STRATEGIES FOR THE GROWTH

OF SMALL SCALE ENTERPRISES

PLACE: KOLKATA

REPORTED BY : SONIYA SHARMA

MBA, 3RD SEMESTER
ROLL NO : 17800921011

DATE: 27TH AUGUST,2022

 INTRODUCTION

Governments in both industrialized and developing countries provide a wide variety of programs to assist small-
and medium-scale enterprises (SMEs). Despite the success of SME strategies in a few countries, the majority of
developing countries have found that the impact of their SME development programs on enterprise performance
has been less than satisfactory. As its client governments search for more effective ways of assisting SMEs, the
World Bank Group is being asked to provide lessons of experience and guidelines for intervention. Underlying the
search for best practice are some basic questions: What is the justification for public intervention in the first
place? Should SMEs be singled out for assistance? If there is a justification for government intervention,
what form should that intervention take? This paper suggests a framework for SME intervention to help the Bank
Group’s client countries design SME strategies, gauge the effectiveness of assistance programs, and achieve the
objective of raising SME competitiveness. The paper focuses on SMEs as opposed to microenterprises , though
many of the same principles apply to microenterprise development as well—in fact, some are derived from the
foundations of the microfinance revolution.
 1. EXPANSION
Expansion is one of the forms of internal growth of business. It means enlargement or increase in the
same line of activity. Expansion is a natural growth of business enterprise taking place in course of
time. In case of expansion, the enterprise grows its own without joining hands with any other
enterprise. There are three common forms of business expansion.

These are:
a. Expansion through Market Penetration:
It means the enterprise increases the sales of its existing product by enlarging the existing market. In
other words, market penetration means making deeper in roads in the existing market. Various
schemes are launched to penetrate into an existing market. The scheme for exchanging an old scooter
for new one introduced by LML, for example, is a form of market penetration.
b. Expansion through Market Development:
It implies exploring new markets for the existing product. In order to increase the sale of existing
product, the enterprise makes searches for new customers.
c. Expansion through Product Development and/or Modification:
It implies developing or modifying the existing product to meet the requirements of the customers.
Introduction of plastic bottles for selling refined oil in addition to lose sales is an example of product
development /modification.
EXPANSION PROVIDES THE FOLLOWING ADVANTAGES:

 Growth through expansion is natural and gradual.

 Enterprise grows without making major changes in its organizational
structure.
 Expansion makes possible the effective utilization of existing
resources of an enterprise.
 2. DIVERSIFICATION

Diversification is the most common form of internal growth of business. As mentioned above, expansion has its
own limitations of business growth. Diversification is evolved to overcome the limitations of business growth
through expansion. A business cannot grow beyond a certain point by concentrating on the existing
product/market only.
In other words, it is not always possible for a business to grow beyond a certain point through market
penetration. This underlines the need for the adding the new products / markets to the existing one. Such an
approach to growth by adding new products to the existing product line is called ‘diversification’.
In simple terms, diversification may be defined as a process of adding more products/markets/services to the
existing one. This is necessary because, according to product ‘lifecycle concept’, every product has a definite
life period. Like human beings, product also dies/disappears from the market. Hence, the introduction of new
products to the basic product line becomes necessary to keep the business on.
The use of diversification as a growth strategy has been continuously on increase both in the private and public
sectors. In the private sectors, Kelvinator India Limited which was originally a refrigerator manufacturer
diversified its product line into mopeds.
Similarly, Larsen and Toubro (L&T), an engineering company, diversified into cement. LIC’s diversification into
mutual funds and SBI’s merchant banking are the examples of diversification adopted by the public sector in
India.
ADVANTAGES:

DIVERSIFICATION OFFERS THE FOLLOWING

ADVANTAGES:

 Diversification helps an enterprise make more effective

use of its resources.
 Diversification also helps minimize risk involved in the
business.
3.MERGERS AND ACQUISITIONS (M&A)

Merger and acquisition are yet other forms of external growth strategy. Merger
means a combination of two or more existing enterprises into one. For the enterprise
which acquires another, it is called ‘acquisition.’ For the enterprise which is
acquired, it is called ‘merger.’ Thus, merger and acquisition are the two sides of the
same coin. If both organizations dissolve their identity to create a new organization,
it is called consolidation. The other terms used for M&A are absorption,
amalgamation, and integration. M&A are more popularly known as takeovers. For
more than three decades after Independence, the normal route of growth was
through licensing and setting up new projects.
But the post- liberalization, since 1991, has witnessed an increasing use of
takeover strategies as the means or rapid growth. Mahindra & Mahindra’s takeover of
a German company Schoneweiss, Tata’s takeover of Corus, and
PricewaterhouseCoopers’s takeover of Mumbai-based taxation company RSM
Ambit are illustrative examples of mergers & acquisitions.
4. JOINT VENTURE

Joint venture is a type of external growth strategy adopted by business firms. A joint venture could be
considered as an entity resulting from a long-term contractual agreement between two or more parties,
to undertake mutually beneficial economic activities, exercise joint control and contribute equity and
share in the profits or losses of the company. The Reserve Bank of India (RBI) has defined joint venture in
the technical sense as: “a foreign concern formed, registered or incorporated in accordance with the
laws and regulations of the host country in which the India party makes a direct investment, whether
such investment amounts to a majority or minority shareholding.”
In simple terms, joint venture is a restricted or a temporary partnership between two or more firms to
undertake jointly to complete a specific venture. The parties which enter into agreement are called co-
ventures and this joint venture agreement will come to an end on the completion of the work for which
it was formed.
The co-ventures participate in the equality and operations of the venture/ business. The profits or
losses are shared between the co-ventures in their agreed ratio and in the absence of such agreement;
the profits or losses are shared equally by the parties. In general, joint venture is formed for the
purpose of consigning the goods from one place to another, undertaking contracts for construction
works, underwriting of shares or debentures of joint stock companies, etc.
5. SUB-CONTRACTING

What is Sub-Contracting System?

Sub-contracting system is a mutually beneficial commercial relationship between the two
companies. This is known as Ancilliarization in India and more generally as ‘sub contracting.’
Sub-contracting can be defined as follows:
A sub-contracting relationship exists when a company (called a contractor) places an order with
another company (called the sub-contractee) for the production of parts, components, sub-
assemblies or assemblies to be incorporated into a product sold by the contractor. Such orders
may include the processing transformation, or finishing of
material or part by the sub-contractor at the request of the contractor. In practice, large-scale
industries also not produce all goods on their own; instead they rely on small-scale enterprises
called sub-contractors for a great deal of production. When the work assigned to small
enterprises involves manufacturing works, it is called ‘Industrial Sub-contracting.’ In the other
cases, it is known as ‘Commercial Sub contracting.’ It is not unusual for Sub-contractors to work
for more than one contractor.
 CONCLUSION

It is often argued that Small Medium Enterprise promotion is justified on grounds

of the job creating prowess of SMEs or of their greater efficiency and growth.
Attempts are often made to draw a causal link between SMEs and poverty
alleviation so as to justify policies and subsidies in favor of SMEs. But the
empirical evidence supporting many of these claims is very mixed, making it
difficult to justify SME promotion on the basis of inherent economic benefits of
smallness. The real reason that developing country governments should
be interested in microenterprises and SMEs is because they account for a large
share of firms and employment—in other words, because “they are there.”
Searching for further justification to promote smallness as an instrument of
poverty alleviation is not necessary: it is enough to recognize that
microenterprises and SMEs are the emerging private sector in poor countries,
and thus form the base for private sector-led growth.