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PROFFESSOR DEPARTMENT OF MANAGEMENT AURORA PG COLLEGE RAMANTHAPUR, HYDERABAD ADDRESS FOR COMMUNICATION FLAT NO:206,NIRMAL RESIDENCY SRINIVAS PURAM RAMANTHAPUR , HYDERABAD-500013 MOBILE NO:9491101155 E-MAILfirstname.lastname@example.org
MRS.M.SUJATHA ASSISTANT.PROFESSOR DEPARTMENT OF MANAGEMENT AURORA PG COLLEGE RAMANTHAPUR, HYDERABAD
2-2-1109/3/A,BAGHAMBERPET, HYDERABAD MOBILE NO: 9346788688 EMAILemail@example.com
MARKETING PROBLEMS OF SMALL AND MEDIUM ENTERPRISES Mrs. M. Madhavi Mrs. M. Sujatha
ABSTRACT Small and medium enterprises (SMEs ) also known as small and medium scale enterprises are the essential part of healthy economy. The SME sector represents over 90 percent of enterprises in most of the developing countries and contribute 40-60 percent of the total output or value added to the national economy. SME sector in India is the key driver of the nation's economic growth with a contribution of over 40 percent of the country's industrial output and about 35 percent of direct exports and another 15 percent of indirect exports. In terms of employment it is a very crucial sector being the second largest sector after agriculture. In recent years the SME sector has consistently registered higher growth rate compared to industrial sector.
In the current economic slowdown SME sector has been hit very hard due to raising interest rates and financial crunch. The small size and capacity of the firms and their lack of awareness have bred many hindrances to their growth.
In this backdrop this paper tries to throw light on the problems related to marketing faced by SMEs in the changing economic environment and tries to give some suggestions to solve the problems.
Small and Medium Enterprises (SMEs), also known as small and medium scale industries or businesses, are the essential part of a healthy economy. The SME sector represents over 90 per cent of enterprises in most of the developing countries and contributes 40-60 per cent of the total output or value added to the national economy. In recent years the MSE sector has consistently registered higher growth rate compared to the overall industrial sector. The major advantage of the sector is its employment potential at low cost. World wide the Micro, Small and Medium enterprises have been accepted as the engine to economic growth and for promoting equitable development. MSEs contribute over 90% of the total enterprises in most of the economies and are credited with generating highest rate of employment growth and account for a major share of industrial production and exports.
The Indian Scenario
In India, the MSEs play a major role in the overall industrial development of the country. It is estimated that in terms of value the small and medium enterprises account for 39% of the manufacturing out put and around 33% of the total export of the country. As per the
available statistics this sector employs an estimated 31 million people spread over12.8 million enterprises and the labour intensity in the sector is almost four times higher than the large enterprises.
The president under notification dated 9th may, 2007 has amended the Government of India (Allocation of Business) Rules, 1961 Pursuant to this amendment Ministry of Agro and Rural Industries and Ministry of Small Scale Industries have been merged into a single Ministry, Namely, “Ministry of Micro, Small and Medium Enterprises”. As per the Micro, Small and Medium enterprises Development Act, 2006, in the manufacturing sector an enterprise with investment in plant and machinery upto Rs. 5 crore in termed
as a small enterprise, and an enterprise with investment upto Rs.10 crore is defined as a medium enterprise. In the services sector enterprises with investment in equipment upto Rs, 2 crores are classified as small enterprises and those with investment upto Rs.5 crore are classified as medium enterprise.
Small and Medium Enterprises are a major contributor of the GDP of a country and an even larger contributor to the segments of exports and employment. The SME growth has been propelled by fresh investments in heavy and basic industries, The contribution to exports and employment has been significant in the wake of increased manufacturing activity and the increasing prominence of service sector companies in this space. The major thrust is on industries like garments, spices and metals, which are net revenue earners for the country rich in its mineral reserves. The government of India has given small enterprises an important place in the economic planning for ideological as well as economic measures, As a result of these efforts the small sector has achieved an impressive growth in the number of units. In infers, inter alia more chances for enterprising persons to assume the entrepreneurial careers.
Thus, SMEs serve as a seed-bed for the emergence of entrepreneurship of the country. The development of small scale industries contribute to the increase in the per capita income and contribute to the economic growth of the economy. It provides for more equitable distribution of the income of the nation. Further they make effective
mobilization of the untapped capital and human skills and leads to dispersal of manufacturing activities allover the country. Though the government of India is attaching increasing importance to the development of small scale enterprises by way of various support measures adopted from time to time, they are facing several problems in practice. According to the third census of SSIs (2001-02) out of the 105 lakh registered and un registered SSIs over 95% are tiny units with a low capital and managerial base. With intensifying competition many SMEs especially in the consumer goods sector would find it difficult to survive. Items reserved for SSIs will now face competition from similar products produced by large scale global manufacturers, imported freely at low tariffs. When the domestic market is fully open to global competition, the low labour cost advantage that our SMEs claim to enjoy may not work beyond a point. Low end products will also face competition from export oriented developing countries.
In the current economic slowdown SME sector has been hit very hard due to raising interest rates and financial crunch. The small size and capacity of the firms and their lack of awareness have bred many hindrances to their growth such as
Under-utilization of capacity, Inadequate and untimely credit flows, Inability in technology up gradation, Insufficient raw-material procurement Inability to market finished goods and Ineffective monitoring and feedback mechanism.
The problem which continue to be a big hurdle for the development of the sector is the lack of access to timely and adequate credit. The Abid Hussain Committee on
SSIs(1997) examined the problems of SSIs and recommended a package of policies to restructure the industries in the context of the current global economic challenges. It endorsed the Nayak committee’s recommendations of financial support through State Financial Corporations and tapping of other resources funding for the SMEs, addressing credit rating services to small units. The Nayak committee recommended a desirable norm of 20% of the value of production to be made available by way of working capital through term lending institutions, and commercial banks as against the existing 13% of the value of production (AIMA figures) .Another major problem that is hindering the growth of SMEs is the Marketing including export marketing.
Marketing Problems: The nature of marketing is ever changing so does the problems associated with the marketing. The Indian SMEs are facing a lot of problems related to marketing in the
national and international arenas. This is mainly due to the fact that these organizations belong to rural or semi urban areas where the resources are easily available to them and cheap labour is associated with . But when it comes to selling of these products the SMEs have to face a difficulty in creating an impression and awareness in the minds of urban and other potential buyers about the quality and related aspects of their products and services. The main marketing problems of the SMEs in marketing their products and services are briefly discussed as follows.
Most of the SMES established in the developing nations provide products and services with moderate quality largely applying outdated technologies. Thus they are faced with tough competition with the high quality products of the MNCs at lesser price. With the increasing globalization the situation is further worsened.
Reduced protection has already lowered the SMEs competitive strength. The sector may face dumping by foreign competitors like China . The cost of anti dumping investigations may be prohibitive for SMEs.
The sector is mostly consisting of family run businesses which generally employs family members at various positions of hierarchy in the business. Some times these people lack professional knowledge and wisdom needed to market their products and services. They are continuing with the age old ‘hunch decision ‘ making and use of no modern tools. As well taking the help of professional organizations of marketing is too costly to them when compared to the value of the products they are manufacturing.
Most of the times the SME sector end up with wrong marketing strategies and irrelevant strategies applicable to the segment or the total market. Majority of these are not aware of the modern techniques like supply chain management, just in time inventory, kanban and other logistics associated marketing.
These organizations also have a problem of customer awareness as they do not adopt any publicity and advertisement strategies. Most of their products are sold through word of mouth publicity and direct selling. Sometimes the government in association with the local authorities organizes exhibitions to promote the products of these units. Still the small enterprises are unable to utilize this opportunity because of the low levels of literacy and shortage of working capital needs.
It was often complained that the host country distributors that despite providing the SMEs with full actual samples of the product at free of cost, they fail to give result as required. They have a tendency to export what they manufactured without even having matching of the quality, timing, or presentation of the product. They learn only when the importer chokes them up in terms of the nonpayment due to inferior stuff or other related things.
Many companies fail to get buyers or even enquiries because they had never developed the unique selling point. (USP) of their products. Many enterprises are
not sure about how their products were different from those of the market. Since they were unaware of their vital aspects, they were unable to understand the needs of their target customers, ….. and that a vicious circle.
Most of the SMEs don’t market themselves enough because they think that they can’t afford it. They give up easily if a particular marketing activity does not immediately set to each registers ringing. To expect a marketing activity, be it a premium membership with B2B portal or a constitutional advertisement to a news paper to give business from day one is unrealistic.
The SMEs particularly in the field of exports lack in awareness about the institutional support in terms of provision of foreign currency payments and other related activities of imports and exports. This is resulting in of less percentage of utilization of the available opportunities in the overall exports and related activities by these institutions.
The companies in this sector have a difficulty in explaining clearly the product features and their utilities they are selling and are inconsistent in their communications, Most of the SMEs jump from one marketing strategy to
another for no valid reasons. This confuses the prospective buyers and also creates a low opinion of the company and its product line.
Several enterprises have the notion that one has to be a big company to enter the online arena to market their products. Most of the SMEs are yet to realize that online marketing can and is the only be the cost effective, measurable and targeted advertising channel.
Individual SSI units are scattered throughout the country and their resources are limited. They find it difficult to participate in Government stores purchase programmes even if certain items are reserved to them to supply.
SMEs also encounter a problem in expanding markets due to lack of marketing arrangements with other bodies. An important factor contributing to this problem is the interdependence of different strata of the industries ( large, medium and small) has not been fully realized.
The cost of production of these units is relatively high because these units tend to purchse the raw materials in small lots and through middlemen, which results in high pricing of the goods. By, contrast large organizations are offered raw materials at lower cost under economies of scale and bulk manufacturing.
The emerging challenges to the small scale sector are to come from the impact the of the agreements under WTO> The agreements under TRIPS calls for tighter patent laws through regulation of intellectual property rights which is becoming a costly affair to the SMEs.
Majority of the SMEs are unable to participate in the Industrial exhibitions and Expos organized nationally and internationally. This is due to the high cost
associated with transportation of the produce and traveling costs of the entrepreneurs themselves. Further these units are not aware of the formalities to be completed for registering their firms for these fairs. So, the SMEs are finding it difficult to participate in overseas market.
In most parts of the developing world, the problems being faced by the SMEs are more or less similar in their nature, and are due to shortcomings in policy and legal frame work, finance entrepreneurship, management, socio-cultural values and of course, technology. Most of these units are heavily dependent on the imported technologies and skills for the maintenance of the plant and operations. Adaptation to the local needs has always been the least priority and national budget allocation for technology transfers is quite low. In fact, it vital for the developing nations to examine and understand the nature of technology transfer process and give effort to execute them successfully in the development of SMEs.
Some Suggestions for improvement At times, when major markets are shrinking down consistently, each and every SME should have a marketing strategy not only to show-case their products, but also to easily get inquiries form other markets. Some suggestions have have been proposed in this regard to find solutions to the marketing difficulties faced by the SME sector.
1. There must be some programme on making these organisations aware of the modern
business tools. SMEs can be greatly benefit if they recognize the power of internet for exploring and managing the market online.
2. They should develop their websites in English language for spreading their reach beyond India. Bodies such as CII, Trade India can take up awareness programmes for them in systematic way and monitor the changes.
3. SMEs cannot do conventional marketing because of the limitation of resources. They need to think beyond conventional marketing practices of large companies and search for alternative marketing approaches such as personal contact networks, social networks, B2B portals, E-Commerce tools, Business Networks and Industry and Marketing networks.
4. SMEs should realize that on the Internet, a big company will have the same chances as an SME to make an impact on the buyer. With the correct techniques any SME can make it to the top leaving behind even the biggest of the companies.
5. Indian SMEs have to take note of technical barriers to trade(TBT) in view of technical standards set by developed countries.
6. Good planned strategic approach, if adopted by SMEs can help them to overcome many of the barriers and obstacles that they face now.
Institutional support India has already recognized the importance of its SME sector is providing a a wide array of assistance programmes to this sector to reduce the barriers to the development of this sector. Policy and implementation bodies along with IDBI, SFCs and Commercial Banks are working at national and state levels and sometimes at the local government also. Many forms of assistance are given from the institutions including
• • • •
Supply of raw materials at affordable rates Provision of fiancé for investment and working capital at subsidized costs Provision of technical and other assistance and other advisory services Assistance in expansion of markets including Government purchases, reservation of certain items for government stores, price preferences and support in joint tendering for government purchase contracts.
A Market development scheme is specially operated by the Ministry of Small and Medium Enterprises (MSME) to encourage exports from this sector and to increase the access and development of overseas markets to these units. The scheme offers funding for participation in international fairs, study tours abroad, trade delegations, publicity etc. Direct assistance is given to individual sales cum study tours, participation in fairs, exhibitions and publicity.
SIDBI operates a scheme for direct assistance for financing activities related to marketing of the products of MSME sector. The financing referred to so far is available for a wide
range of activities and purposes. Additional financing is available to the purchase of machinery and investment needs.
As a part of the comprehensive policy package for promotion and development of MSMEs announced on 30th August, 2000, it was decided that the Small Industries Development Organisation (SIDO) should have a Market Development Assistance scheme similar to the one obtaining in the Ministry of Commerce. This scheme will operate in addition to the SIDO scheme for participation in the international fairs will cover all activities for which direct assistance is given under the existing scheme MDA Scheme of the Ministry of Commerce.
Assistance to Individual exporters would be made available by way of reimbursement of to and fro air fare within the permissible limits. Special assistance programmes are also in operation by IDBI, SFCs and Commercial Banks to encourage location of industries in the backward areas . These organizations are providing marketing assistance to the enterprises located in the backward areas.
To conclude Indian SMES are Presently incapable of developing the right perspective as they are technologically, financially and organizationally weak compared to global SMES. It is essential to reposition Indian SMES in some strategic sectors with some proven comparative advantage. Clusters should be the future strategy for SME development. There must be emphasis on brand building of products to improve their marketability
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