Project Management National Conference 2011 PMI India Sustaining Challenges In Managing Micro Small And Medium Enterprises Ramakrishna Kavirayani EMC2|P a g e Application of Select Tools of Psychology for Effective Project Management
Project Management National Conference 2011 PMI India Contents 1 Abstract..............................................................................................................................4 2 Introduction........................................................................................................................5 3 References........................................................................................................................133|P a g e Application of Select Tools of Psychology for Effective Project Management
1 AbstractMicro, small and medium enterprises (MSME) have been the growth engine intoday’s world characterized by low investment, operational flexibility, locationwise mobility, and import substitution. India’s vibrant micro and small enterprisesector, which thrives on entrepreneurship and innovation, plays an important rolein sustaining the economic growth contributing around 45 percent of themanufacturing output and 40 percent of the total exports of India in 2009-2010.Today’s MSMEs which are successful, shape up to become tomorrow’s largeindustries. Classification of MSMEs is looked at based on the capital investmentceilings to start the business. These play a key role in the development of acountry’s economy with their effective, efficient, flexible and innovativeentrepreneurial spirit. In this growth path, numerous challenges are encountered.The process of economic liberalization and market reforms has further exposedthese enterprises to challenges from both domestic and global competition. Themajor challenges confronting the sector are:• Technological• Managerial• Cash Flows• Raw materials & Products• Incidence of Sickness• Infrastructure• Environmental Competition• Marketing and Export• Growth Opportunities for individualsAn attempt is made here to explore the various challenges and ways toencounter the same. The best practices that could be used are highlighted.Contribution from MSMEs to the GDP has grown over the past decade. Finally amention of the task force report on MSMEs presented to the Hon’ble PrimeMinister of India is touched upon.Keywords: Challenges, Sustenance, MSME
2 IntroductionMicro, small and medium enterprises (MSMEs) play an important role incontributing to the overall industrial development of the country. These alsoinclude khadi, village as well as rural enterprises. The MSME sector accounts for45 per cent of the manufacturing sector and employs 43 million people. Studiesrevealed that the awareness levels of Government MSME policies haveincreased from 25% in 2008 to 35% in 2009, but still two-thirds of the MSMEsare not even cognizant about the MSME Development Act. The MSMEDevelopment Act came into effect from 2nd October 2006. The Policy ofReservation of Products for exclusive manufacture in SSI (now MSMEs) wasinitiated in 1967 with the objective of achieving socio-economic development,through development and promotion of small units all over the country. TheMinistry of MSME implements the National Manufacturing CompetitivenessProgramme (NMCP) to enhance the capacity of Indian MSMEs for overcomingcompetition globally and sustain challenges due to the entry of multi-nationals indomestic market. The formidable challenges so generated for them have led to anovel approach of cluster development for the sector. As a result, private andpublic sector institutions, both at the Central and State levels are increasinglyundertaking cluster development initiatives. Clustering and networking hashelped the small and medium enterprises in boosting their competitiveness. Indiahas over 400 SME clusters and about 2000 artisan clusters. MSMEs have beenthe significant contributor to the exchequer. Though this sector has been given apriority status by both the Central and the State Governments, still the MSMEscontinue to face several problems in their day-to-day operations. These are notlimited to production, marketing of their products, sell output at remunerativeprices, expense for advertising, marketing research, stiff competition from largefirms, inadequate infrastructural facilities and credit access, etc are among themajor problems. The plan outlay for the Ministry of MSME for 2010-11 was Rs.2550.00 crores. The 4th All India Census of MSMEs was completed during 2010-2011.
Literature review related to the current article:Milind Kumar Sharma and Rajat Bhagwat  analyzed the need for performancemeasurement system as a vital decision support tool at the strategicmanagement level in SMEs in the developing nations. Their study identifiedcritical issues that are important viz – PMS strategy, competitive priorities,benefits observed/perceived by effective management of PMS function andbarriers observed in implementing PMS practices that would contribute to theeffective performance measurement function in Indian SMEs. Md. Ariful Islam etal  developed a theoretical framework which covers the risk management ofthe issues that SMEs undergo in their operations that detract from their businessperformance. Their empirical investigations cover the internal and externaldisturbances that have been encountered in their daily operations. Gill Maxwellet all  investigated the incidence and impact of flexible working arrangementsin smaller businesses. Positive impacts of flexible work arrangements inrecruitment and talent retention, quality working relationships for employees,loyalty and long term engagement are found, coupled with disadvantages ofoperational problems and administrative issues. The study proposed that the gapbetween the potential for, and current practice in, flexible working arrangementscould be bridged by targeting information and guidance on such arrangementsspecifically to the smaller businesses owner-managers. Seema Sharma andMilind Sharma  have examined the relative production efficiency of state-wiseclusters in the registered small-scale sector in India. It was found that in most ofthe states operations were carried at decreasing returns to scale which signifiesthe scope for further investment and employment generation. Syed et al  studyexamines the issues, and explains how the business owners of SMEs inMalaysia strategize their operation to overcome the failure. The outcomeindicates that business success is a result of implementing a mix of business,operation and management strategies with the possible remedies,recommendations and future enhancements. Catherine  outlines the dynamicsthat businesses face during an economic crisis. Leaders play psychological andemotional roles to optimize morale and productivity during turbulent times.
Michael and Robert  explored the capabilities to sustain innovations and business success as companies transform from start-up to mature organizations. Results indicated the importance of market orientation, knowledge, management capabilities, social networks to innovation, success and sustainability. Definition for Micro, Small and Medium Enterprises in India Micro, small and medium enterprises as per MSMED Act, 2006 are defined based on their investment in plant and machinery (for manufacturing enterprise) and on equipment for enterprises providing or rendering services. The present ceilings on investment for enterprises to be classified as micro, small and medium enterprises are as follows: Classification Manufacturing enterprises service enterprises Micro Rs. 2.5 million / Rs. 25 Rs. 1 million / Rs. 10 lakh lakh (US$ 50,000) (US$ 20000) Small Rs.50 million / Rs. 5 crore Rs. 20 million / Rs 2 crore (US$ 1 million) (US$ 0.4 million) Medium Rs 100 million / Rs 10 Rs. 50 million / Rs 5 crore crore (US$ 2 million) (US$ 1 million) Enterprises in MSME sector in India 35 30 25# in millions 20 15 10 5 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Year
Employment in MSME sector in India 80 70 60# in millions 50 40 30 20 10 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Year Contribution of MSMEs (%) 60.00 50.00 40.00Percentage 30.00 20.00 10.00 0.00 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total Industrial Production Gross Domestic Product (GDP)
Investment in MSME sector 900.000 800.000 700.000Rs (1000s Crores) 600.000 500.000 400.000 300.000 200.000 100.000 0.000 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Production - Gross Output from MSME Sector 1200Value in Rs (1000 Crores) 1000 800 600 400 200 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 The major challenges confronting the sector are: • Technological • Managerial • Cash Flows • Raw materials & Products • Incidence of Sickness • Infrastructure • Environmental Competition
• Marketing and Export• Growth Opportunities for individualsAn elaboration on the challenges and ways to overcome them is dealt hereunder.Technological: Retention of trained and experienced employees is a hurdle forsmall enterprises as they cannot bear high salaries and spend much on learningand development skills for their employees. Recruiting and motivating skilledpersonnel – both technical and managerial - is difficult for small organizations.Expertise in a niche area demands more cost and hence it has been observedthat skilled personnel move to large scale industries. Prime problems that smallbusinesses encounter in sourcing technology are: obtaining information abouttechnology, actual procurement of technology, acquiring finance for technologyupgradation. MSMEs need to look out for creativity and innovation in producingproducts of high quality with the latest technology available currently. Researchand development focus will enhance patents contribution and higher revenues.Managerial: Small scale businesses are run predominantly by families which lackrequired skills for managing the enterprises efficiently. Lack of work distributionand advantages of specialized skills are not available. Reluctance to adoption ofmodern art of organization and management hinders growth and scalability.These issues could be limited to a large extent by: management trainingprogrammes, training and consultancy, research and development, implementingmanagement methodologies for effective owner-employee relationships, etc.Cash Flows: Finance is vital for any enterprise to meet the fixed and workingcapital needs. MSMEs need credit support not only for running the enterpriseand operational requirements but also for diversification,modernization/upgradation of facilities, capacity expansion, etc. Prime challengeobserved is inadequate access to credit which gives operational leverage forMSMEs.Raw Materials & Products: Timely-availability of quality raw materials in anadequate quantity is one of the main problems faced by MSMEs. They do not getthe benefits of bulk buying. For instance, the handloom industry faces shortageof yarn. Small scale industries also face shortage of power due to which they areunable to make full utilization of plant capacity. Majority of them cannot afford toinstall their own power generating plants to ensure uninterrupted operations.Raw Material Assistance Scheme of NSIC aims at helping small scale industriesby way of financing the purchase of raw material (both indigenous & imported).This gives an opportunity to MSMEs to focus better on manufacturing qualityproducts. NSIC takes care of all the procedures, documentation & issue of letterof credit in case of imports.Incidence of Sickness: Most of the times financial problems (credit availability,non-timely receipt of payments, funds availability for expansion, etc) lead to
closure of MSME units. This could be nullified to a greater extent by properplanning, devising ways to understand the business strategies, etc.Infrastructure: Adequate infrastructure facilities prove to be conducive for theoverall development across sectors of the economy. Due to liberalization andglobalization, its relevance for the proper growth of MSMEs cannot beundermined. State and Central Governments have been taking constructivesteps for the same. Still there exist infrastructural bottlenecks, which restrict theirday-to-day business operations as well as their potential growth prospects.Transportation facilities, well connected telecommunication channels, adequatepower supply, etc can help the businesses overcome infrastructural problems toa great extent.Environmental Competition: MSMEs face stiff competition from large scalebusinesses due to the distribution network. Enterprises that have goodwill in themarket or have intellectual property rights/ standardization for their products orproduce large range of products, etc., are more likely to dominate the businessenvironment. Small and medium scale enterprises mainly deal in one specializedline of products, have very small production and distribution network, andgenerally have no protection for their products. As a result, in spite of havinguseful and good quality products or having products similar to those produced bylarge scale firms, they are largely not able to create/ hold demand for theirproducts and tend to lose customers to large scale enterprises owing to cut-throat competition.Marketing & Export: MSMEs often have to face difficulties in the marketing anddistribution of their products as most of them do not have their own marketingnetwork. Selling the output at remunerative prices is a hurdle due to higherproduction cost and non-standardized product quality. Spending on advertising,sales, promotion, marketing research, etc is also limited. This might result inselling their products at lesser prices due to weak bargaining power and financialproblems/crunch. Stiff competition from large firms is threat as well. Due to thestiff competition from the products and sales/ marketing strategies of large scalefirms entrepreneurs, at times, MSMEs find it very difficult to cope with largebusinesses in terms of cost, quality, standards, popularity, meeting ever-changing demands/ preferences of consumers, etc. Since small and mediumscale enterprises are the most significant contributor in the field of Indiasexports, they need to be innovative and strategize in devising ways to overcomethe issues observed above. E.g. they need to be aware of all the steps involvedin the process, like, registration of exporters; selection of export market andbuyers; receipt of enquiries, letter of intent, letter of credit, bill of lading, etc;insurance coverage; obtaining shipping order; certificate of origin; sendingdocuments to importers; etc.Individuals Growth: MSMEs to a greater extent operate closely within familyhouses. This curtails growth for talented individuals who tread the path ofentrepreneurship when they continue to exist in the smaller businesses. To retaintalent and contain attrition, enterprises need to invest in innovation and creativity
uplevelling. IP Patenting is one form to look at. To an extent the various institutesthat offer the Entrepreneurship programmes help kick start the thought processamongst the younger generation.The Task Force on Micro, Small and Medium Enterprises setup in August 2009presented their report to the Hon’ble Prime Minister of India on 30th January,2010 which dealt with the roadmap for the development and promotion ofMSMEs. Relief and incentives to the MSMEs were recommended post the recenteconomic slowdown; institutional changes and detailed programmes that need tobe completed; setting up of legal and regulatory structures to create a goodenvironment for entrepreneurship, innovation and growth of MSMEs in thecountry were elaborated.The recommendations cover major areas that include: 1. Credit 2. Marketing 3. Labor, rehabilitation and exit policy, 4. Infrastructure, 5. Technology and skill development 6. Taxation
A copy of the “Report on Task Force on MSMEs’ being presented to Hon’blePrime Minister on 30th January, 2010 by Shri T.K.A. Nair, Principal Secretary toPrime Minister. Also seen in the picture are Shri Dinsha Patel, Hon’ble MOS (I/C)MSME, and Shri Dinesh Rai, Secretary (MSME).3 References1. MSME Annual Report 2010-2011, published by GOI, Ministry of Micro, Small and Medium Enterprises.2. Performance measurement system: case studies from SMEs in India Milind Kumar Sharma, Rajat Bhagwat - Int. J. of Productivity and Quality Management 2007 - Vol. 2, No.4 pp. 475 – 509.3. Managing operational risks in Small- and Medium-sized Enterprises (SMEs) engaged in manufacturing – an integrated approach Md. Ariful Islam, J.D. Tedford, E. Haemmerle - Int. J. of Technology, Policy and Management 2008 - Vol. 8, No.4 pp. 420 – 441.4. The incidence and impact of flexible working arrangements in smaller businesses Gill Maxwell, Laura Rankine, Sheena Bell, Anna MacVicar - Employee Relations, Vol. 29 Issue: 2, pp.138 – 161.5. Seema Sharma, Milind Sharma, "Analyzing the technical and scale efficiency of small industries in India: state-wise cluster study", Measuring Business Excellence, Vol. 14 Issue: 2, pp.54 - 65.6. Business challenges and strategies for development of Small- and Medium- sized Enterprises (SMEs) in Malaysia, Syed Zamberi Ahmad, Nazatul Shima Abdul Rani, Siti Kasmah Mohd Kassim, International Journal of Business Competition and Growth 2010 - Vol. 1, No.2 pp. 177 – 197.7. Sandler, Catherine, The psychological role of the leader in turbulent times, Strategic HR Review, Volume 8, Number 3, 2009 , pp. 30-35(6).
8. Lewrick, Michael; Raeside, Robert, Transformation and change process in innovation models: start-up and mature companies. International Journal of Business Innovation and Research, Volume 4, Number 6, 3 October 2010, pp. 515-534(20).9. Outcome Budget 2010-2011 Ministry of MSME, Government of India.