consulting firms providing assistance on easy ways of raising funds to SMEs. Such firms act as a liaison between the firm and the government and act as a facilitator in provided schemes. Consultations on overall operational and technical issues also provided by such firms so as to improve efficiency, reduce bottlenecks, and optimize costs of the small businesses.

SMEs driving growth of Indian machine tool industry

Unarguably, the machine tool industry is one of the most important segments for industrial activity in India and one of the key ingredients needed for the development of the manufacturing sector. It is believed that the growth of this industry impacts the complete manufacturing industry, which holds importance for India’s strategic needs like defence, railways, infrastructure and atomic energy. It is also one of the major contributors towards the growth prospects of the small and medium manufacturing enterprises, which are considered as a major employment generator after agriculture.



It has been found that the growth in different sectors like metals, textiles, infrastructure, food processing, chemical and pharmaceuticals and power has been pushing the growth of this sector. The machine tool industry, which is dominated by the presence of nearly 70% small and medium enterprises (SMEs), has been taking steps and initiatives for expanding its reach but at the same time, different problems such as strong competition from imports, labour crunch, insufficient research and development (R&D) and jumping prices of metal and power have hindered the growth prospects. As India is making its presence felt in the international manufacturing market with the production of high quality and cost-competitive goods, it is slated to emerge as a global-level manufacturing hub in the next few years. Industry insiders believe that this sector has immense scope for improvement via research and development (R&D) and resolving manpower crunch by intensifying focus on training.



SMEs making major contribution to Indian machine tool industry Most of the small and mid-sized enterprises operational in this industry are first time entrepreneurs. Over the years, the machine tool industry has acted as a platform for various entrant SMEs that wanted to prove their mettle at global level. Reports claim that the Indian machine tool SMEs are among the most sought after vendors by the local manufacturers and also successfully attracting the attention of global companies as well. The European and Asian markets offer new business opportunities for the SMEs in the sector. As the demand for ‘Made in India’ brand of machines in prominent machine-tool consuming nations (Italy, Germany, Brazil, US and Middle East) is consistently rising, it will surely benefit the SMEs as they play a crucial role in fulfilling the demand. Few emerging machine tool SMEs proving their mettle at global level are Geeta Machine tools Pvt ltd and Jaswinder Machine Tools. Geeta Machine tools has the second largest in house infrastructure/facilities for building machine tools, while Jaswinder Machine Tools bagged the recognition of making timely delivery of bulk orders in India.



Facts about Indian Machines tools Industry As per the present market trends, SMEs are considered as the lifeline of the Indian machine tool industry. The country has successfully emerged as the nerve centre of the machine tool industry in Asia and its technological capabilities are considered superior to its peer groups in other nations. This industry is primarily engaged in the manufacturing of complete range of metal-cutting and metal-forming machine tools. Although these products are customised in nature, the Indian basket consists of conventional machine tools and also computer numerically controlled (CNC) machines. There are different variants provided by the Indian manufacturers consisting special purpose machines, robotics, handling systems and TPM-friendly machines. Many SMEs are focusing on upgrading production systems along with the fast adoption of technology to tap opportunity in this burgeoning market. In the recent times, majority of SMEs are entering the CNC segment due to its high profitability. Concerted efforts are being taken by the industry players to bring improvement in the features of CNC machines. They are also offering further value additions at lower costs with the aim to solve the issue of specific user needs. In regard to the present trends, it is believed that CNC segment could become the growth driver for the machine tool industry in India.



Presence of Machine tools manufacturers in India Recent reports suggest that majority of the machine tool manufacturers are situated in Karnataka and Maharashtra. Bangalore is considered as the base for most of the machine tool companies. In India, indigenous machine tool enjoys the highest effect on capital output ratios. Machine tool consumption completely supports the advancement of the engineering sector output. The international players are present in India either via their marketing agents, technical centers, service centers or assembly centers.



Booming industry upbeat about growing demand The Indian machine tool industry has shown its commitment to meet close to 33% of the overall consumption despite facing capacity constraints in the absence of insufficient investments. According to the data from Indian Machine Tool Manufacturers' Association (IMTMA), out of the Rs 11,818-crore sales revenue generated in 2010-11 from consumption, imports was at Rs 7,722 crore and the domestic output accounted for Rs 4,096 crore. In regard to the orders booked, demand for CNC machines during FY11 was worth Rs 3,775 crore while the non-CNC machines touched Rs 1,203 crore. Analysts are of the opinion that it is time for India to raise the production capacity at CAGR of 25% as the domestic auto sector will raise output to 10-million cars, 30-million two wheelers and 2.2-million commercial vehicles by 2020. It also means that the auto component manufacturers would feel the need for $2-billion investment every year. Also, the Indian machine tool manufacturers would be required to strengthen capacity by 7-8 times to fulfil the demand.Unarguably, the machine tool industry is one of the most important segments for industrial activity in India and one of the key ingredients needed for the development of the manufacturing sector. It is believed that the growth of this industry impacts the complete manufacturing industry, which holds importance for India’s strategic needs like defence, railways, infrastructure and atomic energy. It is also one of the major contributors towards the growth prospects of the small and medium manufacturing enterprises, which are considered as a major employment generator after agriculture.



It has been found that the growth in different sectors like metals, textiles, infrastructure, food processing, chemical and pharmaceuticals and power has been pushing the growth of this sector. The machine tool industry, which is dominated by the presence of nearly 70% small and medium enterprises (SMEs), has been taking steps and initiatives for expanding its reach but at the same time, different problems such as strong competition from imports, labour crunch, insufficient research and development (R&D) and jumping prices of metal and power have hindered the growth prospects. As India is making its presence felt in the international manufacturing market with the production of high quality and cost-competitive goods, it is slated to emerge as a global-level manufacturing hub in the next few years. Industry insiders believe that this sector has immense scope for improvement via research and development (R&D) and resolving manpower crunch by intensifying focus on training.



SMEs making major contribution to Indian machine tool industry Most of the small and mid-sized enterprises operational in this industry are first time entrepreneurs. Over the years, the machine tool industry has acted as a platform for various entrant SMEs that wanted to prove their mettle at global level. Reports claim that the Indian machine tool SMEs are among the most sought after vendors by the local manufacturers and also successfully attracting the attention of global companies as well. The European and Asian markets offer new business opportunities for the SMEs in the sector. As the demand for ‘Made in India’ brand of machines in prominent machine-tool consuming nations (Italy, Germany, Brazil, US and Middle East) is consistently rising, it will surely benefit the SMEs as they play a crucial role in fulfilling the demand. Few emerging machine tool SMEs proving their mettle at global level are Geeta Machine tools Pvt ltd and Jaswinder Machine Tools. Geeta Machine tools has the second largest in house infrastructure/facilities for building machine tools, while Jaswinder Machine Tools bagged the recognition of making timely delivery of bulk orders in India.



Facts about Indian Machines tools Industry As per the present market trends, SMEs are considered as the lifeline of the Indian machine tool industry. The country has successfully emerged as the nerve centre of the machine tool industry in Asia and its technological capabilities are considered superior to its peer groups in other nations. This industry is primarily engaged in the manufacturing of complete range of metal-cutting and metal-forming machine tools. Although these products are customised in nature, the Indian basket consists of conventional machine tools and also computer numerically controlled (CNC) machines. There are different variants provided by the Indian manufacturers consisting special purpose machines, robotics, handling systems and TPM-friendly machines. Many SMEs are focusing on upgrading production systems along with the fast adoption of technology to tap opportunity in this burgeoning market. In the recent times, majority of SMEs are entering the CNC segment due to its high profitability. Concerted efforts are being taken by the industry players to bring improvement in the features of CNC machines. They are also offering further value additions at lower costs with the aim to solve the issue of specific user needs. In regard to the present trends, it is believed that CNC segment could become the growth driver for the machine tool industry in India.



Presence of Machine tools manufacturers in India Recent reports suggest that majority of the machine tool manufacturers are situated in Karnataka and Maharashtra. Bangalore is considered as the base for most of the machine tool companies. In India, indigenous machine tool enjoys the highest effect on capital output ratios. Machine tool consumption completely supports the advancement of the engineering sector output. The international players are present in India either via their marketing agents, technical centers, service centers or assembly centers.



Booming industry upbeat about growing demand The Indian machine tool industry has shown its commitment to meet close to 33% of the overall consumption despite facing capacity constraints in the absence of insufficient investments. According to the data from Indian Machine Tool Manufacturers' Association (IMTMA), out of the Rs 11,818-crore sales revenue generated in 2010-11 from consumption, imports was at Rs 7,722 crore and the domestic output accounted for Rs 4,096 crore. In regard to the orders booked, demand for CNC machines during FY11 was worth Rs 3,775 crore while the non-CNC machines touched Rs 1,203 crore. Analysts are of the opinion that it is time for India to raise the production capacity at CAGR of 25% as the domestic auto sector will raise output to 10-million cars, 30-million two wheelers and 2.2-million commercial vehicles by 2020. It also means that the auto component manufacturers would feel the need for $2-billion investment every year. Also, the Indian machine tool manufacturers would be required to strengthen capacity by 7-8 times to fulfil the demand.



Innovation holds key to Indian machine tools industry Although, this industry has potential to play significant role in attaining the desired goal of 12-14% production growth, set by Planning Commission, over the medium term in the 12th five year plan period but it will also need innovation to achieve desired growth results. The SMEs in this sector are fast realising the significance of consistent innovation with the adoption of modern business strategies. The promoters of SME manufacturing units are taking help of mass production techniques to increase turnover. Experts are of the opinion that the growth target is achievable with considerable improvement in the job creation rate, local value addition along with technology depth in manufacturing. Reports suggest that over 60% of the overall global production is accounted by five Asian nations - China, Japan, Taiwan, South Korea and India.



Centre adopting steps to enhance growth of the machine tool SMEs As the industry is primarily dominated by the SMEs, an initiative was started by the MSME Ministry, under which 75% of the fee payable to the rating agency is subsidised by Centre through National Small Industries Corporation (NSIC).This has helped enterprises in the machine tools industry understand the concept of rating in a better way. In collaboration with NSIC, CRISIL rates micro and small enterprises (MSEs) on a two-dimensional rating scale known as ‘NSIC-CRISIL’ scale. It evaluates any enterprise on criteria such as performance capability and financial strength. Performance capability is checked on a five-point scale and the financial strength is reviewed on a three-point scale. The industry bodies are also holding discussions with Centre for the establishment of corpus to support the sector along with setting up of regional machine tool clusters in Punjab, Gujarat, Pune, Belgaum and Coimbatore, all of which enjoy considerable machine tool industry presence.



Conclusion As the Industry is conducting various exhibitions and events such as IMTEX, ToolTech, it will prove helpful in enhancing the productivity of the sector. Also, a significant transformation will take place among the SMEs in machine tool sector if they aim to climb the value chain. The SME units should try to understand the market needs and offer holistic manufacturing solutions. India should hope for only better days ahead due to the risen global participation and more foreign investment. As the machine tools industry has hogged limelight with strong growth prospects, it is right time for the sector to prove its mettle.



Innovation holds key to Indian machine tools industry Although, this industry has potential to play significant role in attaining the desired goal of 12-14% production growth, set by Planning Commission, over the medium term in the 12th five year plan period but it will also need innovation to achieve desired growth results. The SMEs in this sector are fast realising the significance of consistent innovation with the adoption of modern business strategies. The promoters of SME manufacturing units are taking help of mass production techniques to increase turnover. Experts are of the opinion that the growth target is achievable with considerable improvement in the job creation rate, local value addition along with technology depth in manufacturing. Reports suggest that over 60% of the overall global production is accounted by five Asian nations - China, Japan, Taiwan, South Korea and India.



Centre adopting steps to enhance growth of the machine tool SMEs As the industry is primarily dominated by the SMEs, an initiative was started by the MSME Ministry, under which 75% of the fee payable to the rating agency is subsidised by Centre through National Small Industries Corporation (NSIC).This has helped enterprises in the machine tools industry understand the concept of rating in a better way. In collaboration with NSIC, CRISIL rates micro and small enterprises (MSEs) on a two-dimensional rating scale known as ‘NSIC-CRISIL’ scale. It evaluates any enterprise on criteria such as performance capability and financial strength. Performance capability is checked on a five-point scale and the financial strength is reviewed on a three-point scale. The industry bodies are also holding discussions with Centre for the establishment of corpus to support the sector along with setting up of regional machine tool clusters in Punjab, Gujarat, Pune, Belgaum and Coimbatore, all of which enjoy considerable machine tool industry presence.

Conclusion As the Industry is conducting various exhibitions and events such as IMTEX, ToolTech, it will prove helpful in enhancing the productivity of the sector. Also, a significant transformation will take place among the SMEs in machine tool sector if they aim to climb the value chain. The SME units should try to understand the market needs and offer holistic manufacturing solutions. India should hope for only better days ahead due to the risen global participation and more foreign investment. As the machine tools industry has hogged limelight with strong growth prospects, it is right time for the sector to prove its mettle.

Indian SMEs need higher dose of R&D

In the past few years, the contribution of the small and medium enterprises (SMEs) to innovation-led growth and job creation has gone up considerably. This is led by introduction of new products as they enjoy better understanding of customers' need and demand, given their expertise in the field and region. The next ideal step for SMEs is to focus more towards promotion of their innovations. This is how relevance of research and development (R&D) for SMEs gains prominence. It has been found that innovation as a whole can help in solving the challenges that new technologies and globalisation create for the small scale industries.

The present day economies across the globe are driven by scientific research and technology. The overwhelming consensus is that long term economic growth is primarily dependent on technological innovation, which becomes more prominent with the growing investment in R&D sector. The role of conventional scientific R&D is expected to be quite small as against informal/ general innovation based on management and business processes, marketing and promotion apart from organisational changes.

It has been found that within companies, investments made in marketing and promotions of businesses are higher as compared to R&D. The value of general innovations needs to be understood as they are the global indicators of national growth. The same can be achieved by assisting firms in adoption of innovations on the basis of new business models and processes, marketing, promotional and supply chain improvements.

It is absolutely necessary for SMEs to strike the right balance between growth and meeting the market demands on time and hence, R&D can play an important role in meeting these desired targets.

Meaning of R&D

R&D means gaining knowledge about any particular product, process or service, which is again used for developing new or improving products, processes and services that help meet the market demand.

Usually, a business chooses to carry out R&D with the aim to either develop new products or procedures, or to improve the existing products, procedures. R&D is considered as one of the means by which businesses can strengthen future growth prospects successfully.

Though R&D is considered synonymous with high-tech companies, but many established consumer goods companies spend large sums of money to improve old products with the help of R&D. Reports suggest that on an average, most firms spend just a miniscule percentage of their revenue on R&D (usually under 5%). But, it has been found that companies engaged in sectors such as pharmaceuticals, software and semiconductor spend slightly higher on R&D. SMEs though are seen distancing from R&D.

How to conduct R&D

It is believed that R&D activities can be carried out in-house or out of house (in cooperation with other firms or specialised institutions). The main point that comes to forefront while talking about R&D cooperation is the choice between internal and external R&D activities. The choices between these options vary on the availability of technological awareness, expected outputs, risks along with the costs.

There are few reasons such as high risks, costs and absence of available knowledge that mainly compel companies to look for external partners. The development of an optimal mix of external knowledge resulting from market opportunities and within the firm helps in carrying out R&D activities.

Understanding relevance of R&D and why it matters

The significance of R&D cooperation has jumped considerably in the last few years due to the change in market conditions. The importance of R&D comes with factors such as complexity, risk and cost of innovation activities. In regard to organisational modes, R&D cooperation usually differs from wholly-owned subsidiaries.

R&D has a significant role in the innovation process, which is important for the current and future profits for SMEs. It is believed that innovation has potential to create high quality jobs, successful businesses, better goods, improved services and also raises the efficiency level of processes.

Global research shows that R&D investment intensity and company performances share an important relationship. Businesses are able to position themselves better in the present global crisis with the help of R&D.

It also leads to valuable inventions, ideas and designs which can have potential value when it comes to gaining competitive advantage.

Presence of R&D in India

Time and again, Centre has pushed and promoted the concept of R&D among Indian companies. Recently, Prime Minister Manmohan Singh said that the spending by Indian industry on R&D is quite low. Reports suggest that the overall R&D expenditure as a percentage of GDP needs to rise to 2% by the end of the 12th Five Year Plan from the present level of 0.9%. It can be attained if industry, which is responsible for 25% contribution to the total R&D expenditure today, raises its contribution.

India is home to various R&D hubs of global companies such as GE and Motorola, which shows that there are ample opportunities available in India that can be tapped. India houses nearly 1300 R&D units. Reports suggest that India's main competitor China is making considerable improvement in enhancing its R&D sector. Analysts feel that India should incentivise private R&D investment and also steps needs to be taken to raise public-private partnership (PPP) in this sector.

The Indian government has been offering fiscal incentives and also support measures to encourage the setting up of R&D units among the private, joint and public sector industrial units. Approximately 70,000-80,000 people are currently working in the R&D units across India.

Conclusion

It is important that funds are pumped into R&D programmes along with the alignment of the company strategy as time and again, it has been proved that innovation can bring desired results. A corporate organisational innovation culture which comprises of R&D is the need of the hour to attain success amid global economic meltdown.

It is believed that innovation initiates with the consistent desire to be out front along with exploring new territories.

Trade fairs: gateway to new business for SMEs

In today's competitive world, reaching out to customers is one of the most challenging task for any organisation. But for an SME it is considered as an elephantine task as the sector is already reeling under various blows like limited capital and knowledge, inadequate and untimely banking finance, non-availability of suitable technology, low production capacity, ineffective marketing strategy, identification of new markets, constraints on modernisation & expansions, non availability of skilled labour, among several others. 

 

Although all aforementioned constraints are impeding the growth of SME sector which plays a vital role in augmenting the Indian economy, but of these inadequate knowledge of effective marketing is majorly detrimental to their business.

Marketing and Trade fairs

Marketing acts as a growth vehicle for a company or an enterprise. Opting for effective marketing, an organisation can create value for customers, create product awareness and build strong customer relationships. 

There are various marketing tools prevailing today, namely brochures, flyers, hoardings, email campaigns, website, and social networking. Trade fair participation has been one of the traditional forms of marketing for companies but is still going full throttle among SMEs. It is recognised as one of the most efficacious marketing tools across the globe.

Trade fairs and exhibitions are considered as the best platform for business networking as it comprises like-minded businesspeople to recognize, create, or act upon business opportunities.

Benefits of participating in Trade Fairs & Exhibitions for SMEs

Trade fair participation by organisations helps them to bring advances in their products/services, branding and penetration in the domestic and international arena. Involvement in such activities also intensifies self awareness of the new products and technologies available today in the market, noticing current market trends and future opportunities.

Active participation in trade fairs lessens the most challenging tasks for SMEs – reaching out to customers. Such events provide them a chance to establish, re-establish and strengthen relationship with existing and prospective clients.

Events and exhibitions enable SMEs to directly communicate with their target customers, besides accumulating business intelligence like marketing strategies, information related to competitors, translating into strong and increased customer base.

SMEs find participation in trade fairs as cost-effective too. They not only can exhibit at negotiated rates, but also visit these trade event for a paltry amount. Exhibiting has its own immediate benefits of visibility for self products and services, inviting attention from prospective and existing buyers that in turn can be fruitful for networking and exploring business opportunities, helping them generate leads. Even visiting these shows is equally important as it allows SMEs to proactively take note of advancements their counterparts have made, learn about the industry, find suppliers for their requirements and also network with buyers who throng these venues.

By having an opportunity to talk to number of attendees and customers at a trade exhibition, exhibitors get an opportunity to ask questions about the product that can help them to judge the needs and temperament of their customers & then position their products accordingly. This further ensures a longer customer relationship.SMEs participation in trade fairs also provides them with an opportunity to benchmark themselves and their products against more developed companies/firms.

Establishing new trade contacts and strengthening existing business relationship with the help of good presentations, exchanging business cards etc. is imperative at these trade expositions.

International trade fairs also witness the participation of distributors from across the world and this provides a great opportunity to Indian SMEs to build relationships with these distributors.

Organising Trade Fair – boost to country's economy

The profit of being a part of an event or exhibition is not only reaped by an organisation or enterprise but such activities contribute immensely to the economy of the host country. The country or city which plays host to a trade fair also gets benefited in a number of ways, such as:

- Growth in business tourism

- Hospitality industry promotion

- Infrastructure development

- Beefing up ties and understanding between two nations

- Promoting cultural exchange

Measures required to boost trade fair participation

Although trade fairs, expos, exhibitions hold great potential to give fillip to the country's economy but still there are a few loopholes existing in the system hampering such activities.

Space Availability: Adequate space for organising a trade event or exhibition is highly important as such huge events are organised in a large scale area. Creating more space is critical.

Encouraging SMEs for Trade Fair Participation: It is highly required that government provides considerable support to SMEs to further drive them to actively participate in trade fairs. The existing Market Development Assistance (MDA) scheme assists only approved and successful exporting companies but the benefits of the scheme should also be extended to small SMEs.

Intensified Budget allocation for Indian Exhibition and Trade Fair Industry: To be competitive in international market, the government should also increase the total Budget allocation in Indian Exhibition and Trade Fair Industry.

Conclusion

Basically, trade fair participation, for an enterprise, is aimed to generate leads for its products and expand reach to more and more customers. As trade fair participation act as a best way of branding and disseminating information about a product and enterprise, similarly without prior and effective trade show planning, research and well execution such engagement may also act as a burning a hole in a pocket and can lead to bad market reputation for future. So, prior planning, R&D and understanding about trade fair participation is equally and highly important to witness desired results.

Relevance of Intellectual Property Rights for Indian SMEs

NEW DELHI: Time and again, it has been proved that a major part of the Indian economy is pushed by growth of the small and medium enterprises (SMEs). Many of these small units in India are functioning on the ideas of products manufactured, services offered and also the designs developed. These SMEs are proving their mettle at the global platform basis these. This sector has emerged as a major source for employment generator in the past few years. As self-reliance is becoming a dominant factor among the developing economies, SMEs are facing hurdles such as decreasing opportunities and stiff competition to maintain their foothold. Among the key issues, the one causing worry is Intellectual Property Rights (IPR) and SMEs' trade secrets. Analysts believe that intellectual property (IP) is an efficient and important tool which can enhance the growth for Indian SMEs significantly.

What do we understand by IPR

IPR are a particular set of exclusive rights, which helps protect the innovative activity behind any new products, designs and commercial activity. These rights have potential to bring progress by offering support to creativity. IPR owners are given certain benefits when commercially exploited. IPR are governed by provisions of related legislations and can be further classified as trademark, patent, copyright, industrial design and geographical indications. Moreover, IPR can be divided in two broad categories - industrial property and copyrights. The industrial property comprises of inventions, industrial designs, trademarks, and geographical indications, while copyrights consist of rights related to the literary, artistic, musical works etc.



IPR norms in India

On January 1, 1995 the Trade Related Aspects of Intellectual Property Rights (TRIPS) became effective in the country. Moreover, the TRIPS took off in India with provisions for protection and enforcement of IPR with minimum standards. It was also enacted in India with the aim to promote IPR and remove all possible hurdles from global trade.



Importance of IPR for Indian SMEs

IPR can help the Indian entrepreneurs prepare better for competition from their global peers. It assists them to develop their business and competitive management strategy. With the adoption of unique trademarks and brand names, every trader enjoys the right to develop a robust recall value and also create market for his product. Earlier, just tangible assets were considered as significant in regard to value addition to a business. But, now-a-days, intangible assets, such as Intellectual Capital (IC), innovation and technologies are also considered important for value addition to any business. It is believed that by purchasing intangible assets like patents in key technologies, businesses witness strong growth. Securing IPR helps promote the idea of innovation among the small units and also offers opportunity to bag profit.



Which IPs' SMEs can purchase to enhance growth and value

● Buying intellectual property, SMEs can makes sure that IP becomes a valuable asset for their business.
● Innovative processes’ patent is useful and can be used for the production of new products.
● In regard to artistic work and computer softwares, copyrights are best suited.
● Trademarks help form a distinctive brand name along with recall value.
● With an aim to save the creative packaging and textile designs, industrial designs for protection can be used.
● For commercial use, trade secrets are important.



How IPR can effect businesses

● IPR can generate greater revenue in businesses via assignment, licensing, sale. It has potential to start private investments, specialized bank loans, venture capitalists, which will help the SMEs in long run.
● Intangible assets prove beneficial for SMEs at the time of acquisition and/or at a merger opportunity. It helps in Joint Ventures (JV) also.
● Although SMEs make up close to 90% of the overall industrial enterprises, the Indian SMEs face problems such as garnering IP and using it fruitfully. These issues come up often in the absence of awareness, financial constraints, poor technical knowledge and absence of competitive strategy.



Centre adopting steps to promote IPR usage by SMEs

It is believed that Indian MSMEs are not properly aware about various advantages of IPR and this is also one of the reasons, why they are not intelligently used by these units. National Manufacturing Competitive Council (NMCC) unveiled a national campaign for strengthening investment in IP. It helps create awareness and also encourage participation in research & technology, strengthening brand strategy using IPR tools, promotion of innovation via shared patenting costs. NMCC has carried out pilot studies on SME clusters as well. NMCC is a forum meant to energise and sustain growth of Indian manufacturing sector, which proposed five-year National Manufacturing Competitiveness Programme (NMCP) for the Indian SMEs.





Conclusion

Indian SMEs often fail to take necessary action to make their business profitable due to different constraints. In this regard, central government has been adopting various measures to raise their (SMEs) competitiveness. The small units can ensure sufficient legal protection and security for their intellectual property with proper investment in developing trademarks, copyrights for protection of brands, artistic work and softwares. As generating 'awareness about the company, business, product or service' is slowly becoming the norm of the day, the SMEs should aim to adopt IPR in their businesses.

Effective marketing platforms for SMEs

Starting a new venture can be an eagerness of an entrepreneur but running it successfully requires a lot of efforts, understanding and considerable risk. The prosperity and growth of a business is not only dependent on idea, capital infusion, workforce but the adoption of contemporary business tools that holds the similar value in the business.
Internet is indeed one of the most unique and greatest gift of technology to mankind. Internet seems appealing to small and medium enterprises (SMEs) who wish to internationalize their activities and products.

How Internet acts as business catalyst
It is a widespread fact that Internet is a powerful tool but what makes it compelling is the system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide. This advanced technology allows people living in completely different corners of the world to communicate easily with each other with utmost interactive tools such as emails, chats, SMS, voice SMS.
The global business fraternity is also experiencing the positive impact of Internet. In reality, it has completely changed the definition of business development as today visibility in the market is at par with quality and quantity in the growth of any business. Global recognisation of a product and business is highly important. Now-a-days, campaigning and product promotion acts as gauge for business growth. The successful product promotion and campaigning generates the need of improving communication and interaction with people. And what would be the best option for widening the communication base besides 'Internet'.


About Online Marketing
Online marketing or web marketing comprises everything to whet the appetite of an organisation as it expands reach in a considerable manner. A single click on the mouse will make a product public along with all required details at any time and from any place. This is a known fact that a constant and healthy communication between all entities of the business, such as manufacturer, supplier, buyer, seller, wholesalers and dealers is vital for the growth of a business. A supply chain management can easily created with the help of Internet, which maintains a closer linkage among all business entities.


Building presence on Internet
Although, building a website is an initial step towards Internet marketing, but the journey does not ends here, one needs much more than a website. In order to attract visitors to the business website, there are some ways to market a website, such as - Building presence on Internet


- Search Engine Optimization (SEO) – a process of improving the visibility of a website by helping it rank higher in popular search engines such as Google, Yahoo!.


- Search Engine Marketing (SEM) - a form of Internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages (SERPs) through optimization and also through advertising.


- SEO Consultation – provides guidance to the company on how people interested in a particular product and services use search engines to find what they are looking for, and how companies can rank well for these searches.


- Social Media Marketing (Facebook, twitter, etc.,) - refers to the process of gaining website traffic or attention through social media sites like facebook, twitter, linkedin, you tube, and to name a few.


- Pay per click (PPC) advertising - a popular way to attract visitors on website. PPC involves creating a link to a site appear next to search results for keywords that are related to your business.


- Listing on online B2B marketplace - allows the company to be visible in a concentrated B2B marketplace where buyers visit often and connect with suppliers for their business. Suppliers too, in turn, can find vendors for their requirements


Programmes offered by players for SMEs:
There are many prominent and leading organisation who understand the needs of small businesses and helping them to survive and come out boldly in this cut-throat competition, such as -


(A) Office 365 Suite For Small Businesses
Recently, telecom major Bharti Airtel announced its partnership with Microsoft India to offer cloud computing services to small and medium business enterprises (SMBs). Under the alliance, Bharti Airtel will deliver Microsoft's cloud-based Office365 solution to SMBs through its cloud platform.
Today, cloud computing has emerged as a new area in IT and SMEs that account for one-third contribution of IT investment, according to EMCZinnov study 2012, find it as the most appealing IT feature. As per the study, India's cloud computing market is pegged at around $400 million and is likely to reach $4.5 billion by 2015 driven by SMEs that constitute the backbone of Indian economy.


(B) Jade Magnet partners Kuliza and Amazon for SMEs push
Bangalore-based professional website advertising agency Jade Magnet had announced its partnership with Kuliza and Amazon in April this year to provide customized websites at Rs 15,000 a year to SMEs as the Lean SME Online program .


Jade Magnet is a crowdsourcing platform that offers design and marketing support solutions while Kuliza creates and manages web hosting infrastructure using the Amazon Web Services cloud platform. The program aims to enable small and medium-sized businesses to go online with professional websites that can create brand identity with creativity and quality.


(C) Brand positioning opportunity for SMEs by Vodafone
Steeping in the trend, telecom major Vodafone India has also announced a enviable opportunity to small and medium enterprises (SME's) for brand positioning in the season 2 of Vodafone Drive into the Big League, the motor racing event.


Under the programme, the SMEs will be opportunitised to get their logo placed on the Vodafone McLaren Mercedes cars that will race at the second Indian Grand Prix to be held in Delhi from October 26-28, this year. SMEs with a turnover between Rs 10 crore and Rs 250 crore and an employee base of less than a thousand are eligible to participate in the Vodafone Drive into the Big League contest.


(D) Indian SMEs getting global push
US-based Parallels, a hosting and cloud services enablement firm, has announced its plans to team up with various service providers and telecom companies in India to provide hosting and cloud services to SMEs. In its attempts to tap Indian SME market, the company has already tied up with 30 service providers since it started its operations in India two years back.


(E) IndiaMART.com's B2B marketplace
Back home in India, a B2B marketplace IndiaMART has also enabled over 6 lakh SMEs with free online catalogs already. It has over 12 lakh SMEs listed on its platform. The 16 year-old B2B portal not only pushes their visibility globally for business but also brings them free information on tenders, trade shows etc, and establishes their credibility through third party verified trust profile on their listings and websites.


(F) Google's 'India Get Your Business Online' initiative
Last year in November, the search engine giant Google India announced the launch of a first-of-its kind program 'India Get Your Business Online', in order to help 5,00,000 small-medium businesses in India to get online in next three years. The programme allows small business owners in India to log on to www dot indiagetonline dot in and use the tool to get a free, easy-to-build website and web hosting for one year powered by HostGator.
This programme is also supported by Federation of Micro, Small and Medium Enterprises (FISME). Speaking to SME News, Anil Bhardwaj, Secretary General of FISME, said, “India get online programme has been an extremely successful initiative of Google which has implemented in partnership with ICICI, FISME and HostGator. True to Google philosophy, its uniqueness lied in simplifying and demystifying the experience of setting-up a business website for small entrepreneurs."