Wednesday, 24 September 2014

MSME and Chhattisgarh


This blog post has a reference to the previous blog post with the title


The above mentioned blog post is a compilation of data obtained from published report on ‘Fourth All India Census of MSME: Registered Sector, 2006-07’. This blog post is an attempt to briefly put up some points on relevance of MSMEs (Micro, Small and Medium Enterprises) / SMEs (Small and Medium Enterprises) in economic development with some illustration on performance of MSMEs in Chhattisgarh (CG). 

1.     Role of SMEs in the Economy - “Using a sample of 45 countries, we find a strong, positive association between the importance of SMEs and GDP per capita growth. The data do not, however, confidently support the conclusions that SMEs exert a causal impact on growth. Furthermore, we find no evidence that SMEs alleviate poverty or decrease income inequality.” - Thorsten Beck, Asli Demirguc-Kunt, Ross Levine; Journal of Economic Growth; September 2005, Volume 10, Issue 3, pp 199-229

2.      SMEs as Drivers of Economies - Irrespective of socio-political background, MSMEs play significant role in economic development of countries. In Malaysia SMEs account for 93.8 percent of companies in manufacturing sector (2006, Saleh and Ndubisi, An evaluation of SME development in Malaysia). They account for 99 percent of the total number of firms in China; 60 percent of the country’s GDP; 70 percent of employment; 65 percent of the patents filed each year; 60 percent of exports and 50 percent of tax revenues (Professor Yijiang Wang of the Cheung Kong Graduate School of Business in Beijing, Article on Forbes website, 21 MAY 2012).     

3.      SMEs in the USA - In 2011, according to U.S. Census Bureau data, there were 5.68 million employer firms in the United States.  Firms with fewer than 500 workers accounted for 99.7 percent of those businesses, and businesses with less than 20 workers made up 89.8 percent. Further, according to the SBA’s Office of Advocacy: “Small firms accounted for 63 percent of the net new jobs created between 1993 and mid-2013 (or 14.3 million of the 22.9 million net new jobs). Since the end of the recession (from mid-2009 to mid-2013), small firms accounted for 60 percent of the net new jobs. Small firms in the 20-499 employee category led job creation.”  - Small Business and Entrepreneurship Council (SBE Council)

4.      MSMEs in CG - Chhattisgarh ranks 15th in Number of MSME (Micro Small and Medium Enterprises) as per the Census of MSME: Registered Sectors (Table - 1) with 22768 working enterprises. These MSME enterprises are giving employment to 75094 persons and this figure puts CG at 19th position in the rank of states for providing employment through MSMEs (Table - 2). However, it may be noted that Ratio of Gross Output and Total Input as per the Census of MSME (Table -3) placed CG in thirtieth position. Many other developing states are at much higher positions. Operational dynamics of MSMEs operating in the state Chhattisgarh in reference to business environment available in Chhattisgarh may need to be investigated in detail to understand the possible causes for low productivity. However, it is quite possible that this may just be the case for MSMEs and may not at all be representative all the enterprises operational in CG. A comprehensive analysis of enterprises in the state in this regards may throw light on general economic productivity scenario.

5.      MSMEs Exports in CG - With meagre 0.13% contribution to total exports by Indian MSMEs, CG is placed at 22nd position among the Indian states listed by consolidated share of exports (by value of exports in terms of Indian National Rupees (INR)) through the MSMEs operating under their respective territories. A further detailed analysis on the MSMEs operating in CG may be required to figure out the reason for such a small contribution to exports. Usually, relative cost of production, quality of produce (products and services) and ease of doing trade to international locations are key contributing factors for international exports in developing countries.

6.      Internationalization of SMEs - Enterprises are under increasing pressure from globalisation and the constraints of domestic markets, and the internationalisation of their activities is crucial so as to benefit from the growth of markets. Internationalisation can bring many advantages to SMEs, such as increased productivity by being exposed to competition outside the country, better management practices and a larger market for their goods, as well as creating a wider business network. SMEs can also grow and achieve economies of scale which cannot be reached when operating in the domestic market alone. Nevertheless, only a small percentage of SMEs are involved in exporting activities relative to their share in local and regional economies. To help SMEs tap into external markets, governments should provide support to encourage them to export. This chapter focuses on government activities in promoting exports by SMEs. (OECD (2012), "Internationalisation of SMEs (Dimension 10): Encourage and support SMEs to benefit from the growth of markets (Small Business Act Principle 10)", in OECD/, SME Policy Index: Eastern Partner Countries 2012)

7.      Internationalization through Exports or through FDI - “We examine the individual and joint effects of two internationalization strategies, exporting and foreign direct investment (FDI), on the growth of small and medium-sized enterprises (SMEs). Using a sample of 164 Japanese SMEs, we find that FDI activity is a more effective growth strategy for SMEs than exporting. However, exporting activity has a positive moderating effect on the relationship between an SME's FDI activity and firm growth. A strategy of high exporting concurrent with high FDI leads to higher rates of firm growth. Finally, we find that an SME’s age when it starts to internationalize has a negative moderating impact on the relationship between internationalization and firm growth. Early internationalizers achieve higher rates of firm growth from internationalization activities than late internationalizers.” - THE INTERNATIONALIZATION AND GROWTH OF SMEs by Jane W. Lu, National University of Singapore; 2002

8.     Not easy to internationalization of SMEs in India - Internationalization of SMEs is not an easy task in today’s competitive world. A well developed platform of business environment is required to enable SMEs to perform at international level. Todd and Javalgi, in their paper (published in 2006; ISSN: 1746-8809) have identified several factors that must be addressed before the SME can achieve international growth in India, specifically the utilization of technology. Special attention needs to be given to the gaps in infrastructure that could enable a more efficient use of resources and the impact of entrepreneurship on the economic growth of the SMEs.


REFERENCES:



2.     CRITICAL ISSUES IN INDIA’S SERVICE-LED GROWTH, WORKING PAPER NO. 171, Rashmi Banga, OCTOBER 2005, INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS - http://www.icrier.org/pdf/WP171.pdf

3.     Small Business and Entrepreneurship Council (SBE Council) is a 501c (4) advocacy, research, training and networking organization dedicated to protecting small business and promoting entrepreneurship; Website - http://www.sbecouncil.org/about-us/facts-and-data/

4.     SEPC, an Export Promotion Council set by Ministry of Commerce & Industry, Government of India; Website - http://www.servicesepc.org/services-export-data/

5.     Growth and Productivity in Services Sector: The State of Art, 2010 Working Paper, Andrez Maroto-Sanchez, ISSN: 1139-6148; Website - http://www2.uah.es/iaes/publicaciones/DT_07_10.pdf

6.     An evaluation of SME development in Malaysia, 2006, Saleh and Ndubisi; Website - http://www.geasiapacifico.org/documents/IBRP1.pdf

7.     Article on Forbes website, 21 MAY 2012 on work of Professor Yijiang Wang of the Cheung Kong Graduate School of Business in Beijing; Website - http://www.forbes.com/sites/jackperkowski/2012/05/21/china-in-transition/

8.     OECD (2012), "Internationalisation of SMEs (Dimension 10): Encourage and support SMEs to benefit from the growth of markets (Small Business Act Principle 10)", in OECD/, SME Policy Index: Eastern Partner Countries 2012: Progress in the Implementation of the Small Business Act for Europe, OECD Publishing. DOI: 10.1787/9789264178847-17-en; Website - http://www.oecd-ilibrary.org/finance-and-investment/sme-policy-index-eastern-partner-countries-2012/internationalisation-of-smes-dimension-10_9789264178847-17-en

9.     Per Capita Net State Domestic Product at Current Prices for a set of selected states given in the blog post titled:-

1.     Place of Chhattisgarh in All India Census of MSME: Registered Sector:-

1.    State wise distribution of SEZs in India http://www.sezindia.nic.in/writereaddata/pdf/listofoperationalsezs.pdf


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