Indian SMEs have progressed in the value chain from making of simple goods to manufacturing sophisticated products. Clustering, networking opportunities and the new generation IT models have contributed majorly in building their way to win the global economy in a big way. In addition to it, the increased funding options available are paving ways to create competitive SMEs. We have realized that preserving, promoting and protecting SMEs is the only way we can commit to their development and hence augment their competitiveness. It has been seen that the SMEs which have invested heavily in technology are better adapted to meet the business needs and compete in the national as well as the global market. Faced with increased competition on account of globalization, SMEs are beginning to move from a reliance on bank credit to a variety of other specialized financial services and options. Government policies, technology interventions and financial measures are playing a great role in creating a competitive environment.
Effect of globalization on Indian SMEs:
- Global competition, both price as well as quality wise
- Emergence of new target markets
- Technological advantages
- Growth in production
- Growth of total exports
- Increased involvement of SMEs into global value chains through different types of cross-border activities
- Cross pollination of skill and knowledge globally
- Collaboration and innovation leading to the development of new niche markets
- Mobility of business resources
Key Challenges Faced:
SMEs have created immense employment generation opportunities, but at the same time they have been plagued by several challenges. Let’s take a quick look on some of them:
- High cost of credit
- Denial of access to credit
- A very limited access to equity capital
- Problems due high eligibility criteria’s parameters such as annual turnover, past experience etc.
- Acquisition of raw materials at a competitive cost
- Non availability of selling outlets for their products
- Problems due to inadequate infrastructure for marketing of their products
- Lack of access to global market
- Inadequate infrastructure facilities, including power, water, roads, etc.
- Lack of access to modern technology
- Lack of skilled manpower for manufacturing, services, marketing, etc.
- Branding and Marketing
- Low media budgets
- Non participation in International events
Due to all these reasons the SME branding and visibility is extremely poor. While access to global markets has offered a host of business opportunities in the form of new target markets, possibilities to exploit technological advantage, etc., the challenges in this process have flowed mainly from their scale of operation, technological obsolescence, and inability to access institutional credit and intense competition in marketing
Creating Competitive SMEs
SMEs face challenges in maintaining, improve and sustaining competitiveness with lower cost along with improved quality. Successful SMEs have exhibited a willingness along with competence to improve their offerings over a period of time. Some measures that can be:
- Separate trading exchange exclusively for the SMEs
- Special incentives for encouraging the larger flow of Venture Capital & Private Equity funds into the sector
- Provisions to raise low cost funds through the External Commercial Borrowing
- Making facilities like infrastructure, technology and skilled manpower in tune with the global trends.
- SMEs can collaborate and thus develop together
- Revised business models on the basis of productivity and innovative technology
- In some sectors, collaboration of SMEs with bigger players
- Simplification in the policies and processes so that SMEs can tap the government schemes
The way forward
Innovation and digitization are the two key mantras' for the growth of SMEs. They need to address the uncertainties in the external as well as the internal environment. SMEs have resulted in positive sentiments for global investors. Businesses are getting re-invented to keep pace with the challenges. SMEs, particularly should be able to anticipate these changes and adopt, re-vitalize and re-position themselves to win the global battle. SME entrepreneurs and promoters need to build in traits like innovation, risk taking ability, quick decision making, etc. There has to be proper development and training of the SME employees to prepare them for a global market. e-Commerce and business management can play a greater role in driving SMEs growth. Take advantage of the growing online marketplace and change the perception and practices for SME development.