Surviving in the global village The impact of changing global market trends on Indian SMEs
Over the past few years, it has become increasingly difficult to discuss the development of SMEs without making a link to the globalisation of markets and thus of the economy. Ease in international trade barriers, economic liberalisation, globalisation, privatisation, disinvestments and deregulation have thrown several challenges (and opportunities) for SMEs in India. Thus, globalisation is an advantage as well as a challenge for SMEs. Talking about challenges, Pramodh Menon, Senior VP – Commercial, Cisco India & SAARC, says, "Indian SMEs have become part of a global supply chain. To stay competitive in this environment, SMEs must adopt collaborative technologies. They need to use their network as a platform for more effective and personalised global business collaboration. “ The impact of globalisation on SMEs is a result of direct and indirect interaction with foreign firms through forward and backward linkages. Through backward linkages, foreign firms work with host country firms to supply inputs, such as raw materials, products or services. These are part of the foreign firm's global value chain. On the other hand, with forward linkages, host country firms are contracted by foreign firms to channel products and services to final consumers as distributors or intermediaries for foreign firms. Indirect interaction takes place when foreign firms compete with host country firms for resources and markets. Other forms of indirect interaction may come from the movement of labour between foreign firms and host country SMEs. The greater the interaction between the two, the higher the likelihood that foreign owned firms will influence the performance of local firms. Says Suman Bose, Country Director-India, Dassault Systems PLM Sales, "SMEs are being forced to adopt a global context, even if they are not involved directly. They are being forced to re-do their products and they will have to source profitably to offer consumer-surplus pricing, scout for new sales channel including internet, and explore cross border financing to lower cost of capital." It is feared that globalisation will constrain small businesses which are at the source of most job creation in most industrialised countries. There are also those SMEs who fear the vanishing of trade barriers and are being forced to sell their products and services to customers at lower prices; because if they don't, some vendor in another part of the world will take away the customer. However, as Ajay Adiseshann, Founder and MD, PayMate lucidly puts it, "With globalisation SMEs are exposed to larger corporations entering their markets and attempting to eat their lunch. This element of risk is something we see unfolding almost on a day to day basis, for which we are constantly planning and reinventing ourselves both from a strategic and technology perspective to thwart such challenges." In their efforts to compete with foreign firms, SMEs may learn from these firms new methods of production and management leading to product advancement. This can also take place as foreign firms instil additional capital and modern management practices into SMEs through acquisition or as joint venture partners. As the MD of a rapidly growing SME in the auto ancillary segment from Maharashtra says, "Globalisation has brought with it opportunities to grow bigger and faster. To make the most of it, every SME will have to focus on speed, quality and product innovation while maintaining cost competitiveness." While talking about the possibility of considering export as a strategic option for growth oriented SMEs, Mr Bose says, "Export will facilitate sales growth, expand customer base, reduce dependence on few major customers, even out regional business cycle-related demand fluctuations, and establish network of partners." The driving issue is the move toward increasing economic interdependence, open regionalism and the liberalisation of flows of goods, services, resources and capital. However, the impact of open regionalism is not equal for all SMEs. There are those SMEs which are able to become internationally competitive. They are likely to be advantaged by increased open regionalism. As R Subramaniam, MD, Subhiksha Trading Services, explains, "Globalisation will initially cause the SME sector a lot of pain and discomfort, however, in the medium and long term, they will benefit as they will be able to compete with their global peers. " SMEs are aware of the advantages that globalisation has to offer, but some barriers have prevented them from adopting that route. Thus, it is imperative for SMEs to emphasise on technology, improving quality and creating globally competitive products. What SMEs need to survive in the global village • Improvement in infrastructure • Modern management practices • Quality processes confirming to global standards • Highly skilled workforce • World class technology