Most of them are first- or second-generation entrepreneurs. They are tier-2 suppliers. That is, those making smaller parts that go into components that are sold to the equipment manufacturers, in a range of industries such as automobiles and consumer durables.

Talk to a cross section of them and they tell you that business is looking up. A lot of multinational companies are looking at India more seriously now even as they re-think their China strategy. But then when things should be hunky dory for these small and medium enterprises, they are anything but happy.

LIST OF WOES

The list of woes includes infrastructure bottlenecks, official apathy, high cost of finance and lack of recognition. Uniformly, they tell you that they are prepared to talk about their problems but do not want to be identified. But, why? It is easier that way, is their simple answer.

As one second-generation entrepreneur who runs three units, including plastic injection moulding plants, put it succinctly, the problems of MSMEs (micro, small and medium enterprises) can be summed up as:

labour, finance, branding and ability of the entrepreneur to run the business. To top it all, he adds that the tiny sector (or the Micro in the MSME) is all but finished off.

A majority of the units are labour intensive. They would prefer to have ITI educated workers, but then getting them is a problem. Hence, they settle for those who have passed their 10th standard or higher secondary. The starting salaries could be in the range of Rs 5,000-6,500 and after five years, the salaries could be in the Rs 15,000 range. Even then getting workers is extremely difficult, the entrepreneurs say.

A lot of them employ migrant labour. For instance, units in the Sriperumbudur belt – home to companies such as Hyundai Motor India – employ workers from rural Uttar Pradesh or West Bengal. Which means the supervisor should be conversant in either Hindi or Bengali. Where do you find them, asks one entrepreneur.

The more serious issue, even with those who have passed out from ITIs, is the skill level. They need extensive training and a number of them are still not employable even after undergoing training for a few months. There is a huge disconnect between what is taught in the it is and what the industry requires. Added to this is the problem of workers quitting. Attrition levels are as high as 60 per cent.

Says one entrepreneur, of the nearly 180 workers in his establishment, a little over half are from nearby areas, and of the balance, more than half from West Bengal. Productivity is an issue. The productivity of a Chinese labourer is 15-20 per cent higher than workers here.

Seeking teaser rates

Finance is another sore issue with these entrepreneurs, be they in Chennai and its surrounding industrial belts or in Pune. Interest rates are as high as 13.5 per cent and go up to 15 per cent if the service fee and the audit fee of the banks are included. Why not have teaser rates for us, asks an entrepreneur. Akin to what a few banks offered for housing loans. Charge a lower interest in the initial years, especially when the machinery has been bought and is being installed and till it stabilises. Then gradually increase it so that the banks still get the interest income that they would have otherwise got, if they had charged at the normal rates from the beginning.

Is this feasible? “Why not,” asks an entrepreneur. “After all, most of us have a track record with the banks,” he adds. He points out that the interest rate in China is 4.5 per cent. Recently when he went with to his customer with a quotation for a part, the customer rejected it outright saying it was too high. Then when they sat down to break up the costs, the customer was surprised to find that the interest rate was as high as 15 per cent. He was sourcing from suppliers in China and their interest costs were a maximum of 4.5 per cent and 3 per cent on the lower side. “How do you expect us to compete. After all, SMEs are the backbone of the economy,” he says.

“The market out there is amazing,” says another entrepreneur. China wants to develop its local market and has started levying a tax on exports. This has forced multinationals to look to other countries, mainly India, for getting components. “This is when we should go all out to grab the opportunity,” he says.

In the US, points an entrepreneur, the federal, State and local government provide cash incentives to units to install energy efficient equipment. High time something like that is done here too. Some entrepreneurs also point to the need to equip the entrepreneurs themselves to run a business.

Skills to entrepreneur

Imparting skills to the entrepreneur is an important aspect of business, but it is completely neglected. Unlike in the IT or the technology-based industries, where mentoring is available, the manufacturing sector suffers because proper mentoring is just not there. Entrepreneurs may be technically qualified, but they need to be trained in running a business – right from choosing the machinery to managing costs to keeping an eye on the balance sheet to managing the employees to marketing the products to branding themselves and their company.

The problem is there is no focussed effort to develop the SME sector, says another entrepreneur.

Most often, grand announcements are made, without proper follow up. A directed and focussed effort is all that is needed to help entrepreneurs.

Please send feedback, comments or suggestions to >emergingentrepreneurs@thehindu.co.in

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