The world economy continues to have its share of challenges and growth is still fragile in the advanced economies. The slowing down of the Chinese economy as it rebalances away from export-led growth makes India one of the brightest spots amongst the large economies.
Various estimates, including that of DBS Bank, put India’s GDP growth rate in FY15/16 at 7.4%. Of the many engines that are powering this growth, the SME sector is a powerful driving force. SMEs contribute 45% to the country’s industrial output and make up to 40% of the total exports.
Recent policy changes have been a key factor in supporting this growth of SMEs. India is taking rapid steps to improve the ‘ease of doing business’ through various regulatory policies. Initiatives such as ‘Digital India’ and ‘Make In India’ are opening up bigger opportunities for the SME sector. The key would be how much of these initiatives we are able to execute on the ground.
In particular, 4 factors are key to the strengthening of SMEs. All of these would only benefit if the business model were robust. The tools can supplement & enhance growth, but cannot substitute the business model and the unique value proposition itself.
Digitization
The world has taken rapid strides in Internet penetration & expansion of mobile networks. India is at the forefront in this digital revolution. Today, India has the 2nd largest mobile phone user base and the largest Internet user base in the world. These numbers are expected to double by 2017. Commerce is increasingly becoming enabled by digital transactions. India has 40 million online shoppers and alternative methods like pre-paid cash cards & digital wallets are disrupting structured businesses like banking. We might be looking at a future where physical branches become obsolete and physical currency becomes extinct or become much lower in importance than today.
A variety of business functions of a small business can be enhanced through digitization. Social networking, QR codes, mobile apps and digital interfaces can change marketing, customer service, payments, inventory management, accounting, banking and supply chain management and improve speed and efficiency.
Digitization also helps in reducing errors and scaling operations faster. Surely, SMEs have a lot to benefit from if they adopt digitization
Easy Access to Finance
SMEs need to be adequately financed at each stage of their lifecycle. Developing effective lines of credit and innovative financing solutions helps SMEs gain the much-needed credit for ramping up growth. Good structures, including supply chain, can reduce cost of finance. A good relationship with banks & financial institutions goes a long way in developing win-win solutions in terms of helping SMEs grow to their potential.
Human Capital
The most important piece that helps SMEs differentiate and scale up is ‘People’. SMEs can have tremendous advantage by developing a team of highly skilled & motivated work force. While all may not be possible in-house, choosing the right partners to fill in the missing gaps can be the difference between scale & remaining a cottage size industry. Regular training programs help deliver better customer service, ensuring customer satisfaction & retention.
Effective Business Support Systems
Any business needs to develop strong systems to develop innovative products through accurate understanding of the changing market conditions and analysis of customer behavior and needs. In the competitive landscape, SMEs need to react quickly to international market indicators, leverage trade opportunities and have the ability to reap the benefits of international trading systems.
The world is moving towards a “sharing” economy and everything need not be built by the SMEs themselves. Use of these support systems allows SMEs to learn from the collective wisdom of all successful and failed enterprises and harness them in their own ecosystems.
SMEs need to strive hard for connectivity, domestic & international business growth, capacity building, and ensuring long-term success. If the leadership has a hawk eye on the above-mentioned factors, it will go a long way in creating winning businesses of the future. The key remains leveraging tools for a sound business plan and model.
