RIJS Volume 4, Issue 3 (March. 2015) ISSN:

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1 A Journal of Radix International Educational and Research Consortium RIJS RADIX INTERNATIONAL JOURNAL OF RESEARCH IN SOCIAL SCIENCE CHALLENGES FACED BY MSME WITH SPECIAL REFERENCE TO COIMBATORE DISTRICT MRS. S. SANGEETHA Assistant Professor in Commerce, MBA Department, Dr. SNS Rajalakshmi College of Arts and Science, (Autonomous)Coimbatore ABSTRACT Micro, Small and Medium Enterprises play an essential role in the economic and social development of the country. It also plays a key role in the development of the economy with its effective, efficient, flexible and innovative entrepreneurial strength. MSME contribute nearly 8 percent of the country s GDP, 45 percent of the manufacturing output and 40 percent of the exports. They provide the largest share of employment after agriculture. They are the nurseries for entrepreneurship and innovation. They are widely dispersed across the country and produce a diverse range of products and services to meet the needs of the local markets, the global market and the national and international value chains. This paper analyses the various challenges faced by MSMEs in Coimbatore district. Key Words: MSME, DIC, Industries INTRODUCTION Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. Limited access to infrastructure such as power, water, and roads increases operational costs for these businesses and makes them uncompetitive. Inadequate access to support infrastructure discourages these units from adopting newer technologies, where available. Small enterprises consider challenges in access to finance as one of the biggest 1 P a g e

2 Constraints in growth. The major advantage of this sector is its generating employment at low cost. The MSME sector is highly heterogeneous. There are different size of the enterprises, variety of products and services and level of technology. It helps in the industrialization of rural and backward areas. It reduces regional imbalances. It provides equitable distribution of national income and wealth. Despite constituting more than 80 % of the total number of industrial enterprises and supporting industrial development, many MSMEs in India have problems such as sub-optimal scale of operation, technological obsolescence, supply chain inefficiencies, increasing domestic and global competition, fund shortages, change in manufacturing strategies and turbulent and uncertain market scenario. Statement of problem The micro, small and medium enterprises face problems at every stage of their operation, whether it is buying of raw materials, manufacture of products, marketing of goods or raising of finance. These industries are therefore not in a position to secure the internal and external economies of scale. There is requiring of trained and experienced employees because small firms cannot pay high salaries and cannot spend much on training their employees. Small scale firms find it difficult to recruit and motivate skilled managerial and technical personnel as they look for better opportunities in the large scale industries. Therefore, they get the second rate talent or have to depend on family members who do not have diversified skills. Small scale units have to face several difficulties in the marketing and distribution of their products. Most of them do not have their own marketing network. They find it difficult to sell their output at remunerative prices due to higher cost of production and non-standardized quality of products. They cannot afford to spend much on advertising, sales, promotion, marketing research, etc. They have to sell their products at throw away prices due to weak bargaining power and immediate need for money. They also face stiff competition from large firms. There can be many more similar issues hindering the orderly growth of the MSME sector. Objectives To know the present status of MSME`S in Coimbatore. To study the major Challenges faced by the MSME. MEANING OF MSME Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes: (a) Manufacturing Enterprises The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) 2 P a g e

3 Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise is defined in terms of investment in Plant &Machinery. (b) Service Enterprises The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment. The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O. 1642(E) dtd are as under: Manufacturing Sector Enterprises Micro Enterprises Small Enterprises Medium Enterprises Investment in plant & machinery Does not exceed twenty five lakhs rupees More than twenty five lakhs rupees but does not exceed five crores rupees More than five crores rupees but does not exceed ten crore rupees Service Sector Enterprises Micro Enterprises Small Enterprises Medium Enterprises Investment in equipments Does not exceed ten lakhs rupees: More than ten lakhs rupees but does not exceed two crores rupees More than two crores rupees but does not exceed five core rupees The investment in plant and machinery is the original cost excluding land and building and other items specified by the Ministry of Small Scale Industries vide its notification. MSME IN COIMBATORE Host to over 63,000 Micro, Small & Medium Manufacturing Enterprises & over 2000 Large Enterprises. This Region amounts for Exports worth Rs. 45,000crores from wide spectrum of Industry segment group from Pumps, Motors, Machine Tools, Automotive Components, Textile Machineries, General 3 P a g e

4 Engineering, Metallurgy, Foundry, Valves, Injection Mouldings, Industrial Plastics, Gears, Knitwear & Textiles, Gems & Jewellery, Poultry & Agriculture, etc. This region has 4 Software Parks and 91 Mid-Size IT companies. India's 84% of Textile Machineries & 52% of Pumps (Industrial & Domestic) are manufactured in Coimbatore. The city with highest number of Spinning Mills in the World. World's best state of the art Foundries are in this City. This region has 3 State owned Universities, 6 Private Deemed Universities, 2 Medical Colleges, more than 75 Engineering Colleges, over 110 Arts and Science College & 13 Polytechnics. The City with highest number of Research Institutes in the country. This city is strategically located in a tri-junction position to the states of Tamil Nadu, Karnataka & Kerala. 1st in India consumer confidence index - survey - ET intelligence group - August 6th th investment friendly city in India - CII survey th best city in India - A Business Today survey th largest city among southern states. This city has countries Second Largest permanent column free trade fair complex. Coimbatore has about 10 Convention centers and 2 Trade Fair Complex. Coimbatore has a Golf Club and a Motor Rally Track. Role of msmes Worldwide, micro, small and medium enterprises have been accepted as the engine of economic growth and for promoting equitable development. MSMEs constitute over 90% of total enterprises in most of the economies and are credited with spawn the highest rates of employment growth and account for a major share of industrial production and exports. In India too, the MSMEs play a pivotal role in the overall industrial economy of the country. MSMEs in India account for more than 80% of the total number of industrial enterprises and produce over 8000 value-added products. It is estimated that in terms of value, the sector accounts for 45% of the manufacturing output and 40% of the total export of the country and employs over 6crore people. Further, in recent years the MSME sector has consistently registered higher growth rate compared to the overall industrial sector. The major advantage of the sector is its employment potential at low capital cost. As per available statistics, this sector employs an estimated 6crore persons spread over 2.6crores enterprises and the labor intensity in the MSME sector is estimated to be almost 4 times higher than the large enterprises. CHALLENGES OF MSMES The major problems deal with the sector has been identified as: 4 P a g e

5 Technology obsolescence Obtaining information about technology is the first important issue. For most of them, information about available technology options is through word of mouth or from a visit to an advanced unit. Few have access to technical literature, professional journals or information about new product launches. But with the advent of internet, new vistas are opening up through electronic journals, catalogue downloads and advanced search facilities. Actual procurement of the technology is the next important issue because even if information is obtained, there are barriers to import of technology and other problems relating to technology transfer, vendor capability, after sales support, import procedures, etc which impede procurement. Acquiring finance for technology up gradation is also a problem. Small enterprises generally look to external sources of funding for upgrading technology as withdrawing money from business entails its own costs. Lack of trained and experienced employees Small/ medium enterprises find it difficult to afford remunerative salaries as well as to provide adequate training facilities to their employees. Small and medium scale enterprises faces huge problem of recruiting required number of manpower and managing effectively the recruited employees. Poor Quality Non-availability of quality raw materials on a timely basis in an adequate quantity is one of the main problems faced by micro, small and medium enterprises. There is acute shortage of even the basic raw materials required by small scale units. These units are under a handicap in obtaining raw materials of requisite quality at reasonable prices. They do not get the benefits of bulk buying. For instance, the handloom industry is facing shortage of yarn. Small scale industries also face shortage of power due to which they are unable to make full utilization of plant capacity. Majority of them cannot afford to install their own power generating plants to ensure uninterrupted operations. Incidence of Sickness Inadequate access to credit is a major problem facing micro, small and medium enterprises. Generally, such enterprises operate on tight budgets, often financed through owner's own contribution, loans from friends and relatives and some bank credit. They are often unable to procure adequate financial resources for the purchase of machinery, equipment and raw materials as well as for meeting day-to-day expenses. This is because, on account of their low goodwill and little fixed investment, they find it difficult to borrow at reasonable interest rates. As a result, they have to depend largely on internal resources. 5 P a g e

6 Lack of Appropriate Infrastructure Inadequate infrastructural facilities creates the problem of acute shortage of basic raw materials, especially those which are scarce and need to be imported from distant places, needed by small and medium scale enterprises. Small and medium scale entrepreneurs find it difficult to distribute their products to the markets which are located at far off places because of incomplete construction or non-existence of basic roads/ highways. Lack of proper airways and waterways facilities also restricts the growth prospects of those medium/small scale firms whose target market is located abroad. Small and Medium scale enterprises face shortage of power supply, due to which they are unable to make full utilization of plant capacity. Most of them find it difficult to install their own power generating plants, so as to ensure their uninterrupted operations, due to lack of required funds. Lack of Marketing Network Most of them are located in rural areas or remote areas of the country, due to which they find it difficult to communicate with people outside the region. This is because of non-existence of proper telecom network. Lack of division of work and benefits There is lack of proper division of work and benefits of specialization are not available. Some ownermanagers are reluctant to adopt modern methods of organization and management. There is instability in business because the sickness and death of the owner manager directly affects the survival and growth of the small firm. Absence of adequate marketing and export facilities Almost all types of business enterprises face marketing problems, but the small and medium scale enterprises face greater intricacy in the marketing and distribution of their products. The basic cause for many of such issues is the existence of powerful competition in the market scenario. Large scale firms/ industries that have huge production and distribution network, or enterprises that have goodwill in the market or have intellectual property rights/ standardization for their products or produces large range of products etc., are more likely to dominate the business environment in the country. In contrast, small and medium scale enterprises mainly deal in one specialized line of products, have very small production and distribution network, and generally have no protection for their products. 6 P a g e

7 Government measures The government has taken several measures to solve the problems faced by micro, small and medium enterprises and enable them to play an effective role in the country's economy. These measures may be broadly classified into: Protective Measures, which are designed to protect small scale industries from the competition of large firms. Promotional Measures, which have been undertaken to promote the growth of the small scale sector in the country. Institutional Measures, which have been taken by the government in the form of setting up of several institutions or agencies to provide liberal and manifold assistance to small scale industries. CONCLUSION Entrepreneurship development and training is one of the key steps, particularly, for the first generation entrepreneurs. Entrepreneurship Development Programmes (EDPs) of various durations are being organized on regular basis by a number of organizations, such as, National and State level Entrepreneurship Development Institutes (EDIs); Micro, Small and Medium Enterprises Development Institutes (MSMEDIs) - previously called Small Industries Service Institutes (SISIs); National and State level Industrial Development Corporations, Banks and other training institutions/agencies in private and public sector; etc. To know the importance of small and medium enterprises in the growth of Indian economy in terms of their contribution to country's industrial production, exports, employment and creation of entrepreneurial base, the Central and State Governments are undertaking several policy measures and incentives as well as implementing schemes and programmes for promotion and development of these enterprises. REFERENCES MSME Development Act.( 2006). Ministry of the District Industry Centers (DIC) MSME, Government of India. Nalabala Kalyan, Kumar. Sardar, Gugloth.(2011).Competitive performance of micro, small and medium enterprises in India. Asia pacific journal of social sciences,pp Khalique, Muhammad, Abu Hassan Md. Isa Challenges faced by the small and medium enterprises in Malaysia: Intellectual Capital perspective. International Journal of Current Research Vol. 33, Issue, 6, pp , June, P a g e