Major Challenges for MSME sector in India

Source: Apparel Resources

Indian SME, which contributes 29% to the country’s GDP and the major employer is often laid back when compared to other countries like China or Japan. Reasons are plenty, but here we list down 6 major problems that SME face that is pulling the sector down from its reaching heights.

Shortage of Skilled labour

Most of the western countries as well as eastern expect their labour to be skilled before enrolling in the Industry. Germany is known for its manufacturing sector has and demands a qualified skill certification for each person. This boosts the productivity of the industry. The major problem India faces here is unskilled labour. Unlike IT, SME does not have the resources to put their employees through rigorous training. Another major problem of unskilled labour is consistency and incapable of problem-solving ability. When the labourers seek to manager’s solution it lays back the manufacturing process every single time which in the overall estimate would slower the productivity and since the labour is not skilled s/he is highly likely to switch jobs leaving the industry without resource. China implemented the Three Year 10 Million Program to train labour with necessary occupational skills back in 1998 and today the skilled labour force has reached more than 145 million. Which allows China to be in the front row of the manufacturing sector.

Marketing

Lack of Marketing is another major problems SMEs face. Either the SME is not aware of the effects of marketing or they do not possess enough talent and tools to market their product in the right channel, to the right market. There are even possibilities of running out of resources by showcasing in the wrong market which does not fetch any business. Another challenge in the marketing SMEs face is technology and current trends. Most of the e-commerce start with social media such as Facebook or Instagram and the apps now have also added a feature for business. SMEs may have a problem by being unaware of the channels of online marketing platform which if adapted would increase their credibility and business. They might even face problems with creating content and analysing the SEO (Search Engine Operator) which now are being resolved by digital marketing firms that provide all the tools and market with the business.

Funding

The major problem faced by SME is funding, the initial capital for SME are weak and inefficient which would drive them to loan it for the higher rate of interest due to insufficient or lack of collateral. Studies reveal that 40% of the credit are from informal channels which have twice the interest rate of the formal channels. Funding otherwise is not achieved due to lack of knowledge to build a business plan which leads to failure in the capital classification of fixed and liquid assets. The improper business plan detailing the model, size, infrastructure, market size fails to leave the banks unimpressed resulting in rejection of the loan. Additionally, in order to avoid taxes, owners indulge in cash transaction which fails to add credibility to show growth in the balance sheet.

Technology

Large Manufacturers move on to IoT and new innovations of Industry 4.0 wherein SMEs fail to do so. They are primarily unaware of the trending technologies and innovation that has been in the market. Another major taboo that technology is very expensive has deeply taken root in the minds of the owners. They hence fail to see the bright side of upgrading technologically and stick to their traditional ways of production which fails to meet the customer’s demands as well as has a lesser productive output when compared to upgraded technological production. Furthermore, even if the industry wills to upgrade technological it again faces the issue of funding, insufficient knowledge of the equipment. It is a vicious cycle of problems SMEs are hung on to.

Upgrading Ownership

Most of the owners are unwilling to upgrade their ownership. Most of the SMEs are either a sole proprietorship or under Partnership. If the business upgrades itself to Corporation that would allow a lot more investors which would resolve the major problems the industries face in order to run effectively. Making a company public would also help the industry get a lot of credibility and marketing just through the word of mouth. However, the owners are quite hesitant to upgrade their ownership which would limit the cash flow and investment.

Business Development

Business Development to simply put it means creating value for the business through all branches. Developing your business in such a way that it has value in longevity, identifying the right opportunities and transforming the ideas into reality, knocking the doors off the right customers, building strong relationships. Overall to enhance business to help it run smoothly in the long run. This is a major lack of the SME as for starters, insufficient knowledge regarding the process and the value of the process. Lack of information on the environment of business, markets and the competition would in turn help in analysing the business to draw out a strategic plan for growth. This process would require a highly qualified and experienced developer which industries might fail to hire as they have various other problems like mentioned to maintain and run the business daily smoothly.

SolutionBuggy is an online platform that intends to support the MSME sector to overpower these challenges by offering knowledge services through the 6000+ experts associated with them. More than 50k MSMEs in the manufacturing sector have been benefited from this initiative in the last two years. The initiative has been acknowledged and appreciated by various organizations nationally.

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