Ratings help MSMEs attain greater and easier flow of credit, says Parag Patki of SMERA

MSME ratings help raise corporate governance, bring transparency and also improve the reporting standards, according to Parag Patki, CEO of SME Rating Agency of India(SMERA).

He also divulged the information that SMERA would mainly focus on SME ratings and is targeting to achieve cumulative ratings of 25,000 SME ratings this year.

What is the role that SMERA aims to play in India's SME sector?

Parag Patki: SMERA is striving to reduce information asymmetry within the sector by acting as an independent, third party, unbiased risk-opinion provider to the business ecosystem of the SME world. Considering SMERA’s completion of seven years in the business and its experience of rating over 17,000 MSMEs, SMERA is confident of becoming a bridge to plug the information gap between MSME borrowers and lenders such as banks and financial institution and enhance the credit flow to this sector. Moreover, SMERA’s rated universe will also provide comfort to the corporate sector in getting access to quality, well managed and funded pool of units. Policy advocacy is the other role that SMERA aims to play once the rating universe achieves a critical mass in the immediate future.

SMERA also plays the role of an advocator to the MSMEs on the benefits of accepting the good corporate governance practices and bringing transparency within their unit. SMERA has found that the credibility of its consistently rated clients have improved if such units have displayed improvement in successive ratings.

Kindly share the relevance of credit ratings for SMEs?

Parag Patki: The relevance of credit ratings for SMEs are mentioned as follows -

a)Concessional funding & lower collateral: Ratings facilitate greater and easier flow of credit from the banking sector to MSMEs.

b) Better market standing: Acceptance amongst lenders, trading partners (local as well overseas) and prospective customers.

c) Quicker credit decision at the lender’s level: Ratings provide comfort to the lenders thus reducing time to lending and cost of lending.

d) Better Governance: MSME ratings provide an impetus to raise corporate governance, transparency and reporting standards.

How do you think that the Indian SMEs are performing in the present global scenario?

Parag Patki: Slowdown in domestic demand coupled with weak global demand is pressuring both domestic and export oriented (SMEs which are engaged in 100% exports have been adversely impacted vis a vis SMEs having both domestic as well as overseas exposure). Also, stretched receivable cycle is further exacerbating the downward pressure on ratings. The increased financing cost and input cost (due to inflation) has exerted strain on their financial position. However, SMEs catering to domestic market are still exhibiting moderate growth.

As per SMERA, the general direction of the rating has a downward bias (% of ratings in upgrade category have continued to exhibit reducing trend even in the Q1 of FY 12-13). In FY 2010-11, around 38% of the total cases which had approached SMERA for review ratings were upgraded; however the percentage has dropped to around 21% in FY 2011-12. The data is as under:

Year	Upgrade %	Downgrade %
FY 2010-11	37.78%	10.37%
FY 2011-12	21.48%	12.50%

What are the key challenges faced by the Indian SME sector?

Parag Patki: The key challenges faced by the sector are as follows:

· High cost and terms of borrowings.

· Limited and timely access to bank loans.

· Unavailability of requisite volume of affordable skilled labour.

· Constraints on modernisation and expansion and adoption of newer technology.

· Limited bargaining power with the corporates resulting in stretched collection period and squeezed margins.

· Power shortage.

· Lack of infrastructure.

Do you feel that government policies (both Centre and state) are working in favour of the SMEs? Are they assisting these companies in alleviating the pertinent issues?

Parag Patki: Government have been taking various steps to promote the SMEs such as:

· Extending collateral free loans upto Rs 1 cr under CGTMSE scheme.

· Providing credit linked capital subsidy (CLCSS) for technology upgradation.

· Classifying loans to SMEs as priority sector to increase bank lending to the SME sector.

·SME Stock Exchange for enabling the SMEs to access the capital market.

· MSME Ministry operates a 'NSIC Performance and Credit Rating Scheme' and offers 75% rating fee subsidy for SSI units.

· Ease of bidding for government contracts for rated SME units.

· Lack of awareness is affecting the utility of these schemes.

Do you feel that ICT (information and communication technology) usage by SMEs has gone up?

Parag Patki: Yes, our communication with SMEs indicates that the usage of ICT is increasing exponentially, given the obvious reach and cost advantages that ICT bestows upon the sector.

A recent study conducted by FICCI shares some valuable insights as under-

- Almost 74% of the respondents (SMEs) have their company’s website.

- 79% of the respondents (SMEs) use ICT tools in their day to day business operations. It implies that most of the people are aware about ICT and understand its importance and therefore use ICT tools in their day to day business operations.

- 79% people who use ICT tools in their day to day business operations, maximum usage of ICT tools is done for promoting sales and marketing (79%) by different companies (SMEs), followed by finance (67%) and market research (53%). Very few companies (21%) use ICT tools in their supply chain activities.

- Out of the people who use ICT tools in their day to day business operations, maximum respondents (95%) find them beneficial in one or the other way.

What is the outlook for the SME sector in this year?

Parag Patki: In the next two-three quarters, SMERA expects sharp increase in pressure. Moreover, enhanced risk perception among banks could also lead to lower bank funding for the SMEs. From a medium to long term perspective, structural dynamics of the global slowdown will have the largest bearing on competitiveness of export oriented SMEs. Slowdown in the domestic consumption due to inflation may have a moderate effect on the growth of SMEs. The lower growth of GDP, high inflation and dull export market will have added bearing on the SME sector.

Fitch downgraded the outlook for the domestic retail sector to 'negative' from 'stable'. It has hinted at further rate cut in the future. How do you think it will impact the Indian SMEs?

Parag Patki: Textile oriented retail sector is currently facing high inventory, debt pile up and overall deterioration in the consumption due to reduction in discretionary spending. These factors will impact overall demand (due to lower demand)/ lower credit flow (bank & other lending channels)/ tighter cash flows (due to delayed payments) as the retailers tighten their belt and adopt stricter working capital management to manage their business, thus impacting the Indian SME sector.

RBI's move to leave rates unchanged for the second consecutive policy review has been criticised by India Inc. How do you think it will impact the growth of SMEs?

Parag Patki: Growth of SMEs would be impacted due to lower bank credit as a result of higher risk perception among banks and also prohibitive costs of borrowing at the SME level. This would not change due to RBI move to retain the rates for the second consecutive policy review. The costs of borrowing coupled with high raw material prices, high labour costs are affecting SME profitability. It would also affect the capex plans of SMEs and affect their overall growth. However, inflation is also hitting SMEs sector on account of increased cost of --input and labour cost and therefore regulatory action from a perspective to control uncomfortable level of inflation should be appreciated.
SMERA’s analysis also reveals that bank credit to MSME, as a percentage of total bank credit, is at a six year low of 20.6% (Source- Deployment of Gross Bank Credit by Major Sectors; RBI). This is lower than the average by around 1.2 percent (1.2 per cent translates to Rs.57,000 crs). Hence, bank funding to SMEs has reduced by over Rs 57,000 crore on a relative basis. Also, on an absolute basis MSME credit has grown by only 12 per cent (June 17, 2011 to June 29, 2012) as against overall bank credit growth of over 19 per cent for the same period.

Inflation in India eased in July to 6.87% as compared to June. Do you think it is a signal of the changing times in Indian economy?

Parag Patki: Weak infrastructure and power scenario will continue to remain as bottlenecks. Even though the inflation has eased to 6.87%, the fiscal deficit of India is widening due to continuous decline in exports and increase in oil prices, which is a dominant constituent of our imports. The weakened Rupee has also added to our woes, further pushing up import cost. The food inflation also continues to hover at the 10+% mark. With poor monsoon in India and large scale crop damage in US this year, food inflation may further go up and push the overall inflation rate. Hence, in SMERAs opinion this is still not a clear signal for changing times for our economy.

Kindly share the roadmap of SMERA for the on-going financial year 2012-13.

Parag Patki: While SMERA would primarily focus on SME ratings and is targeting to achieve cumulative ratings of 25,000 SME ratings this year, SEBI licence to rate bonds and IPOs would enable SMERA to diversify its offerings to the corporate sector too. SMERA is also keenly awaiting accreditation from RBI for Bank Loan Ratings which will open doors to the SMEs as well as corporate sector to a choice of better service as well economical pricing advantage. In addition, SMERA would continue to evolve newer products so as to cater to the requirements of bottom of the pyramid SMEs and also play an important role in financial literacy of the sector with the help of technology. Similarly, handholding SMERA rated universe to explore newer avenues of funding for growth such as: SME Exchange/ Private Equity/Risk Capital/Venture Capital will be other focus areas this year for SMERA.

Overdue invoices pose biggest hindrance in SME growth

 Chasing overdue payments is the biggest obstacle in the growth of the small and medium scale enterprises (SMEs). To get rid of this unfair business practice, the small traders have sought government intervention with the setting up of a full-power regulator which will ensure the timely payment of all invoices by the big players.

Reports suggest that the problem of late payment is continuously affecting the cash flows of numerous small companies and severely restricting the efficiency of their business. Hard hit mid-sized traders have demanded the authorities to enforce some rigorous regulation and play a proactive part in doing away with this ailment. Primarily, the irregularities of large players are responsible for the dwindling cash flow of the small scale units.

The SMEs or small scale industries (SSI) say that there are very few big companies who follow the payment norms of 45 days and give a lame excuse of not receiving the bills, which is always sent along with delivery of goods.

The syndrome needs to be cured on an urgent basis as it is continuously hitting the SMEs hard and is the reason for them reeling under the pressure of overdue invoices. Usually, the large companies attribute the delays in settlement of payment of bills to lengthy and complex bill passing procedures, following the cheque preparation, signing and handing-over procedure, which entails a few weeks to months to come up with a final payment.

Besides, the interest retrieving is another matter of concern for the mid-sized companies. In a bid to maintain a healthy and long-term relationship with their clients, small traders turn a blind eye to the interest and the clients leave no stone unturned to take undue advantage of the situation.

The government offers a legal approach for SMEs facing such a problem in Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.. It is aimed to facilitate the promotion and development besides competitiveness enhancement of MSMEs.

In order to curb the growing menace of overdue invoices, the representatives of several small firms have submitted there suggestions in a survey, helping the small traders to get their accounts paid much more quickly while keeping all of their clients happy without facing any confrontation.

The introduction of credit policy in an organisation has been voted as the best way to protect the revenue of the business. An effective credit policy not only ensures good commercial practice but also protects the revenue. The creation of credit policy involves a secured copy of all invoices in a file, along with a weekly check on them and act accordingly.

On the other hand, the constitution of an SME certificate-issuing body has also been hinted as the measure to pause the late payment sequence. Small traders seek the body to have powers to keep a close watch on big firms, conduct audit at frequent intervals, and issue No Objection Certificates (NOCs).

The introduction of a 'credit card type system' can also minimise the problem at some extent. The industry seeks the body to come up with defined credit-period among the parties and in case the period has not been mentioned, it should include the maximum number of days to clear the payments. The system should also include the lenders to offer a collective system of operation of settling the payment and the credit period.

The setting up of a credit-rating body to voice problems and concerns of SME sector has also been proposed by the respondents. The body is recommended to be constituted through a forum or a third party.

The government should come up with a stricter legislation against the bigger companies who are disheartening the potential SMEs with unfair business practices and affecting the small and mid-sized companies who have limited cash flow and limited bank support. The joint cooperation from the fellow-traders and government is highly required to reduce this menace.

ITPO provides needful impetus to MSMEs, says Rita Menon, CMD of ITPO

Accentuating ITPO's major contribution in bringing the Indian businesses particularly those in the SMEs and MSMEs sectors closer to global markets, Rita Menon, chairman & managing director (CMD) of Indian Trade Promotion Organisation (ITPO) said that the organisation puts special focus on SMEs/MSMEs products and services during its B2B specialised activities.

 

ITPO's exhibitions in India and abroad are the most reliable platform for promotion of SMEs, she said in an exclusive interview.

 

 

How would you relate trade fairs with SMEs/MSMEs ?

Rita Menon: ITPO has been playing a pioneering role in the national trade growth dynamics since its inception. As an ideal catalyst for India’s trade promotion, ITPO provides desired impetus to the process of enhancing technological capability of the SMEs and MSMEs. These events offer a unique forum of B2B meetings for promotion of these sectors. 

 

 

What is the current scenario of trade and business in India?

 

Rita Menon: Integrating with the global economy, Indian trade and commerce is in a transition stage. In view of the contemporary challenges in the country, a fresh initiatives have been taken by the Government such as economic reforms and the country is becoming investor-friendly. Indian companies are competitive effectively both at home and abroad. They are also investing around the world.

 

 

 

ITPO primarily aims to promote country's external trade. What new business initiatives your organisation has undertaken in recent years to promote India's external trade?

 

Rita Menon: ITPO organises national level participations in major international trade fairs and exclusive India trade shows overseas in line with the market opportunities. These efforts are made and in keeping with the Government’s focus programmes in the Africa, Latin America, specific CIS countries and also for promotion of products including setting-up exhibitions in different countries where bilateral agreements have been taken place. Currently, ITPO organises India pavilions in around 30 trade fairs. Some of the prominent overseas events in which ITPO organises national participation are: Anuga Food Fair, Cologne, Sial, Paris, AF-L Artigiano de Fiera, Milan, Hospitalar, Sao Paulo, Asia Pacific Leather Fairs, Hong Kong, AApex, Las Vegas, Australia International Sourcing Fair, Sydney, Foodex, Tokyo, Africa Big Seven/Saitex, Johannesburg, National Hardware Show, Las Vegas and Practical World, Cologne. Besides, two highly popular regular ‘India Shows’ are organised in Osaka, Japan annually are India Home Furnishings Fair and India Garment Fair.

 

It is a matter of pride that ITPO has been the official organiser of India’s participation at World Expo series and would be playing the same role in Expo Milan 2015.

 

 

 

How is your organisation helping SMEs in disseminating information about their enterprises and also accessing markets? Rita Menon: Apart from its role in bringing the Indian businesses particularly those in the SMEs and MSMEs sectors closer to global markets, ITPO provides reliable trade information to the foreign buyers and exporters. Its dedicated trade portal: tradeportalofindia.com assists in accessing potential markets for SMEs. Besides, ITPO has always special focus on SMEs & MSMEs products and services during its B2B specialised activities including IITF, an annual magnum opus of the organisation.

 

How, according to you, MSMEs, can extend their reach to customers in different markets in such a competitive environment?

 

Rita Menon: In this fiercely competitive scenario, India MSMEs have to improve, upgrade and acclimatize their products and services, as per the global standards in quality. Promotional back-up through exhibitions and e-commerce play a pivotal role in business expansion and brand promotion
globally. 

 

 

For SMEs, which is the most effective way of promoting trade?

 

Rita Menon: As earlier mentioned, ITPO’s exhibitions in India and abroad are the most reliable platform for promotion of SME’s. Along with interaction with potential buyers, these events offered opportunities in the form of technology transfer, exploration of joint ventures and creating fresh business network.

Good credit ratings allow SMEs to enjoy interest rate benefits, says Sachin Nigam of CRISIL

Given the problems SMEs face in seeking finance, approaching a credit rating agency is a good option for small companies as a good rating not only help SMEs to gain faster and cheaper credit for venture but it allows them to enjoy interest rate benefits varying between 0.25 per cent and 1.25 per cent from the financial lenders. This and many other aspects of ratings were explored by Sachin Nigam, director, SME Ratings at CRISIL in an exclusive interview.

How do CRISIL SME ratings empower SMEs and drive them to next level of growth?

Sachin Nigam: CRISIL SME ratings empower the SME through the following:

- Assisting them in getting adequate and timely credit

- Bringing in greater level of transparency and corporate governance

- Greater acceptability among customers, suppliers and investors

- Act as a self- improvement tool

The key challenges being faced by the SMEs in India is access to adequate and affordable credit recognizing the key role SMEs play, increasing availability of funding for SMEs has been at the forefront of the policy agenda. . An important element in increasing the comfort of bankers in lending to SMEs is the availability of high quality analysis and independent opinions on SMEs. And that is exactly what CRISIL SME ratings seek to provide. A credit rating provides an objective and high-quality assessment by a credible third party about the SME’s financial and performance capabilities. This helps lending organisations make a more informed choice.

We believe rating is a significant step towards empowering SMEs, increasing their access to funds and at the same time driving the entire SME eco system towards higher levels of transparency and corporate governance. We have received strong feedback from all stakeholders including customers, bankers and industry associations that stand testimony to our belief.

Another advantage of getting rated is that highly rated SMEs get the advantage of interest rate reduction from the Banks. There is wide acceptability of ratings among the bankers and in what is unprecedented in India, more than 20 banks provide interest rate concessions ranging from 0.25% to 1.25% to rated entities depending on their ratings.

A good rating also gives the business more credibility. Many large corporates and government entities have integrated ratings in their vendor/dealer evaluation process. And often the prospect of evaluation enables SMEs to dispassionately examine their own strengths and weaknesses and address issues to strengthen their operations.

Rated SMEs/SSIs get listed free of cost on CRISIL’s RatingScan, a publication used as a reference for lending decisions by many banks, and on the CRISIL website. The company’s name is also featured on CRISIL SME Connect, the monthly newsletter sent out to more than 3,000 bankers and 12,000 companies across India.

Since the inception of ratings concept for the SME sector, how many SMEs has CRISIL rated?

Sachin Nigam: Since CRISIL pioneered SME ratings in India in 2005, we have successfully completed more than 32,000 SME Ratings in a span of just seven years. This is the largest number of SMEs rated anywhere in the world.

What are the measures CRISIL adopts to popularise third party ratings amongst SME units?

Sachin Nigam: Generating awareness about the benefits of rating is of vital importance in the overall quest to bring greater transparency and corporate governance in the sector. CRISIL does these by organising seminars in collaboration with bankers and industry association for smaller enterprises across the country on the process and benefits of ratings.

How do you categorize SMEs for fair evaluation amongst peers?

Sachin Nigam: The SME sector has to be treated differently, because the drivers of credit quality for smaller enterprises and the issues faced by them are different from those applicable to large companies. Therefore, CRISIL has developed a unique two-dimensional scale for SMEs, where parameters for information requirement have been simplified and which can measure both performance capability as well as financial strength. Additionally, our whole SME Rating system is affordable and tailor-made for the sector.

Is it as easier to get reliable financial information about SMEs as in case of big players?

Sachin Nigam: Shortage of reliable financial and other information is a continuing challenge when it comes to rating SMEs. However, having rated more than 32,000 SMEs, CRISIL is able to bridge this information gap with a 360-degree evaluation approach. We don’t just go by the audit reports and CA certification but also mine alternate sources of information, including the firm’s bankers, suppliers and customers.

Each has its benefits. Bankers help us verify details of the working of the corporate account, the company’s actual sales/receivables position and whether it has been honouring its financial commitments. Information about the market position and operating efficiency can be cross-checked by meeting suppliers and discussing the firm’s purchases and sales, order book position, and payments terms. Our associates also visit the facilities of the company to determine whether the company has been truthful in describing its infrastructure, people strength etc.

All these factors, along with our experience of rating more than 32,000 SMEs, help us in bridging the information gap, which we face while rating these SMEs.

It is often seen that SMEs have to undergo fresh ratings assessment by banks when they apply for loans, despite ratings done by renowned credit rating agencies. What is the basic reason behind this?

Sachin Nigam: Banking being a highly-regulated sector, banks have stringent norms for day-to-day functioning. But this does not eliminate the need for rating agencies like ours. In fact, our ratings provide banks with an objective, credible and unbiased assessment of an organisation’s creditworthiness. This is borne out by the facts. Our ratings are used as a key ingredient by more than 40 banks in their decision-making process. And as mentioned earlier, banks give interest rate benefits varying between 0.25 per cent and 1.25 per cent to SMEs that have good credit ratings.

In its monetary policy review on Sept 17, Reserve Bank of India (RBI) kept repo rates unchanged while CRR rates were slashed 25 bps to 4.50%. What is your opinion? Will the additional liquidity in the market help SMEs and manufacturing companies who are looking for credit flow?

Sachin Nigam: The RBI’s move to cut CRR rates will introduce additional liquidity of Rs. 17,000 crore into the banking system. This will unlock cheaper credit for the industry at large, including for smaller enterprises, in the short-to-medium term. SMEs rated highly by CRISIL already enjoy lower loan interest rates from 20 banks.

Please share your roadmap for the current fiscal (2012-13).

Sachin Nigam: We will continue to take the message of ratings to all parts of the country. It will be our endeavor to make a vital difference to the SMEs by facilitating the flow of funds to the sector and empower the SMEs to take next steps in their journey to become a large corporate.

50% of total export credit should be earmarked for SME sector, says FIEO Director General

There are immense growth opportunities for SMEs and new entrepreneurs in the field of exports as Central government is aiming to achieve short term goal of US $500 billion of exports by 2013-14 and doubling country's share in world trade by 2020, shares Ajay Sahai, the Director General & CEO of Federation of Indian Export Organisations (FIEO) in an exclusive interview.

What is your opinion on the state of exports in the country? How is the current global market scenario for exports by SMEs?

Ajay Sahai: Exports have done reasonably well during the last decade showing a CARG of about 20%. We have already clocked over US$ 300 billion in the last fiscal. However, the last six months of the previous fiscal showed only 10% growth. The exports witnessed negative growth in April, 2012 and a very moderate growth in May, 2012. The slowdown in exports is on account of global slowdown, crisis in Eurozone and deceleration in domestic manufacturing. SMEs will also be impacted because of these developments.



What is the role that your organisation aims to play to uplift the SME sector?

Ajay Sahai: FIEO provides capacity building to the SME sector and addresses various concerns of the sector relating to finance, marketing and logistics. FIEO has already represented to RBI that 50% of the total export credit should be earmarked for SME sector. Our efforts have resulted in grant of 2% interest subvention for all SMEs in exports. We provide international exposure through participation in trade fairs and exhibitions all over the globe. FIEO Warehouse at Sharjah provides logistic support by giving them Warehousing and displaying facility not only for Middle East but to rest of the world.



What are the growth opportunities for the SMEs available in the export sector?

Ajay Sahai: Indian exports are witnessing rapid change both in terms of products and markets. The traditional sectors of exports are losing to new sectors such as engineering, pharmaceuticals, electronics, etc. which are dominated by SME segment. The traditional exports like gems & jewellery, apparel, handicrafts, marine, agro processing, etc. are heavily dominated by SME segment. Government is also providing support to traditional sectors of exports in view of their positive role in creation of employment. Exports are gradually moving from advance economies to developing and emerging economies. The share of Africa, Latin America and Asia has increased substantially in last one decade at the cost of Europe and North America. SMEs can take advantage of emerging situation.



Indian SMEs are often faced with a challenge of non availability of funds. What's your opinion on this?

Ajay Sahai: Lack of availability of credit and cost of credit are the biggest challenge for SME sector. Despite RBI guideline on collaterals, banks are little reluctant to provide collateral free loans even upto Rs 10 lakhs. The share of export credit in total banking credit is on decline and has touched to less than 4% in December, 2011 as against the stipulated target of 12% fixed by RBI. The cost of credit is also very high particularly after deregulation of export credit and switch over to the base rate. Indian  exporters are getting credit at 12-13% while their competitor in South East Asia get the same at less than 6%. The high rate of credit is making SMEs uncompetitive.



Are SMEs fully aware about the advantages of the EXIM business? What measures your organisation undertakes to make them aware?

Ajay Sahai: Lack of information is one of the biggest drawback for SMEs. FIEO organizes workshops, seminars and interactive sessions to rope SMEs in our export effort. Government of India is looking at short term goal of US$ 500 billion of exports by 2013-14 and doubling our share in world trade by 2020. These figures would require new entrepreneurs to enter the field of exports. We have tied up with leading management institutes to attract entrepreneurs through our short term courses in international trade so that various facets of exports and imports may be explained to them.



In its mid-term monetary policy review, RBI announced to enhance the export credit refinance (ECR) limit to 50 per cent for scheduled banks (excluding RRBs). How will the step be beneficiary to the export sector?

Ajay Sahai: RBI has announced increase in the refinance facility from 15% to 50% with a view to increase flow of credit. The RBI refinance is available at 8% which is much less than the cost of deposit of fund by any bank. This has resulted in reduction of export credit rate by SBI by 0.50% but we expect other banks to follow the suit with steeper reduction in export credit rate.



The sharp and continuous fall of rupee is hitting the interest of the exporters especially from MSME sectors. What according to you should be the steps that the government should take to overcome this problem?

Ajay Sahai: The volatility in exchange rate is primarily due to mismatch between demand and supply and therefore, we need to address our concern at both front. For augmenting the supply, the government needs to bring required legislation to open FDI in insurance, banking, civil aviation and multi-brand retail. The concern of FIIs  on tax front need to be addressed so that there is regular flow of dollar through FIIs route. For addressing the demand, we need to reduce our gold and silver imports which are going into unproductive assets. The domestic industry need to be given level playing field so as to discourage avoidable imports. The trade deficit needs to be curtailed and luckily the softening of crude prices and lesser imports of gold and silver in April and May, 2012 are good sign for the country.



The government recently announced the Foreign Trade Policy which includes a seven-point strategy to boost labour intensive export sector. According to you, how it can prove to be useful for exporters?

Ajay Sahai: Looking at fiscal situation, not many concessions were expected. However, the Government has done a good job to provide Interest Subvention on exports and promote exports through non-fiscal initiatives. The extension of Zero Duty EPCG Scheme would help in expansion and modernization of industry whereas encouragement given to domestic sourcing under various authorization will give a boost to manufacturing sector in the country. The Government has initiated various measures to reduce the transaction cost of exports, which as per their own estimate varies between 8-10% of FOB value of exports.



From past couple of months, some key industrial sectors dominated by small and medium enterprises (SMEs) like gems and jewellery, readymade garments, leather, electronics, plastics, etc, have been registering sluggish growth. How do you observe the scenario now?

Ajay Sahai: These sectors have shown sluggish growth as they are heavily dependent on advance economies particularly sectors such as gems & jewellery, garments, and leather. However, of late, we have seen that these sectors are also moving to new markets in Latin America, Africa and CIS countries, which will help in registering the slowdown. We also hope that situation in Europe will improve in the second half of the current fiscal, helping exports of these sectors.



Please share your roadmap for the current fiscal (2012-13).

Ajay Sahai: We expect exports to grow by 10% in first six months of the current fiscal and by 30% in the next six months. With these projections, we expect the exports to grow to US$ 360 billion by 2012-13. Imports may see a slowdown with reduction in crude prices and lesser import of Gold and Silver. We expect imports to be around US$ 510 billion with a manageable deficit of about US$ 150 billion in 2012-13.



What is the outlook for the sector, especially SMEs, in the next 6 months?

Ajay Sahai: The next six months are challenging as confusing and contradicting news may flow from Euro Zone. The bailout package given to Greece and Spain can add to positive climate but at the same time, if not accompanied by austerity measures, may lead to discouraging signs. SMEs should use the opportunity of  favourable exchange rate to add to their competitiveness but at the same time, they should explore the possibility of adding to their long term competitiveness by increasing productivity, adopting IT in various operations and curtailing the avoidable expenditure.

Women entrepreneurs should be given fair representation in MSME sector, says Dr Rajnee Aggarwal, president, FIWE

Even though Indian population constitutes 48.1 per cent women and 51.9 per cent men, the entrepreneurial world of India is still a highly male-dominated field. Women empowerment is considered indispensable for achieving the goals of sustainable and inclusive growth. In an exclusive interview, Dr Rajnee Aggarwal, president, Federation of Indian Women Entrepreneurs (FIWE), explores the current status and opportunities available for Indian women entrepreneurs.

 

What is the current status of women entrepreneurship in India?

Dr Rajnee Aggarwal: The Indian social setup has been traditionally a male-dominated one. However, the traditional set up is changing in modern era. Women sector today occupies 45% of Indian population. The literary and educational status of women has improved considerably in last few decades. At this juncture, effective steps are needed to harness the economic potential of enterprising women in strengthening our economy.

Women entrepreneurship is growing at a rapid pace…more education and government initiatives to support entrepreneurship.

What is the role that your organization aims to play to uplift women entrepreneurs?

Dr Rajnee Aggarwal: As you know, FIWE is a national level organization with a large membership base of 15000 individual members/professionals sand 28 member associations spread across the country. We are also affiliated with International Federation of Women Entrepreneurs (IFWE), which has a membership base of 21 countries and more countries are being added soon.

Our main task is to promote entrepreneurship amongst women and bring them in the mainstream. As of now, women are not given a fair representation in the MSME sector whereas their contribution is consideration.

- Enroll women organizations for government schemes and incentives

- Get collective representation of women businesses on major forums, economic policy making, banking and funding. etc.

- Providing marketing platforms for products produced by women businesses. Give women businesses global representation

- Leadership training and advanced skill development programs of the highest standards to compete globally

- Provide opportunities for women to get them a level playing field

What are the current challenges faced by Indian women entrepreneurs? Please elucidate on the support and subsidy being given to them.

Dr Rajnee Aggarwal: Opportunities are immense. The knowledge economy has certainly created large number of never before opportunities for women particularly in service sector. Today one can see a women entrepreneur in almost every field be it ICT, retail, service sector, health care, insurance, tourism, education and even international trade. I keep meeting so many management and technology women professionals who are eager to take a dip in world of business.

There are many challenges faced by women entrepreneurs - start-ups or struggling to grow their existing business. Take for example, large number of women are not able to take advantage of Government schemes because they are not registered under MSME Act. Registration of a unit under MSME Act is not as easy as it needs to be. We are taking up this issue shortly with MSME Ministry and hope to make it easier at least for women enterprises. Easy availability of credit and at preferential interest rate for women entrepreneurs remains our long standing demand. We also find that at large women are not aware of women focused financial and non-financial schemes. Government should support FIWE to organize more of awareness seminars.

There are challenges for women, as women owned business are assumed to be inferior by stereotypical, male dominated thinking.

Earlier this month, Mauritius invited Indian women entrepreneurs to collaborate with their counterparts in various areas. According to you, how it can prove useful for Indian women entrepreneurs?

Dr Rajnee Aggarwal: We also plan to organize Buyer-Seller Meets and Exhibitions. FIWE is also organizing two, one in Delhi and another in Bangladesh with each event likely to see participation of over 1000 women entrepreneurs from across the world.

What steps state should governments adopt to draw more women into entrepreneurship?

Dr Rajnee Aggarwal:

- Increase the ability of women to participate in the labour force by ensuring the availability of affordable child care and equal treatment in the workplace. More generally, improving the position of women in society and promoting entrepreneurship generally will have benefits in terms of women’s entrepreneurship.

- Listen to the voice of women entrepreneurs

- Incorporate a women’s entrepreneurial dimension in the formulation of all SME-related policies. This can be done by ensuring that the impact on women’s entrepreneurship is taken into account at the policy stage.

- Periodically evaluate the impact of any SME-related policies on the success of women-owned businesses and the extent to which such businesses take advantage of them. The objective should be to identify ways to improve the effectiveness of those that should be retained. Good practices that are identified in this way should be disseminated and shared by all.

- Improve the factual and analytical underpinnings of our understanding of the role of women entrepreneurs in the economy by strengthening the statistical basis for carrying out gender-related cross-country comparative analyses and longitudinal studies of the impact of important developments and policies.

All the government bodies should induct women entrepreneurs on their boards, to generate gender sensitivity and create policies which are conducive for the growth of women entrepreneurship.

Recently, MSME Minister Vayalar Ravi highlighted the need to increase the share of women entrepreneurs to atleast 25%. How do you observe the scenario now?

Dr Rajnee Aggarwal: This is a very positive statement. As it has never been a political agenda, though women constitute almost 50 p% of our countries population But still no body is serious about it. Mr Ravi s statement shows that there is a leader who thinks in these terms. I am sure he will make some strong and workable schemes for women and draw a road map for women entrepreneurs.

Womens are found to be better managers as compared to men. Do you support this statement?

Dr Rajnee Aggarwal: Well, the topic of the GD is 'Do Women make good Managers'. Of course women do make good managers...

There are 'n' number of examples to support my view - Chandra Kocher, Hillary Clinton, Angela Markel, Indra Nooyi, Shiksha Sharma etc. etc.

Now as far as comparison between men and women is concerned, there has been a male dominance in the past 50 years for obvious reasons, which were due to cultural ethos which the world as well as India had. But this has now changed. Today no one cares whether the leader of a company/country/ group is a male or female. The world just wants effective and efficient leadership skills, which either way a man or a women possesses.

Higher EQ as compared to the male counterparts have helped women in achieving an edge. Women are versatile, flexible, agile and yet firm to handle the ever dynamic pressures and challenges of manpower management. The latest example of the Goan girl having an IQ of 162 , higher than that of Mr. Einstein is no surprise that now women are equally or more gifted than their male counterparts.

Please name the Indian states which offer an investment-friendly environment for setting up a business for women entrepreneurs. According to you, which region or state tops the count of women-owned enterprises.

Dr Rajnee Aggarwal: The top on the list is Andhra Pradesh and Karnataka. In Andhra first Industrial state for women entrepreneurs was stabilised way back in 1995.

Karnataka also was able to establish a marketing hub for women entrepreneurs The other states have not shown much interest in this area.

As per your opinion, after how many years will India be called as the hub of women entrepreneurs?

Dr Rajnee Aggarwal: Difficult to say. June 2012 Women Global Entrepreneurship study by Dell showed optimism from women entrepreneurs in India who expect median business growth of 90%, eliciting this response on India’s Economic Times from Amit Midha, Dell’s Chairman For Global Emerging Markets, “We have found the ideal country for a woman starting a business in 2012 could well be India.”

“In India, women and girls continue to be sold as chattels, married off as young as 10, burned alive as a result of dowry-related disputes and young girls exploited and abused as domestic slave labor,” Gulshun Rehman, a gender specialist and health programme development adviser at Save the Children UK, told the Guardian.

It makes you bewildered! To see this contrast.

The educational or professional gap between women is probably the answer.

Please share your roadmap for the current fiscal (2012-13).

Dr Rajnee Aggarwal:

- Conduct market research & demand potential for women entrepreneurs as alternate source of suppliers

- Successfully establish marketing linkages for women entrepreneurs – crucial input for their sustenance and growth. Focus on Networking is which is the biggest tool of success these days. Making them globally competitive and getting them level playing field by creating awareness.

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.

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.

Incubation: A cutting-edge tool for self employment

Increasing number of entrepreneurs in a country outshines the nation in the global arena and growing importance and visible impact of entrepreneurship in employment-generation in developing economies gives birth to an idea of business incubation. An entrepreneur not only charts on his/her own course but also pursues growth while generating wealth, employment and social good.
Entrepreneurs hold potential to transform a city, region and a country as entrepreneurship increases opportunities for employment, introduces and disseminates new methods and technology and also drives overall economy.


What is Business Incubation?
Incubation is a novel concept primarily gestated to help budding entrepreneurs to launch and develop their business with an intellectual assistance of experienced players. Business incubation is a contributive environment created to foster the sustainable growth potential and development of an enterprise. An incubation center offers various forms of assistance to entrepreneurs, including technical knowledge, market studies, access to loans and training programmes. Some also provide office space, meeting rooms and printing, photocopying, fax and Internet infrastructure.
In brief, a business incubation centre is a supportive environment being provided to the budding entrepreneurs aimed to foster their entrepreneurial ideas before they step into venture capital. In this age of globalisation, incubation centres are highly required as they fulfill an entrepreneur's dream of building his/her own company. These centres provides a helping hand to entrepreneurs via assisting in early capital, infrastructure and expert counselling which turn ideas into tangible business models. Besides supporting an entrepreneur, an incubation centre also drives nation's economy by generating new job opportunities.


Objective of Incubation Centre:
An incubation centre is not only aimed to create self-employment but also to convert a person, having a innovative business idea but less resources, into an entrepreneur by way of providing all support services. These incubation centres are playing a vital role in emerging a country as an economic powerhouse as they create high value jobs through fostering newbie and high potential firms.


Globally, the incubation centres have been classified into Tecnology Incubators and Business Incubators. The array of business support resources and services, developed and engineered by incubator management extend support to the successful development of entrepreneurial companies.


Advantages of Incubation:
Incubators are a boon for entrepreneurs. These centres come in all forms, like innovation centres, technopoles and science parks. Although this practice is widely accepted in industrialised countries, but now-a-days such activities are gaining momentum in developing countries as well. Some major advantages are :


Promoting newbie ventures of young entrepreneurs
During initial gestation period, offering a broad range of entrepreneurship development initiatives such as training, nursery incubator space
Central common machining facilities
Systems and networking support
Catalogue library
Extending financial aid
The facilities such as workshops, computer networks with Internet facilities etc. have proven to be a blessing for upcoming enterprises. Some entrepreneurial incubation centers also provide the availability of online consultancy in the form of management professionals' team. After analysing various business propositions, this team helps to develop best-suited business plans thereby providing greater impetus to newbie entrepreneurs.


Why India needs to promote Incubation programmes?
Gone are the days when a decent well paying and 9-5 desk job was all that one aspired for. Economic growth, globalisation are some of the factors spurting the need of having more and more entrepreneurs in the country. Incubations promote entrepreneurship spirit which not only creates successful businesses but also increases employment rate of a country.
Knowledge acts as a catalyst for change and the initial step to promote incubation programmes is to disseminate information with regard to business brooding. Further, the private sector involvement in this regard is also important. It has been found that financial lenders are often disinclined to provide loans and support research and technology innovation and modernisation in such programmes. But the encouragement to applied research can lure banks. Moreover, the business environment should be encouraged in order to stimulate young budding graduates to start up their own business.


Incubation centers in India
National Small Industries Corporation (NSIC), a miniratna company facilitating the growth of small enterprises since 1955, has created a Rapid Incubation Programme. The programme offers integrated support through rapid incubation of unemployed people in its technical and incubation centres. NSIC's Rapid Incubation Programme prepares unemployed persons for entrepreneurship and capacity building. It provides all needful facilities for potential entrepreneurs to learn product manufacturing and all its processes.
Besides NSIC's Rapid Incubation Programme, there are various incubation centres in India, such as -
Centre for Innovation Incubation and Entrepreneurship (CIIE), IIM-Ahmedabad
SIDBI Innovation & Incubation Centre (SIIC), IIT-Kharagpur
Society for Innovation and Entrepreneurship, IIT- Bombay
National Entrepreneurship Network (NEN), Wadhwani Foundation
Technology Business Incubator (TBI), BITS Pilani
National Institute of Industrial Engineering, Mumbai


Conclusion

Although, an incubator does not guarantee success, but it can act as a nursery which will supervise and mentor the early mistakes of a new startup so that an entrepreneur could not end up causing financial or motivational loss in business.

Export consortia: How SMEs can access global markets effectively

The small and medium enterprises (SMEs) today are considered as a vital segment of the Indian economy as they provide a significant contribution to the country's GDP. Today, the SME sector accounts for around 35 per cent of the gross value of output in the manufacturing sector and over 40 per cent of the total exports from the country.


SME players enjoy dominancy in some of India's major export sectors namely textiles and garments, sports goods, leather products, gems and jewelry, handicrafts to name a few. But still they are hesitant to step into global trade. In today's globalization and liberalization era, their penetration is confined with several factors and it is a herculean task for them to compete in a global environment. Some major restrictions faced by the SMEs include resource crunch, shortage of trained manpower, risks and complexities involved in exporting. They choose to compete across local areas, at the domestic level.


In order to assume centre-stage in India's trade policy and also to expand penetration in the global arena, SME owners should come together and form a confederation while complying with their own limits and boundaries. The formation of export consortia by SMEs is an effective way to live up their dream of becoming active players in the export game as it will help them to get over the barriers of costs and lack of skills.


Defining export consortium
A voluntary group formed by small and medium sized businesses which pool in their own expertise, experience, resources and business network is called an export consortium. While in the consortium, they still enjoy their legal, financial and managerial rights. Their objective is to boost the export of goods and services of its members through joint actions.
This group promotes different levels of strategic cooperation among enterprises with their collective activities and initiatives to reach out to overseas markets.


Generally, such consortiums are non-profit alliances, and the members do not have to transfer control of their business to others.


The benefits it offers
SMEs can efficiently make a way into and enhance their market share in foreign markets at reduced expenditure and risk with the formation of export consortia. Besides, it allows the affiliates to improve productivity, increase knowledge and gain a way into larger markets and contracts with joint efforts. By and large, the voluntary group of enterprises is from a same business stream and the collaboration is aimed to make these enterprises globally competitive.


Despite these benefits, export consortia are also faced with some impediments such as delays emerging from the process of looking for like-minded and appropriate business partners and ensuring a productive partnering which itself is a huge effort asking for cohered efforts, dedication and resources. These challenges of a collaborative venture, however, fall short in front of the benefits of an export consortium. Member SMEs must work cordially and efficiently for the consortium to bring them access to exports.
An export consortium allows the members to also opt for collective bidding. This enables them to cater to large orders from foreign buyers which may not have been possible for a single enterprise of a small size.


The way forward

SMEs are progressively focussing on improved production methods, penetrative marketing strategies and management capabilities with the help of their vigour, flexibility and innovative drive in order to uphold and strengthen their operations in the global market. However, when tried, unity and collaboration brings good results as it follows the old saying 'unity is strength and division is weakness'.