The Hindu Business Line : `Exports throw up enormous opportunities for SMEs'

THEY are by nature family-owned, some of them being run by the second or third generation. They see immense potential for growth, but many do not exploit the opportunities for fear of taking risks. Finance is more easily available to them now than before. Their markets are expanding, including exports. The challenges in tapping the growing market are quality, cost and delivery schedules.

The growth potential requires them to scale up their operations. There is a need to marry the business acumen of the original promoter with the requirements of the 21st century. As market size increases, the managements have to be more transparent and follow stricter disclosure norms.

These were some of the points thrown up at a discussion on "SME (Small and Medium Enterprises) Challenges - Gearing up for growth," organised by CNBC-TV18, here on Wednesday.

The participants, including from small and medium enterprises, agreed that exports threw up enormous opportunities for growth and brought with it even bigger challenges such as following stricter disclosure norms as demanded by the overseas buyer. As they grew, the enterprises also had to invest in technology, especially to put in place an appropriate information technology backbone, to help them access their customers more easily.

Mr Lingraju Sawkar, General Manager, IBM India Ltd, said promoters were convinced that they had to invest in information technology. This brought them closer to their customers and also eliminated middlemen. IT, he said, apart from being a business enabler, had also become a strategic tool for getting a competitive edge.

His suggestion was that SMEs should try and invest in technology that was open as it was scalable instead of getting locked up with a closed system. The SMEs should also invest in modules so that they did not have to spend a lot at one go. New concepts such as "on demand" were now available so that payment was by usage and the responsibility of upgrading the IT systems was on the vendor and not on the SME.

As far as lending to the sector was concerned, Mr Vijay Chandok, Head - Small Enterprises Group, ICICI Bank, said apprehensions about lending to the SMEs had not completely disappeared, but banks and financial institutions were taking a re-look at them in the context of the large opportunities that were unfolding. The segment itself had got de-risked with the growth in opportunities, he said. Banks had also realised that they could no longer merely go by the balance sheet of an enterprise for lending, but should take an overall view of the business.

Mr R. Ravi, Chief Executive, Electromags, an auto ancillary manufacturer, said till the early 1990s, SMEs were not prepared to go in for large investments, as their market was limited. But liberalisation changed all that. However, the world was not ready to accept India as a sourcing destination for manufactured products. This too had changed and in the next five years, the opportunities would be enormous. "If you do it right, the world market is yours," he said. Only companies that had quality, were cost competitive and adhered to delivery schedules could tap this enlarged market.

Mr K. Viswanathan of Rm.K. Visvanatha Pillai & Sons, a leading textile showroom, said the challenges, as far as the retail sector was concerned, were how to graduate from being a store into a brand. There was also the issue of merging the best of traditional wisdom handed down by generations with modernity. The retail sector had to invest heavily in technology as it was the only point of contact for customers and with more people travelling abroad, they expected the same level of service and retail experience as that offered by leading retail chains abroad.

Mr M. Nagesh, Finance Director, Nekkanti Sea Foods Ltd, said the seafood industry, which had all along been concentrating on exports, now had to promote the domestic market too in a big way as exports faced several hurdles abroad. However, tapping the domestic market too had its problems such as lack of adequate infrastructure, for example, cold chain in the country.

Mr Mohan Sreenivas, Managing Director, Orient Express (leather garment exporters), and Secretary, All India Skin and Hide Tanners and Merchants Association, said the leather industry had invested in technology to help in designing garments and to upgrade low-grade leathers.

Mr Sreenivas and Mr G. Ravishankar, Chief Executive Officer, Crisil Research & Information Services Ltd, felt that scaling up would be a problem for SMEs for some more time to come. Size would be a key factor that determined the credit quality of an SME, as larger companies would be better equipped to counter industry downturns.

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