DRIEMS Business Review - Vol. -1 No.

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INNOVATIONS AND CHALLENGES IN MSME SECTOR
ABSTRACT
With India's vast cultural diversity, geographical expanse and entrepreneurial spirit, Micro,
Small and Medium Enterprises (MSMEs) have always played a vital role in the growth of
India's economy. Worldwide, MSMEs have been accepted as the engine of economic
growth and for promoting equitable development. In India they play a pivotal role in the
overall industrial economy of the country. Key factors contributing to the growth of
MSMEs are cluster development, adaption of organizational culture and better
understanding of financial aspects of the business. Formation of consortia, self support
group and affiliation to the associations has started playing important role. The major
advantage of the sector is its employment potential at low capital cost. The labour intensity
of the MSME sector is much higher than that of the large enterprises. The MSMEs are
credited with generating the highest rates of employment growth and account for a major
share of industrial production and exports. In India too, the MSMEs play a pivotal role in
the overall industrial economy of the country. In recent years the MSME sector has
consistently registered higher growth rate compared to the overall industrial sector. With
its agility and dynamism, the sector has shown admirable innovativeness and adaptability
to survive the recent economic downturn. Technology improvement, skill improvement
and access to capital and access to market are crucial factors. Healthy competition from
global player and signing WTO's treaty opening local will drive innovation to this sector.
It is time Indian MSMEs should explore global market and be competitive; Innovation
will be the buzz word in the coming years. Innovation through modern Gandhian co-
operation will definitely bring prosperity to India. The authors in this paper focus on the
contributions made by the MSME sector to the overall development of the economy. The
authors also focus on innovations in the MSME sector. The paper also focuses on the
challenges and constraints in the MSME sector.
Keywords: MSME, Innovation, Sustainability, Competitiveness
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Er. Supratim Pratihar
Assistant Professor (Marketing)
DRIEMS - Management Wing
Cuttack, Odisha
Er. Avaya K. Swain
Dean (Student Welfare) and Asst. Prof.
(Operations & Quantitative Management)
DRIEMS - Management Wing
Cuttack, Odisha
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Introduction
Indian MSMEs have a more positive outlook
towards their growth and business prospects
in contrast to most of their regional
counterparts. However MSMEs in India,
constitute more than 90 per cent of the total
number of industrial enterprises and form
the backbone of industrial development, but
suffer from the problems of sub-optimal
scale of operation and technological
obsolescence. Indian MSMEs are facing
tough competition from their global
counterparts due to liberalization, change
in manufacturing strategies, turbulent and
uncertain market scenarios and the need to
adopt certain strategies for growth. There is
also an imminent need for MSMEs to
innovate by thinking out-of-the-box and to
develop products with unique
differentiators. They also need to attract
Venture Capitalists and Private Equity
investors to get sufficient investments and
enter markets where there are not too many
players.
Innovation has always been the hallmark of
Micro, Small and Medium Enterprises.
Studies conducted by the US Department
of Commerce, revealed that since World
War II, 50% of all innovations and 95% of
radical innovations, have come from new
and smaller firms. The innovation process
is seen as a cycle involving trial and error,
where problems, at some stage of
development lead to the need for re-
evaluation of the earlier stage of the
innovation process.
Although Indian MSMEs realize the
importance of technological innovation,
most of the Indian MSMEs still believe in
importing technology, rather than
developing it in-house or through/in
association with, National Research and
Development (R&D) centers. Indian MSMEs,
over the years, have largely ignored R&D
requirements and have not embarked on
new product development or
technological up-gradation at the requisite
pace. This is despite the fact, that India
has the third largest pool of
technologically trained manpower.
The growth rate for MSMEs has always
been higher than the rate of growth of the
industrial sector as a whole. To maintain
the same momentum and to be
competitive, they will increasingly need
to learn and imbibe the process of
innovation, in their day to day working.
Objective of the study
o To find out the contributions made
by the MSME sector to the overall
development of the economy.
o To find the innovative schemes in the
MSME sector.
o To find the challenges and constraints
in the MSME sector.
Key highlights of the MSME Sector
o MSMEs account for about 45% of
India's manufacturing output.
o MSMEs account for about 40% of
India's total exports.
o The sector is projected to employ
about 73 mn people in more than 31
mn units spread across the country.
o MSMEs manufacture more than 6,000
products ranging from traditional to
high tech items.
o For FY11, total production coming
from MSME sector was projected at `
10,957.6 bn, an increase of more than
11% over the previous year.
Innovative Schemes in the MSME Sector
Driving innovation is a key challenge in
MSME sector since most of them lack in
having in-house R&D, designers and
support from skilled professionals.
Innovations and challenges...
DRIEMS Business Review - Vol. -1 No. - 1
Entrepreneurship development and training
is one of the key elements for the promotion
of micro, small and medium enterprises.
Some of the innovative schemes used in the
MSME sector are:
o Marketing Assistance Scheme
o International Cooperation Scheme
o Design clinic Scheme
Key Challenges faced by the MSME
Sector
o Lack of availability of adequate and
timely credit
o High cost of credit
o Collateral requirements
o Limited access to equity capital
A deeper analysis of the building blocks to
creating and sustaining competitive
advantage lead us to key constraints faced
by the sector which reflect the key success
factors. These are:
1. Access to finance
The present domestic market conditions do
not provide enough opportunities for the
MSME sector for raising low cost funds. To
o Procurement of raw material at a
competitive cost
o Problems of storage, designing,
packaging and product display
o Lack of access to global markets
o Inadequate infrastructure facilities,
including power, water, roads
o Low technology levels and lack of
access to modern technology
o Lack of skilled manpower for
manufacturing, services, marketing, etc
o Multiplicity of labour laws and
complicated procedures associated
with compliance of such laws
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DRIEMS Business Review - Vol. -1 No. - 1
improve the flow of credit there is a need
to provide low cost finance to the MSME
sector, which has limited working capital
and is dependent exclusively on finance
from public sector banks. The cost of credit
in the Indian MSME sector is higher than its
international peers. A transparent credit
rating system, simplification/ reduction in
documentation for accessing finance,
providing interest rate subvention to the
MSME sector must be taken into
consideration in order to maintain the
growth of the MSME sector.
2. Access to markets
To withstand the onslaught of competition
from large enterprises within and outside,
MSMEs need to respond promptly to the
evolving marketing needs and innovations.
The sector needs to be provided better
market access facilities in order to sustain
and further enhance its contribution
towards output, employment generation
and exports. A published research has
highlighted that a huge opportunity exists
for SMBs to reach their desired financial
goals by optimizing their web presence and
capabilities. It additionally pointed out that
since the majority of India's MSMEs,
especially the small businesses, generate a
large proportion of their revenue from the
local market; they still rely on traditional
media like telephone directories and
newspapers to reach their customer base.
3. Infrastructural bottlenecks
Lack of proper infrastructural facilities can
cause serious damages to an enterprise's
value chain process, like production,
consumption and distribution of the
products, Besides, lack of finance,
inadequate marketing facilities,
technological obsolescence, etc that are
being already faced by MSMEs. There is a
need for common infrastructure projects for
MSMEs. MSMEs, through coming together
and sharing the costs of infrastructure,
which are otherwise prohibitive for
individual MSMEs, could benefit from
economies of scale, synergy and collective
bargaining by collaborating with each other
particularly on aspects of common
infrastructure, common facilities, raw
material procurement, marketing &
transportation of finished goods, testing
laboratory, common tooling/ machining,
Research & Development etc.
4. Access to people
Human Resource is one of the most essential
growth indicators for organizations today.
Large firms who are targeting high growth
rates scour the market for talent and MSMEs
can never outplay large companies in terms
of salary. The other challenge faced by
MSMEs is to preserve the horizontal structure
that was prevalent when they were young.
As the organization grows, the cohesiveness
present at the start slowly starts to fade
away. MSMEs will need to ensure that they
undertake effective HR planning and ensure
that the plan supports a growth aspiration,
be geared to increasing the firm's flexibility
and responsiveness and help the company
develop its change management
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capabilities. However, there are certain
challenges faced by MSMEs in achieving the
above mentioned HR plan objectives. The
key issues would be talent attraction, talent
retention and competency & skill
development.
5. Technology and environment
The competitiveness of any economy
depends on how efficiently all the resources
in the process of production are utilized and
how efficiently these are marketed, hence
the entire chain of production has to be
efficient. This means that the process of
production has to be cost efficient and meets
quality needs of the consumers. This
improvement can come through the use of
latest technology. Though India has a vast
pool of technical talent with a well
developed intellectual infrastructure, the
country still scores low in the matter of
developing and adapting new technologies
in the MSME sector. The MSME sector today
needs an effective information system to
support and deliver information to different
users. Such information systems will be used
to provide effective interface between users
and computer technology and will also
provide information for managers on the
day-today operations of the enterprises
Conclusion
Design driven strategic planning will help
MSMEs in future to complete globally.
Incoming flood of container loads of goods
& "importing" mind set will convert to
export oriented genuine global products &
services which are performing better than
their expectations and will be affordable
and available locally. The results suggest
that perhaps the government should play a
facilitator role and improve access to
finance by encouraging more banks and
other financial institutions to enter the local
market, instead of becoming an active
player itself. The results also suggest the core
competence of the government in certain
roles, example creating a facilitating
environment such as improved connectivity
by roads, railways and airways, improved
availability of electricity and water supply.
Design plays a strategic role in overall
economy and will bring bright future in the
coming years.
References
1. Annual Reports, Ministry of Small
Scale Industries, Government of
India
2. "Ministry of Micro, Small & Medium
Enterprises, 2007: Micro, Small and
Medium Enterprises in India: An
Overview", Ministry of Micro Small
and Medium Enterprise, Government
of India
3. MSME Development Act 2006,
Ministry of MSME, Government of
India
4. Vision 2020: Implications for
MSMEs, FICCI
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