MSMEs: GROWTH STRATEGIES

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Page 1 MSMEs: GROWTH STRATEGIES - Manish P Kiri Kiri Dyes and Chemicals Ltd. / DyStar

Transcript of MSMEs: GROWTH STRATEGIES

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MSMEs: GROWTH STRATEGIES

- Manish P Kiri

Kiri Dyes and Chemicals Ltd. / DyStar

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Index

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MSMEsMSMEs

Barriers to GrowthBarriers to Growth

Growth ImperativeGrowth Imperative

Growth StrategiesGrowth Strategies3

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Barriers to GrowthBarriers to Growth

Growth ImperativeGrowth Imperative

Growth StrategiesGrowth Strategies3

MSMEsMSMEs

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MSMEs

The definition of MSMEs/SMEs differ from country to country. Most countries have adopted the benchmarks of employment . Some define them in terms of assets, a few in terms of sales and yet others, in terms of shareholders fund.

MSMEs comprise widely divergent spectrum of establishment engaged in economic activities ranging from micro and rural enterprise to modern industrial units using sophisticated technologies. They comprise of half – to – two third of the business globally.

Definition differ across countries, but they have one thing in common; the vast majority of MSMEs are relatively small (in terms of employee strength).

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MSMEs in India

Employs – More than 60 Million

45% - Total Industrial Output

40% - Total Exports

Creates more than 1 Million

jobs annually.

Contribution to GDP set

to expand to 22% by 2012 from current

17%.

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MSMEs: Advantages

Generates more jobs per unit of capital investment.

Requires relatively less start-up capital.

Facilitates entrepreneurship.

Promotes / accelerates growth of the region.

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MSMEs: Characteristics

Traditionally Indian SMEs have had the following characteristics:

• Born out of individual initiatives &skills

• Greater operational flexibility

• Low cost of production

• High propensity to adapt technology

• High capacity to export

• High employment orientation

• Utilization of locally available human & material resources

• Critical for poverty reduction *

* - Source: World Bank

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MSMEs: Characteristics

Indian MSMEs can be divided into three classes:

• Predominantly rural , traditional household industries,

• Small and medium industries functioning with obsolete technologies,

• Modern, small and medium enterprises which are owned and operated by mostly young techno-entrepreneurs operating in relatively newer fields like Bio-technology.

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MSMEsMSMEs

Barriers to GrowthBarriers to Growth

Growth ImperativeGrowth Imperative

Growth strategiesGrowth strategies3

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MSMEs: Growth Imperative

In 1989 / 90s, SMEs accounted for:

• 93% of registered factories

• 66% of employment

• 44% of value of production

• 52% of gross value added.

However, after the economic liberalization by the Govt. of India the share of SMEs reduced in all the above indicators.

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MSMEs: Growth Imperative

India has emerged as a dominant growth engine of the world.

India steered through the worst global financial crisis with 8-9% growth of GDP when many developed countries saw their economies shrink.

Recent visit by various country heads to link their economies strongly with ours is clear recognition of our growing economic prowess.

Today even a Goolge, Microsoft or Dell understand the importance of Indian SMEs and have separate business strategy to cater to this segment.

India has signed economic pacts / agreements with various nations to facilitate increased cross border trade / cultural engagements.

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At a time when even the advanced nations and its companies are looking to India with hope to support their faltering economies and trade barriers are set to dilute, it is relevant to ask the question:

“Are we ready for the challenge with our Growth Strategies”

MSMEs: Growth Imperative

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4 Barriers to GrowthBarriers to Growth

Growth StrategiesGrowth Strategies3

2 Growth ImperativeGrowth Imperative

1 MSMEsMSMEs

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MSMEs: Growth Strategies

MSMEs growth is often closely associated with firm’s overall success and survival.

Strong growth may reduce the firm’s profitability temporarily, but increases it in the long run.

The path to growth for a MSME may differ depending upon various factors like the age of firm, its size, location, industry affiliation, stage of its life cycle, etc.

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MSMEs: Growth Strategies

Necessity for sustained Growth:

Entrepreneur's growth orientation

Entrepreneur's growth orientation Adequate Firm resources Adequate Firm resources Market OpportunityMarket Opportunity

Factors shaping growth orientation:

Ownership structure

Motivation

Education

Factors shaping growth orientation:

Ownership structure

Motivation

Education

Resources:

Financial

Policy Framework

Human

Resources:

Financial

Policy Framework

Human

Market:

Ability to identify customer needs and need-gaps.

Market accessibility

Market:

Ability to identify customer needs and need-gaps.

Market accessibility

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1.Organic Strategies

Growth Strategies

a. New Product / Technology

b. New Market

c. New Customer

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Organic Growth

New Product/Technology:

Beginning …

New Search algorithm

Start-up of a company in a garage 12 years back by two PhDs.

Today …

$ 200 billion enterprise

… and growing

Today the name is used as generic for “search” on the internet.

The company leads the rankings when it comes to product/technology innovation.

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Organic Growth

New Markets:

Different geography or different channels

Sales channel for India

Sales Channel – Direct/Retail/Outlet

Result – No.1 PC/Laptop brand in India within 8 years despite stiff competition from entrenched foreign and local low cost competitors.

Sales Channel – Direct/Retail/Outlet

Result – No.1 PC/Laptop brand in India within 8 years despite stiff competition from entrenched foreign and local low cost competitors.

Sales Channel – Direct Sales Channel – Direct

IndianIndianGlobalGlobal

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Organic Growth

New Customers:

Range of product in different product categories.

14000+ employees

Revenue: Rs. 4500 Crore +

Range of product in different product categories.

14000+ employees

Revenue: Rs. 4500 Crore +

One product – washing powder.

Single entrepreneur

Facility: own premises

One product – washing powder.

Single entrepreneur

Facility: own premises

TodayTodayStart-upStart-up

Market is not just finding a customer but finding need gaps that can be satisfied in a economically viable way.

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MSMEs: Growth Strategies

Understanding the customer:• MSMEs should focus not only on finding solution for its customers but also take care of their

preferences.

The company adapted to different sales channels for its customers in different regions (Europe and America).

Order book: more than Rs.1000 Crore.

Market standing: Preferred supplier for to all major global retailers

Order book: more than Rs.1000 Crore.

Market standing: Preferred supplier for to all major global retailers

Order book: Rs. 6 Lakh

Market standing: Newcomer

Order book: Rs. 6 Lakh

Market standing: Newcomer

TodayTodayStart-upStart-up

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MSMEs: Growth Strategies

Indian industry and MSMEs in particular needs to better understand about IPRs. Majority of countries specially developed are resorting to stringent IPRs for protecting their industries.

• IPRs help SMEs in value creation by enabling them to capitalize on their intangible assets.

• Govt./Industry should make concerted efforts to spread awareness about IPRs.

• One industry that definitely needs to understands and use IPR is “Handicrafts”. Machine made fakes are eating into the potential market for genuine “Indian Handmade handicrafts”.

• Another way in which IPRs can be of immense help is “Geographical Indications”. For e.g. “Pashmina Shawl” or “Banarsi Silk”.

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MSMEs: Growth Strategies

To connect more closely with its customers it is important for MSMEs to leverage “Branding”. A strong brand build reassurance, credibility and reliability among its customers.

• Branding creates goodwill and good will helps entrench the position of the product in the market

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Growth Strategies

2. In-organic Growth

a. Mergers & Acquisition

b. Strategic Partnership

c. Joint Venture

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In-organic Growth

Mergers and Acquisitions:

Control of target firm by buyer firm.

Arise from buyer’s deep desire to expand.

TATA + Corus = TATA

Control of target firm by buyer firm.

Arise from buyer’s deep desire to expand.

TATA + Corus = TATA

Union of two firm. Often on equal terms.

Often arise out of business necessities.

Nissan + Renault = Nissan-Renault

Union of two firm. Often on equal terms.

Often arise out of business necessities.

Nissan + Renault = Nissan-Renault

AcquisitionAcquisitionMergerMerger

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In-organic Growth

Strategic Partnership:

Typically companies with complementary business

assets ally to harness the available market opportunity.

In mid – 2009 Intel joined hands with Nokia for developing a new class mobile computing device and chipset architectures.

The devices will combine the performance of powerful computers with high-bandwidth mobile broadband communications and ubiquitous Internet connectivity.

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Inorganic Growth

Joint Venture:

Established when two parties come together to set a new project.

The partners share markets, IP, other business assets and profits as per the agreed-upon arrangement.

1. Tata Teleservices+ Virgin Group = Virgin Mobile India Limited

2. Bharti Enterprises + Wal-Mart = Best Price Modern Wholesale

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KDCL: Growth Strategies

Organic Growth:

1. The company is going to complete its backward integration project by expanding manufacturing capacity of intermediates at its existing facility.

2. KDCL has commissioned its basic chemicals plant located in close vicinity of its intermediate facility.

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Joint Venture –

The JV facility is the single largest manufacturing facility for reactive dyes in the country with the most advance technology.

KDCL: Growth Strategies

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MSMEs: In-organic Growth

2.Acquisition –

KDCL acquired DyStar group in the month of February 2010.

The acquisition has thrown new challenges and opportunities.

The acquisitions gives KDCL Unmatched technological edge.

Global markets with direct access to the customer..

Global brand recognition.

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MSMEsMSMEs

Barriers to GrowthBarriers to Growth

Growth ImperativeGrowth Imperative

Growth StrategiesGrowth Strategies3

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MSMEs: Barriers to Growth

MSMEs across the globe face almost similar problems affecting their growth:

• Source of funding / credit

• Access to technology

• Skilled Manpower

• Infrastructure support

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MSMEs: Barriers to Growth

The key financial constraints affecting growth of MSMEs are:

• Availability of timely and adequate credit

• High cost of credit

• Collateral requirement

MSMEs have to accept technologically advanced process and systems to take on the global competition:

• More than half the MSMEs are in rural areas where they is no or low access to modern technology.

• In today’s globalised world technology is important to fight competition as customer demands best products at lowest prices.

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MSMEs: Barriers to Growth

Skilled Manpower:

• Framework for vocational education and training needs to be reworked.

• Matching demand and supply of skills and bringing in contemporary and advanced courses will facilitate skill development and ultimately lead to employability.

Infrastructure:

• Potential of a MSME to grow and nurture innovation is greatly supported by the kind of infrastructure, both physical and economic.

• Common infrastructural problems faced by MSMEs in our country are:

Dependable supply of power

Transportation facilities

Provision of water

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MSMEs: Barriers to Growth

Vatva Industrial Estate (VIE) is a very good example of MSME cluster facilitated by a good infrastructure. With its upgraded infrastructure VIE has set an example with an annual turnover of Rs. 2500 Crore and annual export worth Rs. 1500 Crores.

VIE (right) – reconstructed road, storm water drains, sewerage network. VIA has also provided for a day-care medical centre, police station, post office, ESI centre, bus stops and several bank branches.

In keeping with safe and clean environment, VIA also planned for solid waste treatment and liquid effluent treatment from industries.

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MSMEs: Barriers to Growth

Other reasons which hamper the growth of MSMEs are:

• Local Orientation – The business strategy aims for a geographically delimited market. This caps the size and growth of

the business.

• Arrested Development – Once a specific scale has been reached the owner sees the rate of return on further scaling-up as

unviable.

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