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MSEs and Changed Market Conditions

By. V. N Prasad

The micro and small enterprises (MSEs) has been a significant contributor to strong fundamentals of the economy. The sector, however, is now faced with new challenges that have completely altered the complexion of the market, requiring a focused approach in its development efforts. Key

Undisputedly, a healthy MSE sector is critical for the Country’s growth.  MSEs not only absorb millions of persons even in these days of automation and mechinisation but also significantly contribute to foreign exchange earnings, building a genre of entrepreneurs, meeting wide-ranging requirements in the market. It would be no exaggeration to say that a fairly large section of population is predominantly dependent on them for satiating its needs/ requirements. The service sector, particularly of day-to-day needs, is practically in the hands of small enterprises.

The sector has channelized the youth’s energy in to  income-generating activity.  Several welfare schemes designed for underprivileged resulted in the establishment of MSEs.   In fact, unemployment problem has been a major trigger for coming up of such a large number of service and trading enterprises. While quoting employment generation data, authorities, often, refer to assistance extended by the Micro Units Development and Refinance Agency (MUDRA), which establishes link between unemployment and small enterprises.

Issues

But, the recent past initiatives such has demonitisation of earlier high value currency notes, ushering in of cash-less economy, digitilisation of payments/transactions, permitting foreign direct investment in retail trade, introduction of Goods and Services Tax (GST), etc. have greatly altered the business environment, posing some additional challenges to the small enterprise sector.  The traditional problems such as lack of (i) access to institutional finance; (ii) markets and market information; and (iii) access to modern technology continue cause hiccups in their operations. MSEs once again are in transition stage, the second in little over 25 years (earlier one was during1990s when the economy was opened up).

Changed market configuration   

 Today, a product market is no longer single one but consist of sub-markets within that. Every technical change, let alone innovation, results in fragmentation of a market. In case of consumer electronics, for example, TV or refrigerator market is composed of dozens of variants of the basic item.  Long gone are the days of standard 19 inches T Vs and 165 liters fridge.  ACs too comes in different models.  The ready-made garment industry too  is broken into casuals, formals, party wear, week-end wears and so on. Such sub-components of market for a product are the order of the day

The division of a market in to sub-markets offers huge prospects for inter-firm linkages for discerning small enterprises. The shortened ‘shelf-life’ (owing to technological changes) of a product, however, limits the space for MSEs to maneuver; they generally lack wherewithal to re-orient their operations every now and then. Their technology becomes obsolete very fast.

Multi-national brands have become dominant players in the market for several products, notwithstanding the built-in safeguards to protect the interest of MSEs.  Though these brands target a section of section of market, it means a loss of market to that extent for MSEs. The likely ‘ripple effect’ of this on other segments is a matter of concern.

Throwaway Culture

The gradually gaining trend of upgrading consumer products – a facet of lifestyle changes – by a section of population is a new challenge for MSEs (manufacturing and servicing) to keep abreast of latest trends and designs of a product. The ‘use and throw’ culture is fast becoming a norm in the domestic market. The life of product is becoming shorter day by day. What is new today will become obsolete tomorrow.

This kind of behaviour necessitates MSEs to change their target market frequently.  Compounding their problems is the availability of relatively low-priced Chinese make in every product.

Informed Customer

Owing to of customers’ exposure to international trends and latest developments, the market has become quite demanding. The accessibility to world-class products has made customers to aspire more for them.

The turnaround time available to the present day operator to respond to frequent variations in market requirements has shortened. Small service enterprises, thus, need large investment to stock a variety of parts, tools, etc.  Both – a manufacturer and service provider – need to continuously upgrading their respective technologies, skills and related-inventory to be relevant in the market.

Large Multi-brand Retailers

The increasing ‘online’ shopping (e-commerce), and changes within that segment (WalMart buying flipkart) of retail trade, growing ‘consumerism’ and the emergence of multi-product large retail stores – offering different kind of shopping experiences – have all altered  market structure for MSEs. The diffusion of large stores, coupled with growth in ICT, in tier-2 and tier-3 cities and further to smaller towns (the rural market structure is also gradually changing), is only compounding ‘marketing problems’ for local MSEs.

Yet, large multi-product stores can provide an outlet for their products and services. What is needed  is to have a well designed marketing strategy with firm commitments to maintain the quality supply line and carving out a niche market. There will always be products which a large retailer has to necessarily procure from local sources, wherein MSEs can pitch in. Culture-reflective products is one such example.

New Financial instruments

Along with drastic changes in a product market, a small enterprise is burdened with the need to reorient its operations to the requirements of ‘digital payment’ system. This not only necessitates acquiring new skills but also entails additional cost. The new system   not only rendered many of MSEs (mostly income generating trading enterprise) cash strapped, but also is posing a problem for ‘small means’ customers such as daily labour.

Though small enterprises enjoy some concessions under the GST, they still fear escalation in the compliance cost.

Government Support

the restructuring operations of MSEs is a daunting task, notwithstanding the government  support to them in the form of lower corporate tax, removing cap on priority sector lending by banks etc.,.  The basic characteristic of the sector in the form of predominance of proprietary entities in the entire matrix is a major concern.

Drawing a new/fresh policy for MSEs assumes importance in the changed market conditions. The policy should address the specific concerns of different components (by size and nature) of the sector, instead of having a blanket provisions.  For example income-generating enterprises need more of basic support, while relatively competitive ones have to be facilitated to adjust their operations, upgrade skills etc.  as per market dictates and then graduate to next level in enterprise pyramid.

Wide range of parameters, starting from concept of MSEs (in view new equations like out-sourcing, appearance of international retail chains) to technical and financial support, forging linkages, meeting information needs and other business development services’ requirements, have to be addressed.

A mechanism that is capable of providing a constant effective support – and not concessions – to MSEs has to be established. A strong and viable MSE sector is critical for making the country globally competitive.

 

 

About the author: Mr. V N Prasad

Mr. V. N Prasad is an economist and SME expert. He has vast experience working on projects related to micro, small and medium enterprises.  He is the Principal Advisor Institute for Enterprise Research & Development (IERD), Editorial Advisor, GSME News.  Formerly Senior Economic Advisor, World Association for SMEs. He can be reached at vnpj@yahoo.com

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