“Your article last week on customer value touched the core of my heart as I am constantly fighting for this cause,” wrote my valued reader Commodore G S Kanwal, retired from the Indian Navy. “But we are more or less in a Catch 22 situation.”
Small businesses, like the 44-bedded hotel service that Commodore Kanwal runs and is fighting various social and career factors to retain trained staff in, are the real backbone of our country. I’ve promoted the cause of MSMEs (micro, small and medium enterprises) in this column as well as detailed how to encourage their activities in my books Jalebi Management and its sequel Strategic Pokes. We should always remember that all big companies began as MSMEs. Courier service UPS, with over $55 billion revenue, started with just four bicycles in 1907 and is now among the world’s best companies. Another example of an MSME blooming is the $473 billion Walmart retail company that started as Walton’s 5&10 in 1950 — a dime store in a small US town called Bentonville in Arkansas.
Among developed countries, the outstanding performance and internationalisation of Germany’s MSME sector is worth emulating. According to Sequa gGmbH, a development organisation where Germany’s top four business membership organisations DIHK, ZDH, BDI and BDA are shareholders, Germany’s economic structure is determined by MSMEs that account for almost 99 per cent of all businesses, and employ about 80 per cent of regular workers. The government has several support programmes and measures to promote MSMEs. Contributing significantly to GDP, they’ve made the German economy the strongest in Europe today.
Unlike in Germany, about three-fourths of India’s MSMEs cannot access banks or institutional financing as per a study by industry body Assocham and finance advisory Resurgent India. Without adequate credit, most MSMEs actually borrow from their family and friends, which naturally impacts their business planning in terms of time and ability to raise the required amount. A new kind of short-span, flirting with money entity, has mushroomed in our economy; the start-ups funded by angel investors. Start-ups remind me of the attitude some bachelors have regarding their girlfriends. By hook or crook, these start-ups have to prove their model is working. They try to hike valuation to sell out and encash big money within a short span of time. In relationship analogy, it’s like working hard and making a name to grab the plum dowry that’s waiting when he opts for an arranged marriage, ditching his girlfriend. Most angel investors look for short-term investment and quick earnings. This influence of working to finally sell out is not setting a good example. To become a solid entrepreneur, you have to drive your business for the long term.
Let me note some hard truths that MSMEs face in India’s modern economy:
1. MSMEs often …continued »