The ‘Power of Collective Growth’ for SMB sector

If I were to ask you to name the best and most profitable companies in India- ONGC, Tata Steel, TCS, Reliance, SBI, Infosys are some of the big names that will come to your mind immediately. But, if I asked you to name the top SMBs in India, unless you are involved with the sector, you will find it hard to name any.

The SMB sector in India is growing at an exceptional rate and has the potential to be one of the primary drivers of the Indian economy. Today, 1.5 million SMBs export their products or services outside India which is a sign of the sector’s rapid evolution. The sector is expected to be the largest employment generator in the country and today represents the true entrepreneurial spirit of the Indian business community.  India is all set to emerge as the world’s largest SMB nation, according to a study done in 2013 by Zinnov.  With 48.8 million small and medium businesses (SMB) in India, spread almost equally across urban and rural India (Source: Zinnov), the SMB sector can become a strong force that drives inclusive economic growth in IndiaThe Zinnov study also highlights that the Indian SMB space today is largely dominated by micro scale businesses which account for 95% of the SMB landscape. This is followed by small scale businesses contributing 4.8%, and the rest 0.2% by medium scale businesses. Out of the 48.8 million SMBs around 55% are located in urban areas whereas rural regions account for the rest 45 %. SMBs in India have gained strategic importance from both corporations and the government. Globalization in trade is further driving SMBs to improve their efficiency of conducting business. The study also states that around 82% of all SMBs are situated in 10 states in India. These 10 states, also account for 2/3rd of the mobile and internet subscribers in the country. Additionally, manufacturing is the single largest vertical at pan India level followed by Repairs & Maintenance, and Services vertical. Greater employee mobility, increased competition and expansion in terms of office locations have further pushed SMBs in India to generate more employment. The study indicates that the Indian SMB sector provides employment to approx. 81.16 million people in India, growing at CAGR of 5.29%, while the fixed investment has been consistently increasing over the years at 11.48%.

The SME sector can be a game changer for driving our economic growth. Another testimonial of this is the study by Department of Science and Technology that highlights that the contribution of SMEs to the country’s GDP is expected to increase from the present 8% to 12% by 2020.

There is the flipside too. Industry reports have highlighted that this sector has been unable to take the optimum advantages of India growth story owing to several factors and its competitiveness is being eroded due to multiple infrastructural barriers.

While the SMEs have been clocking an exponential growth rate over the past few years, in order to grow further and utilize the opportunities available in the best possible manner, it is essential that the SMEs take some concrete steps.

‘Collaboration’ will be one of the key driving factors for the SMEs. It is time that the SMEs break out of their individual silos and partner with the industry as well as the government to be able to harness the opportunity offered by the industry to its fullest potential, through a collaborative effort.

It is suggested that the SMEs join hands with not only the industry trade associations, but also with the government. Partnering with the government will be instrumental to influence policies, make the most of out the government schemes, get low cost funds to help increase the working capital for SMEs, and seek the best resources collectively.  Additionally, the numerous initiatives announced by the government for the benefit of the SMEs, need to be encashed by the SMEs. There is a need to create awareness about these initiatives and also support them in harnessing the same for the growth of their businesses.

If companies in the manufacturing space join hands with manufacturing trade bodies and industry associations committed to the manufacturing space, they can work together to enhance productivity and increase revenues by riding on the emerging trends like collective buying, credit funding, resource sharing etc.

Similar initiatives also need to be undertaken across SMEs in infrastructure, leather, auto components, leather, paints, textiles etc. There is a need for the SMEs and the government to work together towards the single largest goal of ‘harnessing the potential of the SMEs’.

Collaboration has become the way business is done these days- not only in India, but across the globe. Global collaborations are underway, not only for funds and raw materials, but also for business development. In July this year, The UK India Business Council (UKIBC) joined forces with Cambridge-based cross-border firm, AcceloratorIndia to launch  an ‘India Readiness Programme’ for British companies in the SME sector keen to make their entry and expand into the  Indian market . This service covers research, business development and advisory support. In 2004, German Ministry for Economics & Labor had drawn out plans to bring together SMEs of India and Germany to collaborate and work closely to harness each other strengths.

Collaboration is not limited to the SMEs and the government/ industry associations. More and more countries are collaborating with each other to work together towards the growth of the SMEs through various initiatives. India and Europe have always shared extremely cordial trade relations. The bilateral trade between India and Europe stood at US $74.5 billion in 2010 and is likely to touch US $207.6 billion by 2015. The SMEs, Entrepreneurs, Young Entrepreneurs and Large Companies are always keen to develop business connectivity between India and Europe to explore new business opportunities and the effort is increasing day by day in various sectors. Many Indian companies have started looking for setting up industrial units in many European countries. Small and Medium Entrepreneurs play a key role for the economic growth of every Nation. SMEs are keen to learn and obtain new business opportunities from various sectors. Keeping in view the potential for business growth between India and Europe, the Indian and European business community as well as industry associations have joined hands to form the “Europe – India SME Business Council” to support SMEs and entrepreneurs to enhance bilateral trade and investment promotion in India and Europe.

Closer home, Power2SME offers a unique collaborative business model that helps SMEs procure raw materials at competitive price points. It has an innovative business model that aggregates orders of SMEs and sources raw materials for them, directly from the suppliers, thereby cutting out the middlemen. It also has tie-ups with NBFCs and banks and helps SMEs to get credit funding that fulfils their working capital requirements. Power2SME also works closely with several industry associations across the country including manufacturing, printing, plastics, polymers etc, to support SMEs in their growth. The company is committed to empower SMEs to enable the India growth story.

Across the globe, the SME sector is the fuel that drives economic activity and fosters entrepreneurship. A thriving SME sector is not only the best bet against an economic slowdown, but also for inclusive growth in India. The biggest challenge for India is to unlock the potential in the sector in the next few years, especially by focusing on establishing a globally competitive supply chain which can help the SMEs lower their cost of procurement of raw materials as well as make the logistics and transportation sector cost efficient and effective.

There is urgent need for the SME sector to do away with the constraints of size, lack of money and skilled manpower and inadequate raw material supply and join hands with their partners in industry bodies to help create an efficient model of SME growth in the country that encompasses credit funding, procurement of raw materials, sourcing model, reduced inventory costs, effective 3PL and 4PL logistics and creating a global marketplace for the SMEs. We need to believe in the power of the SME opportunity and partner to strive towards the common goal. SMEs will emerge as the ‘sunshine’ industry that will take India to higher levels of success in the times to come.

Mr R Narayan is the Founder and CEO of Power2SME

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