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,...

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Special Reports

Apr 2012

EMRC, 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,...

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Top Stories

SMEs to face heat of global financial meltdown

Oct 2008
The recent developments - the collapse of the US investment bank Merrill Lynch, Lehman Brothers going bankrupt and the insurance giant AIG being bailed out by a $ 85 billion package by the US Fed will change the global financial scheme forever. Doubts are now being raised over the financial policies of the world's most powerful nation. The US had been negating the murmurs of a slowdown. Now these unprecedented developments have made the cracks in the economy starkly prominent. The ripple effect will soon begin to show in the economies of other countries dependent on the US for their business. 
 
In the face of the current global financial meltdown, the small and medium sector is expected to be hit hard. Experts say that the tremors are likely to be felt by the beginning of the next quarter.
 
The SME sector has been reporting a slow down of 10-20% in the past few months. The situation is expected to escalate even further. Certain sectors are harder hit than others. The auto component companies and suppliers to the housing sector will be the worst affected. The textile sector which is highly export oriented will be another one to fall prey to market jitters. Other vulnerable sectors in the ring of fire are, power and infrastructure, aviation, software and the real estate sector. 
 
Until the financial weather was cool and amiable, several small and medium companies were brimming with aggressive expansion plans for their businesses. These unprecedented events have come in as a rude shock to the sentiments of the emerging enterprises.  Now, they will have to redesign their strategies for new projects. Those who had planned to increase capacities will find the going tough. 
 
Several SMEs especially those in the manufacturing sector, depend on foreign Direct Investment for their capital requirements. FDIs are also seen as another way of accessing latest technology. Under the financial crisis, these foreign funds are expected to dry up, thus adding to their woes.  This will in turn give a set back to product up gradation capacities of emerging enterprises. Manufacturers, at home have already been reeling under inflationary pressures. Input costs have been rising thus shrinking their profit margins.
 
 Entrepreneurs in the SME sector may as usual find it difficult to borrow from banks as the interest rates are not showing any signs of relenting. Further, they are the least preferred lending entities for banks as they are the most risk-prone segments. Those who are looking to raise funds abroad may not get attractive deals. Private equity investors are now eyeing the small industries which are exporters, mainly to the US. In a tight credit situation, the exporters to US are likely to bear the brunt of delayed payments. Companies are also predicting a fall in their valuations. Further due to slackening of demand patterns worldwide exporters may face excess of capacities in their inventories. This may compel them to sell off their products at lesser margins. 
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