Editorials
by Rajen Kumar
No Escaping Social Media
Running a magazine concentrating on issues of small and medium enterprises and managing with limited resources is a like living life on the edge. In this rush of meeting deadlines,...
More
Special Reports
Apr 2012EMRC, Brussels Associates with SME WORLD as its New Media Partner
EMRC has promoted business partnerships with the developing world and has organised dozens of business forums in key decision-making cities, such as Amsterdam, Rome,...
More
Special Reports
What Ails Clusters in India?
Rasika Gokhale Athawale
Jun 2009
Jun 2009
A cluster is basically a local agglomeration of enterprises encountering common opportunities and hurdles. The enterprises produce and sell a range of related and complementary products and services. Clusters mainly consist of SMEs but often also include some large enterprises. In other words, clusters are characterized by sectoral and geographical concentration of enterprises.
With firms located in close proximity to each other there is the opportunity to reap the benefits arising out of joint efforts and shared vision of the future. Efforts made collectively viewing the cluster as a whole can give the cluster a competitive edge.
An example of a cluster can be localized knitwear and garment industry comprising knitting firms, cloth-finishing, dyeing and printing units, garment producers, merchant buyers and others located within a small geographical area.
According to a UNIDO survey of Indian SSI clusters undertaken a few years ago, there are 350 SSI clusters and approximately 2000 rural and artisan based clusters in India. It is estimated that these clusters contribute 60% of the manufactured exports from India. Among the prominent ones is the cluster at Panipat accounting for 75% of the total blankets produced in the country. Tirupur accounts for 80% of the country's cotton hosiery exports.
The internationally known cluster of Bangalore, operating in the software sector is also worth mentioning. Presence of talented, well-educated and comparatively cheap workforce is what gives India a competitive edge in the IT sector. There is tough competition among small and medium-sized companies that further improves performance and contributes to the success of the IT cluster. From simply being a place where IT tasks were writing applications India has evolved into a suitable destination for producing high value-added products like software and other IT related products. Bangalore, considered to be India's Silicon Valley, provides talented, well-educated manpower.
The paper 'General Review study of small and medium enterprise (SME) clusters in India' (source: UNIDO) gives classifications of clusters that can enhance one's knowledge about them.
Clusters can be categorized on the basis of stages of development. In the initial phases of development there are only a few industries and their success encourages other units to emerge. The enterprises spring up due to a variety of factors, both natural and induced. While natural factors consist of presence of high demand as well as private initiative, other induced clusters can come up due to policy incentives, availability of infrastructure and a large public undertaking as a buyer.
The availability of skilled workforce as well as critical raw material also creates favourable conditions for emergence of enterprises. It has been seen that large corporations invest huge sums of money in development of prototypes which are then produced abundantly for the masses by SME value chains that are labour-intensive and involve job workers.
In the 'growth' phase new firms swiftly emerge and thus enhance competition. It is characterized by rapid development of the industry, intervention by support institutions including government institutions and consolidation of other raw material and service providers. In the spheres of marketing and management innovative means are likely to be developed. Increased competition provides impetus for technology development and expansion into new markets. The widening of national and international markets that the cluster caters to boosts growth.
Impediments
The 'maturity' phase witnesses slowing down of the growth of the sector owing to over capacity generally created in the cluster resulting in very stiff competition amongst the units. Strong inputs of research and development are needed for reducing costs and increasing productivity in order withstand and stay ahead in the competition. As a natural consequence, weak units begin to get wiped away paving the way for healthier ones.
Indian clusters face impediments like technological obsolescence, relatively poor product quality, insufficient information, poor market linkages, inadequate management systems, power shortage and a host of other problems. As a result of liberalization, Indian SMEs including the competitive ones have to deal with pressures from the international markets.
UNIDO's intervention aimed at reviving the performance of the cluster in Jaipur unveiled significant findings. The study conducted by UNIDO in 1997 identified an untapped potential for the traditional artisans in the cluster that could target profitable national and world markets. It was found that lack of linkages among the different cluster actors, the absence of an active association, inadequate quality control capacity of the entrepreneurs as well as inadequate access to credit were some of the issues needing immediate attention. Lack of innovation and bickering among various actors in the industry were other attributes of the cluster.
The slowdown has prompted the enterprises to prune costs leading layoffs in the IT sector. In addition, the downturn has led companies to cut back spending on research and development thereby widening the technological gap with world leading IT companies.
Community Identity
Making a difference in the way firms, institutions, government authorities, NGOs connect with each other would create a more conducive environment for carrying out business. Indirect factors such as instilling a culture of cooperation, reviving a local community identity, the emergence of community leaders, improvement in the quality of work as well as the life of the smallest member firms, the links and relationships established with institutions and other factors need to be considered while measuring the success of a project on cluster development.
Rampant corruption also poses a threat to the success of clusters. When it comes to cluster intervention promoting collective efficiency is paramount. Once efficiently organized, SMEs have proven to be innovative and shown their ability to compete successfully at international level.
India abounds in clusters which greatly contribute to employment creation. Harnessing the potential of SMEs can help in mitigating poverty and joblessness. SMEs dot the landscape and contribute 25% to country's growth thereby needing prompt attention.
Laying emphasis on the whole business system and not on individual enterprises would be of great help. When relations between enterprises as well as those between enterprises and institutions become efficient, it enables firms to gain a competitive edge and flourish, which is not possible in isolation as small individual firms.
Indian Scenario
Associating large-sector enterprises along with the SMEs can be fruitful when it comes to intervention in a cluster. If the product offered is viable for manufacturing and marketing in the prevailing business environment, then there are chances of having a successful cluster. In the Indian scenario where infrastructure and provision of finance is still largely provided and regulated through the government or its institutions, the involvement of such institutions will not only be necessary but also has to be innovative to cater to the specific needs.
The shaping of a joint entrepreneurial vision involving the entire business system comprising the firms, their suppliers, buyers and others as well as implementing the vision through common development projects such as joint purchase of raw material, joint marketing and development of new products can make a marked difference and help them grow collectively.
0 Comments >>
Our Achievements
- Winner of appreciation award for promoting SMEs in India.
- 1st ever Indian magazine to penetrate tier II, III cities & the rural belt.
- Industry Partnerships include CII, FICCI, ASSOCHAM, PHDCC, AIMA, ITPO, SME Network, Federation of Indian Micro Small Enterprises (FISME)
- Official Magazine Partners for several national & international MSME events.
More
The Last Word
More Learned than Educated, You were!
I was speechless. Rather hesitatingly I asked him, “So, what have you decided, Sominder ?” His reply was curt and candid, “I have told the doctors that I don’t want to live life as dumb. Only...
More
Contribute
You can also write for SME WORLD
We are looking for writers and experts to contribute original stories and articles. Send an email to smeworld@gmail.com with your story idea and lets get talking.
Some of our valued contributors are...