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Meltdown dominates World SME conference

Jan 2009

These are tumultuous times; small entrepreneurs are trying to stay afloat and not be wiped away by a crisis that is engulfing the entire economy. Such is the enormity of the present financial turmoil that surviving it became the chief concern with those present at the World SME Conference.

At the very outset, concern was raised about banks deferring the disbursement of loans to SMEs, which was met with a candid admission that the mere availability of loans in itself was a saving grace.

The global financial meltdown poses a challenge to SMEs. Vijay Chandok, Head, Small Enterprises Group, ICICI Bank spoke in the panel on how to sustain growth in tight monetary markets. “There is a compelling need not only to be fast and furious but to think and strategize”, he opined. The discussion unveiled how these are unprecedented times demanding SMEs to have the in-built flexibility to survive.

While it was important to prune costs, one must retain the key people to insulate the business. The discussion also brought out the necessity to fire employees in the least painful manner. Mr. Chandok also cited the hare and the tortoise story, to explain that it is imperative for small and large companies to assist each other in achieving their targets in order to be in a mutually win-win situation.

The conference was organized by Milagrow, a venture catalyst firm dedicated to Micro, Small and Medium Enterprises. Held on 12th and 13th December in New Delhi, it was an enlightening two-day event which brought prominent speakers and international delegates to a common platform, in order to discuss and suggest survival strategies for SMEs as well as to enable the SME fraternity to tap the best knowledge available globally.

A study conducted by Milagrow on 11 clusters involving 3000 MSMEs in 4 States was released and has unveiled startling findings. Almost all MSMEs have to resort to giving credit to their customers. During recessionary times, the credit to customers extends beyond the credit period they receive from suppliers. With a reduction in demand as well as the credit crunch MSMEs are in a vulnerable state. An example can be cited from the study to reinforce the point. A majority of the responses in the clusters reveal that while the credit period for purchases in Ludhiana Hosiery Component Cluster is around 30-45 days, the credit term for sales is around 5-6 months.

In the Auto component cluster, 75% of the sales transactions took place on credit. Most of the firms depended on 4-5 large customers, who use purchasing power to delay payments. The fact that finance is also hard to come by, makes it a double whammy for the cash flows of the company.

It was also observed that while export-oriented clusters had better access to funds, for domestic businesses it was harder to acquire funds from banks. This trend, however, is expected to change in the current scenario with increasing focus on domestic businesses.

For Indian SMEs, getting skilled labour is a major issue and retaining them is an even tougher task. 76% of the firms in the Ludhiana Hosiery cluster reported an attrition rate of over 25%. Non-existence of quality certification in certain clusters affects competitiveness and sustenance. For example, in the Ludhiana Hosiery cluster and the Firozabad Glass Cluster most of the firms had not acquired any quality certifications.

Another study carried out by Milagrow about sick MSMEs and their rehabilitation was released and put forth important facts. Unavailability of capital, lack of managerial expertise and government delays were the major reasons attributed to the sickness of MSMEs. Other reasons identified for sickness were poor infrastructure as well as slow pace of technology upgradation.

In the conference, Sudha Pillai, Secretary, Ministry of Labour and Employment elucidated the advantages of introducing vocational orientation in the last few years of schooling as it would generate a more equipped workforce as well as ensure lower drop-out rates by improving motivational levels. Schools could become more relevant by imparting technical skills.

Dr. Rajiv Tandon, Founder and Chairman of Adayana, Inc, USA stated that only about three to twenty percent of college graduates are fit for employment in the industry. He remarked that our education system is not in tune with industry requirements and that there was tremendous shortage of well-trained graduates.

“Entrepreneurship without inventiveness and creativity is meaningless”, said a speaker. A few illuminating points were made such as the concern about leaking of trade secrets owing to frequent changing of jobs in the industry, and also that a financial crisis of such magnitude could induce a reluctance in consumers to splurge on goods. Issues concerning SMEs were adequately addressed in the discussions.

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