Overview of Indian SME - ADDVALUE Lean Consulting Firm

“SME OVERVIEW – INDIAN CONTEXT” By Nilesh Arora Founder Partner, ADD VALUE Consulting Inc. ,INDIA

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WHAT ARE SME’S ?

• Manufacturing Enterprises – Investment in Plant & Machinery Description • Micro Enterprises up to $ 62,500 • Small Enterprises above $ 62,500 & up to $ 1.25 million • Medium Enterprises above $ 1.25 million & up to $ 2.5 million • Service Enterprises – Investment in Equipment Description • Micro Enterprises up to $ 25,000 • Small Enterprises above $ 25,000 & up to $ 0.5 million • Medium Enterprises above $ 0.5 million & up to $ 1.5 million

WHY ARE SME’s CRUCIAL ?

• SME sector of India is considered as the backbone of economy contributing to 45% of the industrial output • 40% of India’s exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets • With approximately 30 million SMEs in India, 12 million people expected to join the workforce in next 3 years and the sector growing at a rate of 8% per year

WHY ARE SME’s CRUCIAL ? …contd Several factors that have contributed towards the growth of Indian SMEs 1. Funding of SMEs by local and foreign investors 2. New technology in the market is assisting SMEs add considerable value to their business 3. Various trade directories and trade portals •. Despite of this strong growth, there is huge potential amongst Indian SMEs that still remains untapped

VARIOUS MSME SECTORS

WHY ARE INDIAN SME’s CRUCIAL..?

• SMEs are the major source for entrepreneurial skills, innovation and employment, after agriculture • After agriculture, SMEs are the second largest employer of human resources • Number of people employed in SMEs has grown to approx. 75 million at a growth rate of 5.5% • 45% of the SMEs are in rural areas while 55% of the SMEs are in urban areas

IMPORTANT DATA – SME’s(2013-14) …contd • 67% of the SMEs are in manufacturing sector, 17% in service sector and 16% in repairs and automation • SMEs make up for 80-90% of all enterprises and generate about 50-80% of total employment in developing Asia

IMPORTANT DATA – SME’s(2013-14) …contd

IMPORTANT DATA – SME’s(2013-14) …contd

REASONS FOR SME GROWTH 1. Low investment 2. High contribution to domestic production 3. Significant export earnings 4. Capacity to develop indigenous technology 5. Operational flexibility 6. Contribution to defense production 7. Technology oriented industries 8. Import substitution 9. Location wise mobility 10.Low intensive imports 11.Competitiveness in domestic markets 12.Competitiveness in export market

SME’s.. Manufacturing Sector •

The various types of SMEs in manufacturing are textiles, machinery, plastics, auto components, rubber, foundries, paints, electrical, automation etc.

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SMEs contribute to 40% of total exports

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Form 95% of the total industrial units

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Manufacture 8000 quality products for Indian and international markets CHALLENGES

Manufacturing SMEs in India are also facing a number of problems like…….

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Sub-optimal scale of operation

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Technological obsolescence

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Supply chain inefficiencies

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Increasing domestic & global competition

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Working capital shortages – payment delays and Insufficient skilled manpower

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Change in manufacturing strategies and turbulent and uncertain market scenario OPPORTUNITIES

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There lies a huge opportunity in terms of technological advancement, financial assistance, manufacturing competitiveness, innovation, infrastructure development etc.

SME’s - SERVICE SECTOR CSO (Central statistics organization) of India has classified service sector into 14 classifications they are: 1) Trade, hotels and restaurants (THR) 2) Trade 3) Hotels and restaurants 4) Transport, storage and communication 5) Railways 6) Transport by other means 7) Storage 8) Communication 9) Financing, Insurance, Real Estate and Business Services 10) Banking and Insurance 11) Real Estate, Ownership of Dwellings and Business Services 12) Community, Social and Personal services 13) Public Administration and defense (PA & D) 14) Other

SME’s - SERVICE SECTOR…contd • Employment-intensity is highest in manpower-intensive services like security agencies, housekeeping, and facility management.

CHALLENGES • SME Sector is a handicap, despite of commendable contribution to nation’s economy 1. Absence of adequate and timely banking finance 2. Ineffective marketing strategy 3. Constraints on modernization & expansions 4. Non availability of highly skilled labor at affordable cost 5. Follow-up with various government agencies to resolve problems etc.

OPPORTUNITIES •. There lies a huge opportunity in terms of available skilled and unskilled manpower

SME’s AGRICULTURE SECTOR..

• The various types of agriculture sector SMEs are inputs and technology providers, producers (farmers), logistics trade and distribution, processors, wholesalers and retailers.

CHALLENGES • Fragile internal control systems • Poor management culture • Corruption and security risks • Lack of skilled workers and reliable infrastructure •

The most significant barriers common are lack of access to financing and to markets.

OPPORTUNITIES •

Addressing the lack of access to financing and to markets is instrumental to unlocking the potential of SMEs as engines of domestic growth.

Agriculture Value Chain

OPPORTUNITIES IN INDIAN SMEs..

• India is among the three most attractive FDI destinations in the world • One of world’s leading technology centers • India has highest return on foreign investment in the world • By 2032, India will be among the three largest economies in the world • India is a developed country as far as Intellectual Property is concerned • The Indian market has two core advantages – an increasing presence of multinationals and an upswing in the IT exports.

• In order to enable SMEs get easy access to the finance, government has also introduced priority sector lending and has made mandatory on the domestic and foreign banks to lend 40% and 32% of their Net Bank Credit (NBC) to the SMEs • The opportunities exists for foreign SMEs looking to expand in the Indian market in the field of technology transfer, setting up the new business in the country, obtaining the subcontracting rights, out-sourcing to their Indian partners etc.

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