Strategies for Smes in India

Topics: Venture capital, Economics, SME finance Pages: 25 (8335 words) Published: June 30, 2012
Strategies for SMEs in India


Madhuchhanda Karmakar
Department of Human Resource Management
Army Institute Of Management,Kolkata
Judges Court Road
Opposite Alipore Telephone Exchange


In the post liberalization and opening up of the economy business era, ease in international trade barriers, economic liberalization, globalization, privatization, disinvestments and deregulation have thrown several challenges to Small and Medium-Sized Enterprises (SMEs) in the fast developing economies like India.

Compressed product development cycles, cut throat domestic and global competition, economic downturns, rapidly changing customer demands and volatile financial markets have all increased the pressure on SMEs to come up with effective and competitive capabilities to survive and succeed. Enterprise Resource Planning(ERP) is often considered as one of the solutions for their survival. (Rao, 2000).Up to mid-1990s, SMEs sector in India had operated under a much-protected economic regime characterized by limited competition and a highly regulated business environment. This business atmosphere had resulted in limited focus on process efficiencies, centralized control structures, highly formalized business settings and lack of professional business practices (Ranganathan and Kannabiran,2004). However, following the economic liberalization and opening up of the economy to foreign Multi- National Companies (MNCs), Indian SMEs have been forced to adopt modern business practices and strategies, which in turn can provide SMEs a cutting edge over its competitors.

SME stands for small and medium enterprises.  This has become a globally accepted acronym for discussion on issues relating to this sector. Small and medium-scale enterprises (SMEs) have come to play a predominant role in the domestic economies of most countries around the world. This is the case in terms of their relative number in the total population of firms, their share in total employment, or their contribution to value added and exports. The SME is the second biggest employment-providing sector (after agriculture), providing direct work to around 30 million people and contribute around 90% to the Gross Domestic Product (GDP)i. However SMEs in India, which constitute more than 80% of total number of industrial enterprises and form the backbone of industrial development, suffer from the problems of sub-optimal scale of operation and technological obsolescence. Many economies with a high share of small-scale units are among the most successful, for example Japan and the Republic of Korea. The SME share in total exports is almost as much as that of large firms in absolute terms. Several developing countries have also experienced spectacular growth in the export of manufactures, having captured ever-increasing shares in both industrialized and developing country markets.

Indian SMEs are facing stiff competition from their global counterparts due to liberalization, change in manufacturing strategies and uncertain market scenario. The non-availability of “institutional” finance on affordable and easy terms is hindering access to new technologies (Kacker, 2005).

In the emerging global information economy, it is the smaller firms that could be the most significant winners. This, however, is to a great extent dependent on the quality and competitiveness of their products in the international market. E-business offers SMEs exceptional possibilities to compete on global markets and to weave strategic and networking alliances with other players around the world. The "death of distance" provides enormous potential for inter-industry trade, cross-border partnerships and strategic alliances. In addition, Internet-based e-business offers SMEs cost-effective possibilities to advertise their products and to contact buyers and suppliers on a global basis.

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