Lack of succession planning greatest long-term risk to Indian MSMEs, say experts

By: |
May 23, 2021 3:37 PM

Amid changes in the overall business environment over the past few years in India such as demonetsation, GST implementation, Covid pandemic, economic downturn, etc., the need for succession planning is more critical than ever. Also, there is a challenge of finding employees who are as skilled as the outgoing ones in the organization.

textile industryThe RBI had in early May announced Resolution Framework 2.0 for individuals, small businesses, and MSMEs.

While the Indian government has instituted many initiatives to support the Indian MSME sector in the post-crisis world, one key factor for the longevity of any MSME is succession planning and sustainability even as a lack of it is the greatest long-term risk to such businesses, according to experts. India has a vast base of around 6.33 crore MSMEs, many of which are family-run enterprises with the second and third-generation entrepreneurs carrying forward their business legacy.

“India’s MSMEs, employing more than 45 percent of the country’s workforce, are working relentlessly to make an impression in the global market, with risk-taking being a part of their entrepreneurial DNA. However, the disconnect between passion and reality, the challenge in managing black swan and grey rhino events, and the lack of a structured framework to pass on the business legacy to the next generation are placing these MSMEs at risk of survival,” said Hersh Shah, CEO, IRM India Affiliate at a webinar organised by the institute. IRM had, in September last year, partnered with the government’s premier MSME development body National Institute of Micro, Small and Medium Enterprise (NI-MSME) that trains MSMEs, individuals, and professionals for entrepreneurship development, capacity building, marketing, innovation, infrastructure development, quality management, and more.

Industry experts also echoed Shah’s views on the challenge of succession planning among MSMEs. According to V Swaminathan, Head of Corporate Audit & Assurance, Godrej Industries Limited, as many as 35 per cent MSMEs feel succession planning is their biggest problem and that MSMEs largely have an owner or promoter-driven structure due to which the decision making is focused on them, unlike large businesses that have a clear organization structure. “There is a functional implementation of roles and responsibilities. There is no concept of shared ownership, the external talent is only need-based, and loyalty is higher than just functional capability,” Swaminathan added.

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Moreover, amid changes in the overall business environment over the past few years in India such as demonetsation, GST implementation, Covid pandemic, economic downturn, etc., the need for succession planning is more critical than ever. Also, there is a challenge of finding employees who are as skilled as the outgoing ones in the organization. “Succession planning is one of the most critical factors for MSMEs especially in the current climate, where the business environment has undergone a transformation, and there is a lot of unpredictability. The lack of skilled manpower is a major constraint for MSMEs, and when key employees retire from an organisation or leave for other opportunities, the inability to replace them with an adequately experienced successor can directly impact the wellbeing of the business,” said Sandeep Bhatnagar, Director – Marketing & Business Development, NI-MSME. The institute is looking to support such MSMEs into risk-ready enterprises over the next decade through IRM’s programmes in enterprise risk management.

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