SME’s PAST, PRESENT &

FUTURE
PRESENTED BY:
Reena Alva 04
Vicky Barot 06
Rishabh Kapoor33
Harsh Modi 40
Shambhavi More 42
Ashwini Naik 45
 SMEs(Small and Medium
Enterprises)

• Definition of SMEs

• Organisation for Economic Cooperation and

Development (OECD) describes SMEs on basis
of number of employees.
SMEs form the backbone of the Indian
manufacturing sector and have become
engine of economic growth in India.
The number of SSI units in 2007 were
estimated at 44 lakhs.

Today it has come down to around 40

lakhs by now.
 Challenges faced by SMEs
Financial constraints/ risks

Research and development (R&D)

Government Policies

Inspector raj, harassment and corruption

Lack of awareness of global trade laws

Management

Upgrading skills to enhance

manufacturing output
Because of these challenges SME’s
export potential which used to  be 
between 40-45%  for the last many years
is declining by 7-8% .
Reasons for Strategic Importance of SMEs

SMEs are important for poverty

Reduction

SMEs for efficient and competitive

market
SMEs contribution to Foreign Trade
Domestic suppliers of inputs to products
exported by large enterprises.

Exporter of specialized niche products.

Importer/Distribution of goods from

Foreign SMEs
Government Policy to promote SME
and Trade

There is a need to create an environment

as favorable as possible to business esp
for foreign trade oriented SMEs.
Strategies
SME development requires a cross cutting
strategy that touches upon many areas:
1. Conductive WTO compatible policies.
2. Technology upgradation
3. Encouraged to work in cluster environment.
4. Management Skills are must.
5. Substantial investment for access and
integration into local & global markets.
The SMEs in India: Present
Scenario

Between 2001-06, net companies with net

turnover of Rs. 1 crore – 50 crore had a
higher growth rate of 701 per cent as
compared to 169 per cent for large
companies with turnover of over Rs.
1,000 crore (Business World Jan. 2007).
Today some SMEs are investing in
R&D in order to compete globally.

With the elimination of Multi Fibre

Agreement (MFA) in 2005, lot of
opportunities have opened for the
Indian textile sector.
LIBERALISATION
 The decade of 1990’s was an eventful in terms of policy
changes nationally as well as internationally.
 Policy changes have been taking place at three levels:

1. Global
2. National
3. Sectoral
 Globalization – process of free movement of inputs.
 It was due to removal of quantitative and non-
quantitative restriction across countries.
 Process at international level.
OUTCOMES OF INDIA’S
ECONOMIC REFORMS
Growth of public sector declined considerably
since 1991—not only in terms of investment and
employment but also production.
The introduction of policy for small industry for
imparting vitality to the sector by making
relevant policy changes to small industry.
THE POLICY MARKED….
Beginning of the end of the protective measures
for the small industry.

Promotion of competitiveness by addressing the

basic concerns of the sector namely; technology,
finance and marketing.
smallindustries have come up in an unplanned,
uncontrolled and haphazard manner.

Sme’s are mostly in form of clusters.

So the central issue of concern for the growth of small

industries is how to strengthen its competitiveness.
CURRENT ISSUES IN SME’s…..
 Developing sme’s in India .
 Government development strategy for SME evolved
around the following:
a. Protective discrimination
b. Integration between large and small.
c. Institutional support through a network of testing
centers, tool rooms and entrepreneurial
development institutions.
GoI announced a policy package called
comprehensive policy package in august 2000 to
strengthen the small scale sector and enhance
competitiveness .
Mentoring and Advocacy.
 Mostof the small businesses are set up by first
generation entrepreneurs.

 Limited
knowledge about markets, bank or
government procedures, cash flow or managing labor.

 Small industry development organization has moved

to a direct promotional role of land holding, advocacy
and facilitation encompassing of legislative support.
 Credit
 Lifeline of business
 Small business lack access to capital and money
market.
 The problem can be addressed through various
ways:
 Establishment of ISO 9000 certified specialized banks
in districts.
 Directive for working capital finance @ 20% of
annual normative turnover.
 Waiver of collateral requirements upto Rs 0.5 million
 Composite loans from a single agency upto Rs 2.5
million.
Lending facilities to SME’s
 Mindset of banks have been changed.
 Increased competition with the entry of private banks.
 Lending grew by 69% between 2000-01 to 2005-06.
 ICICI and Kotak Mahindra have separate sme
division.
 Sources of finance include:- commercial banks, state
financial corporation, small industries development
bank of India, informal sources.
Marketing
 This is a big problem area for small entrepreneurs
since their survival depends on sound marketing
techniques.
 Professional agencies are not yet engaged by small
entrepreneurs on account of paucity of funds.
Technology and technological up gradation
 As they realize the need to link up with large ones
they are having a relook at technology options.
 They need to concentrate on information about
technology, actual procurement of technology and
finance of technology up gradation.
Managing HR resources
 Due to limited size smes cannot justify full time HR
professionals
 Complex HR activities result in significant drain on
existing managerial resources.
 Scarcity of managerial talent is limiting growth of
small industry.
 Disadvantage is their inability to offer competitive
packages to attract and retain employees.
Market access
 smes can hardly match the advertising support or
distribution reach of large corporation,
 They need to build up their marketing activity of
small units around their competitive advantage.
Infrastructure
 Smes traditionally operated at homes or
neighborhood.
 Later they formed clusters
 Now they are being given an industrial area for setting
up their business.
Globalization
 Postglobalization many steps have been taken like
workshops have been held on intellectual property
rights(IPR) and bar-coding.

Procedures
 Government and bank procedures coupled with
inspections remain a major hurdle in growth of small
units.
Sickness in SSI sector
A host of development schemes launched by the
government for solving the problems of SSI have yet
to achieve their goals to arrest sickness in SSI sector.

Removal of inspection regime and

simplification of procedures.
 frequent inspections by multiple government agencies
are a source of harassment.
 At present,55 inspectors at different levels are visiting
SSI.
The Micro, Small and Medium
Enterprise Act, 2006
GOI passed this act on June 2006.
Act is geared towards promoting and enhancing
the competitiveness of micro, small and medium
enterprises.
Act tries to accomplish many long standing
demands of multi stake holders in MSME
sector.
 establishes a national board for MSME.
Defines sme first time in India.
Definition of SME’s:
The MSME act defines sme as
 Category investment (plant & machinery)
service.
 Micro enterprises < than 25 lacs < 10 lacs.
 Small enterprises < than 5 crs < 2 crs.
 Medium enterprises < 10 crs < 5 crs.
This act simplifies the registration process for
new MSME’s by submitting simplified
memoranda.
Continued……..
The act sets agenda for specific policies that it
will create and implement the procurement
preference policy which will guide government
policies on how much of their supplies should
be purchased from the sme’s.
The finalization of new act:
Many questions and controversies……..
i. The expansion of investment limits extend the
priority sectors
ii. Any Indian business enterprise with net worth of
less than 10 crores cannot raise cannot raise
capital from stock market.
iii.Act provides need for procurement preference
policy, which is yet to be formulated under sec
11 of the act.
FUTURE POLICY FRAMEWORK
PRIORITY SECTOR LENDING
 Targetfixed by domestic and foreign banks are 40% and
32% of their net bank credit.
PRICE PREFERENCE FOR SSI’s
 Inpast 15% preference was being extended to SSI limits
now it is fixed at 20%.
REFORMATION OF LABOR LAWS
 Multiplicityof labor laws are responsible for the slow
growth of small industry.
 Supportive labor laws are important pre-requisite for
Indian industry to face international competition.
THE OPPURTUNITY
Globalization and liberalization need not affect
Indian small industry adversely.
It has created beneficial opportunities as well.
There is removal of quantitative restriction.
Reduction of import duties.
Opened up foreign markets to Indian industry.
OVERVIEW OF AUTO
COMPONENT INDUSTRY
•The Indian auto component industry has been navigating through
a period of rapid changes.

• The global auto components industry is estimated at US$1.2

trillion.

•Growing at 20% per annum since 2000 and is projected to

maintain the high-growth phase of 15-20% till 2015.
Average cost reduction of nearly 25-30% has
attracted several global automobile manufacturers to
set base since 1991

Today, India has become the outsourcing hub for

several global automobile manufacturers

Several large manufacturers are in the process of

substantially investing in capacity expansion,
establishing partnerships in India and abroad,
acquiring companies overseas, R&D facilities and
design capabilities.
Some leading manufacturers of auto components in
India include Motor Industries Company of India,
Bharat Forge, Sundaram Fasteners, Wheels India,
Amtek Auto, Motherson Sumi, Rico Auto and
Subros

The India’s Top 500 Companies, published by Dun

& Bradstreet in 2006, listed 22 auto component
manufacturers as top companies in India with a total
turnover of US$ 3 bn
 Industry Structure
Indian auto component industry is extensive and
highly fragmented
The total turnover of the Indian auto component
industry is estimated at US$9 bn in 2006
It has the resources to manufacture the entire range
of auto products required for vehicle manufacturing,
approximately 20,000 components
The entry of global manufacturers into India during
the 1990s enabled induction of new technologies,
new products, improved quality and better
efficiencies in operations
There are over 400 large firms who are part of the
organized sector and cater largely to the OEMs

Another 10,000 firms exist in the unorganized

sector that operates in a tier-format

Around 4% of the companies operating in the auto

component segment cater to 80% of the demand
emanating from OEMs
The market is so large and diverse that a large
number of players can be absorbed to accommodate
buyer needs

However, there are a select few large companies

that have integrated their operations across the value
chain

The key to competing in this industry is through

specialization by product-type, and integrating
operations across the related area of specialization.
The market segments for auto components include
33% of OEMs, 25% local components and 42%
comprising of spurious market including re-
conditioned parts

The regional base of auto component manufacturers

is mostly concentrated in the West, North and South
of India
SME’s IN AUTO COMPONENT
INDUSTRY
• Auto component SMEs are one of the fastest
growing within the SME category of industries

• Key contributors to the total production of auto

components and also have a significant share in the
exports of the industry

• As part of a highly fragmented industry, these

companies mostly are part of the unorganized sector
which operate in a tier framework

• The SMEs are riding a boom phase, driven by

demand from global auto manufacturers.
• The limitations of being SMEs are:

– Low capital base

– Limited generation of surplus funds for re-investment due to

tight working capital cycle

– Lack of awareness of business opportunities

– Inadequate exposure to international environment

– Limited geographical diversity of markets

– Obsolete Technology

– Poor infrastructure facilities

The key risks that the auto component SMEs faces
include:

◦ Fluctuations in the cost of production; especially raw materials like

steel, aluminum, polymers

◦ Poor negotiation powers due to fragmented nature of industry;

which in turn limits their pricing power

◦ Dependence on traders and agents to access overseas markets

which threatens their competitiveness

◦ Product substitutes due to fast-changing technology

Government has initiated cluster-based development
which gives rise to providing specialized technical,
administrative and financial services

Further, the government is encouraging banks to adopt

a cluster-based lending approach to ease availability of
funds to SMEs

Also, the Government’s initiative towards road

development will give a boost to demand for vehicles
and indirectly auto components
Multinationalautomobile manufacturers have
announced plans to enter the Indian markets.

This will bring in better technology, skills, new

products and an assured market.

Strategictie-ups and contract manufacturing is

another way forward for SMEs in the auto
component industry.
 FUTURE OUTLOOK
Current trends indicate a smooth run for the
auto component industry.

Since 2000, this is one sector which has made

a global mark and has been identified as a
sunrise industry.

The industry is transforming from being

highly domestic-centric, to a force ready to
face global competition.
India is being perceived as a major market for cars
and two wheelers by global OEMs

These factors indicate a robust auto ancillary

industry in India and the overall expected good
growth will provide several opportunities for the
emergence of new enterprises.
The vision to compete globally comes from the
inherent strengths the Indian auto component
industry possesses. Some features are:
◦ Cost reduction of 25-30% in production in the domestic
market compared to overseas
◦ Low labour costs
◦ Designing, engineering and technical skills
◦ Availability of raw materials
◦ Adaptability to new technology
◦ Investments in research and development, coming in from
global OEMs
Volatility in the prices of metals and other inputs
could erode the industry’s cost competitiveness.
Further, global OEMs expect a commitment of 5-
10% reduction in prices every year

Tier I manufacturers taking up greenfield projects

overseas

Intensecompetition from counterparts in other

emerging economies may add pressure on margins
of manufacturers
• The Indian auto component industry is poised for
robust growth till 2010

• Going by current trends in production and exports

of auto components, indicate a doubling of the
domestic auto component industry by 2010

• The production of auto components could grow to

US$22 bn by 2010

• Similarly, India’s exports of auto components could

grow to US$4.5 bn as compared to US$1.8 bn in
2005
The overall trend is encouraging, but remaining
competitive in this changing scenario will be the
toughest challenge

The combination of low manufacturing costs along

with quality systems would give an edge to
companies in terms of pricing and quality

Expansion and diversification will help break into

new markets
Itwould be imperative for these companies, which
are largely based on traditional management
practices, to imbibe technology in a big way

The SMEs can exploit these opportunities through

joint ventures, collaboration and technical tie ups

Knowledge, specialisation, innovation and

networking will determine the success of the SMEs
in this globally competitive environment
SMEs IN THE TEXTILE
INDUSTRY
 THE INDIAN TEXTILE
INDUSTRY
Most important in the economy in terms of
output, investment and employment
The sector employs nearly 35 million people
The Industry accounts for around
◦ 4% of Gross Domestic Product
◦ 14% of industrial production
◦ 9% of excise collections
◦ 18% of employment in the industrial sector
◦ 16% of the country’s total exports earnings
India vis-à-vis Global Textiles
The global textile and clothing industry is
estimated to be worth about US$ 4,395 bn
Global trade in textiles and clothing
stands at around US$ 360 bn
The US market is the largest importer,
estimated to be growing at 5% per year,
and in combination with the EU nations,
accounts for 64% of clothing consumption
The Indian textile industry is valued at US$ 36
bn with exports totalling US$ 17 bn in 2005-
2006
At the global level, India’s textile exports
account for just 4.72% of global textile and
clothing exports.
Cotton yarn and fabrics, man-made yarn and
fabrics, wool and silk fabrics and a variety of
readymade garments
• India’s presence in the international market is
significant in the areas of fabrics and yarn
– Largest exporter of yarn in the international market
and has a share of 25% in world cotton yarn
exports
– India accounts for 12% of the world’s production
of textile fibres and yarn
– In terms of spindle age, the Indian textile industry
is ranked second, after China, and accounts for 23%
of the world’s spindle capacity
– Around 6% of global rotor capacity is in India
– The country has the highest loom capacity,
including handlooms, with a share of 61% in world
loom age
SMEs IN TEXILE INDUSTRY
An SME intensive sector
Focus on promoting domestic
employment
Decentralised power loom and handloom
sectors
INSIGHTS INTO THE
INDUSTRY
2006 - 08

2004 - 06
Cluster-based Approach to
Development
Government of India’s cluster
development initiatives: involving
technical assistance, subsidies for
technology up gradation and marketing
support
Textile Committee under the Ministry of
Textiles: capacity building in textile and
clothing SMEs in across 20 clusters in the
country
Key benefits:
◦ Networking among enterprises
◦ Economies of scale
◦ Improved bargaining power
◦ Technology and skill up gradation
◦ Global visibility and being part of the value chain
◦ Easier access to finance
◦ Greater institutional support
FUTURE OUTLOOK
Challenges for the globally competing
textile SMEs are:
◦ Imbibing global best practices
◦ Adopting rapidly changing technologies and
efficient processes
◦ Innovation
◦ Networking and better supply chain
management
◦ Ability to link up to global value chains
Supremacy in cotton based products,
especially in the readymade garments and
home furnishings segment
Readymade garment exports were worth
US$8 bn in FY06 and will cross US$16 bn by
the end of 2010
Investments in textiles are expected to touch
US$31 bn by 2010
Change in preferences of Indian consumers -
from buying cloth to readymade garments
Gems & Jewellery Sector
Introduction
Part of the Indian civilisation since its recorded history.

1966-67, the export turnover was just Rs 220 m

representing a 3 per cent of total merchandise exports.

Export turnover of around Rs 675 bn during 2006-07

and contributing 16 per cent of total exports,

Significant foreign exchange earner for the country.

 Classification

·
 SWOT Analysis - Strengths
About one million craftsmen are associated
with this industry.
Availability of abundance of cheap and skilled
labor in India.
Presence of excellent marketing network
spread across the world.
Supportive government industrial/ EXIM
policy.
SWOT Analysis - Weaknesses
Small firms lacking technological/ export
information expertise.
Low productivity compared to labor in
china, Thailand and Sri Lanka.
As the major raw material requirements
need to be imported, companies normally
stock huge quantities of inventory
resulting high inventory carrying costs.
SWOT Analysis -
Opportunities
New markets in Europe & Latin America
Growing demand in South Asian & Far
East countries.
Rupee value depreciating resulting in a
windfall increase in the profitability.
Industry moving from a phase of
consolidation
SWOT Analysis - Threats
China, Sri Lanka and Thailand's entry in
small diamond segment
 Infrastructure bottlenecks, absence of
latest technology
Unusual increase in the prices of gold and
rough diamonds
 Present State

• Total exports stood at Rs.67500 crore, a growth of 29.27%

YOY 2006
• Exports continued to rise
• India 's share of the world's polished diamond market :
– 60 per cent in terms of value,
– 85 per cent in terms of volume
– 92 per cent in terms of pieces.
• Global gold Jewellery consumption increased 33% YOY
• Buoyant demand in countries like India, the Gulf States,
China and Turkey pulled up the overall figures.
• Avg growth of over 30% for a decade ,
• India the fastest growing Jewellery exporter in the world
Diamonds
• Domination in cut and polished diamond
market and smaller diamonds in
particular.
• Amply reflected in the export growth of
diamond industry with a total export of

• US$ 11181.48 million (48000 crore) as

compared to US$ 8627.48 million (37000
crore) against the corresponding period in
last year.
Jewellery
Sales in United States of America
increased by 4% to a huge 73000 crore.
The Jewellery sector recorded a massive
growth of 49.23% CAGR.
The demand for the diamond Jewellery
will continue to grow stronger due to
continued marketing support by the
industry especially in the U.S., India and
China.
Major Players
Vaibhav Gems Ltd.
Classic Diamond (India) Ltd.
Shrenuj & Company Ltd.
Goldiam international Ltd.
Su-raj Diamonds & Jewellery Ltd.
Rajesh Exports Pvt. Ltd.
 Financial Comparison
Shrenuj & Goldiam Rajesh Exports Su-Raj Diamonds Vaibhav Classic Diamond
Topics
Company Ltd. International Ltd. Pvt. Ltd & Jewellery Ltd. Gems Ltd. (India) Ltd.

Adjusted EPS (Rs)  10.24  14.95  125.42  7.62  13.39  17.19

Cash EPS (Rs)  12.61  15.78  127.47  8.31  14.56  20.11
Book Value (Rs)  104.46  102.83  211.62  121.56  60.54  204
Dividend Per Share (Rs)  3  2.5  10  1.2  2.5  1.8
Return On Net Worth (%)  9.8  17.82  29.08  6.27  23.62  8.42

Return On Capital employed (%)  8.99  15.2  73.1  8.76  24.49  8.56

Operating Profit Margin (%)  7.35  11.39  -1.43  4.41  10.04  6.8

Gross Profit Margin (%)  6.82  10.77  -1.46  4.18  9.31  6.44
Net Profit Margin (%)  2.28  13.48  1.01  2.98  9  2.12
Inventory Turnover Ratio  2.42  11.28  71.72  7  4.71  2.81
Export as % of Total Sales  0  100.61  99.17  94.35  99.64  0

Bonus component in Equity (%)  0  70.42  0  26.2  69.07  0

Future Prospective
• Personal disposable income to increase
worldwide.
• Jewellery sector to grow by 49% CAGR
• Exports to contribute 70% of the total sales of the
industry.
• U.S. contributing most (35%) in the export bill.
• Acquiring subsidiaries
• Proposal of increase in the FDI limit on mining
from 74% to 100%,
• Overall with the economic fundamentals looking
good
Government Policy
• Levy of two per cent excise duty on premium
branded Jewellery.
• 100 per cent Export Oriented Units (EOUs)
and units in the Export Processing Zones
(EPZs)/Special Economic Zones (SEZs),
enjoy a package of incentives and facilities,
which include duty free imports of all types
of capital goods, raw material, and
consumables in addition to tax holidays
against export.
• Currently 74% FDI, 100% proposed.
Company Analysis
Vaibhav Gems Limited (VGL)
• incorporated in Jaipur in 1989,.
• Professionally managed, end-to-end vertically integrated business organization.
• Engaged in the exports of gemstones on a nominal scale upto 1994.
• In 1996-97, as an exercise in forward integration, the company came out with
IPO
• In 2003-04, established a new manufacturing unit at Sitapura
• In 2004-05, ventured into international retail market by setting up its wholly
owned subsidiary Jewel Gem Inc. USA.
• In 2005-06, became an Indian MNC, the first in the Indian gems and jewellery
sector by extending its operations in more than 10 countries, through the
acquisition of STS Group of companies and setting up of 12 Retail Stores at
major holiday destination of the world.
• Completed US$ 70 Million GDR issue successfully.
• Warburg, one the leading private Equity Investor of the world has also
acquired more than 27% Equity Stake in the company.
Company Analysis
Vaibhav Gems Limited (VGL)
• Largest exporter of colored gemstones from India, and also the one of
the largest exporter of studded jewelry.

• Awarded 'Emerging India Award 2006' to the company in Gem and

Jewellery category.

• Short listed for the 3rd time in Succession for adopting good corporate
governance practices, for the ICSI National Corporate Governance
Award.

• Started 24 hours jewellery TV channel in UK, Germany and USA.

• VGL has again received highest Export Award (Coloured Gemstone

Category) for the 16th time, 13th time in succession.

• Nalanda India Fund Limited invested USD 35 million in the Company.

EDUCATION SECTOR
“Over-regulated and under-governed”
In a failed public education system,
aspirations are meeting affluence
Estimated private spend of US$50bn;
$80bn by 2012
The ‘not-for profit’ nature of the $40bn
formal IES has deterred for-profit private
participation.
 Inability to transform education into a
‘process-driven’ model curtails scalability

Value creation potential in the space,

mainly due to scale issues.

Pricing power as an ability to create an

annuity pool.
Navneet Publications
Publisher of syllabus-based
supplementary/ reference books in
Maharashtra and
Gujarat (66% of FY08 revenues), and
also operates in stationery (33%)
Multimedia in schools.
In the publishing business, the
company is a leader in a segment
Scalability is difficult to achieve.
VETA (UNLISTED)
VETA is India’s largest English training institute
Revenues of ~Rs600m
175 centers (scaled up to 500 by FY10).
more than 90% of its revenues accrue from the
Indian operations,
small international presence using the franchisee
route.
received private equity to the tune of $ 10m from
SAIF capital
FUTURE AND CONCLUSION
FUTURE OUTLOOK
Expectations high,
Prospects are bright
Some prerequisites:
◦ Imbibing global best practices
◦ Adopting rapidly changing technologies and
efficient processes
◦ Innovation
◦ Networking and better supply chain management
◦ Ability to link up to global value chains.
Intensely competitive environment since 1991,
New challenges & opportunities for the Indian
small industry.
Effort needed from the government and small
industry.
Financial infrastructure needs to be broadened.
It is essential to take care of the sector to enable
it to take care of the Indian economy.
Green Shoots in Sight: India
Asian economy is recovering despite
slack
Developing economies to outperform
advanced markets.
The bounce back is being led by China &
India.
S.M.E.s to play an important role
PROJECTIONS
2010 – 2015 – SMEs GDP contribution to
rise to 22 %
Attract 45 % of the foreign investment
To employ around 50 % of total
workforce
Considered as the engine of growth
SUGESSTIONS
Owners perceptions should be changed
◦ Not to be run as family businesses
◦ Professionally managed
◦ Hiring outsiders
◦ Expansion
◦ Attitude & vision
◦ Adoption of globalised practiced
◦ Create “MNSMC”
SUGGESTIONS
Work force perceptions should change
◦ Accept the attractiveness of the sector
◦ Ready to work for the sector
Setup regulating bodies and ease the
various laws
SMERA
SME Stock Exchanges
CONCLUSION
Indian SMEs are not world class
For India to be a world class economy, its
engines have to be of global perceptions
Entrepreneurship to be encouraged.
We should look towards the SMEs as the
next best levels of attractiveness of
employments
THANK
YOU