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Definition:In Indian context, a small scale enterprise is broadly defined in terms of the value of investment in plant & machinery. A small scale enterprise is the one in which the investment in fixed assets in plant and machinery, whether held on ownership terms, on lease, or in hire purchase, is shown below……
Micro Enterprises Small Enterprises
Rs. 1 Lakh to 25 Lakhs Rs. 25 Lakhs to 5 Crores
Rs. 10 Lakhs Rs. 10 Lakhs to Rs. 2 Crores
Medium Enterprises Rs. 5 Crores to 10 Crores
Rs. 2 Crores to Rs. 5 Crores
Production output in small quantities Informal management style
Small no. of workers & Employe
resent in the form of family business
Lowest possible capital investment in P
Have & services of SSI local resources & produces goods lower gestation period & are easy to set up in Characteristics
he units is not owned, controlled or subsidiary of any other industrial undertaki
To increase employment opportunities through labour intensive process
te a decentralized pattern of ownership
To address the needs of local ma
e standard of living for the local population
To stimulate growth of local entrepr
Objectives of SSI
products particularly to cater to the localTo foster diversification of economic a needs
Why Being Small is Efficient?
Economies of scale for certain trades Lower transaction cost in small entity More flexibility Innovation – often possible in small flexible units
Role of MSME’s in Economic Development
Ø In India, MSME’s account for almost 45% of the total industrial production. Ø MSME’s also contributes 40% of the Exports of the country. Ø They manufacture over 6,000 products of the country. Ø The MSME’s is the second largest employer in India after agriculture. Ø The total jobs in the MSME’s in India goes up to 650 lakh ( Acc to 11th 5 year Plan). Ø It provides opportunities for development of technology.
Government Support for MSME’s During 11th Five Years Plan (20072012)
Ø The 11th plan’s approach to the MSE sector marks a shift from the welfare approach to that of empowerment. The strategy is two pronged it focuses on livelihood and social security. Ø Policy initiatives are proposed to incentivize MSE’s to achieve economies of scale by expanding production. One possibility could be to allow them to retain the benefit of excise duty exemption up to the prescribed limit even after they graduate into MSE’s. Ø The MSE sector, including handlooms and handicrafts, presents an opportunity for exports. The effort during the plan period will therefore be to organize this sector, to create clusters of weavers/artisans to improve their bargaining power, and enable them to pool resources. Ø Banks will be encouraged to ensure that all loans up to 5 lakh to
Supporting Agencies of Government For MSME’s
MSME Board MSME Development Organization MSME Development Institutions MSME Technology Development Centers MSME Testing Centers and MSME Testing Stations MSME Tool Rooms/Tool Design Institutes Entrepreneurship Development Institutes National Small Industries Corporation Small Industrial Development Bank of India (SIDBI) Khadi & Village Industries Commission (KVIC)
For Modernization Productivity Technological Needs Skill Development & Up gradation Adequate & Affordable assistance in Finance
Problems of Small scale industries
Finance (scarcity of capital, non availability of credit facility) Raw Material (Poor quality, uneven supply of raw material, inadequate qty) Technology ( not exposed to latest technology) Idle Capacity( due to underutilization) Infrastructure (Transport,power,communication) Marketing (not in a position to get first hand information about the market) Underutilization of Capacity (due to non availability of raw material, power, finance) Skilled Manpower (Being in backward areas) Project Planning (Lack Tech& Economical) Managerial inadequacies like overdependence
Common Causes of Failure
Choosing a business that isn't very profitable. Inadequate cash reserves. Failure to clearly define and understand your market, your customers, and your customers' buying habits. Failure to price your product or service correctly. Failure to adequately anticipate cash flow. Failure to anticipate or react to competition, technology, or other changes in the marketplace. Overgeneralization. Overdependence on a single customer Uncontrolled growth. Believing you can do everything yourself. Putting up with inadequate management.
Ecological/environmental issues Current legislation home market Future legislation International legislation Regulatory bodies and processes Government policies Government term and change Trading policies Funding, grants and initiatives Home market lobbying/pressure groups International pressure groups Wars and conflicts
Home economy trends Overseas economies and trends General taxation issues Taxation specific to product/services Seasonality/weather issues Market and trade cycles Specific industry factors Market routes and distribution trends Customer/end-user drivers Interest and exchange rates International trade/monetary issues
Lifestyle trends Demographics Consumer attitudes and opinions Media views Law changes affecting social factors Brand, company, technology image Consumer buying patterns Major events and influences Buying access and trends Ethnic/religious factors Advertising and publicity Ethical issues
Competing technology development Research funding Associated/dependent technologies Replacement technology/solutions Maturity of technology Manufacturing maturity and capacity Information and communications Consumer buying mechanisms/technology Technology legislation Innovation potential Technology access, licensing, patents Intellectual property issues Global communications
2. Equally well, execution will and power 3. Risk taking ability 4. Self motivated to earn profit 5. Creating self sustaining business model 6. Business location or product exclusivity 7. Macro level knowledge on banking, accounting, taxation, purchase etc. 8. Strong emotional bonding with self created business/ company goodwill 9. Self developed leadership values
1 Gut feeling & Quick decision making ability
10. Patents or proprietary goods
11. An established distribution channel
2. Aptitude to restrict spending for long term objectives 3. Always looking at price/cost and never value 4. Diverting business profit in stocks and other to earn quick money 5. Investing capital to purchase properties and luxuries beyond business 6. To postpone things that’s not convenient & comfortable to execute 7. Ignore importance of innovation when investment in R&D is required 8. Believe marketing/branding is expense and not investment 10. Limited human resources and staff 11. High cost of production 12. Products or service similar to competitors 1. Attitude towards marketing the business
• Government regulation softening • Development of new technology • Growing trend and customer base
• New substitute products emerging • Price competition • Economic pressure
Sickness in SME
In common parlance , a sick industry is one which is not healthy. A healthy unit is one which earns a reasonable return on capital employed and which builds up reserves after providing reasonable depreciation. According to RBI “a sick unit is one which incurs cash losses for one year and is likely to incur cash losses for the current year as well as for the following year”. The Sick Industrial Companies Act 1985, defines a sick industry as “an industrial company which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and has also suffered from cash losses in such financial year immediately preceding such financial year.
Criteria to identify sickness
Continuous decline in gross output compared to the previous two financial years.
Delays in repayment of institutional loan, for more than 12 months.
Erosion in the net worth to the extent of 50 per cent of the net worth during the previous accounting year.
Signals of industrial sickness
Decline in capacity utilization Shortage of liquid funds Inventories in excessive quantities Irregularity in maintaining the bank accounts Frequent break downs in plant & equipments Decline in the quality of products Frequent turnover of personnel Technical deficiency
Symptoms of Industrial Sickness
ü Shortage of cash ü Deteriorating financial ratios ü Widespread use of creative accounting ü Continuous decline in prices of the shares ü Delay & default in the payment of statutory dues ü Morale degradation of employees ü Frequent request to banks & financial institutions for loans ü Delay in the audit of annul accounts
Ø Huge financial losses to the banks & financial institutions Ø Loss to employment opportunities Ø Emergence of Industrial unrest Ø Adverse effect on perspective investors and entrepreneurs Ø Wastages of Scarce resources Ø Loss of revenue to government
Monitoring and nursing the sick units during infancy Diagnostic studies (Role of BIFR) Incentives should be provided to professional managers helping in reviving sick units Issuing guidelines on major aspects that affect the image of the company Brain storm with a select group to get creative ideas for improvement Adopt better practices, right technology, better work culture and professional management SSI can improve their health as well as the economy.
RBI guide lines… RBI has constituted a standing coordination committee to consider issues relating to coordination between commercial banks and lending institutions.
A special cell has been set up within the rehabilitation finance division of IDBI to attend the case of sickness.
RBI has issued suitable guidelines to the banks to ensure the potentially viable sick units receive attention and timely support from banks.
RBI has clarified that units becoming sick on account of willful management, willful default should not be considered for rehabilitation.
NATIONAL MANUFACTURING ACOMPETITIVENESS PROGRAMME ( NMCP )
With a view to build the capacity of the Indian Micro, Small and Medium Manufacturing Enterprises for overcoming competition in the global markets and facing challenges being posed by the entry of the multi-nationals in the domestic markets, the Government of India has announced the National Manufacturing Competitiveness Programme (NMCP) during the budget speech 2005-06. The objective of NMCP with can be truly regarded as ‘National Strategy for Manufacturing’ is to ensure healthy growth of the MSME Sector. The 10 components of the Programme dealing with the firm level competitiveness against global challenges are being implemented in the Public Private Partnership (PPP) mode.
Sl. No 1 2 3 4 5 6
Component Marketing Support / Assistance to MSMEs Support for Entrepreneurial and Managerial Development of MSMEs Setting up Mini Tool Room & Training Centres Building Awareness on Intellectual Property Rights National Programme for Application of Lean Manufacturing Enabling Manufacturing Sector to be Competitive through Quality Management Standards and Quality Technology Tools Energy Efficiency and Quality Certification Support for MSMEs Marketing Assistance for SMEs and Technology Up gradation Activities Promotion of ICT in Indian Manufacturing Sector Design Clinic Scheme to bring Design expertise to the Manufacturing sector
Short Name BAR CODE INCUBATOR MTR IPR LEAN QMS/QTT ENERGY MARKETING ICT DESIGN
7 8 9 10
Assistance and Support Services for Indian SMEs
Domestic Trade, Export, Import and Business enquiries Information on marketing strategy & investment opportunities Business Matchmaking and Buyer-Seller Meets Preparation of company profile, project reports & product design Assistance and support for revival of sick units Design, Development and Launch of products Acquire latest technology & to set up new manufacturing units Guidance to obtain trade & project finance and credit rating Quality Assurance and packaging improvements to meet
Guidance for upgrading skills & knowledge of entrepreneurs Source & import quality products, machinery, equipments & hand tools, raw materials and hi-tech products Preparation of documentation for obtaining joint ventures, technology transfer, contract manufacturing and preparation of other business and financial documents Indian products and services permanent display centre in various countries Liaise with Government Departments & Agencies, Overseas Organisations Arrange study tours & visits to factories / industrial plants / trade fairs / exhibitions in India and abroad Arrange business / trade delegations and missions Assistance to represent and participate in exhibitions, trade fairs, seminars and conferences
Products Of MSME’s
Contribution of MSE (%) at 19992000 prices in Year 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Total Industrial Production 39.74 39.71 39.12 38.89 38.74 38.62 38.56 38.57 Gross Domestic Product (GDP) 5.86 6.04 5.77 5.91 5.79 5.84 5.83 5.94
Comparative Growth Rates .
Year Growth Rate of MSE Sector (%) 8.68 9.64 10.88 12.32 12.60 13.00* Overall Industrial Sector (%) 5.70 6.90 8.40 8.10 11.5 8.00
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08*