INDUSTRIALISATION OF SMEs IN INDIA

Industrialisation of SMEs in India

Table of Contents

Introduction3

The importance of SMEs in a global economy4

Challenges for SMEs in India6

1.Country Related Challenges7

2.Industry Related challenges8

3.Firm Related Challenges9

Overcoming challenges9

Implications and conclusion10

References12

Industrialisation of Small and Medium scale Enterprises in India

Introduction

Industrialisation refers to the economic growth and processes occurring at any geographical scale, ranging from a metropolitan region to an entire country (O'Malley and O'Gorman 2001, pp. 303-21). Historically, these processes entail the initiation and development of a manufacturing sector that first specializes in basic activities that include the production of commodity-type goods (Fletcher 2004, pp. 289-305). Before this initial Industrialisation stage, many regions or countries are heavily involved in the primary economic sector, in agriculture and / or extractive activities. In the case of some countries with few or no natural resource endowments, reliance on the primary sector is untenable, thereby compelling countries into rapid Industrialisation (Kuivalainen, Sundqvist, Puumalainen, and Cadogan 2004, pp. 35-50).

The initial stages of Industrialisation (basic manufacturing) take advantage of the low-cost advantages that a newly industrialized region or country has, centred on available labour, natural resources, and/or a large market (Fletcher 2004, pp. 289-305). Next, as levels of human capital and overall capital accumulation rise, production activities move toward advanced manufacturing activities, entailing increased technical sophistication and decreased economic reliance on manufactured goods (O'Malley and O'Gorman 2001, pp. 303-21). The end result is that the overall economic wealth increases and industrial activities become diverse and increasingly complex. This transition also includes the establishment of advanced manufacturing functions such as research, design, logistics, and management as production moves to offshore sites (Kuivalainen, Sundqvist, Puumalainen, and Cadogan 2004, pp. 35-50). This transition has been a cause for concern in many advanced market economies, given their large losses of production-related employment. Recent economic history has also suggested that the Industrialisation process also encompasses a move toward a varied and sophisticated service sector (Fletcher 2004, pp. 289-305).

SMEs considerably add to business, financial, technical and local growth in all financial systems, whether they are developed or developing. Although, the definitions of Small and Medium scale Enterprises may contrast. It is believed that over 1.4 million SMEs operate in India, out of which around 30% are related to production (O'Malley and O'Gorman 2001, pp. 303-21). Small and Medium scale Enterprise segment consists of about 40% of total business manufacturing, 35-40% of total overseas sales and a major contribution to employment (about 2.5 million) and makes around 8% of GDP (Kuivalainen, Sundqvist, Puumalainen, and Cadogan 2004, pp. 35-50). Nonetheless, Small and Medium scale Enterprises are going through a change which includes reformation of plans and services since the new guidelines were declared in 1991. Therefore, globalisation and industrialisation policies were progressively adopted in India (Kula and Tatoglu 2003, pp. 324-33).

Small and Medium scale Enterprises need to be encouraged to achieve competitive edge and long-term development under new world business policies and rapid scientific transformations (O'Malley and O'Gorman 2001, pp. 303-21). The Indian government have been considering numerous strategies from time to time in order ...