anupam bhola fms 1 mp
TRANSCRIPT
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Minor Projecton
Export Competitiveness of
Indian
Small & Medium
Enterprises in
Apparel & Textile Industry
Submitted by
ANUPAM BHOLA
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FMS-1
Department of Fashion Management StudiesNational Institute of Fashion Technology
Gh-0, Near Info city, Gandhinagar
ACKNOWLEDGEMENT
In order to choose and carry out any research with a successful
execution requires personal liking, interest, support, and most important
guidance.
I would like to take this opportunity to thank and I am highly indebted
to my guide Dr. Benaya Bhushan Jena, course coordinator, PGFMS for his
never-ending support and suggestions throughout the project, giving me
direction and molding my minor project into final stage.
I would like to mention the support, patience and help of my
classmates, without which the execution of this project would have been
difficult.
Anupam Bhola
FMS 0703
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Contents
CHAPTER 1 3
Introduction .4
CHAPTER 2 28
Literature Review .6Problem Definition ..24
Research Gap .. 24
Objective of Study ..25Nature and Scope .26
Hypothesis 27
Research Methodology ..30
CHAPTER 3 .31
Conclusion 32
Chapter 4 34
Recommendation 34
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CHAPTER 1
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Chapter 1
Introduction
This paper deals with the competitive problems facing small and medium
sized enterprises (SMEs) in developing countries. It concentrates on the
manufacturing sector, where the competitive threat is felt most directly at this
time and where there is enormous export potential. It draws on the
experience of the advanced and newly industrializing countries, SMEs form,
by number, the majority of manufacturing enterprises at all levels of
development. In many economies they provide the bulk of employment. In
some they are also substantial contributors to exports and innovative
activity. In developed economies, SMEs tend to be in modern
manufacturing and services, often in cutting edge technology based
activities. It is generally the case, in all economies but particularly the more
industrialized ones that SMEs learn most from each other and from larger
enterprises.
However, these market based learning mechanisms are often not enough to
support technology development, particularly when competition intensifies
and technical change becomes very rapid.
Smaller enterprises have always been active in manufacturing, since beforethe dawn of the industrial revolution. Even with the advent of large-scale
production, they have flourished in niches where economies are scale
economies are unimportant or where flexibility, customization, locational
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advantages, subcontracting to larger firms can offset their importance. They
have also been able to reap scale economies in functions like marketing,
information, training, and design and so on by co-operating with each other
or clustering together.
The small-scale industries sector plays a vital role in the growth of the
country. It contributes almost 40% of the gross industrial value added in the
Indian economy. It has been estimated that one million rupees of investment
in fixed assets in the small scale sector produces 4.62 million worth of goods
or services with an approximate value addition of ten percentage points.
The small-scale sector has grown rapidly over the years. The growth rates
during the various plan periods have been very impressive. The number of
small-scale units has increased from an estimated 0.87 million units in the
year 1980-81 to over 3 million in the year 2006.
When the performance of this sector is viewed against the growth in the
manufacturing and the industry sector as a whole, it instills confidence in the
resilience of the small-scale sector.
Year Target Achievement
1991-92 3.0 3.1
1992-93 5.0 5.6
1993-94 7.0 7.1
1994-95 9.1 10.1
1995-96 9.1 11.4
1996-97 9.1 11.3
1997-98 * 8.43
1998-99 * 7.7
1999-00 * 8.16
2000-01 (P) * 8.90
P-Projected (April-December)
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* Target not fixed at constant prices
On the employment front the SSI Sector in India creates largest
employment opportunities for the Indian populace, next only to Agriculture. It
has been estimated that 100,000 rupees of investment in fixed assets in the
small-scale sector generates employment for four persons. Cotton textile
products (17) contribute the second largest per unit employment in India.
The apparel sector, like weaving and finishing, is characterized by a large
number of independent, small-scale firms. While it is not unusual for apparel
manufacturing to be both relatively small-scale and independent from theupstream segments of the textile supply chain, Indias apparel firms tend to
be smaller and more labor intensive than other major exporters. Unlike the
other segments of the textile industry, the apparel sector is relatively new
because, traditionally, most Indian garments were made in the home or on a
custom basis by local tailors.
Because of the predominance of very small-scale fabricators in the apparel
sector, most apparel is produced on a contractual basis for large
manufacturers/ exporters. The fabricators specialize in low-wage, labor-
intensive sewing and have the flexibility to meet small custom orders but are
much less competitive with large orders and those typically involving high
levels of automation. It is not clear if the current structure of the Indian
industry, with many small-scale firms that are not suited to meeting the
needs of large international buyers in a timely manner, will remain
competitive in the post-MFA world.
The small and medium enterprises segment has lately emerged as a focus
area for banks, financial institutions, industry and academicians.
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Chapter 2
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CHAPTER 2
Literature Review
SMES in India
In the developing countries, SMEs contribute a lot to the GDP of the country
and constitute the bulk of the industrial base1. For instance, in India SMEs
accounts for almost 50% of private sector employment and about 80%of the
total number of industrial output but still it contributes only 34% of the total
exports from India.
It is therefore essential to create and sustain a business environment that
reinforces the international export competitiveness as a whole. It also has
less than 10% of the FDI (Foreign Direct Investment)2the reason why SMEs
make a much smaller contribution to value added in global market are
manifold which will be taken in this report. Besides direct exports, it is
estimated that small-scale industrial units contribute around 15% to exportsindirectly. This takes place through merchant exporters, trading houses and
export houses. They may also be in the form of export orders from large
1Unctad , SMEs and The Global Market Place,2006
2compiled from smecentreofindia.com
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units or the production of parts and components for use for finished
exportable goods.
Current scenario
Small & medium enterprises3 definition laid by Govt. of India in terms of
investment in Plant& Machinery
SSI : up to 1 million rupees
MSI : above 1 million rupees and up to 10 million rupees
EMPLOYMENT GENERATION : 20 million
OWNERSHIP PATTERN: 75% proprietorship, 19% partnership, 6%
corporate &others.
On the basis of raw materials used, 43% companies are into cotton and
cotton based products, 16% each in man-made and silk, 13% in blendedand 10% use wool
The main export destinations of SSI products under the readymade
garments category are USA, EUROPE, CANADA, WEST ASIA, and NORTH
AFRICA.
3compiled from www.laghu-udyog.com
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SMEs Region Wise And Distribution Across The Value Chain
The geographical concentration of the sample companies reflects the
concentration of textile manufacturers in the country. The North and South
have maximum representation. Around 37% companies are located in the
North, 33% in the South, 26% in the West and 4% in the East and further is
the graph showing the distribution of SMEs companies across the value
chain.
In terms of the regional spread of these companies, the southern region
showed a higher proportion of companies falling in the Rs 250 mn and
above turnover bracket. The northern region had a high share of smallcompanies. The western region had a reasonably proportionate share of
companies in the various revenue brackets
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Of the companies engaged in the manufacture of home furnishing products,
67% were located in North India. Fabric manufacturers had a strong
presence in the South and North India, with a share of 34% and 31%
respectively. Yarn manufacturers were concentrated mostly in the South,
representing 59% of the yarn manufacturers.
In terms of the finished goods, representation of garment and home
furnishings manufacturers in the sample was largely from the North.
Industrial textile manufacturers were more in number from the Western
region.
Regional Concentration of Companies Product-wise(as % of total companies)
Region Fabrics Yarn Garment HomeFurnishing
North 31.4 14.3 42.4 66.1
South 33.9 58.7 25.8 13.6
East 7.4 1.6 9.1 1.1
West 27.3 25.4 22.7 19.2
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Growth
The companies in the sample were largely optimistic on growth prospects
over the next two years. On an average, the players were expecting an
average growth rate of 32% for the next two years, the garment firms beingthe most hopeful and expecting a 40% increase in sales. The other sub-
segments that are expecting to do well are manufacturers of fabric and
made-ups. In the last two years, the average growth for all companies in the
sample was an average 28%. The Western region showed higher growth
compared with the other regions.
Technology Up gradation Fund (TUF)
The numbers of companies that have availed of the TUF facility given by
the government comprise 24% of the sample size. Of these, 53% are into
yarn and fabric manufacturing. Another interesting factor is that nearly 73%
of those benefiting from this Fund were small scale enterprises with
investments in the range of Rs 10-50 mn. In terms of ownership, 37% of the
companies were private limited companies.
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Funding
Funding Of the companies in the sample, 75% met their funding
requirements from nationalized banks.
Private Banks were next in preference for these companies, however with
only a 13.5% share. Cooperative banks and MNCs were least preferred.
There were 4% companies which utilized internal resources to meet their
finances. Most respondents felt that availability of funds for future plans and
working capital requirements was moderately difficult.
Strength of the SMEs in India
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SMEs always represented the model of socio-economic policies of
Government of India which emphasized judicious use of foreign exchange
for import of capital goods and inputs; labor intensive mode of production;
employment generation; non concentration of diffusion of economic power in
the hands of few (as in the case of big houses); discouraging monopolistic
practices of production and marketing; and finally effective contribution to
foreign exchange earning of the nation with low import-intensive operations.
It was also coupled with the policy of de-concentration of industrial activities
in few geographical centers.
The Core Strengths
High contribution to domestic production
Significant export earnings
Low investment requirements
Operational flexibility
Location wise mobility
Low intensive imports
Capacities to develop appropriate indigenous technology
Import substitution
Contribution towards defense production
Technology oriented industries
Competitiveness in domestic and export markets
Limitations Faced by SMEs
Low Capital base
Concentration of functions in one / two persons
Inadequate exposure to international environment
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Inadequate contribution towards R & D
Lack of professionalism
In many developing countries, particularly the less industrialized ones,
there is a sharp divide between modern and traditional SMEs. A significant
section of SMEs in developing countries remains in traditional activities
generally with low levels of productivity, poor quality products, serving small,
localized markets. There is little or no technological dynamism in this group,
and few graduate into large size or modern technologies. The SMEs perceive
lack of infrastructure4 as the biggest hindrance to growth. The companiesraised concerns regarding labor issues and an equal proportion highlighted
lack of institutional support as their priority concern. These companies were
mostly from the North, South and East. The garmenting and weaving
segments mainly showed labor as their principal concern.
In many poor countries, there is also a large underclass of (formal and
informal) micro enterprises that ekes out a bare survival. Some of these small
and micro enterprises may be economically viable over the long-term, but a
large portion is not. With import liberalization, changing technology and thegrowing demand for higher quality modern products, many traditional SMEs
face the problems. The constraints faced by SMEs in developing countries are
not only accentuated with ineffective policy design, but also by market failures
in the region. Experts in development economics and industrial organization
have therefore shown some empirical evidence that small firms in developing
countries can grow and be competitive as well, through cluster formations.
In many developing countries, particularly the less industrialized ones, there
is a sharp divide between modern and traditional SMEs. A significant section
of SMEs in developing countries remains in traditional activities generally
with low levels of productivity, poor quality products, serving small, localized
4 SME Rating Agency of India Ltd.
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markets. There is little or no technological dynamism in this group, and few
graduate into large size or modern technologies. In many poor countries,
there is also a large underclass of (formal and informal) micro enterprises
that ekes out a bare survival. Some of these small and micro enterprises
may be economically viable over the long-term, but a large portion is not.
With import liberalization, changing technology and the growing demand for
higher quality modern products, many traditional SMEs face closure or very
difficult upgrading.
Even modern SMEs in many countries face very difficult competitive
challenges in the emerging setting. The threat is one aspect of the larger
competitive challenges posed by accelerating technical change,
globalization and liberalization. The pace of change is so rapid, and its
scope so wide, that some analysts see the emergence of a new
technological paradigm (Freeman and Perez, 1990). Others, like Best
(1990), point to the changing competitive context. Traditional modes of
competition, based on low costs and prices, are being replaced by the new
competition, driven by quality, flexibility, design, reliability and networking.
This change is not just in advanced manufactures but also to mundaneconsumer goods like clothing, footwear and food products. Firms are
specializing increasingly in different segments of the production chain,
outsourcing segments and services to other firms to reap economies of
scale and specialization. At the same time, most leading firms are
broadening their field of technological competence to manage effectively the
complexities of supply chain management and innovation.
The new technological paradigm defines the world in which SMEs have
increasingly to grow and compete. The paradigm is leading to large shifts in
the location of productive and innovative activity and patterns of comparative
advantage. It is a world increasingly driven by technological competence
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within given activities and by a structural shift from low to high technology
activities (those with rapidly changing technologies and high rates of
research and development spending). Technology based activities are
growing more rapidly in production and trade in all major developed and
developing economies.
TYPES OF FIRMS EMPLOYEES( in lakhs) PERCENT
COMPOSITION
Factory Sector
-Large firms
-SSEs
62.5
40.6
21.9
21.8
14.2
7.6
Non Factory Sector
-SSEs registered
-SSEs not registered
-Household
224.2
118.10
38.10
68
78.2
41.2
13.3
23.7
TOTAL 286.7 100
TOTAL SSEs 246.10 85.8
The above Fig. shows the major employment provider in the manufacturing sector.
Competitive problems facing SMEs
SMEs in general tend to face three sets of competitive problems. Some are
inherent to being small. Some reflect distortions in markets and institutions.
And some are caused by policy intervention. The remedies to theseproblems clearly differ according to their nature and source.
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The first set relates to disadvantages of small size per se. Where
manufacturing, marketing, technological or other functions have inherent
scale economies, small size imposes cost and innovative penalties on
SMEs. However, these are structural features of the industrial scene they
simply mean that SMEs have to specialize in different activities or processes
from large firms. By doing so they can flourish and exploit their own
advantages of flexibility and internal coordination. The relative advantage of
SMEs is where scale economies are less marked, or where they can offset
such economies by choosing technologies that allow them to offset their cost
handicap by responding rapidly to changing conditions, finding niche
markets or customizing their products. In the early stages of technological
innovation, before the industrial structure has settled down, small firms can
be more innovative than large firms can. Many electronics and software
technologies illustrate this clearly. The spread of computer controlled
equipment helps SMEs, since large investments in specialized machinery
become less important in certain activities. Where SMEs cannot individually
establish a competitive advantage, they can realize scale advantages by
cooperating with other small enterprises, subcontracting from larger
enterprises. As noted at the start, SMEs learn collectively from each other,large firms.
The growing literature on clusters suggests that firms in close proximity (or
able to establish information and other linkages across geographical
distance) reap various agglomeration economies. Some of these are
enjoyed by a simple act of being in the right place the availability of
particular skills, materials or markets, saving transaction costs for buyers,
the development of ancillary activities and institutions. Others need active
collaboration.
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Enterprises can jointly undertake functions where scale economies arise: for
instance, training workers, designing new products, conducting quality
control or research activity, storing and transporting goods, and so on. This
generally involves setting up institutions, but it may involve others forms of
collective action, to influence existing institutions or policy makers.
Subcontracting to large firms, with or without a cluster, is also an effective
way for SMEs to build on their advantages. As noted, the growing trend on
the part of large firms to specialize, downsize and network has increased
their reliance on small suppliers and contractors. In many industries, it has
also made them more willing to integrate SMEs into their technological
activities. The falling cost of information technology and communication
enhances this tendency, and it makes extensive networking by SMEs
themselves less dependent on geographical proximity. However, small size
does impose certain disadvantages despite potential clustering and
subcontracting.
SMEs are at a handicap in activities where the risks involved are large,
technology is exceptionally fast moving and based on massive R&D, or
investments have to aim at global markets from the start. As noted, theiradvantages of flexibility and innovativeness diminish as technologies
stabilize and large-scale production and marketing become more important.
Clustering also has its limitations. Some activities may be too difficult to
manage on a cooperative basis: where valuable proprietary knowledge,
marketing branded products, tapping particular markets or creating very
specific skills is involved. Many agglomerations do not develop into genuine
clusters, but remain technologically stagnant, low productivity groups of
traditional SMEs.
This may be because of the larger environment in which they operate (say,
with policy constraints of growth or low levels of general skill and technology
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development) or because they are unable to undertake cooperative activity
to enhance competitiveness. This may, in turn, reflect a lack of trust between
SMEs, cultural traditions of non-cooperation, or the absence of an internal or
external catalyst to collective action. Clustering can also have cost such as
congestion, excessive duplication, free rider problems or domination by a
few members that lead to inefficiency, lack of innovation or inflexibility.
Clusters may breed inward-looking attitudes and deter members from
seeking external alliances.
Second, SMEs may face segmented factor markets. In other words, large
firms may have greater or more privileged access to input, credit, labor,
infrastructure, and information and technology markets. There are economic
reasons for this: providers of productive factors find it easier, safer and
cheaper to deal with a few large customers than a range of small and
dispersed ones. It is difficult to collect detailed information on the latter. They
are more difficult to monitor and the cost of enforcing contracts may be
disproportionately large in relation to the size of the transaction. The best
known case of this is in credit and capital markets, where the literature on
information economics analyses how SMEs face problems created bymissing markets and asymmetry. However, there are similar tendencies in
all other factor markets where transactions are discrete and involve direct
relations between buyer and seller. In the present context, an important
asymmetry is in the ability of SMEs to find, evaluate, purchase and master
new foreign technologies. International technology markets are notoriously
imperfect, and finding the right technology at the right price can be a costly
and lengthy task. More important, learning to master a new technology,
particularly one involving new skills, materials and methods, can be an
uncertain and costly process.
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The problems of technological mastery are far greater when, as in most
developing countries, factor markets and institutions are themselves
underdeveloped and unresponsive. Empirical research in less developed
countries shows that SMEs are poorly placed to deal with technical change
and upgrading (Lall, ed., 1999). Not only do they lack the information and
resources to access new technologies and skills, they often do not know
how weak they are. They may be unaware of competing technologies in
other countries. They may not realize the nature of the new skills and
techniques needed to keep up.
They may lack the entrepreneurial knowledge and education to seek the
technology or assistance needed. The problem is clearly much greater for
SMEs in the traditional and rural sectors of developing countries, but
information and skill problems affect SMEs everywhere. Even in highly
industrialized countries like the USA and Japan, SMEs find it difficult to keep
abreast of international technological and market trends.
Third, policies and institutions relevant to manufacturing can be biased
against SMEs. This is particularly the case in developing countries, wherethe widespread use of investment and import licenses and controls, directed
credit, location incentives, infrastructure provision and so on may favors
firms with better resources and connections. Corruption and rent seeking by
bureaucrats and politicians generally enhances the ability of large firms and
groups to exploit the system. Interestingly, some policies intended to favor
SMEs also have undesirable effects on their dynamism and
competitiveness. For instance, tax privileges given to smaller firms and the
effective exemption of micro and informal enterprises from the tax system
provide strong incentives to stay small rather than grow large. It can lead to
a proliferation of units below the taxable size, some of which may be
technically efficient but many are not. In countries like India where certain
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industrial products are reserved for SMEs, it has led to the stifling of
competition and retardation of technological upgrading. In areas of export
strength like textiles, the Indian reservation policy has eroded an established
area of national competitiveness.
Some important key performance measures tracked about small medium
enterprises in textile production are:-
1 On line quality2 Off line rejects3 After wash quality4 Per cent defectives5 Lead time
6 WIP7 Labor & machine productivity8 RM costs9 On time delivery10 Waste loss11 Over dues to debtors12 Labor costs13 Downtime
Finally, most developing countries tend to provide much weaker support
systems for SMEs compared to developed or newly industrializing ones. We
describe elements of SME support systems in some of these countries.
Industry Agency Administrative
Department
Large/Medium industries Dept. of IndustrialPolicy and
Promotion and Dept. of
Industrial Development,Ministry of Industry
Small Scale Industries Small Industries DevelopmentOrganization
Dept. of Small Scale,
Agro &Rural Industries,
Ministry
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Of Industry
Power looms Textile Commissioner Ministry Of TextileTraditional Industries
Khadi and Village
industries
Khadi and Village IndustriesCommission
Dept. of Small Scale,Agro &Rural Industries,Ministry of industry
Handlooms Development Commissioner Ministry of Textiles
Sericulture Central Silk Board Ministry of Textiles
In practice, the small scale industry sector serves as a residuary sector in
the sense that all units that fall within a prescribed investment limit and are
not recognized in a particular sub sector are included in the small scale
industries sector.
SME Clusters in the Indian Context
Size and heterogeneity in the cluster network:
It has been estimated that there exist about 350 SME clusters in India.
These clusters are overwhelmingly predominant with small industries and
the share of medium and large industries in the sales turnover, production
and employment is nominal. The size in terms of the number of units and the
quantum of output of clusters may vary significantly. Some of them are so
big that they produce up to 70 to 80% of the total volume of that particular
product produced in India. For example, the township of Panipat produces
75% of the total blankets produced in the country. Similarly Tirupur, a small
township in the Coimbatore district of Tamilnadu contributes 80% of the
country's cotton hosiery exports.
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On the other hand some clusters are very small also, but they are so
specialized that about 100 workers each may work in these clusters. For the
purpose of the present study clusters which have minimum of 100 registered
units in a particular location have been taken. There may be another 50-100
unregistered units along with the registered ones.
INDUSTRY GROUP NIC Code No. of Clusters
Cotton Textiles 23 15
Hosiery & Garments 26 10
Wool, Silk & SyntheticFibre textile
24 8
The top six industrially developed states out of the 25 states in the country
account for 54.3 % of the SSI units. Whereas 71% of the clusters are
located in them. The common states among the two sets of data are
Gujarat, Punjab, Uttar Pradesh and West Bengal. Surprisingly, the state of
Madhya Pradesh which has the maximum number of small scale enterprises
(12.7%) as per the IInd All India Survey of SSI seems to have very few
clusters (1.4%). Traditionally certain communities viz. Gujaratis, Marwaris
and Punjabis have been a rich source of entrepreneurial talent and this
could be one of the reasons for the growth of clusters in Maharashtra,
Gujarat, Punjab and Haryana.
Subcontracting to large firms, with or without a cluster, is also an effective
way for SMEs to build on their advantages. As noted, the growing trend on
the part of large firms to specialize, downsize and network has increased
their reliance on small suppliers and contractors. In many industries, it has
also made them more willing to integrate SMEs into their technological
activities. The falling costs of information technology and communication
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enhance this tendency, and it makes extensive networking by SMEs
themselves less dependent on geographical proximity.
The Vision
The vision is for the SME Sub-Committee to create a conducive business
environment, which will lead to a competitive SME sector contributing to the
creation of quality employment and improve the range of goods and services
available to the people of India.
In a small open economy like India it is vital that enterprises are able to
function in an environment that has low transaction costs. Among other
things, transaction costs are lowered by having robust institutional
structures, an efficient regulatory environment, and efficient and appropriate
PPPs.
In an ideal market situation SMEs can overcome their fundamental
weakness of poor economies of scale. In competitive environment
cooperation and the use of flexible networks and clustering create
advantages for SMEs and help to overcome limits to economies of scale.
This can be in terms of sharing production processes, supply or distribution
networks. A key requirement for this to happen is the existence of a
business environment and regulatory framework that promotes competition
and cooperation.
The Government is primarily responsible for developing and maintaining a
business environment and regulatory framework that is conducive to
business. Because of their size and in comparison to large corporations,
SMEs have less bargaining power when it comes to negotiating their
regulatory environment. Moreover, the regulatory burden often impacts more
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heavily on SMEs because of the indivisibility of government fees, levies and
time taken to comply. Unnecessary regulations and costs can significantly
raise the transaction cost of doing business. In general, the regulatory
environment needs to be transparent, predictable, stable, consistent and
timely in implementation. Overall, the economic environment, comprising
policies, regulations and institutions needs to engender a climate of trust in
which businesses can compete and cooperate.
The vision of creating a conducive business environment for SMEs
translates into several specific objectives. Implementing the objectives will
require the SME Sub-Committee to work closely with the private sector in
coordinating, information sharing and problem solving. The four main
objectives are:
(i) Increase entry of SMEs into the formal sector;
(ii) Implement governance reforms for SMEs;
Problem Definition
Indias SMEs are performing below its actual capacity in terms of external
trade, despite being favorable conditions.
Research Gap
Although the existing literatures discuss strategies available to small and
medium-sized enterprises (SMEs), they do not address the plight faced by
SMEs, namely resource limitations in their strategy formulation. Drawing on
deductive logic, this paper identifies and conceptualizes financing and
marketing strategies for SMEs and which specifically take into consideration
the competitive reactions of bigger incumbent firms. Successful substitution
calls for the SME to offer differentiated yet substitutable products to that of
an incumbent so as to force accommodation by the latter. Free riding allows
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the SME to enter a served market segment without having to incur market
development expenses. Finally, strategic deterrence aims to deter a bigger
incumbent firm from embarking on aggressive counteractions against the
SME. This can be achieved by the formation of strategic alliances and/or
incurring sunk costs in order to signal the SMEs commitments to stay in the
market credibly.
There are studies which discuss on similar issues but the research are done
for SMEs in a generic market rather then a deep study in SMEs in Textile&
Apparel sector .An understanding will be developed through my survey that
Indias SMEs competitiveness could be world class by doing a research in
this area.
Objective of the Study
To study the factors which are hindering the performance of SMEs. The
competitiveness of Indias apparel sector is adversely impacted by an
inadequate domestic supply of quality fabrics. Fabric imports are subject to
high duty rates and other domestic taxes that increase the cost of imported
fabrics. Another major weakness of the Indian apparel sector is a lack ofproduct specialization which, along with a limited fabric base, has limited
Indias apparel production and exports to low value-added goods. With the
aforementioned objective in mind, this study will first identify the structure
and role of SMEs in Indian textile and apparel industry.
While the focus of this paper is on SMEs, we also examine the overall
business environment since (1) many policies that promote overall business
competitiveness and private commercial contracting may also foster SME
growth and (2) we seek to distinguish between the impact of SMEs in
particular from policies that foster a competitive environment and private
property rights protection in general. We examine an aggregate index of the
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business environment that incorporates information on entry and exit
barriers, effective property rights protection, and sound contract
enforcement.
We find some evidence that a business environment that promotes
competition, private property rights, and sound contract enforcement boosts
economic growth. The overall business environment index remains linked
with economic growth even when controlling for the endogeneity of the
business environment index. However, we find that the business
environment does not influence the poor any more or less than the rest of a
countrys population. These results are consistent with the view that a
competitive, contractually sound business environment lowers poverty by
increasing the overall level of GDP per capita, but the business environment
does not influence poverty beyond its impact on overall economic
development.
Nature and Scope of Study
Nature
The research is elaborated to understand the export competitiveness of
Indian small & medium enterprises in apparel & textile industry. It basically
looks into the factors which affect the growth of Indian small & medium
enterprises and that will lead to the competitiveness.
Scope
The study would be covering the three competing sectors of small and
medium enterprises that make up the Indian textile industrythe composite
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mill, power loom, and handloom sectorsand the apparel industry. The
scope of the study will lead to the study of cotton, manmade fiber, wool, and
silk textiles and apparel. Also the independent processing houses will be
explored that carry outpost-weaving and knitting operations such as dyeing,
printing, and finishing.
Hypothesis
The hypothesis that can be derived from the research questions are:
1. Mass-production affects the export competitiveness of Indian small &
medium enterprises2. Rapid and Continuous Technological Progress affects the export
competitiveness of Indian small & medium enterprises
3. Specialized, Custom-made products affect the export competitiveness of
Indian small & medium enterprises
4. Computerized Technologies affect the export competitiveness of Indian
small & medium enterprises
5. Liberalization of trade and investment flows affect affects the export
competitiveness of Indian small & medium enterprises
Research Methodology
To measure the role of SMEs in the economy, I use a newly
constructed database on the share of manufacturing employment accounted
for by SMEs and construct two measures of SME size. While these are the
most comprehensive indicators of SME size available for a broad cross-
section of countries, they are not without their shortcomings. For instance, it
would be useful to have information on SME employment beyond
manufacturing, but cross-country data are unavailable for the share of SMEs
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in other sectors, such as agriculture and services. Another potential problem
is that we restrict our definition of SMEs to formal enterprises and exclude
informal enterprises, which may represent an important component of output
in some economies. In this case, however, I incorporate estimates of the
size of the informal sector relative to the formal sector in the economy.
In order to evaluate the competitiveness of Indian textile and clothing
exports of SMEs, the study has analyzed the competitive performance of
Indian exports of the identified products in the US and EU markets. It has
also been used to highlight the role of emerging trade policy environment-
specifically, the role of discriminatory rules of origin in. Regional Trading
Arrangements [RTAs], tariff peaks and environmental and labor standards-
as market access issues relevant to textile and clothing exporting countries.
The research is of an analytical nature where the data is collected from the
secondary source (such as newspaper, magazines, etc.).The tools used for
analysis are Microsoft excel, pie-charts.
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CHAPTER 3
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CHAPTER 3
Conclusion
Exporting is considered to be one way of stimulating growth of SMEs
gradually improving the quality standards of SME products and capturing
more global shares. Boosting the contribution of small and medium
enterprises in total exports of India is vital to Indias future economic growth.
Export competitiveness of SMEs in textile sector in India can be promoted
in following manner:
Independent SMEs specializing in specific niches and highly profiled
production; SMEs that link up with TNCs or domestic firms and SMEs that
are part of clusters and networks in order to reinforce their competitiveness.
Special emphasis has been put on linkages between TNCs and SMEs as a
way to enhance the export competitiveness of SMEs owing to the leading
role that TNCs are increasingly playing in world production, trade and
finance and to rising numbers of SMEs that are being included ininternational chain of production. This could suggest that much of growth of
exports in future will be situated in and around TNCs systems. Linking up
with TNCs is increasingly perceived as a way for SMEs to solve their
traditional problem of access to certain critical resources, the most important
of which are finance, technology and managerial skills, as well as to new
markets. While linking with TNCs could benefit for SMEs, it can entail risk
and cost that may be needed to be addressed through appropriate policies
and measures.
In this paper we have examined the cluster concept and its impact on SME
development in India in particular. The first step was to make broad
analyses on the definition of cluster from different perspectives. Based on
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the Indian contest, where institutional framework and infrastructure are
poorly developed, we adopted Schmitz's approach that considers
geographical proximity as being an important factor for cluster development
in developing countries. In making our own deductions, we further
considered competition and learning as two important elements needed in
Indian clusters because they are the benchmark for the private sector
development in the region. Furthermore, the analytical approach was also
used to make an in-depth explanation on cluster concepts and these were
further related to the scenarios in Indian clusters. In this context, however, it
was analyzed how the size of the market and the quality of their products
play an important role in cluster development. The relationship between the
stocks of economies of scale and scope within the cluster and the growth
rate of the cluster was also discussed. This was followed by the discussions
on why upgrading is important for the cluster and the role of value chain in
SMEs upgrading. The role of institutions in cluster development was
extensively analyzed. We have been able to build-up the historical
background of the clusters and on the other hand the clusters are informal in
nature. The networks in the clusters are learning networks deemed to
reduce growth constraints through sharingknowledge
, information and hand-tools in order to improve performance and reduce costs. However, to what
extent these constraints have been reduced through cluster formation
requires further empirical evidence. The relationship between private
savings and accumulation of production capital on the one hand and the
transformation process from trading to manufacturing in industrial
development on the other. We have also shown the international linkages of
the enterprises. The linkages were developed through long term trade
transactions that were transformed to manufacturing. This paper further
analyzed the multilateral actions among institutions and organizations
deemed to maintain competition and improve performance in the cluster.
Limitations of the clusters in the region were also examined.
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The significance of SMEs for employment and income generation has led to
various government attempts to support their development. For example, a
2000 law in Colombia obliges the public sector to favor procurement of
goods and services from SMEs. In India, there are various schemes,
including exclusive procurement of certain products and a price preference
for others when procured from SMEs, streamlined registration procedures,
and extension and support services. In South Africa a framework for
government policy is provided by the National Strategy for the Development
and Promotion of Small Business in South Africa, and the subsequent Small
Business Enabling Act (1996). This allows for several supportive structures
and investment incentives. But there remains scope for building support for
SMEs into other related policy areas. For example, aspects of the South
African policies on black economic empowerment (BEE), which set targets
that seek to increase procurement from black owned businesses, do not
give special consideration to SMEs, so the targets can be met by helping a
few major suppliers to transform their ownership structure, rather than
undertaking the more complex but higher-impact process of increasing
sourcing from black-owned SMEs. SMEs have also attracted private
support. For example, in Chile, the industrial association SOFOFA hascreated a Corporate for the Promotion of Small Enterprises, which provides
credit to micro enterprises to create employment, train workers and instill
good management practices. The South African financial sector has
developed a BEE charter, which includes a measurable focus on supporting
black SMEs.
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Chapter 4
Recommendations
1. Customer-orientation: An approach in which project efforts are driven by
meeting customer needs and demands rather than supply push by support
institutions.
2. Collectivity: Support is likely to be more effective when it is provided to
groups of SMEs rather than individual producers. Group-based assistance is
not only more cost effective and practical than individual support; it can also
lead to the establishment of linkages between SMEs that can lead to
increased efficiency and interactive learning.
3. Cumulativeness: One-off improvements are of limited use. Being
competitive is not a state but a process that requires continuous
improvements. This in turn requires that firms (or clusters of firms) build up a
capacity to continuously upgrade their products, processes and production
organization and become more self-reliant in this respect. A similar criterion
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of self-reliance is now also applied to some support programmes
themselves, in that they must evolve institutional forms of (usually collective)
self-help that will, over time, start to function independently from an external
aid agency.
4. Capability focus: Although the non-availability of appropriate hardware
(i.e. machinery and equipment) can sometimes be a crucial constraint on the
competitiveness of SME, the development of the capabilities is as important.
Usually, SME need to acquire enhanced knowledge and skills about how to
choose, use and improve technology.
5. Context: A supportive macro-economic environment is of the utmost
importance. In the current context, supportive is primarily defined in terms
of the presence of growing and technologically dynamic markets that
constantly provide new potential opportunities for technological upgrading of
SME.
6. Complementarily: The content of the assistance has to be tailored to fit
the general level of economic and technological development of theeconomy in question. This may appear obvious, but older projects did suffer
from such lack of fit. For example, many low-income countries tried to
promote subcontracting schemes prematurely. Only now, it is only in the
relatively advanced economies of Southeast and East Asia such as South
Korea where the weaknesses in local subcontracting is emerging as a
bottleneck. This is the sort of demand-pull environment where there is a lot
of scope to build technological support programmes for SME around
backward linkage development in the economy in general.
6. Concentration: Earlier programmes often lacked effectiveness because
the institutions delivering them were spreading their efforts too thinly in
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terms of the number and variety of economic activities. Thus, it was very
difficult to build up in-depth expertise about the technological and market
characteristics of specific industries and the main actors in these industries,
how SMEs are positioned in these industries and what their main industry-
specific problems might be. Research and assistance should concentrate on
commodity-specific sub sectors.
By giving considerable weight to the study of interactions between firms of
different sizes and at different stages in the supply chain, this approach can
provide a more thorough insight into the competitive context in which the
target enterprises operate.
7. Competence and credibility: The thin spread of technical assistance
projects and programmes was not the only factor responsible for the
inadequate expertise of agencies. The quality of many projects also suffered
due to inadequate professional and educational background of the
assistance personnel. In recent assistance interventions a trend towards
professionalisation of assistance is noticeable, especially in the more
advanced developing countries in Asia. This has also improved their
credibility to beneficiaries and other actors whom they need to involve intheir projects and programmes.
8. Coordination: Early assistance efforts also suffered from lack of
coordination between different service providers and support activities. This
is most evident in the East and Southeast Asian countries where
governments have tended to establish very elaborate and wide-ranging
support structures for SME, encompassing many different financing, training,
and consulting projects and programmes. The responsibility for these
programmes would be distributed widely over different governmental
institutions and departments. Inefficiencies in assistance delivery were
common because of duplication of effort. To make matters worse,
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programmes would frequently be revamped, merged with other initiatives, or
replaced with new ones. Such obvious lack of transparency must have been
a nightmare for many potential beneficiaries. It must have been a big effort
simply to find out how the support structure worked and where to turn for
which type of assistance. In recent years, one sees that governments in
these countries have begun to improve matters by introducing one window
assistance delivery (Meyanathan, 1994).
9. Carrot-and-stick approach: We have seen that the flawed incentive
structure both for the assistance providers and the beneficiaries was
perhaps the single most important cause of failure in the early SME
technology (and other types of) support projects. A more effective approach
is a combination of carrots, i.e. potential rewards that will motivate the
participants to take action, and sticks, i.e. a set of sanctions that come into
operation when they fail to do their best. The design of a balanced
combination of carrots and sticks is a difficult task. It generally requires that
one not only pays attention to economic aspects but also to the institutional
and socio-political context within which projects are to be implemented.
References
Books
Unctad , SMEs And The Global Market Place
Advani, A. (1997), Industrial clusters: A support system for
small and medium sized enterprises, World Bank, PrivateSector Development Department, PSD Occasional Paper No.
32.
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'Big change in small scale', Business India, January 2-15,
1995.
'Industrial Clusters in Less Developed Countries : Review of
experiences and Research agenda', Khalid Nadvi and Hubert Schmitz,
Discussion paper, 339, Institute of Development Studies.
'Long-term supplier Relations and Product-Market Structure,
Susan Harper, Case Western Reserve University, Oxford University
Press, 1992.
'Modern Small Industry, 1972 and 1987-88, Aspects of Growth
and Structural Change', J.C. Sandesara, Economic & Political weekly,
February 6, 1993.
Mighty oaks from little acorns : Can Micro-Enterprise serve as
the seedbed of Industrialisation?', Barbara Grosh, Syrancuse University
and Gloria Somolekae, University of Botswana.
'Principles for promoting clusters & networks of SMEs', John
Humphery & Hubert Schmitz, No. 1, Discussion Paper, UNIDO (SME
Programs), October, 1995.
'Small Firms and their helpers : Lessons on Demand', Tendler
Judith and Monica Alves
Amorim, Massachusetts Institute of Technology, Cambridge,
USA, World Development, Vol. 24, No. 3, 1996.
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linkage ?', Susan Harper, David I. Levine, Department of Economics,
Case Western Reserve University, Cleveland
Newspaper
Economic Times
The Times Of India
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Journal
The Indian Textile
Bharat Textile
Websites
www.dsir.gov.in
www.icrier.org
www.smallindustryindia.com
www.dnb.co.in