Indian Manufacturing SMEs Reaching Out For Global Customers

May 4, 2014 Posted by India Briefing Reading Time: 4 minutes

State financial and technological support is assisting Indian SMEs in their bid attract MNC investors.

DELHI – According to a report from the Confederation of Indian Industry (CII), India’s total trade (exports and imports) increased 94 percent from US$368 billion in 2009 to US$715 billion in 2013. This increase indicates that Indian exports are now heading sharply towards Asia and Africa, with Asia receiving an increasing amount of the country’s exports. According to another report by Exim Bank of India, the share of Asian, African and Latin American countries receiving Indian goods has increased significantly.

Major Exports

Major exported products in 2012 include petroleum products, which generated US$56 billion, followed by gems and jewelry at US$47 billion. Pharmaceutical products (US$24 billion), transport equipment (US$ 21 billion), machinery (US$14 billion) and ready-made garments (US$14 billion) also constitute a large proportion in exports for India. According to the latest data on Exports, the UAE (12.4 percent) is India’s largest export destination closely followed by the United States (12.3 percent) and Singapore (4.8 percent).

Major Imports

India’s import bill is inflated by the import of crude petroleum with US$155 billion imported in 2012. Imports of gold and silver amounted to US$62 billion and other key imports included electronic goods (US$ 33 billion), and pearls and precious stones (US$31 billion). India’s major import source is China (11.7 percent) followed by the UAE (7.3 percent), Saudi Arabia and Switzerland. The Indian Micro-Small Medium Enterprise (MSME) sector contributed around 36 percent of exports in 2013 and has been contributing a major share for the last five years.

Opportunities in the Manufacturing Sector

According to the 2013 Global Manufacturing Competitive Index (GMCI) by Deloitte, India’s manufacturing ranked fourth globally. This report includes over 550 survey responses from CEOs around the world and provides their perspectives on the key drivers of manufacturing competitiveness for a country, their ranking of the most competitive nations today and five years from now, and the public policies they feel create a competitive advantage or disadvantage for key countries and regions around the world. The study also reveals that developed nations such as Germany, the U.S., South Korea and Canada will fall out of the top 10 manufacturing competitive nations in the next five years, whereas India will move up from fourth to second position in the same period.

Services Sector

The India’s services sector has been the apple of the country’s eye in the last decade. The IT/ITeS sector saw overseas mergers and acquisitions worth US$ 1.4 billion in 2012, with major deals happening in Europe (US$640.4 million) and North America (US$591 million). The most notable deals were Infosys acquiring Lodestone, MphasiS Ltd.’s acquisition of Digital Risk LLC and Wipro Ltd.’s acquisitions of Promax. The analysts have opined that the acquisitions made were more for getting a new geographical foot print, adding a specific industry or acquiring a new skill set.

Technological Leverage

Adoption of newer technology is the catalyst for the growth of any industry. However, for MSMEs in India, advanced technologies have become difficult to access due to the high initial costs which in turn leaves them behind in the race of competitiveness. A major obstacle in MSME development is the inability to access timely and adequate finance. There are several reasons for low credit penetration such as insufficient credit information on MSMEs, low market credibility of enterprises, low awareness of the benefits of technology, lack of skilled manpower and poor infrastructure.

Technology adoption is a key differentiator in the MSME space. The Small and Medium Business Development Chamber of India states that MSMEs have spawned several innovations in the manufacturing and service sectors.

Namely, 17 percent of MSMEs have developed “new-to-the-world innovations.” The Government of India has also played its part by placing a heavy emphasis on addressing skills shortages, and has established a comprehensive institutional structure for skill development via the National Council on Skill Development. Several other programs have also been initiated, including entrepreneurship development training, skill development training, entrepreneurship-skill development training and training-the-trainers. The aim of the scheme is to establish a Center for Excellence – a virtual university – at the national level to standardize the training curriculum and train 500 million people by 2022. In July 2013, the Government launched Project Baadal, a cloud computing platform for MSMEs, in order to make them more productive and globally competitive.

“The implications in this report are clear,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “There is much initiative and now government recognition and assistance towards developing the entrepreneurial Indian SME as a cornerstone in the development of its manufacturing industry. These companies will start to reach out to global businesses and start to pitch for their worldwide production and manufacturing business requirements just as Chinese SMEs did over the past 15 years. Government incentives to help Indian manufacturers become more global will have an effect on the supply chain. Foreign-Indian manufacturing joint ventures and the support given to local Indian manufacturers by international clients is on the verge of becoming far more common than in the past.”

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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