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Micro, Small & Medium Enterprises (MSME’S)
Definition:-
In Indian context, a small scale enterprise is broadly
defined in terms of the value of investment in plant & machinery.
A small scale enterprise is the one in which the investment in
fixed assets in plant and machinery, whether held on ownership
terms, on lease, or in hire purchase, is shown below……
Types Manufacturing Service
Micro Enterprises Rs. 1 Lakh to 25 Lakhs
Rs. 10 Lakhs
Small Enterprises Rs. 25 Lakhs to 5 Crores
Rs. 10 Lakhs to Rs. 2 Crores
Medium Enterprises Rs. 5 Crores to 10 Crores
Rs. 2 Crores to Rs. 5 Crores
Production output in small quantities
Informal management style
Small no. of workers & Employees
Usually present in the form of family business
Lowest possible capital investment in Plant &
Mach
Generally utilize local resources & produces
goods & services
Have lower gestation period & are easy to set
up in rural and backward areas
The units is not owned, controlled or subsidiary of any other industrial
undertakings
Characteristics of SSI
To improve the standard of living for the local
population
To stimulate growth of local entrepreneurship
To address the needs of local markets
To promote a decentralized pattern of ownership
To foster diversification of economic activities
To increase employment opportunities through labour intensive process
To introduce new products particularly to cater to the
local needs
Objectives of SSI
Why Being Small is Efficient?
Economies of scale for certain trades
Lower transaction cost in small entity
More flexibility
Innovation – often possible in small flexible units
Role of MSME’s in Economic Development
In India, MSME’s account for almost 45% of the total industrial production.
MSME’s also contributes 40% of the Exports of the country.
They manufacture over 6,000 products of the country.
The MSME’s is the second largest employer in India after agriculture.
The total jobs in the MSME’s in India goes up to 650 lakh ( Acc to 11th 5 year Plan).
It provides opportunities for development of technology.
They contributes 5 – 8% of the GDP of the country.
Government Support for MSME’s During 11th Five Years Plan (2007-2012) The 11th plan’s approach to the MSE sector marks a shift from the welfare approach
to that of empowerment. The strategy is two pronged it focuses on livelihood and
social security.
Policy initiatives are proposed to incentivize MSE’s to achieve economies of scale by
expanding production. One possibility could be to allow them to retain the benefit of
excise duty exemption up to the prescribed limit even after they graduate into MSE’s.
The MSE sector, including handlooms and handicrafts, presents an opportunity for
exports. The effort during the plan period will therefore be to organize this sector, to
create clusters of weavers/artisans to improve their bargaining power, and enable
them to pool resources.
Banks will be encouraged to ensure that all loans up to 5 lakh to MSE’s are given free
of collateral at the interest rate of 8%.
Supporting Agencies of Government For MSME’s
MSME Board
MSME Development Organization
MSME Development Institutions
MSME Technology Development Centers
MSME Testing Centers and MSME Testing Stations
MSME Tool Rooms/Tool Design Institutes
Entrepreneurship Development Institutes
National Small Industries Corporation
Small Industrial Development Bank of India (SIDBI)
Khadi & Village Industries Commission (KVIC)
For
Modernization
Productivity
Technological Needs
Skill Development & Up gradation
Adequate & Affordable assistance in Finance
Problems of Small scale industriesFinance (scarcity of capital, non availability of credit facility)
Raw Material (Poor quality, uneven supply of raw material, inadequate qty)
Technology ( not exposed to latest technology)
Idle Capacity( due to underutilization)
Infrastructure (Transport,power,communication)
Marketing (not in a position to get first hand information about the market)
Underutilization of Capacity (due to non availability of raw material, power, finance)
Skilled Manpower (Being in backward areas)
Project Planning (Lack Tech& Economical)
Managerial inadequacies like overdependence
Common Causes of Failure Choosing a business that isn't very profitable.
Inadequate cash reserves.
Failure to clearly define and understand your market, your customers, and your customers' buying habits.
Failure to price your product or service correctly.
Failure to adequately anticipate cash flow.
Failure to anticipate or react to competition, technology, or other changes in the marketplace.
Overgeneralization.
Overdependence on a single customer
Uncontrolled growth.
Believing you can do everything yourself.
Putting up with inadequate management.
PEST ANALYSIS
Political FactorsEcological/environmental issues
Current legislation home market
Future legislation
International legislation
Regulatory bodies and processes
Government policies
Government term and change
Trading policies
Funding, grants and initiatives
Home market lobbying/pressure groups
International pressure groups
Wars and conflicts
Economical Factors
Home economy trends
Overseas economies and trends
General taxation issues
Taxation specific to product/services
Seasonality/weather issues
Market and trade cycles
Specific industry factors
Market routes and distribution trends
Customer/end-user drivers
Interest and exchange rates
International trade/monetary issues
Social FactorsLifestyle trends
Demographics
Consumer attitudes and opinions
Media views
Law changes affecting social factors
Brand, company, technology image
Consumer buying patterns
Major events and influences
Buying access and trends
Ethnic/religious factors
Advertising and publicity
Ethical issues
Technological FactorsCompeting technology development
Research funding
Associated/dependent technologies
Replacement technology/solutions
Maturity of technology
Manufacturing maturity and capacity
Information and communications
Consumer buying mechanisms/technology
Technology legislation
Innovation potential
Technology access, licensing, patents
Intellectual property issues
Global communications
SWOT ANALYSIS
Strengths1 Gut feeling & Quick decision making ability 2. Equally well, execution will and power 3. Risk taking ability 4. Self motivated to earn profit 5. Creating self sustaining business model 6. Business location or product exclusivity 7. Macro level knowledge on banking, accounting, taxation, purchase etc. 8. Strong emotional bonding with self created business/ company goodwill 9. Self developed leadership values
10. Patents or proprietary goods
11. An established distribution channel
Weaknesses 1. Attitude towards marketing the business
2. Aptitude to restrict spending for long term objectives 3. Always looking at price/cost and never value 4. Diverting business profit in stocks and other to earn quick money 5. Investing capital to purchase properties and luxuries beyond business 6. To postpone things that’s not convenient & comfortable to execute 7. Ignore importance of innovation when investment in R&D is required 8. Believe marketing/branding is expense and not investment 10. Limited human resources and staff
11. High cost of production
12. Products or service similar to competitors
Opportunities
Government regulation softening
Development of new technology
Growing trend and customer base
Threats
New substitute products emerging
Price competition
Economic pressure
Sickness in SME
In common parlance , a sick industry is one which is not healthy. A healthy unit
is one which earns a reasonable return on capital employed and which builds
up reserves after providing reasonable depreciation.
According to RBI “a sick unit is one which incurs cash losses for one year and is
likely to incur cash losses for the current year as well as for the following
year”.
The Sick Industrial Companies Act 1985, defines a sick industry as “an
industrial company which has at the end of any financial year accumulated
losses equal to or exceeding its entire net worth and has also suffered from
cash losses in such financial year immediately preceding such financial year.
Criteria to identify sickness
Continuous decline in gross output compared to the previous two financial years.
Delays in repayment of institutional loan, for more than 12 months.
Erosion in the net worth to the extent of 50 per cent of the net worth during the previous accounting year.
Signals of industrial sickness
Decline in capacity utilization
Shortage of liquid funds
Inventories in excessive quantities
Irregularity in maintaining the bank accounts
Frequent break downs in plant & equipments
Decline in the quality of products
Frequent turnover of personnel
Technical deficiency
Symptoms of Industrial Sickness
Shortage of cash
Deteriorating financial ratios
Widespread use of creative accounting
Continuous decline in prices of the shares
Delay & default in the payment of statutory dues
Morale degradation of employees
Frequent request to banks & financial institutions for loans
Delay in the audit of annul accounts
Consequences
Huge financial losses to the banks & financial institutions
Loss to employment opportunities
Emergence of Industrial unrest
Adverse effect on perspective investors and entrepreneurs
Wastages of Scarce resources
Loss of revenue to government
Remedial MeasuresMonitoring and nursing the sick units during infancy
Diagnostic studies (Role of BIFR)
Incentives should be provided to professional managers helping in reviving sick units
Issuing guidelines on major aspects that affect the image of the company
Brain storm with a select group to get creative ideas for improvement
Adopt better practices, right technology, better work culture and professional management SSI can improve their health as well as the economy.
RBI guide lines…
RBI has constituted a standing coordination committee to consider issues relating to coordination between commercial banks and lending institutions.
A special cell has been set up within the rehabilitation finance division of IDBI to attend the case of sickness.
RBI has issued suitable guidelines to the banks to ensure the potentially viable sick units receive attention and timely support from banks.
RBI has clarified that units becoming sick on account of willful management, willful default should not be considered for rehabilitation.
NATIONAL MANUFACTURING ACOMPETITIVENESS PROGRAMME(NMCP)
With a view to build the capacity of the Indian Micro, Small and Medium
Manufacturing Enterprises for overcoming competition in the global
markets and facing challenges being posed by the entry of the multi-
nationals in the domestic markets, the Government of India has
announced the National Manufacturing Competitiveness Programme
(NMCP) during the budget speech 2005-06.
The objective of NMCP with can be truly regarded as ‘National Strategy
for Manufacturing’ is to ensure healthy growth of the MSME Sector. The
10 components of the Programme dealing with the firm level
competitiveness against global challenges are being implemented in the
Public Private Partnership (PPP) mode.
Sl. No Component Short Name
1 Marketing Support / Assistance to MSMEs BAR CODE
2 Support for Entrepreneurial and Managerial Development of MSMEs INCUBATOR
3 Setting up Mini Tool Room & Training Centres MTR
4 Building Awareness on Intellectual Property Rights IPR
5 National Programme for Application of Lean Manufacturing LEAN
6 Enabling Manufacturing Sector to be Competitive through Quality Management Standards and Quality Technology Tools
QMS/QTT
7 Energy Efficiency and Quality Certification Support for MSMEs ENERGY
8 Marketing Assistance for SMEs and Technology Up gradation Activities MARKETING
9 Promotion of ICT in Indian Manufacturing Sector ICT
10 Design Clinic Scheme to bring Design expertise to the Manufacturing sector
DESIGN
Assistance and Support Services for Indian SMEs
Domestic Trade, Export, Import and Business enquiries
Information on marketing strategy & investment opportunities
Business Matchmaking and Buyer-Seller Meets
Preparation of company profile, project reports & product design
Assistance and support for revival of sick units
Design, Development and Launch of products
Acquire latest technology & to set up new manufacturing units
Guidance to obtain trade & project finance and credit rating
Quality Assurance and packaging improvements to meet global standards
Guidance for upgrading skills & knowledge of entrepreneurs
Source & import quality products, machinery, equipments & hand tools, raw materials and hi-tech products
Preparation of documentation for obtaining joint ventures, technology transfer, contract manufacturing and preparation of other
business and financial documents
Indian products and services permanent display centre in various countries
Liaise with Government Departments & Agencies, Overseas Organisations
Arrange study tours & visits to factories / industrial plants / trade fairs / exhibitions in India and abroad
Arrange business / trade delegations and missions
Assistance to represent and participate in exhibitions, trade fairs, seminars and conferences
Products Of MSME’s
22%
12%
10%
8%6%
6%
36%Food Products
Chemicals
Metal Industry
Metal Products
Electrical & Machine Parts
Rubber & Plastic
Others
Year
Contribution of MSE (%) at 1999-2000 prices in
Total IndustrialProduction
Gross DomesticProduct (GDP)
1999-00 39.74 5.86
2000-01 39.71 6.04
2001-02 39.12 5.77
2002-03 38.89 5.91
2003-04 38.74 5.79
2004-05 38.62 5.84
2005-06 38.56 5.83
2006-07 38.57 5.94
Comparative Growth Rates.Year Growth Rate
of MSE Sector(%)
OverallIndustrialSector (%)
2002-03 8.68 5.70
2003-04 9.64 6.90
2004-05 10.88 8.40
2005-06 12.32 8.10
2006-07 12.60 11.5
2007-08* 13.00* 8.00