Meeting new challenges

Written by Annapurna Vancheswaran | Updated: Sep 30 2011, 09:08am hrs
In the past couple of years, the business environment has been dynamic and constantly changing. The set of major market forces that has motivated companies to drive their businesses differently are three-fold; first, is the effect of globalisation, second, the discovery of newer rural markets in emerging economies, and third, the growing scientific evidence of climate change and the associated risks to businesses.

More recently, the challenges posed by the global economic slowdown are impinging on businesses. In this milieu, the small and medium businesses, more commonly addressed as SMEs, perhaps are the worst affected and threatening their survival. This challenge needs to be addressed urgently and adeptly.

This is because out of 75 million enterprises across the world, 90% are SMEsand a large number of them are present in developing countries. It is not only their sheer numbers, but their substantial contribution to the world economy through entrepreneurship, innovation, economic growth, and jobs creation cannot be easily undermined.

In Europe, there are estimated 20 million small and medium-sized enterprises (SMEs) which form the backbone of the regions economy, giving 65 million jobs, and are a key source of innovation and growth. In China, over 65% of its export turnover in 2005 was from SMEs. However, in the first half of 2008, according to the Chinas National Development and Reform Commission, over 65,000 SMEs closed down, laying off 20 million.

In India, SMEs face challenges such as the lack of capital, improved technology and market reach. Many other issues related to SMEs need urgent attention, which includes efficient utilisation of energy, use of cleaner fuels, efficient combustion through appropriate technological intervention, and improved worker conditions.

There is an urgent need to improve productivity through better, clean and efficient production processes of SMEs, particularly those in the manufacturing or energy-intensive sectors. Although efficiency programmes at the national level have been in progress for several years, it is still inadequate as the changing dynamics in the business system has intensified the need for energy efficiency. Indias trade policy, which provides direct impetus to energy efficiency, does not appear to have received much attention among SMEs. Further, there seems to be a perceptible lack of incentives for research and development in SMEs.

In the 1990s, Teri (The Energy and Resources Institute) focused on select energy-intensive small-scale sectors to develop innovative solutions to their energy, environment and social issues. The programmes main aim was to develop innovative processes that would improve energy efficiency, productivity and environmental performance. The technological solutions developed by Teri have resulted in energy efficiencies of sizeable proportions. Interestingly, the energy efficiency brought about can be translated into carbon emission reduction, and in the last 15 years a cumulative CO2 reduction of about 500,000 tonnes has been achieved. Hence, it is plausible for SMEs to also take part in the current climate change debate with their huge potential to reduce greenhouse gas emissions through energy efficiency and other measures at a marginal cost.

The National Action Plan on Climate Change (NAPCC) estimates a 16% reduction in CO2 emissions from the BAU (business as usual) scenario by 2031 from efficient fuel and electricity use in the large industrial sectors. These measures would also bring about co-benefits such as a reduction in fuel and material use, resulting in less of waste generation.

In todays marketplace, SMEs are increasingly facing similar international problems as those of larger firms. For many SMEs, especially those in export-oriented manufacturing sectors, it is no longer possible to enter the marketplace without acknowledging the risks and opportunities presented by foreign and local competition. Ironically, much of the good works of SMEs either gets unnoticed or simply lost due to weak documentation.

Last July, the ministry of corporate affair launched the National Voluntary Guidelines with a basic framework on Social, Environmental & Economic Responsibilities of Business---the first national guidelines on responsible business developed by any country. The guidelines have nine basic principles for responsible business and are unique as they are applicable to all businesses irrespective of size or sector. Further the guidelines suggest a multi-pronged approach to promote Responsible Business among SMEs.

The ministry of MSMEs should plan for special mechanisms that would help SMEs to also get on board the efficiency drive, keeping in view the guidelines. A thoughtful approach to cost savings through efficient technologies and responsible business practices can give immense benefits, economic and social for the enterprises.

The writer is director, Teri