Effect of MNCs over MSMEs

1. Objective or Justification of the Topic

Globalization has made economies interconnected, with Multinational Corporations (MNCs)

expanding their presence across developing nations, including India. While this expansion
brings technology, investment, and global standards, it also poses stiff challenges to Micro,
Small, and Medium Enterprises (MSMEs) which are more localized, resource-constrained, and
labor-intensive.

The key objective of this study is to critically evaluate the positive and negative effects of
MNCs on Indian MSMEs. This includes assessing the impact on market share, employment,
innovation, supply chain, technology adoption, and pricing strategies. The study also examines
how MSMEs can transform challenges into opportunities by adapting strategies to co-exist and
compete with MNCs.

This topic holds significance because MSMEs are the backbone of India’s economy,
contributing to nearly 48% of exports, 30% of GDP, and 40% of employment in the
manufacturing sector. Hence, understanding the competitive dynamics between MSMEs and
MNCs is essential for formulating inclusive industrial policies.

2. Data Source

To ensure authenticity and relevance, both primary and secondary sources were used:

●​ Primary Data:​

○​ Survey of 25 MSMEs located in West Bengal and Maharashtra.​

○​ Semi-structured interviews with MSME entrepreneurs and managers.​

○​ Direct interaction with workers who had migrated to MNCs.​

●​ Secondary Data:​

○​ Government of India reports (Ministry of MSME 2023-24).​

○​ Research studies from institutions like FICCI, ASSOCHAM, and CII.​

 ○​ World Bank and IMF data on MSME development.​

○​ Industry articles from The Economic Times, Statista, and McKinsey Global
Institute.​

This mix of data helped establish a balanced and updated perspective of how MNCs are
influencing MSMEs across different parameters.

3. Methodology

The research followed a mixed-method approach involving both qualitative and quantitative
analysis.

1.​ Literature Review:​

○​ Examined academic studies and industry publications.​

○​ Reviewed reports on FDI inflow and MSME competitiveness.​

2.​ Survey Design:​

○​ A structured questionnaire with both multiple-choice and open-ended questions

was used.​

○​ Parameters included impact on sales, employment, pricing power, input costs,

and supplier relationships.​

3.​ Data Analysis Techniques:​

○​ Responses were converted into quantitative metrics (percentages, mean scores).​

○​ SWOT analysis was used to study MSMEs' strengths and vulnerabilities.​

○​ Graphical representations like bar charts and pie charts were used.​

4.​ Case Study Method:​

○​ A real-time case from the textile industry in Kolkata was documented (detailed in
section 5).

​
 5.​ Comparative Industry Analysis:​

○​ Sectors like FMCG, retail, pharma, and electronics were reviewed to compare
MSME performance with MNC influence.​

4. Analysis

A. Price Competition & Market Share Loss

MNCs, due to economies of scale, offer lower prices and higher discounts. MSMEs, operating
on narrow margins, struggle to survive price wars.

●​ 72% of MSMEs reported losing price-sensitive customers to MNCs.​

●​ In sectors like FMCG, MNCs dominate 60-70% of urban market share, pushing MSMEs
to semi-urban or rural areas.​

B. Technology & Innovation Gap

MNCs often use cutting-edge technology, AI tools, and global CRM systems. MSMEs lag behind
due to capital and skill shortages.

●​ Only 20% of surveyed MSMEs had adopted digital tools for operations or marketing.​

●​ Lack of awareness and fear of high investment were the key barriers.​
 Statistical Graph Description:

C. Employment Dynamics

While MNCs create new jobs, many skilled workers migrate from MSMEs to MNCs for better
salaries and job security.

●​ 48% of MSMEs interviewed reported difficulty retaining workers post-MNC entry into
their market.​

●​ This has increased training costs and operational delays for MSMEs.​

D. Supply Chain Impact

MNCs often bring integrated supply chains but set very high compliance and quality standards.
This leads to exclusion of small suppliers.

●​ However, 15% of MSMEs that were able to meet standards reported revenue growth of
over 20% due to MNC partnerships.​

●​ The remaining MSMEs were left out of the MNC-led ecosystem due to poor
documentation, outdated machinery, or irregular supply.

​
E. Learning Opportunities & Global Benchmarking

Not all impacts are negative. MNCs also raise the bar for quality, customer service, and
innovation. Some MSMEs treat them as benchmarks.

●​ 1 in 4 MSMEs stated that MNC presence has pushed them to upgrade their processes
and branding.​

5. Case Study: Rajlaxmi Textiles vs. Zara

Background:​
Rajlaxmi Textiles is a second-generation MSME from Kolkata producing handloom fabrics. It
catered to both domestic and Southeast Asian markets. In 2021, Zara expanded its sourcing
and retail operations in India and began sourcing cheaper fabrics from automated factories in
Bangladesh.

Impact:

●​ Rajlaxmi’s export orders dropped by 40% in 2 years.​

●​ Domestic customers shifted to cheaper fast-fashion alternatives.​

●​ Over 30 workers were laid off due to low production demand.​

●​ The MSME struggled with outdated looms and limited online presence.​

Action Taken:

●​ Adopted digital marketing via Instagram and Shopify.​

●​ Repositioned itself as a premium eco-friendly, handwoven brand.​

●​ Received a ₹10 lakh subsidy under the MSME Digital India Scheme.​

Outcome:

●​ Sales rebounded by 20% in the next year.​

●​ Started exporting to niche boutiques in Europe focused on sustainable fashion.​

Insight:​
This case shows how MSMEs that adapt and niche down can survive MNC dominance.

6. Conclusion

MNCs bring both challenges and opportunities for Indian MSMEs. While their superior pricing,
technology, and scale can marginalize MSMEs, they also offer learning, partnership, and
modernization possibilities. The key lies in how MSMEs adapt, innovate, and differentiate
themselves.

The government must focus on capacity building, easy access to finance, digital upskilling,
and policy support to ensure MSMEs remain competitive. Sector-specific support is also
essential—especially in textile, agro-processing, and handicrafts where MSMEs have cultural
and economic significance.

If guided and supported properly, MSMEs can not only survive the MNC wave but also leverage
it for growth.

7. References and Suggestions

References:

●​ Ministry of MSME Annual Report 2023–24​

●​ Statista: India MSME Sector Data​

●​ CII White Paper on MSME Challenges​

●​ McKinsey Global Report on Emerging Markets​

●​ ET Retail articles on MSME & MNC co-existence​

●​ Survey conducted with 25 MSMEs in West Bengal​

Suggestions:

1.​ Government should launch a dedicated “MSME-MNC Partnership Program” to

facilitate supply chain inclusion.​
2.​ Digital literacy drives for MSME owners in local languages.​

3.​ Encourage MNCs to set up MSME incubation hubs in the regions they operate.​

4.​ Offer tax incentives to MNCs that source 25%+ of raw material or services from
registered MSMEs.​

5.​ Promote cluster development to allow MSMEs to collectively bargain and build
capacity.