Challenges Faced by MSMEs
YRSK | Published: 04-03-21
The sector contributes about 45% to manufacturing output, more than 40% of exports, over 28% of the GDP while creating employment for about 111 million people, which in terms of volume stands next to the agricultural sector.
MSME as a whole has lots of potential for growth, innovation, contribution to the economy and further job creation. Unfortunately, these enterprises also face challenges which keep threatening their survival and restrict their ability to grow.
As grave are the challenges faced by the MSME businesses, the Government of India has taken into account the hardships faced by these blossoming small size entities of the economy and has leaded a number of initiatives in this regard. However, increasing awareness among MSME businesses can only lead to higher adoption of these schemes. All the business solutions be it enhancing technical, marketing prowess or building a strong foundation of capital and quality workforce are being made available at low cost.
The key challenges faced by the sectors along with their solutions:
MSMEs has a significant contribution in Indian economic growth, yet they struggle to have access to wide markets and does not get opportunity and support to expand their market across the globe. They have not been able to scale the business for want of access across the domestic and the global market. The case continues to be so capping the growth potential. The six major problems that are faced by old and new businesses in SME sectors are
- Inadequate access to market
- Unwillingness on adoption of technology
- Limited Access to credit
- Non availability of skilled labour
- Lack of Experience of Using External Experts
- Over Reliance on Existing Clients
1) Inadequate access to market
All the businesses primarily need adequate fund and marketing backup to succeed in the competitive market. Hence, the Government has launched the Udyog Aadhar Memorandum for the smooth promotion of the MSME businesses.
It is like the Indian Aadhar Card giving identity to the MSME businesses and allowing smaller businesses smooth access to necessary services like reduced cost patency, tax rebates, and loans at low interest rates. It also helps in getting faster Government tenders to thrive in the competitive market.
Marketing support is also extended by the National Small Industries Corporation by arranging and offering a large subsidy to the small enterprises for participation in the trade fairs in India and abroad.
MSME ministry is leaving no stones unturned in their attempt to augment awareness levels among a larger population of the MSME businesses about the various Government aids. The businesses can easily use these support services to grow bigger and better and increase their market reach to national and international levels.
2) Unwillingness on Adoption of technology
Technological advancements can make or break their business. Their ability to adopt new technologies can make them more competitive, cost effective and access to market can be easier. But day to day urgencies of these businesses hinder their long term perspective. Lack of adoption will make them obsolete and existence will be under threat.
Now, the MSMEs businesses can leverage the technical support offered by the Government agencies and modernise their operations to flourish and grow into larger businesses in no time. Credit Linked Capital Subsidy for Technology Upgradation program has opened vistas for technological improvisation by offering Knowledge partners in a number of fields including Agriculture, khadi and many more at 15% capital subsidy. The technical prowess can be best employed for the application of the ZED model which implies zero defects and zero effects. The environmental concerns like the carbon credit aggregation and other pollution measures are also being taken care of.
3) Limited Access to Credit
Another significant constraint to the growth of MSMEs is lack of quality credit infrastructure. Overall credit infrastructure has various bottle necks; long sanction process, high rates, collateral requirements, and delay in disbursements. The inability to access funds at a good rate as also in a timely manner hinders the growth.
The short term cash flow constraints and monetary constraints faced in the long term are well addressed with number of schemes launched by the Government by launching the Credit Guarantee Fund Trust. (https://www.startupindia.gov.in/content/sih/en/government-schemes/cgtsme.html)Started in 2000, it has been proactive in providing credit to this credit deficient sector at a low rate of interest. This safeguards them from the clutches of the private moneylenders who outlay loans at a very high rate of interest making it difficult for the MSME to repay thereby stunting their growth.
The MSME support and outreach program is among the 12 initiatives proposed by the prime minister enabling easy loan facilities of up to 1 crore in short duration of just 59 minutes.
Now Yes Bank introduced a Yes MSME Loan scheme through which Startups and MSMEs can avail Collateral Free loan of amount Up to Rs. 5 crore.
4) Non availability of Skilled Labour
One of the perennial issues faced by the MSMEs is their inability to attract and devote quality Human Resource on growth agenda. Most of these MSMEs are often in the stage of frequent fire fighting and shortage of manpower given that they so thinly staffed. This makes it very difficult for them to allocate these resources to work on long and midterm projects.
Most of the workforce employed is either undereducated or undertrained making the lower skillsets problem more pronounced in the MSME sector. Hence, Small Industries Development Bank of India has studied and identified a number of skill gaps and also delved on the sector specific urgency requirement for the upgrading of the worker skill sets depending on the complexity of the manufacturing process and the already available manpower skills. For example, in the apparel manufacturing sector, there are many training courses made available in a number of reputed Government recognised training institutes. This include certifications and diploma courses in sewing machine operation, cutting and tailoring, knitwear designing and many more which can be availed for both worker and managerial levels.
5) Lack of Experience of Using External Experts
A good consultant or a vendor often saves time and effort. They help by way of bringing expertise and talent. However, most MSMEs largely depend on the capabilities of the founders or the core team. The common build or buy dilemma makes them feel it is better to do things in-house with their own staff. Many a times, in-house team may not have the required experience and knowledge the time, effort and costs escalate.
Technological progress is the base of economical advancement. Hence, increasing the competitiveness, export potential and innovation proficiency requires cost effective solutions and expert advice from external sources. This problem is effectively being addressed by the Design Clinic Scheme in collaboration with National Institute of Design especially for the manufacturing clusters of the MSME. They provide prompt technical and designing solutions to make the existing products of MSME sounder in terms of quality. Technology access is also made possible with the 20 hubs and 100 tool rooms in the 6000 crore package released for technological promotion of this sector by the Indian Government.
6) Over Reliance on Existing Clients:
Some of these companies once having acquired some large or key clients let the business run on autopilot. This can limit their business and ability to maximize their potential. This also results into high concentration risk as over reliance can prove disastrous if the existing clients were to move away. These businesses should always look at adding clients across sizes, geographies, industry wherever possible.
Whatever reasons, they should continuously build brand value and focus on adding new client along with the focus on retaining the existing ones. Fund constraints hamper the use of marketing channels to create a strong sales funnel.
Hence, the digital platform has provided a concrete and cost effective business set up to add more customers into the business in a comfortable way and allow the MSME sector to have a level pegging with the bigger businesses in their domain area. The marketing and trading propositions can be effectively conducted by simply opening business profiles on the social media platforms like Facebook, Instagram, Twitter handles.
The commercial value of the business also gets a boost with blogging, collection of positive customer testimonies on the business websites and other platforms which furthers the brand value through word of mouth. These marketing efforts complement the local outdoor advertisements channels like hoardings, billboards and also enhance the global outreach.