10 Small&MediumBusiness

CSR

w w w. f i n a n c i a l e x p re s s . c o m need to examine the responsible business practices. A recent CPCB study finds that small-scale industries contribute nearly 40% of the pollution load in industries where they have a sizeable presence. It is also well known that SMEs adopt poor labour standards, do not pay minimum wages, copy trademarks and designs, have poor quality of products and flout financial regulations. In the short run, thesepractices,inparticular,allowthe SME to be profitable. Therefore, there is a need for a three-pronged approach tostrengthentheresponsiblebusiness practices of SMEs. First, there is a need for a sound regulatory system that will enable ethical and responsible behaviour in the sector; second, small-scaleindustryassociationsneed to educate their members on the need for responsible behaviour and invest and incentivise members to behave responsibly;andfinally ,thereisaneedto appeal to the enlightened self interest of theowners/foundersof theSMEsto demonstrate thought leadership in this field. A combination of proactive leadership behaviour, regulation and peer pressure should result in increased responsible behaviour. Thereisaneedformoreresearchon the state of responsible business practices of SMEs and case studies of SMEsthatareinexistencethatareethical and responsible. It would be interesting to understand the motivations of the founder/owner and his/her senior leadership team to understand thesame.Inthecontextof theclusters, there is a need to engage the different companies in benchmarking of best practices of responsible conduct by its members and also to find ways to solve the larger problems of the community and the society The notion that all . businesses are accountable to their shareholders needs to be discussed at the level of the SME. Therecentlyreleaseddraftnational voluntary guidelines on the social, environmental and economic responsibilities of business by the ministry of corporate affairs appears to be in the right direction and lays down explicitly the responsibilities of the MSMEs on the ethical, environmental and social fronts. This perspective is critical since they are typically a part of the valuechainsof biggerenterprises.Itis quite likely that market and customer pressureswillcompelsmallenterprises to become more responsible. The writer is the chairperson of the Centre for Corporate Governance and Citizenship at the Indian Institute of Management, Bangalore

Friday, June 10, 2011

Are small businesses

INDIPRENEUR: SANJAY ANANDARAM

Market pressures will compel small business to be more proactive

RESPONSIBLE?

Building brand relationships

Showcase a single brand that highlights a common set of values and propositions
ITH more and more communication takingplaceelectronically ,onewould think that marketing folks would be lookingintoeachleveragingandeveryinteraction as a means of building a brand relationship. However, experience suggests that there are miles to go before e-communication gets integratedintothetraditionalmarketingplansof even leading brands. Aftercheckingmailinmyinbox,Iusuallyreviewthemailinthejunkfoldertoensurethatno important message has inadvertently been routed to this folder. Upon a recent review, I came across a mail from Webmaster and had Despatch of documents through electronic modeinthesubjectline.Eventhoughitseemed like this mail was in the right folder, wanting to bedoublysure,Iclickedonitandwassurprised to learn that it was a message from the investor services division of a company where I am a tinyshareholder.Themessagecontainedanattachment a circular informing me that all communicationhenceforthwouldonlybedone electronically and, to quote the cold officialese, thatinviewof theabove,itwouldnotbenecessary to respond to the attached Circular. Why couldnt the company ironically a , top player in the hospitality business, no less havecommunicatedtomeinamannerthatwas morepersonal,friendlierand,moreimportantly ,notbeconfusedwithjunkorspammail?Why couldnt the name of the company be mentioned? Why wasnt the subject line different and one that would make me read it? Instead, themailwasinmyjunkfolderandworse,there was the real danger that subsequent, more important communication could get diverted to that folder with me perhaps losing out? How couldaleadingcompanyinthehospitalitybusiness communicate so unthinkingly? I received an e-bill from bill@tataindicom.com. After making the payment, I received an acknowledgement from Tata-Indicom-Support@tatatel.co.in. Why the two different domain names? Why isnt e-communication with customers an important branding tool? Were customer support and marketing two different silos in this company? Startups too arent immune. The official names of startup companies arent as well knownasthemarketnamesorbrandstheyrepresent. So why have this unknown company name in the email id of the employees? Why not

Vasanthi Srinivasan UCH of the discussion in the mainstream media in recent times has been around responsible business practices of large corporations. Numerous seminars, conferences and workshops are conducted on corporate social responsibility (CSR) and corporate governance for large corporations. Several studies have shown that CSR is a source of competitive advantage for large organisations. Very littleis known,however, about the role of responsible business practices of SMEs. Is it because they are they are small in size and hence unlikely to contribute to negative externalities? Or are they seenasnotworthyof beingdiscussed? Whatever be the reason for the poor attention paid to SMEs, their role in theoveralldevelopmentof thecountry cannot be understated. SMEs contributenearly7%of IndiasGDP .Their contribution towards employment generation is significant because they tend to use more labour-intensive productionprocesses.Thisinturnleadsto more equitable income distribution, provides livelihood opportunities through value-added processing activities in agriculture-based economies and nurtures entrepreneurship. SMEs can exist independently or in clusters. Clusters are sectoral and geographical concentration of small and medium enterprises faced with common opportunities and threats that give rise to external economies (eg, specialisedsuppliersof rawmaterials, components and machinery; sectorspecific skills, etc), favour the emergence of specialised technical, administrative and financial services, create a conducive ground for the development of inter-firm cooperation and specialisation as well as of coopera-

tion among public and private local institutionstopromotelocalproduction, innovation and collective learning approach to SMEs. There are about 2,400 clustersinIndia,outof which2,000are artisanal/rural clusters.

Are small businesses responsible?

The role of the founder/owner/entrepreneur has a significant bearing on the responsibility orientation of the SME. Since ownership and management are not separated, there is a greater scope for individual beliefs and moral decision making to affect the practices of the business as a whole. In addition, the social relationships and networks in which these owner-managers are embedded cannot be separated from the business and, therefore, the responsible business orientation towards employees and the society comes naturally A . large number of firms/entrepreneurs were driven by philanthropy and were implementing practices like health

camps, educational scholarship, setting up schools, etc, without seeking any tangible financial and business benefits to the actions taken. Many of the CEOs of SMEs were members of RotaryInternationalorLionsInternational.Theysupportedanumberof developmental activities as members of these organisations. They did not see this as their CSR. This finds support in Revankars study in the Pune belt in 2004 where a number of owners of small and medium firms saw philanthropy and CSR as one and the same. In export-oriented clusters, the supply chain pressures created by large corporations have a significant impact onthesocialresponsibilitydimension, beyond philanthropy For example, is. sues like compliance with labour laws, qualityof productsandenvironmental pollutionaremonitoredverycloselyby the buyers. This in turn brings in a compliance mindset in the eyes of the entrepreneur. Since there is an incentive of future orders associated with the compliance, many entrepreneurs

demonstrate greater responsibility in their export-oriented businesses compared with their domestic business. In a study done by the UNIDO cluster development project in 2008 to understandhowSMEsperceivedtheirsocial responsibility, it was found that there was no common understanding of the term CSR. Most entrepreneurs believed that taking care of the employees and engaging in community activitieswastheirsocialresponsibility In an exploratory study that the au. thor of this article undertook, it was found that many entrepreneurs felt that they were socially responsible because they paid their taxes and provided employment to a large number of employees. There was also a perception that following the laws of the land makes them socially responsible. One reason for this could be that while the Indian legal system is progressive in spirit,itsimplementationandenforcement is very weak. With the SME sector poised to grow rapidly in India, there is an urgent

STAT-O-SPHERE Micro, small and medium units in wholesale trade and commission trade in 2006-07
Registered units
Number of units

The road ahead for MSMEs

Four thrust areas for further increasing competitiveness
ment Act, 2006, which aims to facilitatethepromotionanddevelopment and enhance their competitiveness. Creation of the Udyami Helpline, the call centre of the ministry of MSME, to satisfy the longfeltneedforasingle-pointfacilityfor MSMEsforawidespectrumof information and access to banks and other MSME-related organisations. Signing of long-term agreements with several countries Tunisia , Rwanda, Mexico, Uzbekistan, Lesotho, Sri Lanka, Algeria, Sudan, Cote dlvoire and Egypt to opendoorsfornewopportunitiesfor the Indian MSME sector by way of programme to develop global competitiveness among Indian MSMEs. Setting up of a task force to reflect on the concerns and issues and formulate an agenda for action. The task force classified the common issues into six major thematic areas credit,marketing,labour,rehabilitation and exit policy infrastructure, , technology and skill development, andtaxation.Itthenconstitutedseparate sub-groups for detailed examinationof each.Recommendationsof the task force are presently in the process of being implemented. MSMEs also need to leverage information and communications Rachna Nath ICRO, small and medium enterprises (MSMEs) constitute over90%of thetotalenterprises in most economies. They are credited with generating the highestratesof employmentgrowth and they also account for a major share of industrial production and exports. In India too, MSMEs play a pivotal role in the overall industrial economyof thecountry .Withagility and dynamism, they have shown admirableinnovationandadaptability to survive the recent economic downturn and recession. The process of liberalisation and market reforms since 1991 has brought about intense competition for them both in the domestic and overseas markets. This has made it imperative for them to overcome the challenges that they face and improve and sustain competitiveness through lower cost, improved quality making available wider choices , by initiating various measures includinginnovationandupgradation of technology We can identify four . thrust areas for further increasing competitiveness of Indian MSMEs, viz, government policies, technology skills development and finance. , The Indian government has realised the crucial role played by MSMEs in economic and social development. It is committed to their growth and development and enhancementof theircompetitiveness so that these enterprises contribute to accelerate the expansion of productive employment in the country . Thegovernmentisformulatingpolicies and designing/implementing support measures in disbursal of credit, technological upgradation, marketing, entrepreneurship development, etc, and undertaking effective advocacy for these purposes. Some of the initiatives taken by the government include: Enactment of the Micro, Small and Medium Enterprises Develop-

VISION

1255

Employment

5369

Unregistered units
Number of units

655973

1772013
Number of units

Employment

Total units

6,57,228
Employment

17,77,382
Source: Ministry of micro, small and medium industries

newmarkets,jointventures,sharing of best practices and technology collaborations, etc. Announcing a comprehensive package for promotion of micro and smallenterprises,comprisingseveral proposals for providing requisite support to MSMEs in areas relating tocredit,cluster-baseddevelopment, infrastructure,technologyandmarketing. The package also provides a thrust on capacity building of MSME associations and support to women entrepreneurs. Launchingof theNationalManufacturing Competitiveness Programme(NMCP),whichisthenodal

technology (ICT) not only to facilitate communication but also to gain a competitive edge and improve efficiencies.However,surveysandstudies conducted by PricewaterhouseCoopers show huge gaps in ICT deployment for Indian MSMEs. The challenges faced in ICT adoption by MSMEs include suitability of IT applications, price affordability and skill sets and training issues. These challenges have spurred IT firms to think out of the box to create products and services that are more relevant,affordableandaddressthereallife challenges of the MSMEs. Companies like Google, Amazon,

and Salesforce.com have come up with cloud computing solutions to deal with data storage, scalability and computation issues for MSMEs that look for more affordable IT solutions. Similarly Indian MNCs have , come up with new integrated offerings of hardware, network and consulting for MSMEs. Availability of the appropriate skills set is also imperative for the growth of Indian MSMEs. MSMEs continue to face a deficit in manpower with skills set required for manufacturing, marketing, servicing,technology ,etc.Skillshortageis also the most important external barrier to innovation for them. Measures like the Skills Development Initiative are being taken by the government to support skills training and upgrade for MSMEs. CompaniessuchasMicrosoftarealso providing appropriate tools, training and technology to amplify high-end skills for them and increasing their competitiveness . Last, but not the least, the importance of appropriate financing for ensuring sustainable growth of MSMEs cannot be overemphasised. Stepsneedbetakentoallowbanksto achieve the priority sector lending targets with very low levels of risk. One way for MSMEs to signal their credit worthiness is also to acquire a credit rating from an independent credit ratings agency . While initiatives of the kind mentioned above are necessary it is also , important for MSMEs to be made aware of the facilities/concessions/incentivesavailabletothem.It is also important to give wide publicitytostoriesof successfulcompanies andthechallengesovercomebythem sothatbuddingentrepreneurscanbe both motivated to give their best and alsobeawareof theobstaclesahead. The writer is executive director , PricewaterhouseCoopers India. (With inputs from Krishnakumar Sankaranarayanan and Manisha Sachdev, PwC India.)

usethebrandnameinallcommunications?Still, severalstartupsmakethemistakeof usingboth the brand and the official name and some make the bigger mistake of just using the official name. For example, imagine receiving an email frominfoedge.inasopposedtonaukri.com! Few governments, certainly not the Indian one,canbeaccusedof beinginnovative,citizenfriendly and brand-conscious. Consider this: A senior central government functionary from the ministry of science and technology used to use email to communicate very courteously and promptly The only issue I had was that his . officialemailid(evenprintedonhisletterhead) was dept@rediffmail.com! Recently I was in, formed by the gentleman who replaced this functionary that henceforth all communication was no longer to be sent to the rediffmail.comaddressbuttohisyahoo.comaccount! Howcomethegovernmentof Indiadoesnt provide an official email id to its officers? The point is not whether it can or should but what it reveals about the mindset behind such efforts. Isnt anyone in government thinking of issues like security or the impression this cre, ates of a so-called IT superpower? Isnt there a CIOorCTO thatlaysdown,implementsandenforces such simple policies and guidelines across ministries ? And this is the government that is implementing the worlds most ambitious IT project, namely the UID! Indias great leap forward will be driven by a mix of policy attitude, technology and gover, nance.SomeoneoncedescribedIndiaasacountrywithitsheadinthe21stcenturyanditsbody in the 19th. While it is perhaps natural to wax lyrical and get all pumped up about the coming Indian dawn, it is important to note that it is in the minutest of details that the devil lies. Details that, for example, harmonise activities across departments, that showcase a single brand, that highlight a common set of values and propositions. And in spite of this nation with its millions of gods, the devil can easily trip us all up. Sanjay Anandaram is a passionate advocate of entrepreneurship in India. He brings close to two decades of experience as an entrepreneur venture investor mentor and so , , on. Hes involved with Nasscom, TiE, IIMBangalore and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net.

SHYAM