Ease of Doing Business for MSMEs: Why is nearly 100 per cent of the MSME sector comprised of only micro enterprises? What challenges do these enterprises face in scaling up from micro to small-sized businesses? How government is looking to address this issue? These were some of the questions that the Financial Express Online’s inaugural flagship event The ScaleUp Summit tried finding answers to on Thursday from experts in the government, banking, technology, MSME representative bodies, and successful MSMEs themselves.
Setting the tone of the virtual event to address the growth issues faced by micro businesses, Financial Express Digital’s Editor Roshun Povaiah in his opening remarks noted that every session of the ScaleUp Summit is conceptualised for the MSME audience on how they can get back on track and build a resilient business.
Integrating into the global value chain
Resiliency, needless to say, is one of the key traits that define MSMEs’ DNA. However, to not just survive, but also to evolve and scale up, integrating digital adoption and plugging into the global value chain is the need of the hour, according to Alka Nangia Arora, Joint Secretary (ARI Division), MSME Ministry and CMD, National Small Industries Corporation (NSIC).
In her address as the summit’s chief guest, Arora said MSMEs haven’t yet realised the importance of being on digital platforms. “It is not about what is being produced where, it is about the value addition we do to a product and how we make it a global brand that everybody wants. MSMEs will have to become part of these global value chains and work in sync with other countries,” Arora added.
Re-classification of businesses as per the revised definition of MSME, public procurement initiative, scheme for first-time exporters, and focus on making cheaper raw material available to MSMEs were some of the steps taken by the government to help businesses grow, according to Arora. There was also a Rs 10,000-crore fund for a 15-year period allocated to NSIC by the government to help MSMEs go big, Arora said without disclosing the details about the fund.
Alternate credit sources
The event’s keynote address was by Small Industries Development Bank of India’s (SIDBI) Deputy Managing Director Sudatta Mandal highlighting the existing credit gap in the MSME space and the alternative financial models available that are looking to address this issue. According to an International Finance Corporation report in November 2018, the addressable credit gap in the MSME sector is estimated to be Rs 25.8 trillion (Rs 25.8 lakh crore) or $345 billion.
To overcome these challenges, Mandal said various alternative financial models have been emerging like cash-flow based lending, co-lending model, TReDS platform, and the recent Factoring Regulation (Amendment) Bill that allowed NBFCs to act as financiers on TReDS. SIDBI had also joined recently as a financier on one of the TReDS platforms.
Among the initiatives taken by SIDBI towards financing MSMEs were the upcoming GST Sahay, an invoice based unsecured financing facility to be provided to MSMEs, Mandal added. SIDBI had also proposed a project that envisaged the Udyam registration number as the Aadhaar number for MSMEs to help in their formalisation and provide access to new opportunities through government schemes, process improvement, technology upgradation, and more.
Timing the technology adoption
While upgradation in terms of technology has been critical but how MSMEs can pick the technology that’s right for their business without feeling overwhelmed with the number of existing solutions as well as modern technology solutions based on artificial intelligence (AI), machine learning (ML), big data and more.
Tejas Goenka who heads business management software company Tally Solutions as its managing director said in a fireside chat that technology adoption can be intimidating for small businesses. However, it is important for SMEs to understand whether they really the particular technology solution and how it would help them.
Small businesses, said Goenka, should recognise that whether it is something they really need today or for their future. “This helps in removing the clutter because all new technologies like AI, ML, cloud computing, etc., can be explored but the question I would ask myself is that will it help me today and would be important for my tomorrow,” said Goenka.
Tally Solutions has 20 lakh paying SME customers for its accounting software while 70 lakh users across 100 countries currently use Tally’s products. The company has an 80 per cent market share in India.
Awareness gap in accessing credit
The following panel discussion deliberated on the awareness aspect among MSMEs for the credit schemes by the government. The panellists included Mukesh Mohan Gupta who heads MSME body Chamber of Indian Micro, Small & Medium Enterprises (CIMSME); Harjinder Kaur Talwar, MD & CEO at the parking and traffic management solutions provider Comvision India and Vice President, FICCI CMSME; and Rajan Raje, Chair, MSME Forum, Bombay Chamber of Commerce & Industry and Group CEO at agrochemicals company Nichem Solutions.
Both Gupta and Raje underscored that despite multiple schemes existing for MSMEs, the biggest challenge has been their lack of awareness for such schemes. For instance, Gupta noted the Standup India scheme that mandates credit to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and one woman borrower per bank branch for setting up a greenfield enterprise. Gupta was responding to Talwar’s concern over the lack of dedicated credit schemes for women entrepreneurs.
Gupta also suggested the creation of an online portal for first-time borrowers — on the lines of the Online PSB Loans portal set up by the government for existing borrowers — to raise bank credit.
The next session was a masterclass for MSMEs to understand the finer nuances of their profit and loss statements and also to determine the financial health of their business. The speaker for the session was R Srinivasan, Founder Director of the MSME-focused consulting firm AIRA Consulting. “Don’t delegate financial management to CAs or accounts department. #Financial performance is the reflection of your organisation, strategic and operational output, so take charge,” said Srinivasan in his address. He also asked MSMEs to ensure a healthy bottom line for the future growth of their businesses that depends on funding through internal accruals.
Learnings on brand building, customer acquisition, going global
The last leg of the event featured three successful MSME stories that involved learnings across three key aspects of evolving a small business into a big entity – brand building, customer acquisition, and going global.
It might be easier for a company to establish itself if it has a monopoly with zero or negligible competition in a market. However, for others entering a market that has competition at various price points like coffee, brand-building could be extremely critical. For instance, in specialty coffee market, Blue Tokai had expanded itself on the back of a strong brand connect that involved not just a quirky design element as the hook but also product personalisation.
To communicate its brand ethos — quality, design, transparency and approachability – the company’s co-founder Matt Chitharanjan did multiple things. First, he turned coffee pouches into unique pieces of traditional art by artisans that reflected the Indianness of the product. Second, he mentioned the name of the estate from where the coffee was sourced, the roast level, processing details, and more on the pouch itself. Lastly, he printed names of customers on the coffee pouch purchased online.
Getting customers to pay for your product or service is a big thing but getting big customers is an even bigger thing because that brings recognition and trust to your brand. Kolkata-based video production and animation Video Factory started back in 2016 and in almost six years, it has served over 500 clients, making one-minute training and marketing videos for businesses like World Health Organisation, Uber, OYO, GE Healthcare, Abbott, Cisco, and more. The company’s founder Rashika Jain said personal connections helped her build a client portfolio in the beginning.
“For me, initial few clients came from my personal connects which is important for SMEs to scale their businesses,” said Jain. However, personal connections could only take her so far. Hence, Jain prioritised digital presence from the beginning with social media, Google Ads, etc. “Google Ads played a very important role in our scaling up. Some of our biggest clients like WHO, OYO, Ola came to us through that channel,” added Jain. Video Factory has made over 15,000 minutes of videos so far.
The event was successfully concluded with a business turnaround story of Kiron Chopra’s Chopra Retec Rubber Products which manufactures automotive exhaust suspension parts and accessories as well as ride control parts. Back in the 1970s, Chopra had taken over his father’s loss-making automotive component manufacturing unit in Lucknow that was at the brink of shutdown due to lack of infrastructure facilities in the city and inability of servicing large auto companies based in far-flung cities such as Pune and Chennai. Hence, Chopra picked exports as a viable option to survive and scale.
His visit to an exhibition of auto components in Germany gave him an idea to manufacture rubber parts of exhaust suspension with similar design and quality. However, that wasn’t enough for him to attract orders from brands except for one German company. “I asked the representative of that company to pay us only after he could accept the quality of the product. That was the turning point for our business where we saw a complete transition from looking at local markets earlier to now global markets,” added Chopra. The acceptability in the German market gave Chopra the confidence to explore markets beyond Europe.
Chopra Retec Rubber Products currently is a $20 million company with over 2,000 products exported to over 30 countries including the US, Europe, Canada and China. “Risk-taking is important for you to go where others hesitate to go…We didn’t deter in our conviction of what we were doing since the global market was huge in volume,” said Chopra.