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SMEs in Developing Countries need to scale up to be competitive….


(by Raju Swamy:PROMAG Consultancy Services: Bangalore: August 10, 2009 )

India has been a good example of Government-focused programs since the ‘sixties for
promoting ‘Small Scale Industries’. Unfortunately, SSI’s survived where possible in a
small closed world of Government Concessions rather than by confronting the dynamics
of the market. Many of them remained small and have stagnated to their death, as, over
time, competitiveness suffered. All failure was attributed to ‘lack of working capital’ and
not on entrepreneurial and management inefficiencies.

There has, however, been a revolution in the way business has transformed itself in the
‘nineties, and this revolution is ongoing, cutting across the size and scale of enterprises.
The prime movers for progress are now intense competition, expanded global markets
within reach for all, technology, including ICT (Information and Communications
Technology), and greater financing alternatives and availability. Extraordinary
opportunities for investment and growth are also matched by equally significant threats
to the survival and success of enterprises if they are not efficient and ‘world-class’ in
their Business and Operational Processes.

Yesterday’s ‘Small Scale’ is today’s ‘Micro’, and yesterday’s medium is today’s ‘Small’,
and many of yesterday’s large are today’s ‘Medium’. While this logical scaling up was
more by Government definition, It is important to appreciate that even today, a "Small"
manufacturing enterprise in Europe or the USA is far bigger in terms of investments,
revenues, and profits than our official definition. Management of growth to these levels
and beyond requires planning and organization skills. This is a major weakness among
Indian MSME entrepreneurs. You need to think 'big' to become 'big'. Being very small in
manufacturing reduces business flexibility while increasing costs, making the unit non-
competitive. Across the world, in business, Profits are no longer generated
necessarily from increase in prices, but only from a lowering of costs: in design
and development, in manufacturing, and in logistics.

While the mid-nineties and beyond has thrown up a new generation of aggressive,
enlightened, and competitive entrepreneurs, there are still some traditional players who
have a fixation that ‘Management’ is OK for large businesses, not for small enterprises!
This is not true: the logic of business is the same irrespective of the size of the business
or enterprise. Acquiring the ‘Knowledge to Compete’ as the driver of enterprise has little
to do with affordability and more to do with enhancing entrepreneurial capacity to
survive and grow under conditions of subsidy-free, barrier-free competition. A Small
Enterprise, in the current environment, has no sustainable advantage to be gained,
particularly by being labeled as ‘Small’ and remaining so for all time. Viability in terms
of markets, technology, economics, human resources, and potential to grow must

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determine whether a business should be Micro, Small, or Medium, to start with,


and then move up the scale as part of the Growth process.

A genuine problem of SME entrepreneurs is the retention of good people in competition


with larger enterprises and MNCs. Obviously, salary is a key factor. However, a good
salary again does not ensure retention. People like to see their growth prospects, over 5
to 10 years. Many times the excitement the entrepreneur feels is not felt by the
individual employee. They also evaluate the value addition to themselves professionally
even over a longer time period. The third major factor is the prospect of wealth creation:
"salary" is fine, but how do I become 'rich'. This means ways of creating performance-
based partners, rather than just 'employees'. The SME needs to be a credible entity
within, a lot more in action and in continuous sharing of information, to convince
people that they have a future in the company, professionally and personally.

As the world markets open up, and there are less Government restrictions on operating
abroad, marketing strategies for the domestic and export markets become similar.
However, in the export market, there is little or no tolerance for errors of any kind and
consequential damages for poor performance can put one out of business. In recent
times, even the domestic market is becoming less tolerant as consumer choices
multiply.

Broadly, to be successful, the SME sector needs to gear itself to the characteristics of
competition and resource availability in a freer international and domestic economic and
business environment:

1. Clearly it is "the Intelligent vs. the Intelligent".


2. Technology and 'Standards' play a key role.
3. Speed of Response / Time to Market.
4. Telecommunication in all its forms is no longer a bottleneck and is highly
affordable.
5. The Internet accesses your target markets and consumers at the "speed of
thought".
6. 'Business Volumes' never imagined before.
7. Competitive pricing, again never experienced before.
8. Flexible cost options on sourcing of components and raw material - from
anywhere in the world.
9. Falling interest rates and options on sourcing of funds.
10. Increased funding for Technology Upgradation.
11. Venture Capital Financing.
12. Joint Venture Possibilities.
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13. Locating Plants nearer overseas markets.


14. Exports as a facilitator of increased business growth.

The possibilities are infinite because the whole world is wide open for those who
can see beyond ‘domestic constraints’.

Raju Swamy
Principal Consultant
& Advisor to Entrepreneurs & Family Business
PROMAG Consultancy Services
Apt. 206 Brigade Rathna
42 Ranga Rao Road
Shankarapuram
Bangalore - 560004 INDIA
Tel. +91-80-26676298/ Cell: 9845271498
Email: rajupromag@hotmail.com
Promoting Management Action for Growth…. since 1985