When will our economic elite shed its pigeon-hole outlook and compulsion with MNCs and glitterati and look beyond, instead, for more practical solutionsIJ It’s time we fall back on SMEs and learn from global experience
Pedigreed European brands — from Rolls Royce to BMW, from Armani to Marks and Spencer — all evoke awe-inspiring respect and admiration. And that’s the case with many expensive European brands glittering in the lives of the rich and famous across the world since many decades (from Rajiv Gandhi’s classic Rolex to Saudi King Abdullah’s pristine fleet of Rolls Royce). These brands, marketed globally by a horde of European MNCs, also got visible support from Governments in Europe under the premise that the larger these iconoclastic brands and MNCs grew, the more would grow Europe’s employment base. But as has now been evidenced empirically, contrary to common perception, MNCs and such brands have really not turned out to be the proverbial gold mines for European economies.
Far from it, as the situation stands now, multinational enterprises employ less than one per cent of the European industrial workforce; greater than 99 per cent of the workforce is employed in small and medium enterprises. That is a humongous difference and shows that SMEs are the real backbone of job creation in Europe contributing to two-thirds of all private-sector rosters and more than half of business value added in European Union. Even in research and development and innovation charts, the place of SMEs in Europe is right at the top. They are mostly micro-firms providing jobs to a few more than a handful per unit; and yet, the spread of the SME segment is so wide that it has emerged as the previously unheralded citadel of the European economy. Especially now, when the chips are down, SMEs are coming out to be veritable saviours and sustainers of the employment landscape in the continent.
As big venture investments are hard to come by, EU is depending, to a large extent, on furthering the promise of SMEs and especially the potential of start-ups and entrepreneurships to take the economy forward and create jobs. It’s not as if the Union did not realise this. In 2006, the Competitiveness Council (responsible for promoting SMEs in EU) set a number of goals to be achieved through SMEs. This included simplifying processes of commencing a start-up, cheaper and faster start-ups, and larger volumes of start-ups etc. By December 2008, the targets were renewed with more ambitious benchmarking. The policy efforts also tried to reduce bankruptcy rates, and doing away with impediments faced by budding entrepreneurs — like high entry barriers and taxation. The stress is now being given on certain specific business lines, like crafts and micro-enterprises, education and training entrepreneurship, audio-visual media, social economy and women entrepreneurs.
Even when seen globally, SMEs have a major role to play. Going by an Organisation for Economic Co-operation and Development report, the SME segment accounts for over 50-55 per cent of the total GDP and employs around 60 per cent of workforce in developed nations while employing 95 per cent of total workforce in developing and under-developed countries. In many developed nations, SMEs were gradually made more competitive and productive by giving them top-most priority. Unlike what happens in India, SMEs were included in their national development strategy. Such initiatives allowed SMEs to gain momentum and attract huge investments. In the UK, in 2001, a unique SME development policy was pioneered, titled, ‘Think Small First’ and was embedded with the national policy. China, last month, launched its biggest over-the-counter equity trading platform to increase access to finance for domestic SMEs along with easing regulations for listing, as compared to regulations required by conventional companies to get listed on stock exchanges.
Similarly, in France, President François Hollande led the inception of a new bank called Banque Publique d’ Investissement only for SMEs. When talking about SMEs, it would be a crime to ignore Mittelstand (the German nomenclature for SMEs), one of the most successful models of SMEs globally. Most German businesses are small and medium-sized companies and thus fall under the category of Mittelstand. Talking in numbers, Mittelstand comprises more than 3.5 million companies (around 99 per cent of all German companies) and accounts for 19 per cent of total exports by German firms and is the prime reason for lower youth unemployment in Germany compared to many other European countries.
Ironically, a startup SME requires more investment in poor nations compared to a rich nation. An SME investor needs to invest 75 per cent of per capita gross national income in mid-income nations compared to an investment of 10 per cent of per capita GNI in a rich nation.
It’s high time that our Planning Commission and Union Ministry of Finance realise the enormity of SMEs and the vast population base that can be assisted by these enterprises. The focus for our policy-makers, instead, is on FDIs, Foreign Institutional Investors and multi-million dollar investment initiatives, which encompasses a minuscule section of our population. It’s no wonder that few would know who is the Union Minister heading India’s Ministry of Micro, Small and Medium Enterprises; or that such a Ministry even exists!
When will our economic elite shed its pigeon-hole outlook and compulsion with MNCs and glitterati and look beyond instead for more practical solutionsIJ In India, where the global recession has seriously impaired our economy and big-ticket investments have almost dried up, it’s time we fall back on SMEs and take a cue from the global lessons.
It makes me wonder, if Europeans can do it with SMEs, why are Indians so dependent on FDIs and big-ticket investmentsIJ It’s true that SMEs cannot match the salary benefits provided by MNC firms or big Indian conglomerates but only a small proportion of our educated population is actually employed in these kind of corporations. SMEs can certainly provide livelihood to a sizeable number of unemployed youths not only in urban centers but in hinterlands as well. The burgeoning number of educated youths in our cities can find themselves a place in SMEs. In the rural belt, promoting SMEs is now of paramount importance. It took Europe some decades to realise the potential of SMEs; it shouldn’t end up taking India many more to do the same.
(The author is a management guru and honorary director of IIPM Think Tank)