Steps to revive MSMEs in the current times and build a turbulence-proof business (using DIP Strategy).
The MSME sector is the backbone of our national economic structure and has always acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities. With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India's manufacturing output. They have been able to provide employment to around 120 million people and contribute around 45% of the overall exports from India. The sector has consistently maintained a growth rate of over 10%.
With so much of contribution from this sector to nation building, the MSME sector itself is, currently, in troubled waters because of the ongoing pandemic, its inability to deal with adversities, and a lack of futuristic vision. Since the nation-wide lockdown, the sector is grappled with problems such as dried-up credit, low/no sales, halted production, logistics, uncertainty of demand revival among others. The pandemic has not only forced many businesses to close doors but also has led many others to face problems like never before. This has led to question the earlier practices followed by several MSMEs that went into oblivion. But the ones who have survived tell a different story. They survived, and still doing well, is because they took an early decision to transform their businesses and prepare themselves for situations like these. Let us see how they prepared themselves and what they did differently following which long-term strategies and short-term strategies.
"Back in late 2019, the government nudged MSMEs to save energy and invest and adopt energy-efficient measures. The government also released energy conservation guidelines and a knowledge management portal called Sidhiee for the early adoption of energy-efficient technologies among MSMEs. The initiatives were taken to mitigate carbon emissions and to ensure energy conservation in the MSME sector."
The DIP Strategy
It has always been said that businesses should not put all of their eggs in one basket, meaning business diversification is key to mitigate ones risks and safeguard losses due to market adversities. Diversifying across products, customers, and geographies not only improve revenues but also boost competitive advantage. A CRISIL study found that average sales of MSMEs with a diversified product/service, customer, and geography base grew by 18 per cent in 2013-14, in comparison with 10 per cent growth achieved by players with limited/no diversification.
Investments in newer technologies, newer manufacturing tools, and the adoption of sustainable and efficient measures help businesses to mitigate risks and to continue operations with only a slight/no hiccup in the revenue generation. These futuristic approaches and way of doing business have not only helped them save millions of rupees in the current times but also has taken them ahead in the competition. According to a recent study, 85 per cent of Indian businesses in MSME sector, that have survived the burnt of COVID-19 disruption, consider investing in newer technologies and reskilling their existing workforce for digital adoption, to be critical for their growth. In addition, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) by the Indian government has allowed the flow of credit to MSME sector without the need of collaterals that has helped several businesses to invest in such areas to boost productivity.
● New Practices.
The MSMEs should learn from large organizations and continuously strive for performance
excellence by implementing in new practices and initiatives. Understanding structural and
operational bottlenecks and doing a root-cause analysis in areas of production, maintenance,
logistics, and safety would help one achieve zero-defects and gain competitive advantage in the
In the areas of production, implementing Agile, Lean or Six Sigma methodologies would help businesses to cut down the wastage at the initial stage. Demand forecast using data analysis is also an effective way to predict demand and control the production and supply. These quality management practices and safety management practices, when implemented and followed, increases the market competitiveness of the businesses, with better operational efficiency and lesser overall risk.
"With every passing day, the business landscape is changing rapidly, and thus digitizing and automating the business processes has always been a smart decision for any business owner."
The Short-term Strategy
There is no doubt that the current times are tough. The economy is going for a dive. Businesses, in the MSME sector, are struggling to take the operations to the pre-COVID stage. Working capital has shortened. Expenses are piling up, and manpower is uncertain. With less demand in the market, orders are weak in numbers. The problems are rising with each passing day. Thus to control the ongoing situation, the government has provided a much-needed credit facility to these businesses in the MSME sector. Low cost of credit has also given them much needed cushion to revive their businesses. But this, reaction to this adverse situation, is not the far-sighted solution for any business. Though it may help some businesses to revive its operations, but in the long run this idea is not sustainable and could adversely effect the industry again in adverse times.
For any business to survive and thrive in any adverse situation, the below 5 points are necessary and crucial:.
1. Focus on lean manufacturing.
2. Prioritize orders.
3. Implement continuous flow to improve throughput.
4. Conduct rapid implementation.
5. Upgrade infrastructure and adopt modern efficient technologies.
These are immediate steps to revive any business in turbulent times for a short term. With time we have seen businesses come out of the problem, not by rebooting the whole thing but by tweaking few things, mentioned above, in their businesses that reduced their visible losses and other phantom expenditures. However businesses should focus and give time and effort in the DIP strategy discussed earlier to have a business and future without turbulences.
"Adoption of best practices, knowledge management systems and appropriate technologies will enhance the productivity levels and competitiveness of Indian MSMEs in the international market."
Achieving Efficiency, Increasing Bottomline
One of the major problems, in the MSME sector, has always been with energy wastage. MSME sector accounts for a large share of energy consumption. However, in pre-COVID19 days, it has always been the victim of uncontrolled usage of electricity and in coming post-COVID19 days, where businesses will be accompanied by several overhead expenses, managing electricity consumption (with rising energy costs) will be very crucial to reduce the expenses and invest those savings at appropriate areas of business. MSME sector has the potential to save 25% to 30% of the energy consumed at present.
Most of the businesses, that survived the burnt of COVID-19, have equipped their business premises with an efficient electricity management system, like Enture from Nebeskie Labs, among other automation technologies. Adopting to newer technologies not only augmented the effort of the businesses but also helped them achieve efficiency in their processes resulting in saving uncontrolled expenses. And thus automating areas that contribute to the majority of phantom losses is a smart thing to do. But the lack of access to latest technologies make this sector vulnerable to energy security and competitiveness in global market.
"Energy-efficient technologies and measures, like Electricity Management System, taken by MSMEs would reduce their power bills and make them competitive in the international markets while also preparing them for any adverse situation likely to happen in future.",
said Mr. Nitin Gadkari during an event on energy efficiency in MSME sector.
Energy-efficiency investments tend to have high upfront costs. Low capital and low credit- worthiness of many MSMEs remains a barrier to adopting these new measures, which could otherwise help their bottom line. But the perception of high upfront costs of new emerging technologies are now challenged by new-age start-ups that give advanced features with low upfront investment and quick ROI to businesses. Thus, MSME units competing with larger enterprises are three times more likely to carry out an energy-efficiency audit and three-and-a- half times more likely to invest in energy-efficient technologies (EETs) because of these emerging startups in the energy sector providing energy-efficient technologies.
With more competitive environment, the business landscape will go on a major change in the post-Covid19 days. Thus investment in newer technologies and adoption of sustainable and efficient measures will be the key driver for the revival of many businesses in the MSME sector.