M.S.

RAMAIAH INSTITUTE OF TECHNOLOGY

(Autonomous, Affiliated to Visvesvaraya Technological University)
Vidya Soudha, MSR Nagar, M.S.R.I.T Post, Bangalore-5600054

Department of Management Studies

SEMINAR on
“PROBLEMS IN SMES”

Submitted by: PRASANNA.C.U

USN – 1MS08MBA34
Under the Guidance of in co-ordination with

Mr. Vijay N. Rao Mrs. Rizwana. M

 CONTENTS
• Introduction.
• Scope of SMEs • Problems in SMEs
• Significance of SMEs in • Measures and solutions
Indian economy. • Learning experience
• Highlighting features of • Conclusion
SMEs
• Literature cited
 SMEs Definition
• MSME stands for Micro, Small and Medium Enterprises also
known as ‘Town and Village’ Enterprises.

• Units in Small and Medium Enterprises (SME) Sector will

include all units in tiny and Small Scale industrial (SSI) sector
and also those industrial units whose investment in plant and
machinery is up to INR 100 million. as per definition of RBI
(defined in RPCD Circular No. RPCD.PLFNS.BC. 31/
06.02.31/ 2005-06 dated August 19, 2005)
 Definition of MSMEs

Type Mfg.Enterprise Service Enterprise

Micro Up to Rs.25 lakh Up to Rs.10 lakh

Small Rs.25 lakh to Rs.10 lakh to

Rs.5.0 cr. Rs.2.0 cr.

Medium Rs.5.0 cr. to Rs.2.0 cr. To

Rs.10.0 cr. Rs.5.0 cr.
 Features of Indian SMEs
• Born out of individual initiatives & skills- Owner is
manager and few employees
• Greater operational flexibility-Owned and operated
independently
• Low cost of production
• High capacity to innovate export
• High employment orientation
• Utilization of locally available human & material
resources
• Reduction of regional imbalances
• Relative small investment. Production, sales, dealings
etc.
SCOPE OF SMEs

 SMEs constitutes an important

segment of our national economy.
 Promotes economic growth
 Employment to over 42 million
people
 45% of total manufactured output.
 40% of India’s exports.
 80% of the total number of
Industrial Enterprises
 IMPORTANCE OF SMEs

 Provides increased employment through labour

intensive process
 Requires lower gestation period
 Easy to setup in rural and backward area
 Need small/ local market
 Encourage growth of local entrepreneurship
 Creates a decentralized pattern of ownership
 Literature cited
 Books:  Journals:
• Entrepreneurship development Small • Indian Management, Journal pf
Business Enterprises- Poornima AIMA, Aug 09, vol 48, issue 8.
Charantimath • The Analyst, Chartered Financial
• Small Scale Industries- Vasanth Desai Analyst, June 09
• Indian Economy- A.N. Agrawal • SME World May- July 2007
• Dynamics of entrepreneurial development• SME World Feb- April 2008
and management- Vasant Desai
 Websites:
• www.business.gov.in
• www.smallindustryindia.com
• www.dcmsme.gov.in
• www.lubindia.org/ssi/
PROBLEMS FACED BY SMEs

 Teething troubles
 Financial problems
 Production problems
 Marketing problems
 Managerial problems
 Technology problems
 Infrastructure problems
PROBLEMS FACED
BY SMEs
 Teething troubles:
• Preparation of Project report
• Obtaining of license
• Unaware of Import procedures
• Changing government policies
Financial problems of SMEs
 Finance through Owner’s own
contribution
 High rates of interest on loans
 Cumbersome paper work
 Reluctance by Banks to give
credit.
 Suffers from liquidity crunch
 MEASURES

• Priority Sector Lending policy

• Small Industries Development Bank of India
(SIDBI) SIDBI has been set up with the mission to empower the Micro,
Small and Medium Enterprises (MSME) sector with a view to contributing to the
process of economic growth, employment generation and balanced regional
development. It is the principal financial institution responsible for promotion,
financing and development of the sector. Apart from extending financial
assistance to the sector, it coordinates the functions of institutions engaged in
similar activities. The four basic objectives of SIDBI for orderly growth of
industry in the small scale sector are:
• Financing
• Promotion
• Development
• Co-ordination
 MEASURES
• State Financial Corporations (SFCs)
At the State level, State Financial Corporations (SFCs)
along with the State Industrial Development
Corporations (SIDCs) are the main sources of long-
term finance for the sector. State Financial
Corporations, the state-level institutions have played an
important role in the development of small and medium
enterprises in their respective states with the main
objectives of financing and promoting these enterprises
for achieving balanced regional growth, catalyze
investment, generate employment and widen the
ownership base of industry.
Production problem of SMEs
 Non-availability of Raw
materials at the right time and
cost.
 Forced to purchase residual or
scrap material
 Benefit of bulk buying does not
exist
 Shortage of power supply
 Use of old and outdated
machinery
 MEASURES
• National Small Industries Corporation (NSIC): aims to help
small scale units by financing purchase of raw material
(both indigenous and imported), thus allowing them to
focus on manufacturing quality products.
• Raw Material Assistance Scheme
• NSIC takes care of all the procedures, documentation &
issue of Letter of credit in case of imports.
• SSI helped to avail Economics of Purchases like bulk
purchase; cash discount etc
• Financial Assistance for procurement of Raw Material upto
90 days.
 Marketing problem of
SMEs
 Lack of Brand image
 Lack of Sales force
 Product quality
 Credit sales
 Low prices
 Local and limited
market
 MEASURES
• Export promotion zones (EPZs): have been set up to
provide an internationally competitive duty-free
environment for export production at a low cost. This
enables the products of EPZs to be competitive both
quality and price-wise. Kandla (Gujarat), Kochi (Kerala),
Noida (U.P)
• Export Credit Guarantee Corporation (ECGC): provides
insurance cover to exporters against the risk of non-
realization of export payments due to commercial and
political risks involved in export on credit terms.
• Spices Trading Corp., Cotton Corp of India, MITCO etc
Managerial problem of SMEs
 Lack of trained and experienced employees
 Inadequate training of personnel
 Dependence on second rate talents
 Promoters or owners do not possess managerial
skills.
 Changing labor laws
 MEASURES
• National Institute for Micro, small and
Medium Enterprises (NI-MSME):
• the premier institution which strives to achieve its
avowed objectives through a gamut of operations
ranging from training, consultancy, research and
education, to extension and information services
• Management Training Programmes: helps
upgrading their managerial decision making
capabilities and providing them an insight in the
latest developments.
Technological problem of
SMEs
• Obtaining information about
new technology
• Barriers to import of technology
• Research and development
• Acquiring finance for up
gradation of technology
• Lower quality and higher cost.
• Difficult to attract and retain IT
personnel
 MEASURES
• ISO 9000/14001 Certification Fee
Reimbursement Scheme was introduced in
order to incentivise technological upgradation,
quality improvement and better environment
management by the MSEs. The scheme provides
incentive to those small scale/ ancillary undertaking
who have acquired ISO 9000/ISO 14001/HACCP
certifications.
• National Manufacturing
Competitiveness Programme (NMCP)
Has been launched by the government in order to help
MSMEs improve their competitiveness. The schemes under
this Programme are aimed at addressing the
technology/quality upgradation needs of the sector, mainly
in the public-private partnership mode.
Infrastructure problem of SMEs

• Location
• Transportation
facilities
• Telecommunication
• Proximity to the
market
• Inadequate power
supply
 Learning experience
The process of privatization, liberalization and
globalization has affected the whole economy.
It has increased the sphere of competition in
national as well as international markets and
has created the environment where fittest will
survive and inefficient will be weeded out.
Therefore the policies when implemented in
letter and spirit are expected to make SMEs
more competitive nationally and globally as
well. Above all, it will inculcate entrepreneurial
culture and generate employment for youth
and instill a sense of pride among them.
Conclusion and Suggestions
 Arrangements may be made by the government to ensure the
supply of trained and professional managers for the small
scale sector.
 It would be necessary to consider policy initiatives to
incentivize MSMEs to achieve economies of scale by
expanding production.
 To facilitate the MSME sector to garner resources, it is
imperative that a separate trading exchange be set up
exclusively for the MSMEs.
 Provide special incentives for encouraging larger flow of
Venture Capital & Private Equity funds into the sector.
 There is an urgent need to devise measures to tackle the
problem of loss of fiscal benefits when the micro and small-
scale units graduate into larger units, etc.
THINK LOCAL ACT GLOBAL
THANK YOU