Contract farming not feasible for SMEs, said MA Tejani of All India Food Processors' Association

The concept of contract farming, promoted by Centre, is not feasible for SMEs since their needs are not huge, said MA Tejani, president of All India Food Processors’ Association and managing director of Gits Foods.

 

Although, he appreciated the concept of mega food parks in India, but raised questions on its lucrativeness for the SME entrepreneurs.

 

 

What is the role that All India Food Processors' Association (AIFPA) aims to play in India's SME sector?
 

MA Tejani: AIFPA is the oldest organisation exclusively representing food processing industry in India. It was established in 1943 to promote the growth of food processing industry in India both by providing policy inputs to central and state governments and also providing technical, legal and other services to members through seminars, workshops and other programs/ events. AIFPA is a member on various government departments/ wings/ councils/ authorities/ bureau related to food processing and aims to provide required inputs to these bodies and keeping in view the interest of food processors and consumers.

 

 

What are the current projects being undertaken by All India Food Processors' Association (AIFPA)?
 

MA Tejani: The burning issue of the day is implementation of FSSA Act and Rules. There are myriad complexities and contradictions which AIFPA is actively taking up with the FSSA Authority and related ministry such as MOFPI, Agriculture ministry etc. Apart from the above, the usual activities of supporting the food industry continue apace.

 

 

How do you think that the Indian SMEs are performing in the food processing industry in the present global meltdown?
 

MA Tejani: It is difficult to assess the performance of SME in food processing industry with regards to export in absence of data. But generally speaking, the negative impact on export of processed foods if any would be marginal as food is a supreme necessity.

 

 

What are the key challenges faced by the SMEs who are working in the food processing sector?
 

MA Tejani: The key challenges have been and still are lack of adequate infrastructure and availability of agri-horticultural produce of processing varieties and distinct from table varieties. Other impediments on addition to FSSA Act are APMC Acts, Mathade Act Octroi etc.
 

Contract farming which is being encouraged by government is not possible for SMEs because their requirements are not large enough. Also, because the industry is widely dispersed throughout the country, consolidated buying is not possible. Regulators try to impose their personal will/authority irrespective of merit of any particular issue. Some of the food processors are yet to install HACCP food safety management system.

 

 

Kindly throw some light on the importance of mega food parks in the food processing industry?
 

MA Tejani: The concept of food parks and mega food parks is excellent. However, the actual establishment and implementation does not appear to have been successful till date for various reasons including viability.
 

It is evident that established food processing units would by and large not relocate from the existing places to a food park / Mega Food Park. Since the later are located quite far away from urban centers and lack the facilities available in cities such as housing, entertainment, education along with the difficulty of getting and retaining qualified and skilled personnel.
 

Mega Food Parks may not be very attractive to prospective SME entrepreneurs. Only time will tell the extent to which Mega Food Parks become successful. The example of SEZ’s is there for all to see.

 

 

Do you think government is taking appropriate steps to enhance the productivity of the food processing industry?
 

MA Tejani: A great deal has been done by the government to encourage growth of food processing industry in India. A special ministry has been established for the purpose. But business scenario is dynamic and fast changing so policy decisions to eliminate obstacles and provide incentives have to be continually monitored and speedily implemented. A National Food Processing Industry Development Council has been established in the current year under Chairmanship of Shri Sharad Pawar Union Agricultural Minister but action is yet to begin on the identified issues.

 

 

What's your reaction to government's reform initiatives such as FDI in multi brand retail sector? How will it impact the food processing industry?
 

MA Tejani: It would be premature to comment on the likely impact on food processing industry due to arrival of FDI in multi-brand retail sector. It is well known that big box retailers tend to exploit their suppliers and squeeze the supplies for higher margins to cover their high operational costs. This is proven by Indian big box retailers. It all depends upon the level of commitment, transparency, honesty and sincerity in implementation of FDI in multi brand in the short and long runs. In case, we lack in any of the above factors at any level the purpose of implementing FDI in multi brand would be lost.

 

 

Kindly share the roadmap of All India Food Processors' Association (AIFPA) for the ongoing financial year 2012-13
 

MA Tejani: AIFPA is working to enhance its footprints in India as an exclusive and dedicated representative of food processing industry unlike other industry bodies which have sections or departments pertaining to food processing. AIFPA has no other interest or function apart from promoting food processing industry.

Opportunities abound for SMEs to adopt mobile apps

Despite the global meltdown taking toll on the health of many economies, major technology vendors like Google and Apple are posting record sales. The big question which arises is that how the big players are able to maintain their stellar sales figures in the same business environment although the small and medium enterprises (SMEs) face problems to stay afloat? The answer is quite simple - they enhance their growth platforms by using innovative technology.
 

With changing time, the face of Internet is also evolving. The days of desktop and laptop computers are increasingly fading since more people are shifting to smartphones and smart pads, where information can be accessed at fingertips. Communicating with brands, purchasing products and services, and also making payments are increasingly becoming easier. Hence, for any SME business mulling to raise sales and expand their customer base, it is time to go mobile and go apps. As consumers prefer to access Internet through smartphones and tablet devices, it is also becoming inevitable for businesses to adapt the way they connect with their customers.

 

 

 

What are apps?
 

Mobile apps are considered as the functional programmes installed on smartphones and tablet devices. It varies from games such as the famous Angry Birds to messaging services such as WhatsApp messenger, travel guides and mobile newspapers. 

  

Why do businesses need apps?
 

Apps help firms to proactively drive business via vouchers and loyalty schemes, which in turn makes it a valuable proposition as compared to the traditional, passive advertising and marketing methods. Consequently, it offers new opportunities for revenue generation.
 

Apps enjoy the potential to be used as research tools, allowing data collection on customers’ preferences and also shopping habits, which proves helpful for refining business strategies. Over the years, these platforms have proved helpful for the big players as they can act as innovative communication channels for the businesses allowing them instant contact with their customers. They also offer firms with valuable opportunity to develop the concept of brand loyalty by providing exclusive, app-only promotions and offers. It has been proved that it enhances footfall into physical stores and also allows businesses to create 'healthy' relations with customers.

 

 

 

Realising importance of apps
 

It is important that apps go in accordance with the other marketing efforts and activities, whether it’s the traditional methods like print advertising or the online digital avenues. The presence of continuity throughout platforms plays a vital role since it leads to jump in customer-confidence.
 

SMEs and start-ups can make their presence felt on the digital landscape with the help of services as they can return multiple lucrative benefits.
 

Since with every passing day, rising numbers of consumers prefer to use their smartphones for shopping purposes, it seems that embracing 'app' culture is the way forward for retail businesses, be it small or big. Analysts feel that apps are a sure-fire way to boost any company’s full potential.
 

Mobile marketing is considered as one of the most powerful marketing methods available today. Marketing gurus are of the opinion that if any business doesn't have an app, then a major opportunity to improve sales and bottom line gets missed.
 

It is known that larger brands and big multi-national companies (MNCs) presently dominate the digital landscape in India. Given this scenario, it becomes a daunting task for the smaller businesses to infiltrate the market and enhance their presence. Despite facing problems, many SMEs and start-ups are happy to embrace apps since the benefits of having a mobile presence are high. 

  

Why Indian SMEs need apps
 

Over the past few years, the mobile users in India have evolved considerably. As per Nielsen survey, on an average Indian smartphone user spends about 72 minute per day for accessing Internet. Out of this 72 minutes, over 80% of time is spend for searching products and services. Nearly 30% of the time is spent on the social media platforms. Presently, India is home to about 137-million Internet users, out of this 70 million are mobile Internet users. Out of this 70 million, 20 million just access Internet only via mobile. 

 

 

 

Reasons why successful businesses have decided to take the plunge of app world -

 

- Grabbing eyeballs
 

Although, apps are usually associated with the MNCs, but an SME can surprise and delight its customers by offering apps. Allowing customers to interact with products via an app can help an SME stand out from peers. 

 

 

 

- Rising customers demand
 

Studies clearly prove that tablet and smartphone users mostly prefer apps over websites. The main reason is that websites are not very interactive as compared to apps are for mobile devices. Since apps are usually developed for the touch screens and are also optimised for fingers, it helps a mobile customer to access information about any products and services, without visiting the website. 

  

- Information
 

With short shelf life of products, rising competitive pressure and changing economic conditions, maintaining product information and pricing can emerge as challenging tasks. An app can be updated continuously with the recent information.

 

 

 

- Direct contact
 

An app has potential to push content and information to the customers automatically. Apps allow the SMEs to hold direct interactions with the customers. 

  

- Engaging with customers through apps
 

The interactive nature of an app is perfect for engaging customers and pushing them. Apps make it easier for transforming a prospect into a sale. 

  

- Maintaining stickiness of any business
 

Putting products into an app can increase the visibility of any business. Detailed information and photos about products will be at the fingertips of any customer. 

  

- Maintain competitiveness
 

Almost every big corporation presently provide mobile apps for the customers. Many SMEs are also slowly joining this game. 

  

Is it possible to judge the effectiveness of an app for any business?
 

These are few steps that would prove helpful in deciding the productivity of any app - 

  

- Known proper usage of any app
 

It is very important to know the main purpose of any app before proceeding with any development. These basic questions should be answered before creating an app:
 

· How will it help the customers/ users perform any task?
 

· Is it going to raise the brand awareness level?
 

· Will the app bring customer feedback?
 

· Is the app offering service or is it meant for just for entertainment?
 

· Is the app performing all of the above mentioned steps? 

 

  

-Awareness about customer
 

Do the target customers use iPhone, Blackberry, or Android platform? A better picture of which platforms are helpful in resource planning. Offering apps are useless if the customer feels no need or want for it. 

 

 

 

- Differentiate from the crowd
 

There are high chances that the apps provided by one company matches. Any app should have a unique feature or function that increases its uniqueness and also distinguishes it from the remaining. 

  

- Timely updatation of apps
 

If any business need sending regular updates to the customers, then it is possible to send small, bite-sized chunks of readable content as compared to lengthy content or electronic direct mail.
 

Creating a completely new, custom-made application can emerge as costly option. SaaS applications like ‘ShoutEm’ and ‘AppMakr’ are best suited for SME businesses that have limited resources to develop basic applications at cheaper rates. 

  

Apps market in India
 

Many global companies are looking at India to step up apps production. In fact, the domestic app market is also growing. The value of the Indian value added services industry, which comprises mobile apps, was projected at $3.4bn (£2.2bn) in 2011, said Deloitte. The mobile application industry in India alone is expected to reach $4bn by the year 2015, said Asia Pacific Research Group (APRG). 

  

Few of the important players in this field are -  

- Evernote - It gives permission to snap a photo, take a screenshot, type in text, or speak  note to capture information on the go.  

- LinkedIn – It helps in maintaining contact to keep in touch. It will offer update with what is happening in the professional network. 

  

- Business Week mobile app and Wall Street Journal Mobile App - Many people stay awake to get information on the go. For business, which aim to keep track of International news in their respective domains, may create way for LIVE information throughout the day and also abreast about the recent happenings.

 

 

 

 

- Research In Motion India (RIM) – The BlackBerry maker feels India offers huge opportunities in the Indian mobile applications sector. RIM has more than 55 million BlackBerry subscribers and BlackBerry App World is available in more than 100 markets with 30,000-odd registered developers from India. The strong market with high adoptability rate has made India a rising mobile application centre since each year quite a few SMEs posts rapid growth in this area.

 

 

 

 

- Bizzhappy – It unveiled a new app for the SMEs that help them to commence their own mobile marketing campaign. It also allows small businesses to establish an app to solve to questions like business details, promotions, social media, GPS locator, analytics and tracking.

 

Recently, Industry body National Association of Software and Service Companies (NASSOCM) has stated that SMEs should leverage on sectors such as cloud computing and mobile application platforms. In fact, Google aims to position India as an 'online and mobile first' advertisement market.

 

Conclusion
 

The world of app enjoys immense potential to enhance growth prospects for any business. A successful app should aim to offer right goals and services. India's role in the growth of mobile apps is expected to be huge and its hunger for apps will only get bigger.

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.