Smes In Developing Countries Need To Scale Up To Be Competitive....(raju Swamy)

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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 noncompetitive. 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 1

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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 performancebased 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. 2. 3. 4.

Clearly it is "the Intelligent vs. the Intelligent". Technology and 'Standards' play a key role. Speed of Response / Time to Market. 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. 2

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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: [email protected]

Promoting Management Action for Growth…. since 1985

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