CONTEMPORARY CHALLENGES AND STRATEGIES FOR MARKETING

MANAGEMENT OF SMES

Lect. Anil Namoshe

Lect. Laxmikant Gaware

This paper is presented in national Management Conference Dated 24 and 25 February, 2011 held
at University Department of Commerce, University of Mumbai,

ABSTRACT

In the era of globalization marketing becomes ever more important. To achieve

sustainable growth in market firms trying to become more global which induces severe
competition for SMEs. They have to compete international players in domestic market.
There are various factors such as skills aptitude & knowledge necessary to compete
effectively . The lack of infrastructure, logistics and marketing support are among the main
challenges faced by small and medium enterprises, Most SMEs units get into the weak or
sick mode within the first 16 months of operation. In this paper we have made and attempt
to glorify the challenges and marketing strategies for SMEs, also we tried to develop some
innovative marketing strategies to overcome the challenges.

Keywords: - marketing challenges, Strategies, skills and knowledge.

Anil Namoshe, Lecturer, Indira Institute of Management science, Vishnupuri, Nanded.

Laxmikant Gaware,Lecturer, Indira Institute of Management science, Vishnupuri, Nanded
INTRODUCTION:

Small industry has been one of the major planks of India's economic development strategy
since Independence. India accorded high priority to small and medium enterprises (SMEs) from
the very beginning and pursued support policies to make these enterprises viable and vibrant and
over time, these have become major contributors to the GDP. Despite numerous protection and
policy measures for the past so many years, SMEs have remained mostly small, technologically
backward and lacking in competitiveness. The opening of the Indian economy in 1991 added
problems to the SMEs. At the beginning, small scale enterprises found it difficult to survive. In
the last decade, the economic environment has changed in favour of SMEs. In this context, it is
important to re-look into the basic issues of SMEs, past, present and future prospects, especially
in the policy framework.

1.1DEFINITION:

In the Indian context, we have not so far defined medium enterprises clearly. What
is neither small nor large is being loosely defined as medium. Further, enterprise
encompasses businesses, services and industries. In the broadband of ' small', the
discussion extends to medium as well. Another possible connotation for the SMEs is the
small manufacturing enterprises.

ROLE OF SMES IN ECONOMY

Due to fast developing modern technologies and production scales, the small and medium
enterprises have become very critical for economic growth. This sector is now very important for
those nations whose desire is to be prosperous as it is the starting point of industrial
development. Large Scale Enterprises (LSEs) of today were SMEs in the past and SMEs of today
would be LSEs of tomorrow. This rule holds good for all countries of the world.
1.2SME’S IN DIFFERENT SECTORS OF INDIAN INDUSTRY:

SMEs have been established in almost all-major sectors in the Indian industry such as:

Food Processing
Agricultural Inputs
Chemicals & Pharmaceuticals
Engineering; Electricals; Electronics
Electro-medical equipment
Textiles and Garments
Leather and leather goods
Meat products
Bio-engineering
Sports goods
Plastics products
Computer Software, etc.

1.3SIGNIFICANCE OF SMES

SMEs are considered the engine of economic growth in both developed and developing
countries as they:

 Provides low cost employment since the unit cost of persons employed is lower for SMEs
than for large sized units.
 Assists in regional and local development since SMEs accelerate rural industrialization by
linking it with more organized urban sector.
 Help achieve fair and equitable distribution of wealth by regional dispersion of economic
activities.
 Contribute significantly to export revenues because of the low cost labour intensive nature
of its products.
 Have a positive effect on the trade balance since SMEs generally use indigenous raw
materials, reducing dependence on imported machinery, raw material or labour.
 Assist in fostering self-help and entrepreneurial culture by bringing together skills and
capital through various lending and skill enhancement schemes.
 Impart the resilience to withstand economic upheavals and maintain a reasonable growth
rate since being indigenous is the key to sustainability and self-sufficiency.
 Firms with sales less than $1 million spend 2x - 3x more on R&D per $ of sales than the
average. And result is SMEs’ producing 55 percent more innovations than LSEs’.1
 Converts the raw material within the country into semi-finished items and later pass it on
the LSEs that have capital, skill and equipment to process these into finished goods.
 Provide rural people an opportunity for income generation and personal growth since they
can work at home. This helps to achieve fair and equitable distribution of wealth by
creating nationwide non-discriminatory job opportunities.
 Attracts direct foreign investment since multinationals and big conglomerates have started
to outsource from countries with strong SME sectors. The low labour cost makes
production of semi finished goods very economical for large concerns operating in
international markets.
 The SMEs act as engines through which the growth objectives of developing countries can
be achieved.

1
ADVANTAGES OF SMES

The advantages of SMEs in an economy, be it labour intensive or otherwise are manifold.

Therefore, the development of small and medium industries in any country has specific effects
on the balanced and dynamic growth of a country. It has a number of advantages over large scale
industries. Some of these are mentioned below:

 It generates more jobs per unit of capital and is more capital efficient.
 Similarly it is also strongly integrated into the domestic economy.
 Small industries use a high percentage of local raw materials. Most of local consumable
products are produced by small scale industries. It taps the resources at the grass root
levels.
 The promotion of Small and medium industries induces rapid growth of large scale
manufacturing in the long run.
 It also generates cheaper goods and services to the general population which attempts to
break the cycle of the ever increasing price hikes. The increased employment and the
goods/services produced has a positive effect on the GNP of a country. This becomes a
catalyst in breaking the poverty cycle.
 The small businesses are remarkably flexible because they operate near the customer,
thus it has the ability to adapt according to the ever changing needs of the customer.
ROAD MAP FOR THE DEVELOPMENT OF MICRO DEVELOPMENT UNIT

The limit set for investment in the micro units is a major hindrance in this era of
Globalization and competitiveness. The limit has been increased to 5 crores. Steps for
development of MSE in the eleventh plan are as follows.

(1) It has been targeted to raise the production of MSE units to 13,98,803 cores for the year
2011-12. employment has been planned to be increased from 322.28-391.73 lakhs
In the MSE scheme in the eleventh plan, previously the manifesto was good for all which
has been turned to development.  Regarding this, the document (VOL III p. 203) it has been
informed that "The eleventh plan approach to the MSE sector marks shift from welfare
approach to that of empowerment. The plan looks at the sector as an engine for sustained and
inclusive economic growth and employment.  The eleventh plan emphasizes on the
improvement of living standard of workers  and believes that only if a worker is physically
and mentally sound, then will he be able to produce a good output.

(3) In the eleventh plan, as the MSE sector is unorganized, the plan aims at organizing it so
that MSE sector gets maximum benefit of all the govt. schemes and plans.

(4) In the eleventh plan, MSE groups have been taken as a cluster and workers have been
made into a group (SHGS) so that their bargaining power is increased

(5) The MSE sector gets a loan of 5 lakh for 8 % interest without any bailee will be
encouraged a vehement drive will be undertaken, to develop this sector.
(6) Centre and the state govt. will give prime importance to the MSE sector. Women working
in
known as Micro, Small and Medium Enterprises Development Organization which has around
3000 technicians who work in testing centres, tool rooms, etc.
(8) Ministry of MSME has been formed for the development of Micro, Small and Medium
Industries. In the eleventh plan, it has been decided to establish Technology mission, which will
help develop dissemination of technology.

(9) In the year 2006, the govt. started the National Manufacturing Competitiveness Programme.
Under it in 5 years, at the cost of 850 crores, design clinics, steps to increase the competitiveness
of groups, and decrease the wastage will be undertaken.

(10) This sector faces basic problems like that of electricity. In the eleventh plan it has been
suggested, that these small and micro units establish their own power plants. 

(11) Owing to the industrial laws and disputes act, the worries of this sector have increased.
According to the planning commission, it has been advised to form a third party which will
investigate into the matter.

THE NON GOVERNMENT PROMOTION STRUCTURE:

There are three national associations representing all type of industries, small and large.
These are 'Federation of Indian Chambers of Commerce and Industries' (FICCI), Confederation
of Indian Industries (CII) and 'Associatioan of Chambers of Commerce and Industries'
(ASSOCHAM). These associations represent mainly the interests of large scale industries.
However, these associations have membership of small sector as well and represent mainly the
policy related interests of SSI sector.

The Indian auto component industry is poised for robust growth till 2010. There is a
perceptive exuberance in the industry and growth estimates indicate a booming industry.
Going by current trends in production and exports of auto components, indicate a doubling of
the domestic auto component industry by 2010. The production of auto components could
grow to US$22 bn by
2010. Similarly, India’s exports of auto components could grow to US$4.5 bn as compared to
US$1.8 bn in 2005. Expected growth in production and exports of auto components is shown in
the graph below:

This growth outlook implies opportunities for the small and medium enterprises. The overall
trend is encouraging, but remaining competitive in this changing scenario will be the toughest
challenge. The combination of low manufacturing costs along with quality systems would give
an edge to companies in terms of pricing and quality. Expansion and diversification will help
break into new markets. It would be imperative for these companies, which are largely based on
traditional management practices, to imbibe technology in a big way. The SMEs can exploit
these opportunities through joint ventures, collaboration and technical tie ups. Knowledge,
specialization, innovation and networking will determine the success of the SMEs in this
globally competitive environment

Recent Initiatives Taken - Policy Package for SMEs:

The policy makers have recognised the need to support the SME sector through a
package of fi scal and fi nancial incentives so as to help them to address the challenges being
faced by the sector. Further, the Government is also keen on making the operating environment
conducive to the conduct of business by SME units. With a view to improve the prospects of
SME units, the Government of India has recently announced a package for stepping up credit to
the SME sector.
CHALLENGES OF SMALL AND MEDIUM SCALE ENTERPRISES IN INDIA :

In  the  current  economic  slowdown  SME  sector  has  been  hit  very  hard  due 
to raising  interest  rates  and  financial  crunch. The  small  size  and  capacity  of  the  firms 
and  their  lack  of  awareness  have  bred  many  hindrances  to  their  growth  such  as Under-
utilization  of capacity, Inadequate  and  untimely  credit  flows, Inability  in  technology  up
gradation,   Insufficient  raw-material  procurement Inability  to  market  finished  goods  and
Ineffective  monitoring  and  feedback  mechanism. The problem which continues to be a big
hurdle for the development of the sector is the lack of access to timely and adequate credit.

Increasing competition and globalization, along with the need to produce quality products at best
prices, have prompted the industry to introduce new product development methods with modern
technology. The need to evolve technologically superior methods of product development holds
true, especially for players in the SME segment. The small and medium enterprise sector is
widely regarded as the engine of the Indian economy. Small and medium enterprises (SME)
contribute to the industrial, economic, technological and regional development in all developed
and developing countries. The Indian SME market is valued at $5 million. The 11 million SME
units, which make up the Indian SME sector. Produce over 8000 products. These constitute 95 %
of all industrial units and contribute 40% to industrial output. The SME sector also plays a
significant role in the development of entrepreneurial skills and forms a substantial portion of the
country’s export earnings.

The contribution of SME’s in the industrial development of the country has been remarkable. At
the state level, the government has played the major role in ensuring growth by establishing
various institutes to support this sector. Which include small industry Development Corporations
(SIDC) and several Centers for Entrepreneurship Development (CEDs). There are many
institutes that currently support SMEs at the national level. These include the National Research
Development Corporation (NRDC) and the Bureau of Indian Standards (BIS).
However, since the early 1990’s Indian SMEs have been exposed to intense Competition due to
increasing globalization. This has made survival and growth of this sector difficult.

INFRASTRUCTURE DEVELOPMENT

The quality of the infrastructure affects the growth prospects of SMEs to a great extent,
especially in a developing country like India . Here, 77% of the population lives in villages.
Many rural areas still suffer due to the deplorable state of basic infrastructure like transport,
telecommunications and electricity. The integration of rural industries with mainstream
industries is proving to be difficult for these reasons. This has been identified as a key deterrent
to the growth of SME clusters in rural areas.

TECHNOLOGICALLY HANDICAPPED

Technology plays a crucial role in the development of SMEs. Technology not only helps
in evolving a multipronged strategy but also in maximizing business opportunities for these
enterprises. Technologies for SMEs should aim at fuelling innovation and business agility. They
should be easy to integrate with existing systems and processes, and help in leveraging
communicate and information management. Today, most SMEs in rural areas undertake
manufacturing using old methods and outdated technology. But today, the competition is fierce,
unlike in the past, when buyers were simply looked forward to purchasing the best products at
the lowest prices. There are additional challenges to be met. The influx of low-cost products
from china has made it even more difficult for Indian manufacturers to compete solely on the
price front. China is considered the world’s manufacturing backyard, due to its low
manufacturing and labour costs when compared to those in India.

UPCOMING MARKET TRENDS AND INFORMATION

One of the factors limiting the growth of SMEs is the lack of adequate information. Once
SMEs start the business, they may be interested in knowing about the suppliers of specific
machinery that suit their needs, technical information and market trends for their products. This
information is rarely available at the grassroots level.

NEW PRODUCT DEVELOPMENT

 The SME market requires a strong new product development base. In India, most SMEs
work on the designs given to them by domestic or foreign buyers. There is very little innovation
in product design development, and even the technology used by the SMEs in India is Outdated.
This has direct implication on the profit margins, and a dip in productivity levels. The use of
traditional tools, old techniques, poor labour productivity, they have not been used to a large
extent, resulting in no substantial effect on the output.

MARKETING PROBLEMS:

The nature of marketing is ever changing so does the problems associated with the
marketing. The Indian SMEs are facing a lot of problems related to marketing in the national and
international arenas. This is mainly due to the fact that these organizations belong to rural or
semi urban areas where the resources are easily available to them and cheap labour is associated
with . But when it comes to selling of these products the SMEs have to face a difficulty in
creating an impression and awareness in the minds of urban and other potential buyers about the
quality and related aspects of their products and services.

THE WAY AHEAD

There e is a strong need to find ways to manage modern technology and labour market
constraints, which impede the productivity of SMEs. Policy-makers and research institutions
have repeatedly pointed out to the need for extensive research on the SME sector.

What these SMEs need today is knowledge and access to new technology, adequate financial aid,
high levels of R&D and adaptability to the changing trends in their respective industries.

With the increasing competition, globalization and the uncertainty due to the global downturn,
SMEs will have to continuously incorporate the latest technology into their production processes
as well as in their marketing and management functions, to cut costs, gain efficiency and
consistency. This will help them become successful, and contribute to the Indian economy in the
long run. Overall, the small industry sector has performed well, and has enabled the country to
achieve considerable industrial growth and diversification.
CONCLUSION:

There is an unprecedented importance of Small and medium Enterprises in the country.

This is because the number of units is maximum in the country. This sector, contributes a major
amount in the development and employment. This sector does the work of providing
employment to minorities, backward class people and also to women.  This sector is rife with
problems like shortage of electricity and development of basic infrastructure along with the
problems related to market. In order to solve these problems and develop the SME sector, major
efforts have been done in the eleventh plan. However these efforts are not enough. For the
development of rural and farm group, different departments should be formed. Similarly, in the
development of industrial ministry for urban Micro and Small and Medium Industries specific
efforts should be done. SMEs always represented the model of socio-economic policies of
Government of India which emphasized judicious use of foreign exchange for import of capital
goods and inputs; labour intensive mode of production; employment generation;
nonconcentration of diffusion of economic power in the hands of few (as in the case of big
houses); discouraging monopolistic practices of production and marketing; and finally effective
contribution to foreign exchange earning of the nation with low import-intensive operations.
SMEs are the growth engine of the economy and help sustain other sectors such as services. 
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