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Marketing Strategies and Problems of Micro, Small and Medium Enterprises

in Andhra Pradesh

Article · December 2011

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 MARKETING STRATEGIES AND PROBLEMS OF MICRO, SMALL
AND MEDIUM ENTERPRISES IN ANDHRA PRADESH

Dr.Sardar Gugloth
Associate Professor, Department of management studies
Sri Venkateswara University, Tirupati, India

N. Kalyan Kumar
Research scholar, Department of management studies,
Sri Venkateswara University, Tirupati, India

Abstract

Micro, Small and Medium Enterprises (MSMEs) play key role in the economic security of
developing countries. This sector constitutes a significant fragment of the Indian economy in
terms of its contribution to the country’s industrial production, exports, employment and
formation of entrepreneurial base. The prime intent of the present paper is to study the
marketing strategies of MSMEs in Andhra Pradesh for their long term sustainability. Andhra
Pradesh is the largest state in the southern part of India, and has been a favored destination
for investors with a good amount of FDI flowing in, with large number of SEZs notified that
the state is poised to become one of the leading industrialized states in the country.

Key words: Marketing strategies, Micro, Small and Medium Enterprises (MSMEs),
Problems. Andhra Pradesh.

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 Introduction

The small scale sector is a vital constituent of India’s industrial sector. It is redefined since
2006 as the micro, small and medium enterprises sector which has played a seminal role in
the growth of the industrial and services sector in India. MSMES development Act, 2006 was
exacted to expand the focuses to the entire scope of MSMEs both in manufacturing and
services enterprises; The Act has also defined medium enterprises for the first time. The
enterprises are further classified into Micro, Small and Medium Categories. The investments
limits of these enterprises are as follows Table.1.

Table1. Classification of MSMEs

Types of enterprises Investment in plant and machinery
Manufacturing enterprises Service Enterprises
Micro Up to Rs.25Lakh Up to Rs.10
Small Rs.25Lakh to Rs.5 crore Rs.10 Lakh to Rs.2 crore
Medium Rs.5 crores to Rs.10.crore Rs.2 crore to Rs.5 crore
The MSMEs sector contributes significantly to the manufacturing output, employment and
exports of the country. It is estimated that in terms of value, the sector accounts for about 45
% of the manufacturing output and 40 % of the total exports of the country. The sector is
anticipated to employ about 60 million persons in over 26 million events throughout the
country. Further, this sector has consistently registered higher growth rate than the rest of the
industrial segment. There are 6000 products ranging from conventional to high-tech items,
which are being manufactured by the MSMEs in India.

Growth and Performance of MSMEs in India

The Micro, Small and Medium enterprises the (MSME) sector contributes significantly to the
manufacturing output, employment and exports of the country. Table 2 shows the growth and
performance of MSMEs during the last decade. The number of MSMEs (Represented in
graph-1) was increased from 101.1 lakh in 2000-01 to 298.08 lakh in 2009-10 registering a
growth of 294 per cent. The fixed investment was increased consistently from Rs. 146845
crore to Rs. 693835 crore.
Table 2 – Performance of MSMEs
S.No Total MSMEs Fixed Production Employment Exports
Year (lakh Investment (Rs. crore) (lakh (Rs.crore)
numbers) (Rs. Crore) person)

1 2000-01 101.1 146845 261297 238.73 69797

2 2001-02 105.21 154349 282270 249.33 71244
3 2002-03 109.49 162317 314850 260.21 86013
4 2003-04 113.95 170219 364547 271.42 97644
5 2004-05 118.59 178699 429796 282.57 124417
6 2005-06 123.42 188113 497842 294.91 150242
7 2006-07 261.01 500758 709398 594.61 182538
8 2007-08 272.79 558190 790759 626.34 202017
9 2008-09 285.16 621753 880805 659.35 N. A.
10 2009-10 298.08 693835 982919 695.38 N. A.
Source: www.msme.gov.in

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Note: The data for the period up to 2005-06 is of small scale industries (SSI). Subsequent to
2005-06, data with reference to micro, small and medium enterprises (MSMEs) are being
compiled.
Graph 1: Number of MSMEs in India during the last decade
350
300
250
200
No.of Units
150
100
50
0

Year
The production was increased by 376.17 per cent during the decade. The employment was
increased from 238.73 lakh persons in 2000-01 to 695.38 lakh persons in 2009-10 recording a
growth of 291.28 per cent. The exports were also increased considerably.
Comparison of the micro and small enterprises (MSMEs) sector with the overall
industrial sector.

The MSE sector has maintained a higher rate of growth vis-à-vis the overall industrial sector
as would be clear from the comparative growth rates of production for both the sectors during
last five years as incorporated in Table 3.

Table 3: Comparative Data on Growth Rates of MSE Sector

Year Growth rates of 2001-02 Over all Industrial
base IIP (%age) Growth rates of sector
(%age) #
2002-2003 8.68 5.70
2003-2004 9.64 7.00
2004-2005 10.88 8.40
2005-2006 12.32 8.20
2006-2007 12.60 11.60
2007-2008 13.00* 8.50
2008-2009 NA 2.80
2009-2010 NA 10.40
* Projected, IIP – Index of Industrial Production
# Source- M/o Statistics and PI website - http://www.mospi.gov.in

Growth of MSMEs in Andhra Pradesh

Andhra Pradesh (AP) boasts of having the highest level of fiscal incentive for investment in
India A study by rating agency, Credit Rating Information Services of India Ltd. (CRISIL) on
the state-wise growth trends in revenues and profitability of the micro, small and medium
enterprises (MSME) sector in India Andhra Pradesh has played among the top five states on
19th April 2011. The Crisil study has also showed that 47 per cent of the Crisil-rated MSMEs

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in AP have high ratings, which indicate their good performance and financial strength, the
rating agency said in a statement on Friday. The details of category-wise distribution of Small
Scale Industries (as on 31.3.09) in the state are depicted in Table 2.The number of MSME
units is represented in graph 2.
Table 4: Category-wise distribution of SSIs as on 31.3.09
S.No. Category No. of Investment Employment
units Rs. crores
1. Food Processing 36828 2292.52 374529
Beverage & Tobacco products
2. Cotton Textiles Wool, silk & synthetic 3105 264.57 49099
fiber textiles Jute, hemp & Mesta textiles
Hosiery and garments
3 Wood products 12769 113.53 71259
4 Paper products and printing 10223 623.5 74381
5 Leather & leather products 3512 44.86 18790
6 Rubber, plastic & petroleum products 8016 873.39 69759

7 Chemical and allied industries 7363 1213.14 111816

8 Mineral based industries 16251 1403.56 260114
9 Basic metal industries 2648 460.78 43741
10 Metal products 15501 919.98 131294
11 Machinery and equipment 11696 576.78 88940
12 Electrical and electronic 5420 631.6 64448
13 Transport equipment and parts 2282 75.82 20244
14 Miscellaneous 3471 167.81 29208
15 Repairs and services 14634 254.65 74306
16 Others 4454 587.84 50087
Total 158173 10504.33 1532015
Source: Commissioner of Industries, Government of AP
Graph 2 – Different MSMEs in A.P

Different MSMES in A.P as on 31.03.09

40000
35000
30000
25000
No.of MSMEs20000
15000
10000
5000
0
Tansport equip
Mineral

Metal
Chemical
Paper

Others
Rubber
Food

Machinery
Cotton
Wood

Leather

Miscellaneous
Basic metal

Repairs
Electrical

Type of MSME

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The State today has nearly 2, 30,000 Small and tiny units. But there were only 158173 units
as on 31.03.2009 majority (23.28 per cent) of which were related to Food Processing
Beverage & Tobacco products. The MSMEs related to basic metal products were very little
in number which account for 1.67 per cent.

Problems of Micro, Small and Medium Enterprises

Recognizing the important role of the MSMEs in the national economy, the Central and State
Governments have taken active steps to promote and foster their growth. These measures
have been particularly effective but many of the problems of production, distribution and
finance still continue to affect the MSME sector. While some of them are more or less
common to a wide range of small industries, others have particular relevance to a group of
small industries and to industries situated in rural and backward areas. The problems of
MSMEs are divided into two groups external and internal. As is obvious, external problems
are those which result from factors beyond the control of the industrialist like the availability
of power and other infrastructure facilities required for the smooth running of small-scale
industries; while internal problems are those which are not influenced by external forces. The
internal problems affecting the small-scale industries relate to organisation, structure,
production channel, distribution channel, technical know-how, training, industrial relations
and inadequacy of management etc. The major problems of MSMEs are given below;

Marketing

Marketing is one of the major stumbling blocks for small-scale industries. The many
problems which they face in marketing their products are enumerated below:
 Lack of standardization;
 Poor designing;
 Poor quality;
 Lack of quality control;
 Lack of precision;
 Poor finish;
 Poor bargaining power;
 Lack of service after sales;
 Scale of production;
 Brand preferences;
 Distribution contacts;
 Lack of knowledge of marketing;
 Competition;
 Ignorance of potential markets;
 Unfamiliarity with export activities—procedures and market know-how and
 Financial weakness.

Because of weak financial base, a small industrialist cannot afford to spend heavily on
marketing his products. A rare exception is the pharmaceutical industry, in which the gap
between the manufacturing cost and the selling price is very large. This is a special situation,
in which marketing techniques are different, and therefore the cost of marketing is very high,
particularly the marketing cost of those drug for which there is stiff competition. The small
industrialists in this line have to follow this trend in order to survive in the global market. In
the absence of a marketing channel of their own, many small units sell their product to large

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selling houses. Voltas, for instance, markets a number of products produced by small units.
The large companies make handsome profits from marketing the products of small units by
charging a much higher price from the consumer. In this respect, there is a need for a larger
number of marketing consortia, whose primary responsibility will be to assist small units.

Raw Materials

In view of the rising tempo of industrial activity, the shortage of right type of raw material at
standard prices has affected the entire industrial sector. Because of their smallness and weak
financial position, small-scale industries have to utilize the services of middlemen to get raw
materials on credit. Such an arrangement, however, results in higher costs and is particularly
disadvantageous when raw materials are imported, for the profit margins of middlemen are
rather high. Their meager resources induce small industrialists to use cheap and inferior
materials, which naturally affect the quality of their finished products. Moreover, the
irregular supply of certain raw materials adversely affects their production programmes. The
raw material problem has been extremely acute for steel-based industries like bicycles and
their spare parts, sewing machines and spare parts, automobile leaf springs, agricultural
implements etc

Technology

The growth of small-scale industries in India has not been very satisfactory despite the
various provisions for its promotion in the Industrial Policy of the country. One of the major
handicaps of the small-scale sector has been the absence of the latest technology, which alone
can ensure quality and high rate of productivity. The small industrialist, therefore, should
keep himself abreast of developments in technology, so as to:
 Remain in the market;
 Improve the quality of his products;
 Lower the cost of production; and
 Pass on the benefits to the consumer.
Unless he takes to this policy, he may soon find himself squeezed out of business. It is even
advisable for the small entrepreneur to give a lead in research and development, which may
not always be very expensive. Even without the facility of a sophisticated laboratory and
gadgets, by using his intellectual capabilities and utilizing the knowledge gained by others, it
is possible for him to stumble upon some new ideas, provided he is development-oriented and
is capable of innovation.

Recoveries

One of the most difficult problems of the small industrialist today is recoveries from sales. It
is an established practice for buyers to expect credit from sellers. This practice is forced upon
the small industrialist by the larger ones. Initially, credit was available for a month or two;
but with a very tight money market, a situation has developed in which buyers do not pay
their suppliers for over 12 months, and get away with it.. The bank may, if at all, extend
further assistance: but this assistance, after all, is not limitless. The New Bill Market Scheme
of the Reserve Bank of India has not touched this problem. The only way out of this situation
is for the Central Government to introduce measures to curb the practice and save the small
industrialist.

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Labour

Handling labour, which is a major contributor to industrial production, is one of the most
difficult tasks of the industrialist because of the human element involved in it. One has to
keep abreast of the maze of labour laws, which keep changing from time to time. Labour
today is fully aware of its rights. It has, therefore, to be handled with patience and
understanding. Unfortunately, trade unionists politically exploit the problems of labour, and,
at times, even create a problem where there was none before. To protect their vested interests,
politicians often prevent a settlement of a dispute between labour and employers, and thus
work against the interests of both. It is very important, therefore, to evolve a code of conduct
for trade unionists to protect the interests of labour as well as of employers; this will add to
the general prosperity and well-being of both.

Suggestions

On the basis of analysis, A few suggestions may be put forward for smooth and accelerated
growth of micro and small industries units in Andhra Pradesh.
 Among the operational problems non-availability of raw material and skilled labour and
competition are the major problems faced by the micro and small Industrial units in the
present study. Efforts are needed from the government agencies to overcome this
problem by providing necessary mechanism.
 Micro and small industrial units are also facing problems of inadequate and costly
transportation which obstruct their efficient operation. Attempt should be made to
provide easy, cheap and adequate transportation facilities to micro and small industrial
units. They may also be given transportation subsidy.
 Level of success of the units may be enquired by District Industries Centre periodically
and deficiencies may be indentified and training may be arranged for rectifying the
defects and removing the deficiencies in the organisation/management
 Most of the sample entrepreneurs felt that ―infrastructure‖ and ―technical assistance‖ are
significant facilitating factors. Hence, due attention must be paid to these factors to help
entrepreneurs.
 The government should set up a special institution or agency in order to eliminate
middlemen and to ensure the supply of good quality of raw materials at reasonable prices.
It has to procure and distribute both local and non local raw materials as and when
required.
 There is need to strengthen training and development programmes. Apathy towards
training programmes should be overcome by proper identification of prospective
entrepreneurs and by providing needed training inputs in an effective manner.

Conclusion

Micro, Small and Medium Enterprises have been recognized as the back bone of the Nation’s
economy. The growth and performance of these MSMEs largely depends upon their long-
term marketing strategies that creates and retains a satisfied customer through the process of
value addition. Further, the MSMEs in Andhra Pradesh require aiming at customer’s
satisfaction in their strategies to avail long-term viability and competency. This sector is rife
with problems like shortage of electricity and development of basic infrastructure along with
problems related to market. In order to solve these problems and develop the MSMEs, major
efforts have been done in the eleventh five year plan (2007-2012).The problems of

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 entrepreneurs are multidimensional .These can be solved by the coordinate efforts of
entrepreneurs, co ordinate functioning of promotional agenesis, and government assistance
without red tape.

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***

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