Posted on 10-08-2014
Filed Under (BUSINESS) by Shombit

From Discomfort Zone column by Shombit Sengupta in Financial Express and Indian Express

“Your article last week on Customer Value touched the core of my heart as I am constantly fighting for this cause,” wrote my valued reader Commodore G S Kanwal, retired from the Indian Navy, “but we are more or less in a Catch 22 situation.”

Small businesses, like the 44-bedded hotel service that Commodore Kanwal runs and is fighting various social and career factors to retain trained staff in, are the real backbone of our country. I’ve promoted the cause of MSMEs (micro, small and medium enterprises) in this column as well as detailed how to encourage their activities in my books “Jalebi Management” and its sequel “Strategic Pokes.” We should always remember that all big companies began as MSMEs. Courier service UPS with over $55 billion revenue started with just 4 bicycles in 1907 to be among the world’s best companies. Another MSME blooming example is the $473 billion Walmart retail company that started as Walton’s 5&10 in 1950, a dime store in a small US town called Bentonville in Arkansas.

Among developed countries, the outstanding performance and internationalization of Germany’s MSME sector is worth emulating. According to Sequa gGmbH, a development organization where Germany’s top four business membership organizations DIHK, ZDH, BDI and BDA are shareholders, Germany’s economic structure is determined by MSMEs that account for almost 99% of all businesses, and employ about 80% of regular workers. The government has several support programs and measures to promote MSMEs. Contributing significantly to GDP, they’ve made the German economy the strongest in Europe today.

Unlike in Germany, about three-fourths of India’s MSMEs cannot access banks or institutional financing as per a study by industry body Assocham and finance advisory Resurgent India. Without adequate credit, most MSMEs actually borrow from their family and friends, which naturally impacts their business planning in terms of time and ability to raise the required amount. A new kind of short-span, flirting with money entity has mushroomed in our modern reformed economy, the start-ups funded by angel investors. Start-ups remind me of the attitude some bachelors have on how to handle their girlfriends. By hook or crook these start-ups have to prove their model is working. They try to hike valuation to sell out and encash big money within a short span of time. In relationship analogy, it’s like working hard and making a name to grab the plum dowry that’s waiting when he opts for an arranged marriage ditching his girlfriend. Most angel investors look for short term investment and quick earnings. This influence of working to finally sell out is not setting a good example to the new generation. To become a solid entrepreneur, you have to drive your business, single-focused, for the long term.

Let me note some hard truths that MSMEs face in India’s modern economy:

1. MSMEs often run like a family business where there’s no question of hiring hardcore professionals.

2. The younger generation does not want to carry forward the business the father set up. Having witnessed the fair amount of struggle required to run the show, these youngsters prefer to become an employee with less responsibility and the assured monthly pay slip.

3. Entrepreneur fathers consider only their generation can do business. Having sent their children to the kind of schools they themselves have not gone to, the children develop an outlook that’s rather dissimilar from their parents. Thereafter the father develops low confidence in his child’s capability; and neither does the son want his father as his boss at work. Subsequently there is no continuity.

4. For arranged marriages and social recognition, the value of young people working in big corporate houses and being the manager of a large number of people is higher than if they were working in their father’s business.

5. To be an entrepreneur, you need to have 3 skillsets (a) Knowing your product in depth so you know its selling point. (b) People management skill to keep employees motivated and reduce attrition. (c) Be an outstanding salesperson to play in a competitive marketplace. It’s not always the case that one person will have all 3 competencies. As an entrepreneur you may have one or two of these skillsets, so it’s extremely important that you find an appropriate partner to compensate the other skills.

6. An entrepreneur who does not have the right capability for the segment of business being pursued tends to spread out into diverse business areas. But without single focus, long term steady business can never be built up.

7. Such diversification leads to most funding institutes not trusting the competency, sustaining strategy and capacity of MSMEs. To safeguard their loans, banks ask for detailed documentation and securities which leave MSMEs flummoxed. Even short term working capital on credit is not easy for them to get. Actually banks have evidence too of suffering non-performing assets on having loaned to small businesses. So for MSMEs, cash flow is a constant problem to run day-to-day operations and fuel their future growth.

In these 7 points I’ve listed, there is a big role the Government can play. Several industry and Government bodies already exist to facilitate MSMEs, but how concretely is help provided? It’s essential to create “World class MSME India" as a driving force where the two basic requirements for MSME business growth would be customer centricity and retaining a defined global quality standard in MSME offerings.

My earnest request to our new Government is to take non-bureaucratic action in this area. Among such action could be the professional handling of MSMEs to represent their interests in capability building and getting loans, having our embassies overseas promote business with MSMEs, encouraging them through consultancy to develop their innovative power, and having a very dynamic TV channel by Doordarshan exclusively dedicated to MSMEs with inspiring stories, winning examples and professional help and advice to get ahead. When MSMEs flourish, employees will not leave their jobs so easily, and the country’s GDP can experience galloping growth.

To download above article in PDF World class MSME India

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(1) Comment   


PRASAD on 17 August, 2014 at 6:52 pm #

Dear Shombit,
This is my comment on your article in IE-17/08/2014 titled “Diametrically Different”. I liked your article. After working with various international consultants abroad, I came back to Pune and started my own consultancy in oil, chemical, power plant design. I faced same issue of quality in design deliverables. I found, the price I has demanding was quite high compared to local competitors here. Eventually I had to match the price with others and so downgrade the quality of deliverables. To prove we have better quality, we submitted best design documents to an international reputed company in Power here and our intention was to get better price for our deliverables. But this idea went wrong way and now we have been forced to supply better quality product at lower price by this company.
Best Regards,
Prasad Pujari

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