The Changing Role of Small & Medium Enterprises in Aerospace Industry

Date:   Tuesday , August 31, 2010

The Small and Medium Enterprises (SMEs) in the Aerospace Industry are poised for exciting growth today. Whilst it is true that SMEs are being hit hard by the lack of available finance in this capital intensive industry, the ability to be leaner and more agile (and cheaper, letís not forget) gives SMEs a cutting edge to be well positioned for opportunities, provided they continuously add value and retain their customers. Also, because of their keenness to build a differentiating edge, SMEs are more prone to spend time developing new products and services, and this is paying off in terms of attracting new clients. Those SMEs that manage to tighten the belt and survive on their own working capital actually have a huge opportunity to exploit the impact that market forces are exercising on the larger businesses. Also, by reacting so rigidly and fearfully, larger enterprises are levelling the field of competition, allowing smaller enterprises to bid (and be considered for) more contracts.

Limited spending and increased attention to cost savings, related to labor and infrastructure in particular, has become the decisive decision driver lately. This is the case for large OEMs and aircraft companies to develop a keen interest towards India. Also, in view of the offset considerations, there are significant opportunities that might open up for the SMEs in the future. However, only niche SMEs will have the wherewithal to absorb and scale. If they do not think out-of-the-box, there is every chance of being wiped out because of the current scenario as well as the changes in market dynamics.

The SMEs are staring at multiple opportunities in design, development, and manufacturing in the aerospace sector. To move up the global defence value chain, SMEs should focus on innovation, building intellectual property, and adopting quality and process standards to be able to offer complete sub-systems or assemblies. Firms that focus on multipurpose technology have secured their position in the market by becoming specialized suppliers serving different global value chains. SMEs of aerospace and precision engineering sectors have become conscious of their competitive strengths, which they associate in particular to flexibility and quality of their offer.

In view of the growing private sector participation in defence R&D, the government should encourage the participation; and such participation should be primarily financed by the government, because defence R&D is expensive and marked by an element of uncertainty. There is a huge change in the aerospace industry in recent years, yet its procurement practices have not kept pace. The software industry have adopted new approaches to reduce costs and have been greatly rewarded, however procurement at many aerospace companies still remain tied to the past, practising traditional trends like being driven by program-centric, cost-plus mentality as well as other traditional business practises that are increasingly outdated.

Another challenge that we see for the SMEs in the aerospace industry is Talent Management. It is the need of the hour as availability of skilled workforce is a concern and domain knowledge is the key. The focus for SMEs should be to develop new employees through specialized training programs and assimilation, while keeping current employees and attracting highly skilled new workers to join the workforce. Itís a highly strategic effort and takes a conscious effort from management to source, attract, select, train, develop, promote, and move employees through the organization.

To conclude, Indiaís industrial output is now mainly contributed by SMEs that account for 50 percent of it, 40 percent of total exports and account for over 90 percent of all enterprises. There is a need to mitigate the common challenges faced by SMEs, like credit shortage, through urgent policy interventions by government to support SMEs, which in turn will sustain and enhance the business competitiveness. Aerospace industry has a huge potential in the coming years and one event that has showcased the same was the Global Investor Meet held in Bangalore during June 2010. We are in for good times ahead.

The author is CEO, Ignis Technology Solutions.