‘More than fractured attempts, need for enacting MSMEs’ ‘transformation trendlines’ to shape future’

September 29, 2020 12:23 PM

Ease of Doing Business for MSMEs: The small business ecosystem has several actors, namely owners, employees, customers, suppliers, partners, regulators, funders and other stakeholders. The transformation experience starts with a goal, and the journey starts with a problem statement, hopefully ending with the desired outcome and impact.

Transforming small business ecosystem has become monumentally critical, more so in the past six months, due to a continuous slide in the GDP.
  • By Samir Sathe

Ease of Doing Business for MSMEs: Transforming the small business ecosystem in India has become monumentally critical, and urgent need, more so in the past six months, due to a continuous slide in the GDP from 7.5 per cent in Q1 2019 to flirting with a near-zero growth in Q2-Q3 2020.  The fact that small businesses contribute to 25 per cent to GDP and are a source of non-farm employment of two-third of the working population in India makes this problem acute. The underpinning drivers of the current state are several, and one of the important ones is the near-absent holistic lens to look at the small business ecosystem as a whole. While fractured attempts have been made, much more needs to be done. Here is the macro picture of the small business ecosystem’s transformation trendlines that needs to be comprehended, enacted, performed and governed before we even attempt to look at transformations at the firm level.

The Actors, Transformation Experience, The Past and the Future:

The small business ecosystem has several actors, namely owners, employees, customers, suppliers, partners, regulators, funders and other stakeholders. The transformation experience starts with a goal, and the journey starts with a problem statement, hopefully ending with the desired outcome and impact. I have summarized the transformation trendlines for each combination of actor and the stage in the transformation experience/ journey, to describe what was the paradigm in the past and what could it be, in the future.

Owner: The small business owners have attempted to win alone, fiercely competing with each other due to scarcity of resources and a long tail of small businesses which lack formalization (only a small percentage of around 75 million MSMEs have credit access and several ones are unregistered) as the cost of formalization often exceeds the gains from business! With over a fifth expected to be out of business given Covid-19 situation, the battle for resources may get murkier.

The prudence is in recognizing the fact the small businesses need to win together not by fighting but by partnering with each other. If the goals are expressed to encourage them to partner, I see significant upside to increasing competitiveness and thereby improving the chances of profitable growth. This entails ideation adopting a collaborative approach to think of new business models, learning and unlearning together (What should MSMEs focus on: Upskilling, reskilling, learning or unlearning?) and defining commercially and socially relevant outcomes and impact.

Employees: Being loyal, spending even lifetimes in the same employment (especially oriental businesses in Japan, China, India, etc.) were much-touted paradigms in the past. This meant that employees looked at transformations to rise in the hierarchy, serve the master in a patriarchal command and control environment, finally to aim for being rich or being in the position of power. Tomorrow, the employees will undergo transformations that emphasize productivity not tenor in the organisations, skills and not power, partnerships with their owners and not loyalty and finally seek greater degrees of freedom to make their career choices and express what they want.

Asking employees to be entrepreneurial without giving their share of profits, is like expecting one to love someone else’s child as much as one’s! Noble in spirit but against nature in reality. Tomorrow’s employees would be nomadic professionals united for some time to produce outcomes of mutual benefit, but not bound like yesteryear’s laborer.

Customers, Suppliers, Partners: The old paradigm of internal and external customers is valid even tomorrow but a nuance. The past belonged to the era of hierarchy resulting in the dictation of the terms of engagement and power equation.  Mostly experiencing win-lose situations one’s position and control in the value chain defined its goal, engagement approach in the nature of transformations one sought, often with desired outcomes and impacts serving the purposes as a trade-off with each other. Tomorrow may be different. The scarcity of resources, changing economic and social structures globally will rewrite the paradigms of transformations.

Regulators, Funders and Other Stakeholders: The roles of these entities ought to change. In the past, scrutiny of businesses, focus on negative enforcements (penalties, fines, draconian restrictive laws), extractive tendencies and pursuit of power for those who held either an authoritative position or money to fund businesses, mattered. The future would witness the roles transitioning into catalyzing, being constructive, exercising positive reinforcement, and finally empowering businesses and powering them. Think of the government as the grand platform, not a regulator as we know today, think of a funding entity to a grand central non-executive financial institution and not as the one who calls all shots in the boardroom. Future holds promise. Should we not shape it?

Samir Sathe is Executive Vice President, Wadhwani Advantage at Wadhwani Foundation. Views expressed are the author’s own.

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