M.S.

RAMAIAH INSTITUTE OF TECHNOLOGY
(Autonomous, Affiliated to Visvesvaraya Technological University)

Vidya Soudha, MSR Nagar, M.S.R.I.T Post, Bangalore-5600054

Department of Management Studies
SEMINAR on

³PROBLEMS IN SMES´
Submitted by: PRASANNA.C.U USN ± 1MS08MBA34 Under the Guidance of in co-ordination with Mr. Vijay N. Rao Mrs. Rizwana. M

CONTENTS
‡ Introduction. ‡ Scope of SMEs ‡ Significance of SMEs in Indian economy. ‡ Highlighting features of SMEs ‡ Literature cited ‡ ‡ ‡ ‡ Problems in SMEs Measures and solutions Learning experience Conclusion

SMEs Definition
‡ MSME stands for Micro, Small and Medium Enterprises also known as ¶Town and Village· Enterprises. ‡ Units in Small and Medium Enterprises (SME) Sector will include all units in tiny and Small Scale industrial (SSI) sector and also those industrial units whose investment in plant and machinery is up to INR 100 million. as per definition of RBI (defined in RPCD Circular No. RPCD.PLFNS.BC. 31/ 06.02.31/ 2005-06 dated August 19, 2005)

Definition of MSMEs
Type Mfg.Enterprise Service Enterprise

Micro

Up to Rs.25 lakh

Up to Rs.10 lakh

Small

Rs.25 lakh to Rs.5.0 cr. Rs.5.0 cr. to Rs.10.0 cr.

Rs.10 lakh to Rs.2.0 cr. Rs.2.0 cr. To Rs.5.0 cr.

Medium

Products of SMEs

Food products
22%

Chemical Products
36%

Basic metal industry
12%

Metal products
6% 6% 8% 10%

Electrical & machinery parts

Rubber & plastic products

Others

Features of Indian SMEs
Born out of individual initiatives & skills- Owner is manager and few employees Greater operational flexibility-Owned and operated independently Low cost of production High capacity to innovate export High employment orientation Utilization of locally available human & material resources Reduction of regional imbalances Relative small investment. Production, sales, dealings etc.

SCOPE OF SMEs 
SMEs constitutes an important segment of our national economy.  Promotes economic growth  Employment to over 42 million people  45% of total manufactured output.  40% of India·s exports.  80% of the total number of Industrial Enterprises

IMPORTANCE OF SMEs 

Provides increased employment through labour intensive process  Requires lower gestation period  Easy to setup in rural and backward area  Need small/ local market  Encourage growth of local entrepreneurship  Creates a decentralized pattern of ownership

Literature cited
‡ Books: Entrepreneurship development Small‡ Business Enterprises- Poornima Charantimath ‡ Small Scale Industries- Vasanth Desai ‡ Indian Economy- A.N. Agrawal ‡ Dynamics of entrepreneurial development and managementVasant Desai Websites: www.business.gov.in www.smallindustryindia.com www.dcmsme.gov.in www.lubindia.org/ssi/ Journals: Indian Management, Journal pf AIMA, Aug 09, vol 48, issue 8. The Analyst, Chartered Financial Analyst, June 09 SME World May- July 2007 SME World Feb- April 2008

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PROBLEMS FACED BY SMEs 
Teething troubles  Financial problems  Production problems  Marketing problems  Managerial problems  Technology problems  Infrastructure problems

PROBLEMS FACED BY SMEs 
Teething troubles: ‡ Preparation of Project report ‡ Obtaining of license ‡ Unaware of Import procedures ‡ Changing government policies

Financial problems of SMEs 
Finance through Owner s own contribution  High rates of interest on loans  Cumbersome paper work  Reluctance by Banks to give credit.  Suffers from liquidity crunch

MEASURES
‡ Priority Sector Lending policy
‡ Small Industries Development Bank of India (SIDBI) SIDBI has been set up with the mission to empower the
Micro, Small and Medium Enterprises (MSME) sector with a view to contributing to the process of economic growth, employment generation and balanced regional development. It is the principal financial institution responsible for promotion, financing and development of the sector. Apart from extending financial assistance to the sector, it coordinates the functions of institutions engaged in similar activities. The four basic objectives of SIDBI for orderly growth of industry in the small scale sector are: Financing Promotion Development Co-ordination

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MEASURES
‡ State Financial Corporations (SFCs)
At the State level, State Financial Corporations (SFCs) along with the State Industrial Development Corporations (SIDCs) are the main sources of long-term finance for the sector. State Financial Corporations, the state-level institutions have played an important role in the development of small and medium enterprises in their respective states with the main objectives of financing and promoting these enterprises for achieving balanced regional growth, catalyze investment, generate employment and widen the ownership base of industry.

Production problem of SMEs 
Non-availability of Raw materials at the right time and cost.  Forced to purchase residual or scrap material  Benefit of bulk buying does not exist  Shortage of power supply  Use of old and outdated machinery

MEASURES
‡ National Small Industries Corporation (NSIC): aims to help small scale units by financing purchase of raw material (both indigenous and imported), thus allowing them to focus on manufacturing quality products. ‡ Raw Material Assistance Scheme ‡ NSIC takes care of all the procedures, documentation & issue of Letter of credit in case of imports. ‡ SSI helped to avail Economics of Purchases like bulk purchase; cash discount etc ‡ Financial Assistance for procurement of Raw Material upto 90 days.

Marketing problem of SMEs 
Lack of Brand image 
    Lack of Sales force Product quality Credit sales Low prices Local and limited market

MEASURES
‡ Export promotion zones (EPZs): have been set up to provide an internationally competitive duty-free environment for export production at a low cost. This enables the products of EPZs to be competitive both quality and price-wise. Kandla (Gujarat), Kochi (Kerala), Noida (U.P) ‡ Export Credit Guarantee Corporation (ECGC): provides insurance cover to exporters against the risk of non-realization of export payments due to commercial and political risks involved in export on credit terms. ‡ Spices Trading Corp., Cotton Corp of India, MITCO etc

Managerial problem of SMEs 
   Lack of trained and experienced employees Inadequate training of personnel Dependence on second rate talents Promoters or owners do not possess managerial skills.  Changing labor laws

MEASURES
‡ National Institute for Micro, small and Medium Enterprises (NI-MSME):
‡ the premier institution which strives to achieve its avowed objectives through a gamut of operations ranging from training, consultancy, research and education, to extension and information services

‡ Management Training Programmes:
helps upgrading their managerial decision making capabilities and providing them an insight in the latest developments.

Technological problem of SMEs
Obtaining information about new technology Barriers to import of technology Research and development Acquiring finance for up gradation of technology Lower quality and higher cost. Difficult to attract and retain IT personnel

MEASURES
‡ ISO 9000/14001 Certification Fee Reimbursement Scheme was
introduced in order to incentivise technological upgradation, quality improvement and better environment management by the MSEs. The scheme provides incentive to those small scale/ ancillary undertaking who have acquired ISO 9000/ISO 14001/HACCP certifications.

‡ National Manufacturing Competitiveness Programme (NMCP)
Has been launched by the government in order to help MSMEs improve their competitiveness. The schemes under this Programme are aimed at addressing the technology/quality upgradation needs of the sector, mainly in the public-private partnership mode.

Infrastructure problem of SMEs
‡ Location ‡ Transportation facilities ‡ Telecommunicatio n ‡ Proximity to the market ‡ Inadequate power supply

Learning experience
The process of privatization, liberalization and globalization has affected the whole economy. It has increased the sphere of competition in national as well as international markets and has created the environment where fittest will survive and inefficient will be weeded out. Therefore the policies when implemented in letter and spirit are expected to make SMEs more competitive nationally and globally as well. Above all, it will inculcate entrepreneurial culture and generate employment for youth and

Conclusion and Suggestions 
Arrangements may be made by the government to ensure the supply of trained and professional managers for the small scale sector.  It would be necessary to consider policy initiatives to incentivize MSMEs to achieve economies of scale by expanding production.  To facilitate the MSME sector to garner resources, it is imperative that a separate trading exchange be set up exclusively for the MSMEs.  Provide special incentives for encouraging larger flow of Venture Capital & Private Equity funds into the sector.  There is an urgent need to devise measures to tackle the problem of loss of fiscal benefits when the micro and small-scale units graduate into larger units, etc.

THANK YOU