micro, small & medium enterprises (msme’s

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Page 1: Micro, Small & Medium Enterprises (MSME’S
Page 2: Micro, Small & Medium Enterprises (MSME’S

Micro, Small & Medium Enterprises (MSME’S)

Definition:-

In Indian context, a small scale enterprise is broadly

defined in terms of the value of investment in plant & machinery.

A small scale enterprise is the one in which the investment in

fixed assets in plant and machinery, whether held on ownership

terms, on lease, or in hire purchase, is shown below……

Page 3: Micro, Small & Medium Enterprises (MSME’S

Types Manufacturing Service

Micro Enterprises Rs. 1 Lakh to 25 Lakhs

Rs. 10 Lakhs

Small Enterprises Rs. 25 Lakhs to 5 Crores

Rs. 10 Lakhs to Rs. 2 Crores

Medium Enterprises Rs. 5 Crores to 10 Crores

Rs. 2 Crores to Rs. 5 Crores

Page 4: Micro, Small & Medium Enterprises (MSME’S

Production output in small quantities

Informal management style

Small no. of workers & Employees

Usually present in the form of family business

Lowest possible capital investment in Plant &

Mach

Generally utilize local resources & produces

goods & services

Have lower gestation period & are easy to set

up in rural and backward areas

The units is not owned, controlled or subsidiary of any other industrial

undertakings

Characteristics of SSI

Page 5: Micro, Small & Medium Enterprises (MSME’S

To improve the standard of living for the local

population

To stimulate growth of local entrepreneurship

To address the needs of local markets

To promote a decentralized pattern of ownership

To foster diversification of economic activities

To increase employment opportunities through labour intensive process

To introduce new products particularly to cater to the

local needs

Objectives of SSI

Page 6: Micro, Small & Medium Enterprises (MSME’S

Why Being Small is Efficient?

Economies of scale for certain trades

Lower transaction cost in small entity

More flexibility

Innovation – often possible in small flexible units

Page 7: Micro, Small & Medium Enterprises (MSME’S

Role of MSME’s in Economic Development

In India, MSME’s account for almost 45% of the total industrial production.

MSME’s also contributes 40% of the Exports of the country.

They manufacture over 6,000 products of the country.

The MSME’s is the second largest employer in India after agriculture.

The total jobs in the MSME’s in India goes up to 650 lakh ( Acc to 11th 5 year Plan).

It provides opportunities for development of technology.

They contributes 5 – 8% of the GDP of the country.

Page 8: Micro, Small & Medium Enterprises (MSME’S

Government Support for MSME’s During 11th Five Years Plan (2007-2012) The 11th plan’s approach to the MSE sector marks a shift from the welfare approach

to that of empowerment. The strategy is two pronged it focuses on livelihood and

social security.

Policy initiatives are proposed to incentivize MSE’s to achieve economies of scale by

expanding production. One possibility could be to allow them to retain the benefit of

excise duty exemption up to the prescribed limit even after they graduate into MSE’s.

The MSE sector, including handlooms and handicrafts, presents an opportunity for

exports. The effort during the plan period will therefore be to organize this sector, to

create clusters of weavers/artisans to improve their bargaining power, and enable

them to pool resources.

Banks will be encouraged to ensure that all loans up to 5 lakh to MSE’s are given free

of collateral at the interest rate of 8%.

Page 9: Micro, Small & Medium Enterprises (MSME’S

Supporting Agencies of Government For MSME’s

MSME Board

MSME Development Organization

MSME Development Institutions

MSME Technology Development Centers

MSME Testing Centers and MSME Testing Stations

MSME Tool Rooms/Tool Design Institutes

Entrepreneurship Development Institutes

National Small Industries Corporation

Small Industrial Development Bank of India (SIDBI)

Khadi & Village Industries Commission (KVIC)

Page 10: Micro, Small & Medium Enterprises (MSME’S

For

Modernization

Productivity

Technological Needs

Skill Development & Up gradation

Adequate & Affordable assistance in Finance

Page 11: Micro, Small & Medium Enterprises (MSME’S

Problems of Small scale industriesFinance (scarcity of capital, non availability of credit facility)

Raw Material (Poor quality, uneven supply of raw material, inadequate qty)

Technology ( not exposed to latest technology)

Idle Capacity( due to underutilization)

Infrastructure (Transport,power,communication)

Marketing (not in a position to get first hand information about the market)

Underutilization of Capacity (due to non availability of raw material, power, finance)

Skilled Manpower (Being in backward areas)

Project Planning (Lack Tech& Economical)

Managerial inadequacies like overdependence

Page 12: Micro, Small & Medium Enterprises (MSME’S

Common Causes of Failure Choosing a business that isn't very profitable.

Inadequate cash reserves.

Failure to clearly define and understand your market, your customers, and your customers' buying habits.

Failure to price your product or service correctly.

Failure to adequately anticipate cash flow.

Failure to anticipate or react to competition, technology, or other changes in the marketplace.

Overgeneralization.

Overdependence on a single customer

Uncontrolled growth.

Believing you can do everything yourself.

Putting up with inadequate management.

Page 13: Micro, Small & Medium Enterprises (MSME’S

PEST ANALYSIS

Page 14: Micro, Small & Medium Enterprises (MSME’S

Political FactorsEcological/environmental issues

Current legislation home market

Future legislation

International legislation

Regulatory bodies and processes

Government policies

Government term and change

Trading policies

Funding, grants and initiatives

Home market lobbying/pressure groups

International pressure groups

Wars and conflicts

Page 15: Micro, Small & Medium Enterprises (MSME’S

Economical Factors

Home economy trends

Overseas economies and trends

General taxation issues

Taxation specific to product/services

Seasonality/weather issues

Market and trade cycles

Specific industry factors

Market routes and distribution trends

Customer/end-user drivers

Interest and exchange rates

International trade/monetary issues

Page 16: Micro, Small & Medium Enterprises (MSME’S

Social FactorsLifestyle trends

Demographics

Consumer attitudes and opinions

Media views

Law changes affecting social factors

Brand, company, technology image

Consumer buying patterns

Major events and influences

Buying access and trends

Ethnic/religious factors

Advertising and publicity

Ethical issues

Page 17: Micro, Small & Medium Enterprises (MSME’S

Technological FactorsCompeting technology development

Research funding

Associated/dependent technologies

Replacement technology/solutions

Maturity of technology

Manufacturing maturity and capacity

Information and communications

Consumer buying mechanisms/technology

Technology legislation

Innovation potential

Technology access, licensing, patents

Intellectual property issues

Global communications

Page 18: Micro, Small & Medium Enterprises (MSME’S

SWOT ANALYSIS

Page 19: Micro, Small & Medium Enterprises (MSME’S

Strengths1 Gut feeling  & Quick decision making ability 2. Equally well, execution will and power 3. Risk taking ability 4. Self motivated to earn profit 5. Creating self sustaining business model 6. Business location or product exclusivity  7. Macro level knowledge on banking, accounting, taxation, purchase etc. 8. Strong emotional bonding with self created business/ company goodwill 9. Self developed leadership values

10. Patents or proprietary goods

11. An established distribution channel

 

Page 20: Micro, Small & Medium Enterprises (MSME’S

Weaknesses 1. Attitude towards marketing the business

2. Aptitude to restrict spending for long term objectives 3. Always looking at price/cost and never value 4. Diverting business profit in stocks and other to earn quick money 5. Investing capital to purchase properties and luxuries beyond business 6. To postpone things that’s not convenient & comfortable to execute 7. Ignore importance of innovation when investment in R&D is required 8. Believe marketing/branding is expense and not investment 10. Limited human resources and staff

11. High cost of production

12. Products or service similar to competitors

Page 21: Micro, Small & Medium Enterprises (MSME’S

Opportunities

Government regulation softening

Development of new technology

Growing trend and customer base

Page 22: Micro, Small & Medium Enterprises (MSME’S

Threats

New substitute products emerging

Price competition

Economic pressure

Page 23: Micro, Small & Medium Enterprises (MSME’S

Sickness in SME

In common parlance , a sick industry is one which is not healthy. A healthy unit

is one which earns a reasonable return on capital employed and which builds

up reserves after providing reasonable depreciation.

According to RBI “a sick unit is one which incurs cash losses for one year and is

likely to incur cash losses for the current year as well as for the following

year”.

The Sick Industrial Companies Act 1985, defines a sick industry as “an

industrial company which has at the end of any financial year accumulated

losses equal to or exceeding its entire net worth and has also suffered from

cash losses in such financial year immediately preceding such financial year.

Page 24: Micro, Small & Medium Enterprises (MSME’S

Criteria to identify sickness

Continuous decline in gross output compared to the previous two financial years.

Delays in repayment of institutional loan, for more than 12 months.

Erosion in the net worth to the extent of 50 per cent of the net worth during the previous accounting year.

Page 25: Micro, Small & Medium Enterprises (MSME’S

Signals of industrial sickness

Decline in capacity utilization

Shortage of liquid funds

Inventories in excessive quantities

Irregularity in maintaining the bank accounts

Frequent break downs in plant & equipments

Decline in the quality of products

Frequent turnover of personnel

Technical deficiency

Page 26: Micro, Small & Medium Enterprises (MSME’S

Symptoms of Industrial Sickness

Shortage of cash

Deteriorating financial ratios

Widespread use of creative accounting

Continuous decline in prices of the shares

Delay & default in the payment of statutory dues

Morale degradation of employees

Frequent request to banks & financial institutions for loans

Delay in the audit of annul accounts

Page 27: Micro, Small & Medium Enterprises (MSME’S

Consequences

Huge financial losses to the banks & financial institutions

Loss to employment opportunities

Emergence of Industrial unrest

Adverse effect on perspective investors and entrepreneurs

Wastages of Scarce resources

Loss of revenue to government

Page 28: Micro, Small & Medium Enterprises (MSME’S

Remedial MeasuresMonitoring and nursing the sick units during infancy

Diagnostic studies (Role of BIFR)

Incentives should be provided to professional managers helping in reviving sick units

Issuing guidelines on major aspects that affect the image of the company

Brain storm with a select group to get creative ideas for improvement

Adopt better practices, right technology, better work culture and professional management SSI can improve their health as well as the economy.

Page 29: Micro, Small & Medium Enterprises (MSME’S

RBI guide lines…

RBI has constituted a standing coordination committee to consider issues relating to coordination between commercial banks and lending institutions.

A special cell has been set up within the rehabilitation finance division of IDBI to attend the case of sickness.

RBI has issued suitable guidelines to the banks to ensure the potentially viable sick units receive attention and timely support from banks.

RBI has clarified that units becoming sick on account of willful management, willful default should not be considered for rehabilitation.

Page 30: Micro, Small & Medium Enterprises (MSME’S

NATIONAL MANUFACTURING ACOMPETITIVENESS PROGRAMME(NMCP)

With a view to build the capacity of the Indian Micro, Small and Medium

Manufacturing Enterprises for overcoming competition in the global

markets and facing challenges being posed by the entry of the multi-

nationals in the domestic markets, the Government of India has

announced the National Manufacturing Competitiveness Programme

(NMCP) during the budget speech 2005-06.

The objective of NMCP with can be truly regarded as ‘National Strategy

for Manufacturing’ is to ensure healthy growth of the MSME Sector. The

10 components of the Programme dealing with the firm level

competitiveness against global challenges are being implemented in the

Public Private Partnership (PPP) mode.

Page 31: Micro, Small & Medium Enterprises (MSME’S

Sl. No Component Short Name

1 Marketing Support / Assistance to MSMEs BAR CODE

2 Support for Entrepreneurial and Managerial Development of MSMEs INCUBATOR

3 Setting up Mini Tool Room & Training Centres MTR

4 Building Awareness on Intellectual Property Rights IPR

5 National Programme for Application of Lean Manufacturing LEAN

6 Enabling Manufacturing Sector to be Competitive through Quality Management Standards and Quality Technology Tools

QMS/QTT

7 Energy Efficiency and Quality Certification Support for MSMEs ENERGY

8 Marketing Assistance for SMEs and Technology Up gradation Activities MARKETING

9 Promotion of ICT in Indian Manufacturing Sector ICT

10 Design Clinic Scheme to bring Design expertise to the Manufacturing sector

DESIGN

Page 32: Micro, Small & Medium Enterprises (MSME’S

Assistance and Support Services for Indian SMEs

Domestic Trade, Export, Import and Business enquiries

Information on marketing strategy & investment opportunities

Business Matchmaking and Buyer-Seller Meets

Preparation of company profile, project reports & product design

Assistance and support for revival of sick units

Design, Development and Launch of products

Acquire latest technology & to set up new manufacturing units

Guidance to obtain trade & project finance and credit rating

Quality Assurance and packaging improvements to meet global standards

Page 33: Micro, Small & Medium Enterprises (MSME’S

Guidance for upgrading skills & knowledge of entrepreneurs

Source & import quality products, machinery, equipments & hand tools, raw materials and hi-tech products

Preparation of documentation for obtaining joint ventures, technology transfer, contract manufacturing and preparation of other

business and financial documents

Indian products and services permanent display centre in various countries

Liaise with Government Departments & Agencies, Overseas Organisations

Arrange study tours & visits to factories / industrial plants / trade fairs / exhibitions in India and abroad

Arrange business / trade delegations and missions

Assistance to represent and participate in exhibitions, trade fairs, seminars and conferences

Page 34: Micro, Small & Medium Enterprises (MSME’S

Products Of MSME’s

22%

12%

10%

8%6%

6%

36%Food Products

Chemicals

Metal Industry

Metal Products

Electrical & Machine Parts

Rubber & Plastic

Others

Page 35: Micro, Small & Medium Enterprises (MSME’S

Year

Contribution of MSE (%) at 1999-2000 prices in

Total IndustrialProduction

Gross DomesticProduct (GDP)

1999-00 39.74 5.86

2000-01 39.71 6.04

2001-02 39.12 5.77

2002-03 38.89 5.91

2003-04 38.74 5.79

2004-05 38.62 5.84

2005-06 38.56 5.83

2006-07 38.57 5.94

Page 36: Micro, Small & Medium Enterprises (MSME’S

Comparative Growth Rates.Year Growth Rate

of MSE Sector(%)

OverallIndustrialSector (%)

2002-03 8.68 5.70

2003-04 9.64 6.90

2004-05 10.88 8.40

2005-06 12.32 8.10

2006-07 12.60 11.5

2007-08* 13.00* 8.00

Page 37: Micro, Small & Medium Enterprises (MSME’S
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Page 39: Micro, Small & Medium Enterprises (MSME’S