Is the current business environment conducive for SME’s?

For some time now I have been following global economies where recession is slowly creeping in, and I ask myself why are these largely successful economies failing now? Is it because of the pandemic, or have they suddenly started making bad decisions. Well, in my opinion, the pandemic just amplified already existing problems in the economic ecosystem. The largely non-diversified procurement and complete dependence on a few sources for energy, food etc. has also been a major contributor to the current market problems. What I want to focus on is why such stable economies have suddenly become sensitive to market volatilities. The answer to this probably lies in the foundation of the economy, the lack of swift decision-making, or one can say resistance to adapt quickly to new challenges, and forgetting the basics that ultimately create a robust economy. I will elaborate on my thoughts on this in a separate blog soon enough.

What the pandemic brought out in open was the lack of risk assessment, and support to small businesses. Government’s not securing the business environment for its SME’s and making drastic changes to their ecosystem led to hassles for business operations if not a complete systemic crash. SME’s might not generate that much revenue for the government compared to the large industries, but they do what large corporates are unable to, and that is provide employment to people. In India, SME’s generate approximately 20% of total industrial revenue, but give employment to more than 70% of the workforce. A healthy industrial environment for SME’s brings down unemployment, controls inflation, and generates revenue for the government.

Under prevailing market conditions, governments can take measures like reducing the cost of raw material imported in the country and providing temporary duty / import tax break. Another thing that governments of a few countries especially in the west can assist with is creating access to labour by making short-term changes to their immigration policy. Also an important thing that is required is access to new markets and cheap logistics.

If governments start working on the these points along with the SME's I am sure that they will soon witness market stability and greater economic momentum. Its not just a new policy that is required, constant communication needs to be done with the businesses on ground in order to understand the current challenges and what needs to be done urgently. I always believe that a constant two-way communication between the government and businesses lead to development of a healthy business environment. Also SME’s should understand that they need to become less dependent on governments for help and need to strategize to spread operations and generate more income . New thinking needs to be adopted by SME’s where they realise that governments will assist and incentivise with zeal when they themselves are earning and expanding. Its also a responsibility of SME’s to steadily increase their revenue so that tax revenue of the governments from these industries also goes up. SME’s should always strive to evolve from being local businesses, to becoming global suppliers, and provide impetus to their respective governments to think for their welfare and draft policies which strengthens the business ecosystem.

 

Think holistically,

 

Manan

Small Business!! The something of everything.

 It’s my first blog and the idea is to keep it very simple so that everyone from all age group and educational background can understand the unique ecosystem and challenges of running a business. I must confess I started writing a blog with too much information and too many jargons, but then I thought “who’s going to read this?”. The answer was simple, “the people who already know about it”. They are probably the only ones who would understand what I have written. That realisation made me choose between writing a Wikipedia page and a blog read by many. So, I chose the latter and believe me it’s a bigger challenge to write something that requires so much numeric or rule driven information in such simple words that everyone reading it would understand. So, here onwards I will try to write as simplistically as possible. 

I always like comparing a business to a car, it has an engine, the core that keeps running it; a steering that gives it a direction to move in; seats for employees to sit and work on; a speedometer to record how fast you are going; a windshield to look forward clearly, and a rear-view mirror to see your past experiences and mistakes.

Last but not the least, there is a driver that is driving and controlling the car, AND THAT’S YOU.

It is very easy to go wrong with a car while you drive it, one wrong turn and you are either lost or down the road. So why is it so important that we have good comfortable cars, with speed yet stability, which consume less fuel and run for long. Well, because then your car will become bigger, you will add more seats, more technology, and finally pay more taxes, and that is what keeps the nation and the governments happy.

The micro, small and medium enterprise (known as MSME’s) that contribute 30% to our nations GDP, employ millions of people in every corner of our nation, bring in huge amount of foreign exchange, and lastly pay large amount of taxes. Now I am not going to give any statistical information over here, because that is something you can very conveniently google. But yes, MSME’s are part of everyone’s life, some work for them, some run them, and some benefit from them. But all-in-all they play an important role in everyone’s life and most of all contribute a lot to the nation’s growth. The micro and small enterprise employ almost 95% of working population and generate a large part of national revenue. At the same time medium enterprise are responsible for almost 40% exports and have potential to become large enterprise, that generate huge revenues and pay loads of taxes (and that is why they are governments blue eyed boys).

Well, I am not trying to say that states and governments prefer larger companies compared to smaller ones, AM I? But when it comes to policies, ease of doing business, ease of setting up a business, and easy flow of money, then I think large enterprise are at an advantage. Primarily because they have resources, and they are big earth movers. But what about the small cars, the micro and small businesses that a woman starts online, or a man starts in a warehouse, that don’t have big offices but still employ a group of people and have been running their home for years if not decades. I think you get my point; I am talking about everyone who once started a business from their savings and reached somewhere. Yes, they might not be paying exorbitant taxes, but they do one thing that most large businesses don’t do, that is give employment opportunities to people in villages, towns, cities. Employment to people who might not be so qualified or well-spoken that they get employment in big conglomerates, and yes these are sustainable employments.

I have an observation, whether the country is developing or developed, the unemployment rate increases because small businesses are failing. Be it United States of America or India. 

I have some questions in my mind regarding the whole small business environment in our country.

Is the government doing enough for them? 

Are these businesses doing enough for themselves? 

Is there a low interest credit line available to these businesses? 

Has the cost of operating gone so high that its almost unsustainable? 

Are there enough equity infusion options available? (By this I don’t mean going to big venture capitalist or running to audition for Shark Tank. What I mean is that is there a regulatory infrastructure or access to equity funding through financial institutions or simply put through “Banks”).

In present times, are small home-run businesses compelled to invest a lot in social media marketing?

Has cost for hiring business services gone up?

These and many more questions are there which I will be discussing and putting forth my views on in upcoming blogs. But there are things that I am sure about when I think about small businesses. These businesses are majorly responsible for employment opportunities, movement of goods, consumption, augmentation, building and development of socio-economic infrastructure, less consolidation of wealth in few hands, and finally they help bring people above poverty line. That’s why these small businesses are something of everyone’s life, and we need to move towards creating a survivable environment for them so that the middle class of our nation can thrive.

Hope my first blog sets a tone for what’s about to come. Your views and suggestions are always welcome.

Keep innovating! 

Manan