Issues in SMEs

Introduction

The small and medium enterprises (SMEs) have been recognized as engines of equitable economic growth and development. They constitute a majority of total enterprises in most of the economies and account for a major share of industrial production. Small and medium enterprises (SMEs), particularly in developing countries, are the backbone of the nation's economy.

Main Challenges

Challenges are as follow:

i. Absence of adequate and timely banking finance

ii. Non-availability of suitable technology

iii. Ineffective marketing due to limited resources

iv. And non availability of skilled manpower

Issues related to production in SMES

Small size Location Raw material procurement Transportation and connectivity Machinery and equipments Government policies and regulations. Lack of skilled human resource. Financing of the production. Marketing Technology Environmental issues.

Small size

Economy of scale is not obtained.Poor supply chain management.Cost of doing business is increased.Low production capacity.

Location :

The choice of location is one the key problems for entrepreneur to decide and produce.

i. Land availability and cost.ii. Availability of water, power. iii. Availability of skilled labour .iv. Consumption pattern of population.v. Climate of the place.

Raw material procurement :

In some cases raw material availability is extremely difficult.

Imbalance between demand and supply of raw material

Great price variance persists.Existence of bogus units.Delay in controlled raw material delivery.

Transportation and connectivity :

High cost of fuel.Bands and strikes called by transporters.Bad conditions of the roads.Exploitation by the goons in the form of un-

authorized toll taxes

Machines and equipments :

Use of traditional machines causes Low productivity.

Maintenance cost .High cost of modern machines and

equipments.

Govt. policies and regulations :

Labour laws of the state. Laws of land acquisition. Import limit for certain raw materials. Pollution regulation. Political interference.

Lack Of skilled Human Resource

The shortage of appropriately skilled labour across many SMEs is emerging as a significant and complex challenge to enterprise growth and production process and simultaneously, training the labour also poses as a imperative challenge.

Inefficient Handling Of Human ResourcesExcessive ManpowerLack Of trained Skill LabourPoor Labour Productivity

Finance

Financial inadequacy is also reported to be one of the most important challenge to production issues in SMEs. The most important financial challenges are as follow:

• Start –up seed capital is inadequate• High risks in raising capital from the non-

banking sector at high rate of interest• Poor capacity to re-pay installments in time

• Inadequate working capital available

• Inadequate fixed capital investment

• Not in a position to offer the guarantee required by the banking sectors

• Looked with suspicion by the provider of finance

Marketing

Marketing is another important issue in the production issue of SMEs:

i. Lack of standardizationii. Poor designingiii. Poor qualityiv. Lack quality controlv. Lack of knowledge of marketing vi. Financial weakness

Technology : One of the major handicaps of the small and medium

–scale sectors in production has been the absence of the latest technology which can alone can ensure quality and high rate of productivity. The SMEs, therefore, should keep abreast of development in technology, the hindrances can be enumerated as:

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i. Lack of Information Technology skill.

ii. In adequate knowledge of computer operated machinery.

iii. Lack of quality assurance testing equipments.

Environmental Issues

• Like the large firms, the SMEs also contribute to environmental degradation because of absence of control on the use of production methods.

• At the ground level the SMEs and the large firms are equally ignorant and careless about their role in environmental degradation.

• It is essentially due to poor institutional capacity and little emphasis on environment in fiscal policy and insufficient allocation of funds for environmental protection of forestry, biodiversity, water and sanitation.

Administrative Hurdles

Over CentralisationLack Of ProfessionalismPoor Management Information SystemExcessive Expenditure On R&D