Challenges for entrepreneurs in MSMEs

Micro, small and medium-sized enterprises (MSMEs) play a key role in generating employment, promoting innovation, engendering competition, and creating economic wealth (Sengenberger, Loveman, and Priore 1990). The long tradition of promoting smallscale enterprise in India, since independence is now being re-examined in light of its success in creating a sector with the potential of performing all the above roles. In a study of the pre-1990s period, Sandesara (1988) concludes that small firms experienced a decline relative to large-scale industries in terms of five important parameters - number of factories, fixed capital, number of employees, output, and value addition. In the postliberalization era, this issue assumed renewed importance. The small-scale sector in India has now been identified by the government as one that can assist in generating additional employment, indigenizing technology, and leveraging cheap labor and flexibility of operations to create competitive advantage for Indian industry. As a result, the government recently raised the asset size limit used to define small firms for government aid eligibility to include what had been defined as the medium-size sector. Thus small firms can now openly pursue a growth objective without running the risk of losing their small firm status and all the accompanying promotional subsidies. In an investigation into the reasons why some SMEs grow and others don't, Hay concludes that "over the long term it is internal rather than external barriers to growth that exerts the decisive influence upon SMEs' rate of growth. As a remedy Arun Maira, Member, Planning Commission stresses upon the inclusive growth of entire MSME sector. To promote inclusive growth, the focus should necessarily be on taking the MSME sector to a higher growth trajectory, said Arun Maira, during his address in the two-day India Global Summit on MSMEs organized by the Confederation of Indian Industry (CII) in New Delhi on 20 Nov, 2009. According to Mr. Maira, the next generation of MSMEs is clusters of fireflies, which synchronizes and work together. He said, "We look at the moon for light, but we miss the fireflies." He further adds that by creating different forms of enterprises, the industry can create much larger crowd of MSMEs.

The figures say that the 26 million MSMEs in the country provide employment to 60 million people, and account for 30% of the manufacturing GDP and 40% of the total exports. Amazingly Indian MSMEs like garment manufacturing firms are already integrated with the global production chain. The larger enterprises could learn from their experience and consider setting up small teams within them and promote a spirit of "intrapreneurship". At the same time, the small enterprises need to complement each other and collectively function as big entities. The idea is that instead of viewing capitalism as damaging to the interests of small enterprises, the objective should be to promote millions of entrepreneurs who are capitalists themselves. In the words of Arun Maira, "We need to create businesses that are by the people, for the people and of the people,". Before we move further in exploring about the challenges and problems let us have a glimpse of MSMEs in our country and their contribution in our economy.

Growth and Performance of MSMEs

Overview of the sector The micro, small and medium enterprises (MSME) sector contributes significantly to the manufacturing output, employment and exports of the country. It is estimated that in terms of value, the sector accounts for about 45 per cent of the manufacturing output and 40 percent of the total exports of the country. The sector is estimated to employ about 42 million persons in over 13 million units throughout the country. Further, this sector has consistently registered a higher growth rate than the rest of the industrial sector. There are over 6000 products ranging from traditional to high-tech items, which are being manufactured by the MSMEs in India. It is well known that the MSMEs provide the maximum opportunities for both self employment and jobs after agriculture. Recognizing the contribution and potential of the sector, the definitions and coverage of the MSME sector were broadened significantly under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which recognized the concept of enterprise to include both manufacturing and services sector besides, defining the

medium enterprises. For collecting and compiling the data for the MSME sector (including khadi, village and coir industries), the Fourth All India Census of MSMEs with reference year 2006-07, is being conducted in the country. The Census will provide the first database on the MSME sector after the enactment of MSME Development Act, 2006.

Performance of MSMEs The Fourth All India Census as being conducted by the Office of the DC (MSME) will also include data for the medium enterprises after the enactment of MSME Development Act, 2006. The Office of the DC (MSME) provides estimates in respect of various performance parameters relating to the Sector. The time series data in respect of the Sector on various economic parameters is incorporated in the following Table: -

COMPARISON OF THE MSE SECTOR WITH THE OVERALL INDUSTRIAL SECTOR The MSE sector has maintained a higher rate of growth vis--vis the overall industrial sector as would be clear from the comparative growth rates of production for both the sectors during last five years as incorporated in the Table given below: -

TABLE: Comparative Growth Rates. YEAR GROWTH RATE OF MSME SECTOR (%) 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 8.68 9.64 10.88 12.32 12.60 13.00 OVERALL INDUSTRIAL SECTOR (%) 5.70 6.90 8.40 8.10 11.5 8.00

CONTRIBUTION OF MSEs IN THE GROSS DOMESTIC PRODUCT (GDP) TABLE: Contribution of MSEs in GDP

Contribution of MSE (%) at 1999-2000 prices in Total Industrial Year 1999-00 2000-01 2001-02 2002--03 2003-04 2004-05 2005-06 2006-07 Production 39.74 39.71 39.12 38.89 38.74 38.62 38.56 38.57 Gross Domestic Product(GDP) 5.86 6.04 5.77 5.91 5.79 5.84 5.83 5.94

CONTRIBUTION IN EMPLOYMENT The total employment from the MSE sector (including SSSBEs) in the country as per the Third All India Census of MSEs with reference Year 2001-02 was 249.33 lakh numbers. The units operating with fixed premises are treated as MSEs. As per the estimates compiled for the year 2007-08, the employment was 322.28 lakh persons in the sector. The share of MSEs in the total employment among units engaged in manufacturing and services is around 34.93%.

This establishes that SMEs today are a major part of the industrial activity in Indian economy. The Indian SME market is placed at USD 5 billion. The SMEs make a substantial contribution in terms of creation of employment, output and exports. They are capable of producing quality goods and contribute around 35% to total exports.

CHALLENGES The importance of micro, small and medium enterprises (SMEs) for its contribution in the Indian economy growth is a matter of record and needs no further elaboration. However with the changing focus from economic growth to inclusive growth, MSMEs sector role in the socio economic development of India needs to be understood, explored and facilitated.

The significant facts about MSMEs that makes them special in their relation to socio economic development of the country can be listed below. Wide Spread Reach: There are around 12.34 million SMEs, including 1.9 million registered one which are spread out across the length and breadth of India. They may be touching the lives of 123.4 million directly or indirectly which is roughly 10% of Indias population. Major share in GDP: SMEs combined output is roughly 7% of countrys Gross Domestic Production (GDP). Big employment generator; SME sector is the second largest manpower employer in the country next only to agriculture sector. It provides employment to more than 20 million people, which is roughly 2 % of countrys population. Looked from social angle, it helps in solving the unemployment and under-employment problem in the society. Facilitates balanced regional development: Dispersion of SMEs in all parts of the country helps in removing regional imbalances by promoting decentralized development of industries. SMEs can be found every where, which may be rural, urban, coastal, desert, mountains, forest, backward/ forward areas. This decentralized concept also helps in reducing the other problems like pollution, congestion, housing, sanitations etc. Helps in equitable distribution of wealth/ income: When the entrepreneurial talent is allowed to grow in different regions and areas, the income is also distributed instead of being concentrated in the hands of few. This help in solving a big social issue of bridging the gap between rich and poor. Act as nursery for entrepreneurship: SMEs provide a natural habitat for entrepreneurs. Through this platform, the latent/ raw talent available locally can hone their skills and talents, to experiment, to innovate and transform their ideas into goods and services needed by the society. But MSMEs are still same old fashioned, traditionally managed Mom & Pop kind of organisations with centralization of authority and responsibility as its core value. Most of the employees are either family or distant families or they are serving the organisation since ages. Thus a sole criterion of loyalty is either by virtue of blood relationship or by

virtue of a good number of years served with the organisation. But none of them accounts for enhancing the competency of organisation, as a result productivity deteriorates at a rate faster than indicated by the industry. In India a majority of the SMEs are still in the unorganized sector and have to face internal and external challenges. While the external challenges such as cost of capital, infrastructural facilities, competitive procurement, technology transfer from developed countries and talent attraction will need government support, the internal challenges need to be focused on equally which are clear vision, focused measurable goals, developing the potential of the people resulting in higher productivity. According to the research conducted on the issue by B Beaver in 2002, although thousands of small businesses are established each year only a small number remain in operation within ten years of their inception. Major contributing factors to the failure of many small firms are a lack of attention given to the development of a robust business plan, goals and objectives, organizing and resourcing for the new venture and development of people assets. Thus key challenge areas being training, development and education, as well as some emerging issues of significance in HRD and age diversity management. This means that only those that take a strategic approach to management and training and development of their human resources will profit not only from a competitive position in their marketplace but also be well placed to adjust to changing and often uncertain influences in the business environment. We believe that like their much larger business counterparts, MSMEs will also be benefited by regarding their human resources as the principle asset of their organization and by closely aligning their HRM and HRD policies, procedures and planning with their chosen strategy. Since MSMEs are a very important sector in the social and economic growth of the country, therefore it is envisaged that they should make changes to their current practices and adopt a more strategic approach to the development of their people based on the practical implications highlighted by the large enterprises.

Thus a small research was conducted in selected MSMEs in Lucknow with an objective of finding out, the effect of implementing strategic HRM in these organizations.

Meanwhile, Secretary, MSME, Dinesh Rai said the challenges for MSMEs is to establish their global competitiveness, for which they (MSMEs) will need to focus upon new technologies, R&D and market expansion globally. On creating entrepreneurship development institutes across the country, Rai said that the government will provide 50% subsidy for any initiative towards setting up such institutes in the country. In the North-East region, subsidy to the order of 90% will be given for such initiatives, Rai added. Addressing the summit Salil Singhal, Chairman, National MSME Council, said that the need to provide procurement incentives, enhanced depreciation on IT products, establishment of SME exchange, simplification of labour laws and creation of a uniform credit rating format and processes to facilitate credit availability for the MSMEs are some vital topics of discussions in every meeting conducted by the government, industry stalwarts or the apex bodies of the sector.