Problems relating to mse

12/10/2011 8:39:07 PM by Dr.Rajesh Patel,Director,NRV MBA,email:1966patel@gmail.com 1

Micro, small and medium enterprises (MSMEs), including
khadi and village as well as rural enterprises, play a pivotal
role in the overall industrial development of the country. They
have been the significant contributor to the national income,
with their huge involvement in country's industrial
production, exports, etc.

They not only help in providing employment opportunities to millions of people across the
country, especially to the village artisans and rural people, but also check the problem of
economic concentration in the hands of a few. They create a sound entrepreneurial base in the
economy by developing and nurturing the talents, skills, etc. of small and medium scale
entrepreneurs. The labour intensity in the MSME sector is estimated to be considerable higher
than the large enterprises. Thus, this sector has been regarded a priority status by both the
Central and the State Governments.


Inspite of this, the MSMEs continue to face several problems in their day-to-day operations, that
is, in production and marketing of their products. They find it difficult to sell their output at
remunerative prices and cannot spend much on advertising, marketing research, etc. They also
face stiff competition from large firms. Inadequate infrastructural facilities and access to credit
are other major problems.


MSMEs 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. Further,
they find it difficult to recruit and motivate skilled managerial
and technical personnel. They are mainly reluctant to adopt
modern methods of organisation and management.

Although, the primary responsibility for promotion and development of
MSMEs lies with the concerned State/ Union Territory (UT)
Governments. But, the Central Government has always taken active
interest in supplementing the efforts of State/UT Governments through
its various regulations, as MSMEs have huge potential both in terms of
creation of wealth and employment as well as for the proper growth of
related sectors of the economy.

In India, the Ministry of Micro, Small and Medium Enterprises is the
main central authority which assist the States/UTs in their efforts to
promote growth and development of MSMEs. It has been implementing
several schemes/programmes and policies so as to enhance the global
competitiveness of the MSMEs. These relate mainly to simplified
systems and procedures, easy access to capital, positioning the MSMEs
in the global value chain by enhancing their productivity, technology
upgradation, quality improvement, skill development, access to both
domestic and international markets, etc.


Types of Problems

The major problems confronting the sector
have been identified as:
1. Technology obsolescence
2. Managerial inadequacies
3. Delayed Payments
4. Poor Quality
5. Incidence of Sickness
6. Lack of Appropriate Infrastructure
7. Lack of Marketing Network


There is lack 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-standardised
quality of products. They cannot afford to spend much on advertising, sales, promotion,
marketing research, etc. They have to sell their products at throwaway prices due to weak
bargaining power and immediate need for money. They also face stiff competition from large
firms.


Small scale firms are generally managed by the owners who very often does not possess the skills required for the
efficient management of the enterprise. There is lack of proper division of work and benefits of specialization are not
available. some owner-managers are reluctant to adopt modern methods of organisation and management. There is
instability in business because the sickness and dearth of the owner manager directly affects the survival and growth
of the small firm. Initiatives undertaken by the government include:
Management Training Programmes with the basic objective of improving the productivity/profitability of existing
entrepreneurs by upgrading their managerial decision making capabilities and providing them an insight in the latest
developments in the area of industrial management, marketing management, financial management, inventory
control, human resource development, information technology, and e- commerce, etc. Also, it aims to make them
aware about emerging practices in the field of industrial management.
National Institute for Micro, small and Medium Enterprises (ni-msme) has taken gigantic strides to become the
premier institution for the promotion, development and modernization of the Small and Medium Enterprise sector. An
autonomous arm of the Ministry of Micro, Small and Medium Enterprises (MSMEs), the institute strives to achieve its
avowed objectives through a gamut of operations ranging from training, consultancy, research and education, to
Managerial and Organisational
extension and information services.
National Institute for Entrepreneurship and Small Business Development (NIESBUD), NOIDA is an apex body
established by Ministry of Industries, Government of India for coordinating, training and overseeing the activities of
various institutions/ agencies engaged in entrepreneurship development particularly in the area of small industry and
small business. Indian Institute of Entrepreneurship (IIE), Guwahati aims to be the leading provider of quality
professional development programmers, research and information services in the field of entrepreneurship
motivation, entrepreneurship development and enterprise management. The activities of the institute include
identification of training needs, designing and organizing programmers both for development functionaries and
entrepreneurs; evolving effective training strategies and methodologies for different target groups and locations;
organize seminars, workshops and conferences for providing fora for interaction and exchange of views by various
agencies and entrepreneurs; undertaking research on entrepreneurship development, documenting and
disseminating information needed for policy formulation and implementation on self-employment and
entrepreneurship.

Raw materials and Products
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. National Small Industries
Corporation (NSIC) and State Small Scale Industries Development Corporations are involved in making
efforts for providing some raw materials to MSME sector.
NSIC aims to help small scale units by financing purchase of raw material (both indigenous and
imported), thus allowing them to focus on manufacturing quality products. It facilitates availability of
scarce raw material either through the domestic market or by importing.
State Directorate of Industries distributes scarce raw materials to small units. They have set up depots
for distribution of raw materials to small scale industries (SSIs). The Central Government has introduced
a buffer stock scheme to ensure availability of scarce raw materials to this sector.
Raw Material Assistance Scheme of NSIC aims at helping small scale industries by way of financing the
purchase of raw material (both indigenous & imported). This gives an opportunity to SSIs to focus
better on manufacturing quality products. Benefits of the Scheme
§Financial Assistance for procurement of Raw Material upto 90 days.
§SSI helped to avail Economics of Purchases like bulk purchase; cash discount etc.
§NSIC takes care of all the procedures, documentation & issue of Letter of credit in case of imports.
The entrepreneurs are required to apply for raw material assistance only on the prescribed application
forms. The application may be filled and submitted to the concerned Regional & Branch Offices 12
12/10/2011 8:39:07 PM by Dr.Rajesh Patel,Director,NRV MBA,email:1966patel@gmail.com

Credit or Finance
All kinds of business enterprises require sufficient funds in order to meet their fixed as
well as working capital requirements. Finance is one of the critical inputs for growth
and development of the micro,small and medium enterprises. They need credit support
not only for running the enterprise and operational requirements but also for
diversification, modernization/upgradation of facilities, capacity expansion, etc.
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.
In respect of MSMEs, the problem of credit becomes all the more serious whenever any
difficult situation occurs such as a large order, rejection of consignment, inordinate
delay in payment, etc. Sometimes, they have to close down their operations due to
shortage of funds. Also, there is little or no scope for expansion and growth due to
dearth of capital. Hence, economies of scale are not available.

Problems relating to mse

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