The changing face of SMEs
The changing face of SMEs
By Mithran Sri Ram
Saturday 31st December 2022
The pandemic has disrupted many businesses around the world due to complete or partial lockdown and social distancing measures, which are essential measures to curtail the spread of the virus. Due to these measures, specific sectors/businesses that rely on social interaction like the sports industry, travel, tourism, hospitality, and manufacturing industries have experienced profound effects.
Workplace closures affected the supply chain and led to
reduced production. Income decline, layoffs, fear of contagion are some of the
reasons which have led to reduced customer spending, which is further causing
job losses and business closures. The
lockdown that followed the outbreak of COVID‐19 brought the manufacturing units
to a standstill.
On
speaking to Mr. Padmin Buch, Senior Advisor - Corporate Strategy, Projects and
Intelectual Property Rights (IPR), one could get the real feel on how Covid 19
was a blow and also how post covid SMEs came back bouncing”. Experts from his speech :-Tell us
about you – your business & your associations in the SME sector?
I am a
Corporate Advisor Strategic Growth mainly for MSMEs. Earlier chaired as a Managing Director of
Gujarath Industrial & Technical Consultancy Organization (GITCO). The main objective of GIDCO is to help
setting up of units by the SMEs. Presently I am advising MSMEs not only in
Gujarath – but all over India. Advises
in terms of Corporate Strategy, Technical part, finance part &
international business. I am also one of
the national expert in the field of Intellectual Property Rights. I am also in the MSME Panel of CII &
also coach head of MSME panel of Gujarath Chamber of Commerce and Industry.
Shortage of
workers & production inputs.
When
pandemic started lockdown was announced.
Many units were closed down, but workers were there. When lockdown was lifted after 2 months - the
migrant workers left for their native. When
lockdown was lifted - economy was to restart - there were no workers
available. Another problem was also
there. When the lockdown was lifted,
workers took their own time to come back to their workplace. They are not sure to whether things will be
normal, and that 4 or 6 months was a big crisis for MSMEs & SMEs.
We
found a solution for this which worked out very well. Many of the companies, with the help of the
government immaterial of the state, approached those workers individually,
convinced them by assuring to provide transport, food & housing temporarily. Most
important was rejoining in the education of their children. That made a big difference. This was a major work done and I was also
part of this on behalf of Gujarath Chamber of Commerce & Industry. Assurance were given to workers, most of the
companies gave full salary also for the workers who where away for those 4 to 6
months. Some of the governments also
announced the housing schemes. These
were the two sides – how things were handled successfully.
Distortions
in supply chains
Inputs
on the man hours and inputs of the raw materials. Supply chain was again a problem when the
lockdown was lifted. Except the sectors
like pharmaceuticals, to some extend food processing which were considered to be an essential sector, many
of the SME units were closed down. The
supply chain in terms of the critical raw material turn out to be a problem
particularly when the raw material was from outside India.
Supply
chain disrupted where because of 2 reasons.
One - The pandemic was everywhere.
Two – The logistics. Sea Ports
were not working. Ships were not plying
at all. Whatever raw material arrived,
had lying at the port and were not reaching the units. Supply Chain was a major crisis and even
today it remains to some extent because international logistics because of
Ukraine War and it still affecting the raw material supply.
Decrease in
Consumer Spending
There
are two kinds of consumers. A normal
consumer just casually goes to a restaurant and having food. This sector is badly affected. All over India it is observed that “small eateries,
small restaurants were the hardest hit. Another
hardest hit was the entertainment & travel sector. People stopped travelling even after
relaxations were given. They don’t want
to spend money for extra which we can save and avoided spending.
The
other segments was the industry units. The
consumers are two way. Some are direct
and some are business to business B2B. The working capital cycle was
broken. The raw materials were purchased
– cash was given – products were made – but they were not sold. If sold, there was a lot of credit period as
45, 60 or even 90 days. These affected
spending.
Consequences
of Economic Crisis
The
economic crisis is felt like anything.
The Industrial Products and Index (IPI)
is a major parameter to decide any countries economy levels. For India – IPI went down because
manufacturing was stopped. For any
country and any economy - product manufacturing is main base. This contributes directly to Gross Domestic
Product (GDP) of the country. And these
really got affected because, first it was stopped and when it started, it
started slowly. So, economy got hit like
anything. Our current crisis what we are
talking now is purely because of those economic hit happened in the past. The
state & central government at that time, even with certain loopholes - had
acted fairly very well. To some extent
we have recovered and hope that this normalization continues within next 6 months things will be better, because
international market is not yet open up
to that extent.
Lack of
financial resources & high cost of business capital
Initially
it was a lack. The government of India announced several packages like
Aathmanirbar, Self Sufficiency Packages or revival packages. That was a very nice package. There intention was good but there was some
kind of a gap. Majors were announced but
the mechanism was not set. A small scale
industry might get a working capital loan at lower interest, or even zero
interest. But, when they approach, the
banks were not ready, since they are yet to get the information. The state governments were not ready. So, there was a gap between the announcement
and implementation mechanism and that was a difficulty.
After a
few months time everybody realized, the mechanism was set up, banking sector
also got information, they were told to be ready and instructed not to
emphasize too much on a procedure. Most
of the state governments also announced their own revival packages and that
made a difference. Now, slowly things
are now coming back to normal.
Limited
Administrative & Technical Capacities
This
was a major crisis. Nobody realized that
it will continue. Normally any crisis
will be there only for few months and not months and months together. This is a cascading and cumulative
effect. At the same time government had
to divert lot of funds for the health care sector. Health was a major problem and government has
to balance both. That is also one of the
reason SMEs and Industry took some hit. Both
central & state government did a tremendous work in handling this
crisis. The lesson learnt from this
pandemic is – there were no lockdowns announced by any of the political
parties.
Supports
from NGOs
NGOs
helped a lot. When you raise the
question of workers, NGOs helped in rehabilitating. When we need food and health supports to
thousands and hundreds of people – in most of the states, NGOs did a fantastic
job by either giving food for free or at a minimal cost.
Secondly
on health care, NGOs helped the people, worker, labor, entry level people in
the industry, SMEs a lot. They were not
sure on where to get treatment.
Hospitals were full. NGOs with
the help of some industries and government opened up Covid care Centres. They were not 100% hospitals, but they were
giving primary treatments. Patients were
given a place, a bed, basic food, basic nutrition, basic medicines, and basic
treatments. By this, NGOs played a great
role. They may not have any direct role
in terms of production related things, but they played a good link between people
who wish to donate funds to the people who require those funds.
Using
digital technology helping MSEs in surviving
Whether
pandemic or not – SMEs and MSMEs will have to learn digitization. It is almost like a survival. This eventually started with the pandemic in a way
where no body was able to meet any other physically.
Not only online meeting to transfer of knowledge – online payments to
start with. People sitting farther away
were able to transfer the knowledge to the SMEs online. Health care sector was a major beneficiary of
the digitalization, but coming back to SMEs digitalization is almost necessary for
service. Southern states are much ahead
in this.
Now,
the programme have started – SMEs are selected to give digital training. They are given 6 months or one year
training. Not only state government,
Government of India is involved and 3 or 4 multi national companies are also involved. They have created a package to train SMEs in
terms of digitalization, whether in accounts, technology, marketing and several
aspects. Those units in turn – will
train other units. In Gujarath 10 units
have already completed training for 6 months.
If SMEs will not accept and follow digitalization – it will be a
problem. When government is also
supporting – SMEs should come forward to take that opportunity, as of now –
digitalization is no more a luxury, option, no more for negotiation - but an
essential component for SMEs. It is a mandatory
not only for survival but for growth as well.
There
are 3 components for any SMEs. Survival
– they have to first survive, next is Revival – they have to revive and next is
the Growth. Among these 3 components for
Revival & Growth digitalization is a must.
Finance is necessary, inputs are necessary, working capital is necessary
but digitalization has emerged as a strong and essential component for the SMEs
to not only revive but to grow further.
SMEs
are the backbone of our country. They
are contributing to almost 45% of industrial output in India. Almost 40% of our exports are from the
SMEs. With the new criteria of MSMEs,
investments and turnover and the demarcation in the service sector and manufacturer
has been removed.
So, SME
units having One crore of investment in plant and machineries with 5 crores of
turnover are Micro – 10 crores of
investments in plant and machineries with 50 crores of turnover they are small
industries. So many units are now
covered under MSMEs. Almost 90% of the
industrial units in India are MSMEs. They
are the backbone of our economy.
What is
required now is the change in mindset.
We have lot of intelligence but how to utilize our capabilities. Going for new things is what needed now. Coming out of the old fixed things and
looking for the new things and innovate.
SMEs needs to innovate – which is definitely not a rocket science. Innovation is the manthra – innovation is for
the survival, innovation is for the revival and innovation is for the growth.
The SMEs are the entry point for any country. They are at the bottom of the pyramid of the economy. They have to go up, there is a huge potential – for that they have to innovate. Facilities are there with the government but you have to go there to grab it and this is the message to the SMEs.
RELEASE ID : NNBSS 861036
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