In developing nations, with few conglomerates, SMBs can be the lifeblood of the economy and employment.
By Ajay Kela
Small and medium businesses (SMBs) are critical to every economy. In developing nations, with few conglomerates, SMBs can be the lifeblood of the economy and employment. India, with its 63.4 million non-agricultural SMBs, is no exception. Here, SMBs—more accurately, micro, small and medium enterprises (MSMEs)—employ over 111 million people and contribute nearly 29% to India’s GDP. It’s the 111 million they employ that is intriguing and a matter of great interest to the country, given youth unemployment stands at 16%, the highest in the last 20 years, and where wages are dangerously depressed, primarily due to underemployment. Globally, SMBs account for close to 70% of all new jobs created, annually. Can SMBs in India be the answer to managing the troublesome increase in unemployment and underemployment?
Let’s examine the traditional strengths of SMBs. They are largely founded on personal conviction; they are mostly established on personal savings or small borrowings from family and friends; they have suppliers and distributors based on trust and strong personal relationships; their manufacturing and service lines are reasonably well tested; they have an intimate knowledge of their markets and their customers; they are frugal; and because they are small operations, they tend to have larger retention of employees. In most instances, they have mature businesses that already comply with regulatory norms—and if they don’t, it is often easy to bring them in line with compliance.
Examining their challenges, SMBs fail to scale and achieve their true potential for a number of reasons. SMBs are unable to find new suppliers and distributors in newer market and who they can trust. They are not certain if their brand will be trusted outside their areas of operation. They cannot find sales leads easily. They cannot scale their manufacturing, procurement and marketing because of limited funding. And they are unable to find investors because they don’t have formal and well-documented practices.
This is an irony. Investors are hungry to put their money down in tried-and-tested products and services, where the entrepreneur is passionate and takes complete ownership, has a proven record, has existing customers and a clearly visible potential for growth. SMBs tick all these boxes, but investors aren’t lining up. What can prompt investor interest and energise these businesses?
Now, let’s dream a bit. Suppose we could identify all SMBs with a turnover in the range of Rs 5 to Rs 50 crore and put in place people, processes and policies that would help them scale 2X to 10X. The solution is staring at us, but our fixed perceptions of reality tend to obscure it. What SMBs need is the equivalent of a low-cost KPMG, PwC or a Bain & Company—a professional services company that can study markets, identify opportunities, conduct discovery with SMBs, suggest new business models and transformation plans, help in execution of initiative including going digital so that they can serve customers and markets that were previously unreachable, manage mergers and acquisitions, and offer tax, private equity and financial services advice.
Our ideal high-quality business analyst would provide services tailored for SMBs. These would include digital knowledge sessions, business and technical training, staffing solutions, on-demand mobile connects to curated mentors, sector-specific experts, paid and pro bono ex-consultants from major analyst firms, professors, marketing experts, curated service providers, partners and distributors, regulatory professionals, risk officers, etc, all at a fraction of the cost of the Big-5 and at a global level to serve the globalised market.
This could be made possible by leveraging technology, crowd-sourcing consultant and experts networks, and having all of this anchored by an apex organisation with a finely-honed understanding of entrepreneurs and their ecosystems. Of special advantage would be an on-demand digital platform managed by the apex organisation that connects SMBs and their ecosystem players across the globe. Once connected, they could work collaboratively to find new markets, better suppliers, share business practices and adjust capacity and pricing to their advantage.
Essentially, the model suggested here mimics big-league business by addressing customer, cash and capacity in a structured and professional manner, leveraging technology solutions and global networks. If all goes well, this could turn out to be the ideal solution to India’s and other emerging economies’ unemployment problem.
The author is president & CEO, Wadhwani Foundation