Is the SME Sector in India Still Stuck in 1.0 Mode?

By R. Narayan

Change and growth always come with some pain. And this is just what the Small and Medium Enterprise (SME) sector in India is going through at the moment – the growing pains of transition towards a brighter future. Driving 8 to 9 percent of India’s GDP, the SME sector employs 41 million people and is the biggest direct and indirect employer in the country.

Yet, this sector is currently at a crucial crossroads where it could either be the biggest business story in recent times or the biggest story of a potential that was never fully realized. What headlines the SME sector generates in the future, is a decision or an outcome that will affect the livelihood of millions of people and affect one of the most important catalyst for economic growth in the country.

Worldwide, the SME sector is the lifeblood of an economy and the symbol of proud entrepreneurial spirit. In India too, the sector contributes to 40 percent of the total manufacturing output across a wide range of sectors such as Polymers, Chemicals and Additives, Auto component OEMs and Paints. Spread all over India, these small and medium sized enterprises play a key role in creating jobs in pockets and areas that are ignored by larger firms.

But at the moment the small and medium size business in India can hardly breathe, choked by not having enough capital to grow, high procurement costs, inefficient operational systems and limited focus on technology. Due to this, the sector is not seen as a driver of India’s economic growth story, in spite of its high contribution to industrial output.

One of the ways that the SME sector can really free up both capital and improve profit is by negotiating better prices for the raw material they need to manufacture their products. Online platforms like Power2SME that help companies find the best price for what they need and support the entire operational demand and supply chain through bulk procurements are solutions that will  prove crucial to helping the SME sector to really grow .

How do online buying clubs like Power2SME help companies? And here I would like to clarify that I am not talking about E Commerce, but an online industry specific solution to a specific business need: procuring the best price for raw material, without the advantages of being a large company with a big order book.

This also means that companies are not forced to follow a business model that is dictated and decided by the availability of raw materials and supply chains; these results in companies being confined to geographical regions where the distribution chain works best – preventing real growth.

Innovation like this is what the industry needs to thrive. This not only improves the bottom-line as reduced costs lead to better profits that in turn stimulate the economy, but also uses technology to do several crucial things.

Because procurement is made online, the company which uses an online buying club is able to track its order 24X7, access multiple vendors at a cheaper rate in one place at flexible payment terms and capture and generate crucial business information about what it needs.

Solving the procurement problem will also help to free up people within the SME sector to look at other key challenges within the sector. One of the biggest such issues is the lack of enough capital to grow.

The cost of money is expensive in an economy that is already facing high interest rates with inflation rates still not dropping enough for the banking sector to cut rates; being able to access an integrated supply chain with the advantages of lower prices will take the pressure of companies to both sustain profits as well as find the cash to expand and grow.

The challenges facing the sector can be turned into opportunities by thinking of ways to break free from the constraints and jumpstart growth.  Exposure to online solutions will also support the industry to fight another issue, the lack of focus on technology within the SME sector.

Companies are often unable to look at expensive tech solutions that would be necessary to keep updated and improve the process of manufacturing.  Through the process of simplifying the systems, companies will not only have more cash to upgrade but also have access to rich business data that will help them target focused tech solutions.

In a flat global economy, the SME sector with its strong manufacturing base and entrepreneurial spirit needs to be efficient, modern and quick to respond.  Supporting the SME sector in India to remove its barriers to growth would also enable companies in this sector to be able to compete internationally, which is not possible without efficient operations and updated technology.

If the SME sector has to step out and take its place under the sun, it must be supported to solve its challenges of shortage of finance, better demand and supply chains and using technology as a driver to grow.

Only then, will the SME sector in India come out of its 1.0 mode and enter its new avatar of SME India 2.0.

* * *

In this article written exclusively for RMN Digital, R. Narayan (pictured above), Founder & CEO, Power2sme, offers his opinion on the growth challenges in India’s SME sector and suggests solutions for improving inefficient operations and creating greater profits.

A qualified Cost Accountant, Narayan has over 24 years of general management and sales & marketing experience. Earlier, he was the founder and CEO of Denave, India’s leading technology-powered sales enabling services company. Prior to founding Denave, Narayan worked for Microsoft India, where he managed SME segment and distribution business of the company. He has also worked with companies like Oracle and Tata Unisys.

This article is published under the RMN Digital’s “Thought Leaders” series in which top tech market leaders of the world express their views on different burning issues and market trends.

[ Also Visit: RMN Digital’s Tech-Wise Knowledge Center for SMBs ]