SMEs need to be more customer oriented

Madurai: Small and Medium enterprises need to adopt a customer friendly approach if they are to overcome the present economic turmoil, said Dr Bala V. Balachandran, Professor, JL Kellogg School of Management, while addressing the Young Entrepreneur School of the Tamilnadu Chamber of Commerce and Industry. He advised entrepreneurs to focus on costs, if variable costs were more than 50 percent and if not, to focus on sales.

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However, an assessment carried out by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), states that large and medium industries are sourcing their inputs increasingly through cheaper imports instead of SMEs. Moreover, some large companies, who had sourced inputs from SMEs, are delaying payments to them, resulting in job-layoffs, thereby pushing SMEs into a vicious circle, according to the assessment.
It is estimated that in terms of value, SMEs accounts for about 39 percent of the manufacturing output and around 33 percent of the total export in India. Traditionally, the sources of funds available to an SME were banks for term loans and promoters for working capital. The Indian Institute of Foreign Trade (IIFT) established a separate center for SME studies to provide continuous support to SMEs by conducting training programs, providing business intelligence services through a databank and interfacing with associated institutions.

However, the global economic recession made its impact as more than 100,000 small and medium enterprises (SMEs) shut shop in India in 2008, hurt by falling demand and difficult credit conditions, and the figure is likely to rise in FY09, according to industry sources. SMEs contribute around eight percent to India's GDP and employ more than 40 million people across the country. But the lack of credit and a sharp rise in order cancellations from the U.S. and Europe due to the global recession have put SMEs in a tight corner including auto parts, manufacturing and textiles.

On the directions of the Reserve Bank of India (RBI), State Bank of India (SBI) will restructure loans for SMEs in the Bengal circle, which will include separate rehabilitation and restructuring schemes. The National Stock Exchange (NSE) is expected to set up a SME exchange on its own, in continuance with its earlier talks for a similar proposal last year.