Indian SMEs to look for potential opportunities in Engineering Supply Chain in manufacturing and Exports

India’s micro, small and medium enterprises (MSME) sector which is recognised as the sunshine sector in the nation’s economy contributing to 27% of the national GDP, 45% of the manufacturing output and 40% of the exports is being considered as the growth engine of the economy. A recent joint study report by ASSOCHAM and CRISIL titled, 'MSMEs back to the grind'’ echoes a similar sentiment. “Amidst the global pandemic, India has found its innate strength to brave the storm and focus on developing its domestic ecosystem, to support both the Indian and the global markets," as reiterated by Mr. Deepak Sood, Secretary General of ASSOCHAM.

The MSME resurgence was set on roll exactly a year back with the signing of the Enhanced Trade Partnership between UK and India, the 5th and 6th largest global economies respectively. ETP promised to open up huge bilateral cooperation opportunities with fresh trade and investment boost of £1bn leading to make-in-India, employment generation and driving sustainable development goals with the ‘2030 roadmap’. But the covid second wave mid last year (2021) slowed down the economy to a great extent.  It’s indeed a positive sign that economic pundits are once again predicting the MSMEs to rebound with a 15 – 17% growth in revenues for the FY 2022, with a significant increase in consumer demand as highlighted in the ASSOCHAM – CRISIL report.

|| Potential Sectors ||

Under these challenging times the large segments of MSMEs in India offer a silver lining in creating potential opportunities in sectors like :-

     Supply chain components manufacturing

     Railway equipments

     Foundry products

     Speciality chemicals

     Electrical and electronics

     Renewable energy (Solar and Wind)

     Defence and aerospace

     Light engineering

The key opportunities as reflected are predominantly in areas of knock down component fabrication of large equipment manufacturers in mining, defence and aerospace, railways, mechanical accessories, Solar PV panels, and machineries for warehousing and terminal berths as part of “Make in India” drive of the Government.

The collaboration way forward to grow together with the international partners are joint ventures, manufactured product buy-back, technology transfer and supply chain manufacturing.

Covid pandemic have taught the traditional brick-and-mortar companies, which constitutes the bulk of MSMEs in India the importance of three newer domains of Digitalisation (adopting digital platforms and enterprise automation), Datafication (data visualization and analytics for decision making) and Green Economy (moving towards new age green technologies). Companies who were agile and adoptive to innovate and ‘think out of box’ and turn challenges into opportunities, did survive and sustain during the trying times.

|| New Challenges Faced ||

Now the challenges industry faced are :

i. The digital divide – This pandemic has aggravated the effects of digital inequality, with inadequate or lack of access to the internet proving to be a formidable obstacle to availing services and engagement online like e-banking, e-tailing and work from home along with webinars and e-meetings. It also becomes a barrier to progress in many related sub-sectors which are affected due to net-connectivity issues.

ii. Social inequality – The growing digital divide globally is among several factors accelerating existing socio-economic problems post pandemic. Other factors include existing inequalities in respect of access to healthcare and education, jobs and earnings (partly due to increased business automation) and the disproportionate effect of pandemic lockdown measures on the elderly, clinically vulnerable and people with disabilities during the last two years. 

iii. Access to funding – While companies already in funding cycles have somehow managed to secure further finances wherein startups and traditional family run micro and small businesses looking for funding were hit hard by a slowdown. Thus securing long term funding or looking to initial public offering / listing looked to be significant challenges for many companies and industry segments too.

Also, the Reserve Bank of India recently assessed that it might likely take 12 years for the Indian economy to repair the losses suffered during the pandemic years of 2020 and 2021.

|| New Opportunities Beckon ||

Last year India has taken steady strides towards economic resurgence post pandemic with the launch of Atma Nirbhar Bharat vision which has rekindled the hope of newer innovations, R&D and enhanced FDI opportunities supposedly to be made attractive with better ease of doing business framework of regulatory compliances.

Subsequently the Government announced the Samarth Udyog Bharat 4.0, an Industry 4.0 initiative of the Government, which envisaged the immediate need to facilitate and create ecosystem for propagation and adoption of Industry 4.0 set of advanced technologies and augment the Indian manufacturing sectors to global standards by 2025, be it MNC, large companies or MSMEs.

Samarth Udyog Bharat 4.0 projects initiative primarily focuses on up-skilling the growing Indian workforce on new age exponential technologies and to bridge the need-gap of ‘hard skills' amongst workforce in core blue collar jobs, which is imperative in respect of matching global skill sets to fulfill ‘Make in India’ vision of the Government, which would look at the following :-

·       Create awareness on the requirements of Industry 4.0 automation.

·       Train the Master trainers to educate down the line.

·       Handholding of SMEs to plan and implement relevant Industry 4.0 technologies.

·       To make adequate provisions for waste management and target towards ‘net-zero’ economy by 2050.

·       Set up as many clusters of advanced manufacturing and capital goods as possible.

·       Develop a SPV membership model for the industries adopting Bharat 4.0 initiatives.

Parallelly the Ministry of Finance and Corporate Affairs launched the National Infrastructure Pipeline (NIP)Online Dashboard, which is envisaged as a one stop portal for all stakeholders looking for information on infrastructure projects in India post pandemic, which would like to provide a boost to the vision of an Atma Nirbhar Bharat.

Implementation of NIP with real-time monitoring of each of the projects on a national dashboard of India Investment Grid is a great step towards facilitating core infrastructure development in India, which would likely serve as the gateway to FDIs in India and widely to be used by Indian missions and embassies globally. A high-powered task force has been formed by the Department of Economic Affairs and Ministry of Finance, GoI to oversee the execution and implementation of the NIP projects as per the report and guidelines formulated by them.

|| Exports and Cross - Border Trade ||

Post covid, it has become imperative for the MSMEs to explore overseas market, especially cross-border trade in order to sustain the colossal reverses businesses have suffered in view of the new challenges faced as above. To be successful, MSMEs must meet the necessary pre-requisites of EXIM trade, namely process knowledge, the skills and the statutory and regulatory compliances for doing business overseas.

Apart from the standard information and knowledge of geo-political, social, economical and technological ecosystem, market demand and competition supply or gap for the products concerned, the knowledge about target market accessibility, trade barriers, bilateral trade agreements, export regulations, standards and procedures, logistics and shipping costs and incoterms are also crucial. This set of information would help the exporters to avoid commercial risks of delivery delay, demurrage, higher duty due to wrong product classification or a fine. Any of these would likely to risk the reputation of the exporter (and the country) along with losses to make the endeavour commercially unviable. MSMEs require an attitude of curative marketing with strong ethical and quality commitments to serve the international market.

The 4 basic steps of cross-border trade, which exporters must remember are the following :-

i.               Why Export – Clear understanding of the objectives, aspirations and goals for internationalization would help address the associated risks of international business. The natural perception of growth potential in overseas markets creates new market opportunities.

ii.              What Products to Export – It is an established fact that brands and not commodities command international customers’ respect and price premium. Hence MSMEs must adapt their products to the buyer’s specifications like branding, packaging, labeling and conforming to sanitary and phyto-sanitary standards of the chosen market’s requirements.

iii.             Market Selection – Few market assessment and research processes like screen, identify and select (SIS) methods are imperative for MSMEs to ascertain risks. Understanding the trading blocs, bi-lateral trade agreements, ease of doing business ranking and intellectual property rights (IPR) issues also helps exporters from pitfalls. The Business Environment Risk Intelligence (BERI) and International Country Risk Guide (ICRG) are likely to help screen the markets for country risk, if any. Few socio- cultural metrics like Hofstede cross-cultural country comparison, Erin Meyer’s cultural maps and tools like World Value Survey (WVS) and the Values and Lifestyles (VALS) surveys would likely help eliminate the cultural risk. 

iv.             Promotion and Distribution Plan – Communicating value requires creating awareness. Indian MSME exporters primarily cater to the overseas buying agents. In the process, they miss out on connecting directly with the end-users, thus sacrificing a larger share of margins and revenue in favour of the foreign intermediaries. Hence the success mantra requires adopting the most appropriate entry mode from various exporting, contracting and investing options available to the MSMEs.

Data source : Ministry of MSME, Government of India, Federation of Small and Medium Industries,  Federation of Associations of Cottage & Small Industries, SME Chamber of India, Indian Government Departments of Economic Affairs.

[Author Debashis Ghosh is a Technocrat, an independent MSME Business Consultant and Advisory Board Member of Institution’s Innovation Council of Jadavpur University, Kolkata. He can be reached at debashis_us@yahoo.com]