INDIAN SMEs GLOBAL COMPETITIVENESS by iaemedu

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									International Journal of Management (IJM), (IJM)
International Journal of Management ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online), Volume
2, Issue 2, May- July (2011), pp. 01-06
ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online)                            IJM
Volume 2, Issue 2, May- July (2011), pp. 01-06
© IAEME, http://www.iaeme.com/ijm.html                               ©IAEME


               INDIAN SMEs GLOBAL COMPETITIVENESS

Prof. K. Sambasiva Rao, Dept. of Commerce & Management Studies, Andhra
University, Vizag, A.P., India, E-mail: profksrao@rediffmail.com
Mr. K. Phani Kumar, Asst. Professor, School of Management Studies, Vignan
University, Guntur, A.P., India.E-mail: katuri.phanikumar@gmail.com
Ms. K. Kalpana, Asst. Professor, School of Management Studies, Vignan University,
Guntur, A.P., India.E-mail: kalpana_koneru@yahoo.co.uk
Ms. Ch. Hymavathi, Asst. Professor, School of Management Studies, Vignan
University, Guntur, A.P., India.E-mail: hyma.chunduri@gmail.com




Abstract
Global competitiveness is considered by all countries to be a perquisite for maintaining high
levels of income and employment. Small and Medium Enterprises (SMEs) play a predominant
role in most developed and developing economies not only because of their number and variety
but also due to their involvement in all segments of the economy. As a result, SMEs are now
exposed to greater oppournities for expansion and diversification across the sectors. The new
economic world order has opened up several opportunities for discerning SMEs to expand its
business beyond the national borders. The most formidable problem gripping the SMEs has been
in accessing technology and maintaining competitiveness. The clear thrust of the recent policy
initiative ness has been three fold: enhance competitiveness through encouraging an innovative
ethos amongst firms and being quality conscious, increase links with multiple stakeholders with a
view to benefit from networks both nationally and globally. Today competitiveness matters much
more than in the past. The promotion of inter firm linkages is another issue deserving more
recognition. This paper focus on understanding the competitiveness and other key success factors
that ensure the survival of SMEs through sustained innovation in the highly demanding global
business environment. The SMEs in the country also acknowledge the power of technology and
are all set to leverage it to their advantage. We have seen small and medium entrepreneurs
developing their dream projects by effective use of technology. Indian SMEs are increasingly
waking up to the realization that technology is going to play a crucial role in the sustainable
development - a key factor in staying competitive in a fast paced global scenario.

Key words: Global competition, SMEs, Fixed investment, Macro-economic reforms,
Globalization, Deregulation




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International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online), Volume
2, Issue 2, May- July (2011), pp. 01-06


INDIAN SMEs GLOBAL COMPETITIVENESS

Introduction

Gandhiji once said, the poor of the world cannot be helped by mass production; it can be achieved
only through production by the masses. If large number of producers were to exist for wider
markets, the entities that produce should necessarily be small. The focus of this paper is involved
in making the Small and Medium Scale Enterprises (SMEs) sector in India more competitive in
the changing global environment. Global competitiveness is considered by all countries to be a
prerequisite for maintaining high levels of income, employment and sustainable growth. Greater
competitiveness allows to diversify from a traditional commodity exports and move up the skills,
technology ladder and permit greater economies of scale in production. Competitiveness is not
only dependent on macroeconomic parameters and adjustments or natural endowments but also
on the ability to achieve high productivity by effectively utilizing the factors of production.
Transiting on the high road to competitiveness, firms both large and small in developing countries
have to build and continuously enhance endogenous capabilities. These capabilities can be
applied to add value to existing activities and to compete in the global competitiveness.
Understanding the global competitiveness and related success factors are ensure the survival of
SMEs through sustained innovation in the highly demanding global business environment. In
order to enhancing the global competitiveness, SMEs are meeting the ever growing challenges in
the international trade arena. These are big numbers, with the latent potential to grow bigger, and
signify one thing clearly: the SME sector can play a crucial role in the economic growth of India.
On the other hand though, globalization is increasing and with the world economy going through
an almost tectonic shift, competition is more vigorous than ever. To succeed in a competitive
environment and to achieve its potential, the manufacturing sector realizes it will have to adopt
some best practices and embrace some new age tools. One of the key differentiators can be
Information Technology - and its adoption by Indian SMEs.
The SMEs in the country also acknowledge the power of technology and are all set to leverage it
to their advantage. We have seen small and medium entrepreneurs developing their dream
projects by effective use of technology. Indian SMEs are increasingly waking up to the
realization that technology is going to play a crucial role in the sustainable development - a key
factor in staying competitive in a fast paced global scenario.

SMEs growth in India

SMEs play a major role in world economies not only because of their number and variety but also
due to their involvement in all segments of the economy. SMEs play a vital role for the growth of
Indian economy by contributing 48 percent of industrial output, 41 percent of exports, employing
65.9 million people, creating 2 million jobs and produce more than 8560 quality products for the
Indian and international markets. The new economic world order has opened up several
opportunities for discerning SMEs to expand its business beyond the national borders. The
Government has taken several initiatives and measures for enhancing the competitiveness of
SMEs in the present global environment. The most important among them is the enactment of the
‘Micro, Small and Medium Enterprises Development Act, 2006’, which aims to facilitate the
promotion and development and enhance the competitiveness of SMEs. For enhancing the
competitiveness of the Indian manufacturing sector, the Government has launched the National
Manufacturing Competitiveness Programme (NMCP). The NMCP is the nodal programme of the
Government of India to develop global competitiveness among Indian SMEs


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International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online), Volume
2, Issue 2, May- July (2011), pp. 01-06


                             SMEs performance growth rate table

         Year       Total no.    Employment    Fixed      Production         Exports
                    of SMEs       (Lakhs)   investme       based on          (crores)
                    (Lakhs)                      nt      current prices
                                             (Crores)       (crores)
       1999-00    97.15           229.10     1,39,982       2,33,760          54,200
       2000-01    101.1           238.73     1,46,845       2,61,297          69,797
       2001-02   105.21           249.33     1,54,349       2,82,270          71,244
       2002-03   109.49           260.21     1,62,317       3,14,850          86,013
       2003-04   113.95           271.42     1,70,219       3,64,547          97,644
       2004-05   118.59           282.57     1,78,699       4,29,769         1,24,417
       2005-06   123.42           294.91     1,88,133       4,97,842         1,50,242
       2006-07   261.01           594.61     5,00,758       7,09,398         1,82,538
       2007-08   272.79           626.34     5,58,190       7,90,759         2,02,017
       2008-09   285.16           659.35     6,21,753       8,80,805         2,35,586
Source: - www.msme.gov.in,http://www.techsmall.com, Economic survey of India 2008-09

The special attention received by SMEs sector has contributed to its rapid growth. The small-
scale sector in India, which includes the modern sunrise small scale tiny and traditional village
industries, has through the last one decade displayed exceptional growth in terms of number of
units, fixed investment, production, employment and exports. The development of SMEs sector is
entirely dependent on the initiatives taken by the government and entrepreneurs. The above table
reveals the growth of SMEs sector since 1999-00 to 2008-09.

Graphical presentation -1

                    Growth rate of no of SMEs and Employment generation

     700
     600
     s
     h
     k
     500
     a
     L
     400
     n
     i                                                                                       total no of
     r
     300                                                                                     SMEs
     e
     b
     200
     m
     u
     N
     100
        0
            1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
             00    01    02    03    04    05    06    07    08    09
                                            Years




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International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online), Volume
2, Issue 2, May- July (2011), pp. 01-06

As the government took up new regulations in the year 2006 there is a raid growth in the total no
of SMEs and employment generation. When compared to the last decade there is almost 210%
increase in the no. of SMEs and 190% increase in the employment generation.

Graphical presentation-2


                                        Performance of SMEs
 e
 u
 l
 a       1000000
 v        900000
 s
 t
 r        800000
 o
 p        700000                                                                                Fixed
 x
 E
 , s      600000                                                                                investment
 n e      500000
 o
 i r                                                                                            Production
 t o      400000
 c r
 u C      300000
 d n
 o i
 r        200000
 P
 ,        100000
 t
 n             0
 e
 m
 t                 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
 s
 e
 v                  00    01    02    03    04    05    06    07    08    09
 n
 I                                            Years



There is a gradual increase in the exports from 1999 to2009. As per the data, investments and
production is increasing proportionately, fixed investment is increasing at a very slow pace. In the
year 2006-07 there is a sudden increase in the investment as the government took up new
regulations on SMEs. Finally the performance of the SMEs when compared to the last decade has
been almost tripled.

SMEs global competitiveness

SMEs are the largest industry worldwide in terms of employment and share of global GDP.
SME’s Contribution towards GDP in 2009 was 17%, which is expected to increase to 22% by
2012. There are 26.1 million MSME Units in India and 12 million persons are expected to join
the workforce in the next 3 years. There are about 28.5 million SMEs in India today, contributing
about 16% to GDP but due to lack of enough attention and support given to them, they are in a
state of misery. Government has to be proactive in recognizing this huge opportunity, which
remains untapped. SMEs play an important role in job creation in the economies of Africa,
Middle East, Latin America, Asia – Pacific, North America and Europe, where they contribute
over 70 percent of employment. In Asia-Pacific SMEs are key creators of employment
opportunities and also have the potential to become a powerful engine of manufactured export
growth. Recognizing the positive contribution that SMEs could make to the overall economic
growth in several developed and developing countries, WTO has to take necessary steps in
developing SMEs.




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International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online), Volume
2, Issue 2, May- July (2011), pp. 01-06

                       Global comparative data of SMEs by region wise

                                       Growth rate of      Growth rate of        Growth rate of
                       Region
                                        SMEs in %         employment in %         exports in %
                        Africa               2%                   4%                   1.8%
                     Middle East             4%                   6%                    3%
                    Latin America            7%                   5%                    4%
                     Asia pacific           12%                   8%                    6%
                   North America             18%                  12%                   9%
                      Europe                 15%                  10%                   8%

   Source: - world bank reports, International trade center, European economic forecast Autumn
   2009 statistical annex, SMEs world, NSIC 2010.

In Africa and Middle East there is more increase in the growth rate of employment than growth
rate in SMEs. But in other areas there is more increase in growth rate of SMEs when compared to
growth rate in employment and exports.

According to the above table SMEs, which locates in Asia pacific region, give the sustainable
global competition to the developed regions. Particularly India, China, Japan and Korea play a
key role in Asia pacific global trade region. In developing countries like India, making the SMEs
more export competitive is particularly emphasizing on trade liberalization and deregulation.
Nevertheless with their dynamism, flexibility and innovative drive they are increasingly focusing
on improved production methods, preventive marketing strategies and management capabilities to
sustain and strengthen their operations. According to the global competitiveness report, 2010
China, India, South Korea have been ranked first, second and third respectively. Perhaps India
will gain an even stronger foothold over the next ten years with the country’s all abilities.
Conclusion
In a global economic environment characterized by trade liberalization, rapidly changing
technology, growing and changing demand for higher quality and differentiated intermediate and
financial products and services that meet a variety of stringent international standards. But
traditional SMEs find it difficult to make the upgrades they need to stay competitiveness in both
domestic and international markets. Competitive excellence is a key requirement for the small
sector but it cannot be achieved unless we realistically assess the needs, issues and concerns of
SME environment in the contemporary context. The problems faced by the sector are of multiple
types based on their size, structure and area of operations. The good news is that our government
has included small sector development as one of important pillars of national growth agenda but
relevant macroeconomic reforms and commitments’ need to be seriously implemented so that a
vibrant and dynamic environment for overall growth and transformation of this sector is seen.
Review of the implementation of new trusts areas, government changing the policies and
announcing the huge subsidies – financial aids in recent years will enhance the global
competition. Formation of alliances, clusters and global associations and financial-technical tie
ups will maximize the growth potential of SMEs in the country. India need a sustained effort in
creation and development of a series of capacity building schemes for enhancing the
competitiveness of the SMEs through rigorous sensitization, mentoring, awareness, education and
skill building training sessions.


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International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 – 6510(Online), Volume
2, Issue 2, May- July (2011), pp. 01-06

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