small scale industries and thier impact on indian economy

Title Page

1

Acknowledgment

2

Table of ContentSerialNo.

Topics Page No.

1. Abstracts 4-52. Introduction (6-7)

2.1 Background and Rationale 6

2.2 Aims and Objectives 6-72.3 Research Questions 7

3. Literature Review (8-21)3.1 Introduction 83.2 Role of SMEs in Economy 8-103.3 Role of SMEs in Indian Economy 10-123.4 SMEs and Employment Generation 12-163.5 SMEs and Export Growth 16-203.6 Summary 20-21

4. Research Methodology (22-26)4.1 Aims and Objectives 22

4.2 Research Questions 22

4.3 Research Approach 22-23

4.4 Research Method 24-25

4.5 Data Collection 25-26

5. Findings and Analysis (27-47)5.1 Introduction 275.2 Analysis of Findings 27-465.3 Summary 46-47

6. Conclusion (48-49)6.1 Introduction 486.2 Summary of Findings 48-49

7. Bibliography 508. Appendix (51-54)

8.1 Questionnaires 51-54

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ABSTRACT The sole objective of this research was to study the contribution and

responsibilities of small scale industries for the sustainable development of

Indian economy, and to accentuate their potential. Following objective has

been achieved:

To perform a literature review to analyze the contribution and

responsibility of small scale industries towards the overall

development of economy in the context of employment generation and

export promotion

To carryout a field studies to observe contribution and responsibly of

small scale industries towards the overall development of economy in

the context of employment generation and export promotion

The research has answered following research questions:

What is the contribution and responsibility of small scale industries

towards the development of Indian economy in the context of

employment generation?


towards the development of Indian economy in relation to export

growth?

Whether the potential of Indian small scale industries’ have been

underestimated or exaggerated.

To answer these set of questions, data was collected using both secondary

and primary sources. Secondary data comprises of literature review and

primary data was collected through first hand questionnaire survey.

Following are the major findings of the research.

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There is no doubt in the highly creative role of small scale industries in

economic restructuring and development of India. Majorly their

contribution can be said to be employment generation and export growth

which lead to economic development of India. Government followed a

discriminatory policy for small scale industries in India comparing large

scale industries. Government of India very effectively dealt with financial

constrains and labor issue which lead to healthy growth of small scale

industries. Globalization had a average favorable (not highly favorable) for

the augmentation of small scale industries. Unquestionably small scale

industries have lead to employment generation in India. It is said, small

scale industries are the greatest employment creators in India and as well

greatest employment destructors in India as it lack providing effective

training to the employees. As a result it leads to a detrimental effect on our

knowledge based economic activity. To overcome this and to achieve a

faster growth, small scale industries in India should conform the policies of

labor market reforms. Small scale industries role in export growth of India

is very commendable, this is due to active support of export promotion

agencies and government incentives.

Indisputably if India wishes to augment its export performance then the

export policy should be more oriented toward the small scale industry.

Generally small scale industries’ role in Indian economy is undermined.

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Chapter 1

INTRODUCTION

1.1 BACKGROUND AND RATIONALE

India witnessed a remarkable growth of small-size enterprises in India since

independence. In manufacturing sector Small and Medium Enterprises

(SMEs) have a vital position because of their creative role in employment

generation and earnings and struggle against provincial inequalities. SMEs

policies have witnessed change due to New Economic Policy 1991, but even

in the early 1980’s SMEs policies were revised so to adapt with changing

external environment. Change in policies accentuated on significance of the

globalization of commerce and mutual dependence in many areas such as

modernizing functions, teaching, promotion and commercial course of

action. To achieve equality in growth, SMEs have played an active role as

they create massive employment opportunities in the rural and semi-urban

area and thus minimize inequalities in different state and provinces. Small

scale industries have served domestic as well as international market at a

realistic cost. Indian government to protect its newly developed indigenous

industries and to minimize import, Indian official embarked a route of trade

and industry reforms of correction in its economic policy but unremitting to

shelter its small-size enterprises. This new strategy focused on external

accustom, contest and partnership with internal and external organizations,

the strategy outline confirms the latest noticeable variation in spotlight. In

view of these assumptions, we try to find out the contribution of small-size

enterprises in growth of Indian economy and to ascertain if their prospects

are weakened or strengthened.

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1.2 AIMS AND OBJECTIVES

The aim of this research is to study the contribution and responsibilities of

small scale industries towards the development of Indian economy and to

understand whether their potential is underestimated or exaggerated. The

research have accomplished following objectives:




export promotion




1.3 RESEARCH QUESTIONS






growth?



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Chapter 2

LITERATURE REVIEW

2.1 INTRODUCTION

SMEs are becoming one of the important contributors in the national wealth

of the country and its importance is increasing day by day. SMEs include

many small enterprises that are more labor intensive and are more

reluctant to face the external uncertainties. The SMEs working is such that

it attracts both foreign direct investments and exports of the country. It also

makes significant contribution towards increasing the employment of the

countries as well.

2.2 ROLE OF SMES IN ECONOMY

Small size enterprises have significant contribution in the economic growth

of the country. Big organizations pose some challenges for the SMEs

because of its small size. Its working is greatly affected by the range of

agents. To overcome this constitution of cooperatives can be made that will

encourage SMEs more effectively. Being organized is one way by which

SMEs can be more competitive and can also enhance their negotiation

power. The growth of small enterprises cannot be overlooked in both

developed and developing countries as it is linked with employment and

creates opportunities for new jobs. Expansion of SMEs has now become

very important as the numbers of jobless people are increasing and there is

a great need to provide employment to these new entrants.

It is widely recognized that the SMEs, particularly those enterprises which

have inherent ability for rapid development, are an important contributory

factor in creation of employment opportunities and play a significant part in

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modernization and generation of competitive capabilities (Doi and Cowling,

1998). Moreover, the growing small enterprises are mainly targeted by

financiers, advisors and management consultants.

The working of small enterprises is not that easy and they face some serious

challenges by big organizations. For an economy facing complex political

and economic challenges it is important for small enterprises to undertake

some new and risky projects improving the economic condition of the

country. SMEs are somehow not able to meet these challenges and are

finding it hard to survive upfront. They are considered to be a dynamic

source of employment generation and as soon as the barriers to their

progress are removed they will become sizeable input for the economy.

SMEs made significant contribution in the growth of the economy. It creates

job opportunities for both rural and urban people. The dependency of

people on SMEs is quite large and is increasing rapidly. Many big

organizations were once small enterprises which have developed

themselves and grown with time. Insecurity, novelty and progression are

the three basic differences between small and large scale enterprises. On

the basis of the size of the SME it can be divided into three broad

categories- very small enterprises, small enterprises and medium

enterprises. It’s only when economy starts getting industrialized the Small

and medium enterprises evolve. SMEs also help economy in division of

earnings, tax proceeds, opportunities of jobs, well-organized deployment of

assets and steadiness of wages and income.

A small and medium enterprise absorbs more labor as compared to big

enterprises and thus creates more employment opportunities. SMEs also

make some good contribution in changing the agriculture based economy to

industry based economy. This helps in accelerating the rate of growth of the

economy. Small and medium enterprises also assist in establishing links

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between small and large businesses in the economy. This helps in attracting

businesses from other countries.

Big organizations are more economic stable and they can sort out their

difficulties on their own on the other hand SMEs do not have that much

competency that can help them to continue their operations smoothly.

Although small enterprises do not face direct legal or governmental bias but

they are found to be the victims of unequal dealings that results in non

competitive working atmosphere.

In Pakistan the Small and medium enterprises faces various hurdles such as

governmental volatility, social insecurity, economic limitations, unreliable

power supply, excise and duty problems, workers unrest, dearth of

management and absence of normal information flow system between

organizations, etc.

SMEs are transforming endlessly these days due to the internationalization

and liberalization and to make them more powerful tool clear cut

government policies and more enhanced regulatory system should be

adopted.

2.3 ROLE OF SMES IN INDIAN ECONOMY

The small and medium industries have good command in the overall Indian

market. The presence of creative entrepreneurs adds new dimensions in the

small and medium industry. They are competitive and offer goods at the

minimum operating costs. One more distinctive feature of SMEs in India is

their ability to work in groups that helps them to evolve according to their

field of offerings.

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The SME sector is one of the important parts of the Indian economy. It

accounts for about 40% of the manufacturing sector’s value while around

95% of the industrial units. It absorbs approximately 80% of the workforce

of the manufacturing sector. The SME sector is the second largest

employment providing sector in India after agriculture. It also accounts for

around 35% of the total Indian exports. The Indian economy is growing at a

good rate of 8% and is targeting a growth rate of more than 9 % in the time

to come. To do this SME sector would be the prime focus for the economy

as it smooth the progress of the small size units into medium and large

organizations.

The small enterprises have variety of products and huge offerings but due

to the fact that the goods produced in the small enterprises are not of

superior quality and are made mainly for Indian rural and semi urban

population so its contribution to the total exports is not defensible. The

goods in the small enterprises are mainly from artisans, handicrafts,

handlooms etc.

The biggest limitation for the small enterprises is the lack of favorable

credit policy. The Reserve Bank of India (RBI) and the Ministry of Finance

has taken some steps to encourage the small enterprises. They have given

directives to the commercial banks to ease credit facility for small scale

enterprises. But this step is not working for small enterprises since banks

are controlled by RBI and the nature of instructions posed by RBI and the

absence of an incentive system based on accomplishment of proactive

bankers is not allowing the commercial banks to smoothen the credit policy

for small enterprises. According to a study “there are strong structural

underpinnings to the inadequate flow: the organizational structure of banks,

and processes within them, have taken them far from task orientation, and

have created a specific bias against small loan portfolios” (Morris et al.,

2001: 11). The small scale enterprises are finding it difficult to take loans

from the banks due to the tight RBI directives. Although some commercial

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and other financial organizations are helping SMEs by introducing some

loan assurance schemes for them.

The policy in which some items were completely meant to be manufactured

by the small enterprises has now become obsolete and uncompetitive.

Examining the results the effect of this greatly contentious scheme,

researchers have pointed out the problem of practical incompetence of

goods produced under reserved class in contrast to the non-reserved class

of goods (Balasubrahmanya, 1995; and Morris et al., 2001). Studies have

also proved the irrationality and irrelevance of putting some goods in the

category that is meant to be completely manufactured by small enterprises.

A number of the usual matters concerning the reserve list are: (i) repeated

revision (addition and deletions) of listed goods were not reasonable every

tome and believed to have been manipulated by political considerations; (ii)

attempts to make policy wide-based were careless because investigations

have revealed that broad-basing, as surveys found that manufacturers of

‘reserved’ products did not have any inkling about the policy; (iii) the

medium and large scale units were also engaged in producing some

‘reserved’ items as they were manufacturing them before their inclusion in

the list; and (iv) in most of the cases the quality of items which were

reserved was substandard (Das, 2006: 116-117).

SMEs in India are not competitive enough when it comes to international

market due to several reasons. These are- they are not easily adhered to the

laws, lack of suitable knowledge regarding measures for global

subcontracting, unfamiliarity with complex routine processes relating to

external trade on international front and making use of e-commerce for

executing deals. For increasing the awareness of MNEs towards increasing

their investments in India particularly in the fields like garments,

automobiles, electronics, chemicals, etc a decent change in the norms

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concerning FDI is made. This change is quite different from the earlier

policies. Some administrative steps are also been taken so as to establish

strong link between SMEs and foreign business.

The objective of SMEs has changed over a period of time. It was known for

creating job opportunities earlier but now SME sector is developing in such

a way so that it becomes more competitive in the international market. The

SME sector in India is moving towards a new direction where it is

positioning itself in the bigger and fresh market. Currently the

proficiencies, raw materials and huge market to target are the three main

advantages for the SME sector. Seeing the growth of the market the people

who will be associated wit this sector will surely be benefited.

2.4 SMEs AND EMPLOYMENT GENERATION

The job generation capacity of the small scale enterprises were focused by

two studies in 1970s. The first study made use of cross sectional data for

calculating the job share of small units and found some appealing proof that

shows that the relevance of small scale units is increasing because of the

reduction in the share of big enterprises in the total employment. On the

other hand the second study uses size and area of the enterprises for

calculating the same. (Acs and Audretsch , 2001).

These two studies show that the job generation capacity of small unit

enterprises is increasing rapidly. Economists at that time use various tools

to prove this point. They counted the number of people employed in the

same category in two different periods. This line of analysis was based on

the presumption that movement between different classes was insignificant.

On the other hand, according to study done by Birch it was found that the

increase in the total employment is due to the conversion of small units into

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large enterprises. Birch’s method of analysis was later challenged by Davis,

Haltiwanger and Schuh in 1996.

The increase in the employment in small units may be reflected in two ways-

By the reduction in the jobs opportunities in the big enterprises or increase

in the job opportunities in the small enterprises. Hence a careful analysis of

generation of jobs at the unit levels should be done so as to find the reason

behind the increase in job opportunities. Despite of higher .job generation

rate in small enterprises its contribution to the overall scenario is small as

compared to bigger organizations. Furthermore these studies also help in

analyzing the factors that creates differences in the generation of jobs

between small and big enterprises.

While designing the policies for the SMEs the output and the business

environment should be kept in mind. The data based study is more effective

in the establishment and development of the SMEs. This study is based on

the fundamental principle that the small enterprises are the only job

creating sector for the industrialized economy even in the times of

recession.

We cannot apply our understanding of enterprises to the whole economy as

there are differences in the industrial and service sector enterprises. The

number of job changes in the service sector is quite higher as compared to

the industrial sector. Other factors that cause differences between these

two sectors are manpower requirements, rates of entry and exit, periodic

variations in demand, differences in the capability of facing external

competition.

In some other region it has been stated that elsewhere that jobs generation

business replacement (settled businesses) is a lot higher (lower) significant

in businesses of service sector compared to the manufacturing one

(Armington and Acs, 1999; and Audretsch et al. , 1998). In order to confirm

whether the overall scenario is similarly applicable in all segments, we

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proceed to work out the provision to job generation and part of small

enterprises in total number of jobs in different sectors such as

manufacturing, construction and services.

According to Audretsch (1995), Audretsch and Thurik (2001) and Acs and

Audretsch (2001) the businesses these days are now more technology

driven due to internationalization and technical changes. The business

involving information technology has become more beneficial and the main

attention in these businesses is on the person and not on the company. This

is due to the fact that the lack of regularity in the knowledge results in the

varied opinions by the company and the person. This kind of situation led

the person to make a shift from the company where he is working to his

own business. This is the evolution stage of entrepreneurship where a

person applies his knowledge which he earns in one company into his own

business. The small and big enterprises in the service segment differ in the

pattern of creation of jobs.

According to the conclusion drawn from the study it was found that for the

generation of jobs both big and small size enterprises are important. The

rapid increase in the employment of the small sector in other industrialized

economy makes it more important part of the economy and distinctive

approach should be adopted while making policies for this sector. As it is

known that small enterprises acquire relatively higher price towards

organizational hindrance as compared to big organizations so it is important

for small units to follow governmental guidelines. The financial procedures

should also need to be eased in order to provide easy credit to small units so

that they can meet their business requirements effectively

According to the previous studies it can be seen that the job generation and

the business size are inversely related to each other. Likewise, Hohti (2000)

discovers that in Finland total jobs generation and jobs obliteration are in

15

inverse proportion to the size of businesses. On the basis of data Finnish

manufacture business between 1980-1994, Hohti (2000) has established

that the rates of per year job flow, in terms of births and deaths, is alike to

what Broesma and Gautier (1997, p. 216) come across for Dutch

manufacturing businesses and by Klette and Mathiassen (1996) identified

for Norwegian manufacturing firms. Job generation and job destruction both

have a high proportion in the new enterprises. This way, the experience of

Finland, equally as of Sweden and the Netherlands, shows analogous

commercial activity as discovered in North America. Similarly, facts confirm

that during some preceding years small businesses in Germany, as in other

industrialized economies, are rising as the main force of employment

generation. For instance, Haid and Weigand (1998) discover that family

owned small and medium sized businesses creates more jon opportunities

as compared to the big businesses that are managed by administrators.

According to the study conducted by Weigand and Audretsch (1999) on the

non science category it was found that the number of employees in big

companies who works in stock exchanges reduces at a rate of minus 1

percent. Per annum. The SMEs also shows the reduction of 3.97% per

annum in the number of jobs. In case of non listed big companies this rate

was 4.60% while for SMEs (non listed) it was 1.26%. Hence it was observed

that in Germany there is a reduction in the number of jobs in the sectors

like- big science-based businesses, big non-science based businesses, and

small non-science based businesses. Apart from this reduction in the

number of jobs there is one sector which experienced the increase in the

number of employees that sector is science based small and medium sized

businesses.

Thus from the above data it can be inferred that the entrepreneur business

creates different job opportunities in Europe and United States. On both

shores of the Atlantic Ocean small and new businesses play a pivotal role as

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motive force of jobs generation (European Commission, 2002). It can also

be said that the employment opportunities of any business varies according

to its size and its age.

The process of globalization is altering the pattern of vying for all activities

of enterprises, making it necessary to adopt a worldwide growth plan to

affirmatively influence their long-standing development and endurance

(Karagozoglou and Lindell, 1998). The small enterprise segment business

sector has grown to be more significant as it has risen to become a leading

power influencing the development of financial systems of countries

(Shridhar, 2006). In the process of their change to a global milieu SMEs

confront many intrinsic drawbacks (Chen and Huang, 2004). SMEs often

faces lack of resources and unavailability of capable workers due to their

small size. With worldwide economic integration and the fall in barricades

of international trade, globalization of SMEs is getting more and more

consideration (Lu and Beamish, 2001; Knight, 2001). The enterprises are

becoming more competitive due to the rapid increase in the number of

enterprise in the global trade arena. More rivalry in the markets causes

decrease in the capability of SMEs to have power over the course of their

own growth (Etemad et al., 2001). In an extreme cutthroat situation, it

becomes imperative to recognize and appreciate aspects that affect global

functioning (Kuivalainen et al., 2004). SMEs symbolize a segment of

increasing significance and make a vital contribution in the progress of

developing countries particularly in the fields of jobs generation and

accelerating economic advance (Kula and Tatoglu, 2003). Initially any

industry is tiny and have limited resource base but it grows with time and

always tries to transform itself from tiny to large industry. Competition,

technical variations and legislative guidelines are some of the factors that

are important for both industrialist and policy creator.

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Indian SMEs are also growing at a very good rate. The growing success of

information technology has helped Indian SMEs to grow at a faster rate in

the modern era of globalization. India is providing very good opportunities

for setting up new commercial enterprises. Administrative measures are

important to determine the extent to which India can go on to make

improvements in the information sector. Indian government is making

constantly making some new agendas and policies that need to be worked

on properly so as to decide the effectiveness of the policies. It will also help

in analyzing as to how much efforts needs to be put on the Indian SMEs

sector.

SME sector is one of the important sectors in the Indian economy and it has

contributed a lot towards the national wealth of the country since

independence. Its contribution in the net domestic product of the country is

about 60% and that in the total employment is 92%. It is facing number of

difficulties after the economic reforms of 1992 but still manages well to

provide good growth to the country. And the SMEs are expected to perform

better in the future because in big enterprises job creation is very sluggish

and flexibility of employment is shallow and waning (Papola, 2004). Hence,

SMEs can now enter in the market that was earlier meant for big

enterprises only. Furthermore schemes like elastic manufacture schemes

and use of sub contracting for the division of their manufacturing activities

also helps SMEs a lot to make their operations more organized and

competent.

Measures like decrease in the degree of protection and abolition of the job

safety section are part of the labor market modifications and can make the

job problem more serious in big enterprises (Nagaraj, 2004). Further,

liberalization of economy and abolishing licensing system has paved the way

of the casualisation and feminisation of labor (Mitra, 2001).

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It is shown through various studies that the liberalized policies that were

initiated during the economic reforms have greatly influenced the

manufacturing sector of the country. Due to the policies of reforms

manufacturing sector experienced a decline in the employment growth rate

during 1990s (Nagaraj, 2004). But, these reforms have both favorable and

unfavorable effects on the manufacturing enterprises. Several steps such as

abolition of licensing system in industry and import, elimination of limits on

production capacity, tariff decline and permission for foreign investment

has helped industrial enterprises to enter into the sector which was earlier

meant only for informal sectors. Informal sector have some limitations and

the economic reforms of 1990s were also not proved much advantageous to

this sector which results in the decline in its efficiency. The use of obsolete

technologies in the production process of the informal sector is one of the

main reasons behind its declining efficiency. So in order to increase the

productivity of the informal sector more focus needs to be given to the

technology and skills.

2.5 SMEs AND EXPORT GROWTH

According to Ruzzier and Lu and Beamish economic advancements and

wide employment opportunities are the main areas of interest for small and

medium enterprises. Earlier most of the theories were focused on the

globalization. It is only after the publication of the article titled “Towards a

theory of international business studies” by McDougall and Oviatt’s (1994)

that importance of internationalization of SMEs or international

entrepreneurship were recognized. Later on Sharma’s work in 2004 and

Cerrato’s works in 2007 also provided deep knowledge on the

internationalization from various socio-economic environments

Johanson and Mattson in 1998 suggested the network approach to support

internationalization theory in which he explains the process of globalization

through social exchange theory. Rutihinda in 1996 and Ahokangas in 1998

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introduced Resource-based Internationalization framework in which he uses

resource based view of the firm to put together strategic aspects with the

globalization processes. This research was proved to be quite important as

companies are constantly working towards the expansion in the

international market because of increased competition. Factors such as

government incentives and support (like low interest loans) and export

development bodies helps SMEs to find new markets to penetrate.

Sharma and Erramilli suggests SMEs to attempt various entry routes to

penetrate the foreign market while Peng and York suggested two options

for an exporting firm that are either to reach the foreign customer directly

or through a mediator. Fletcher, in 2004, defined it as the means “whereby

small firms are involved in exporting, sourcing or distribution agreements

with intermediary companies who manage, on their behalf, the transaction,

sale or service with overseas companies”. Peng and York emphasize further

on the pivotal role of export mediators by “linking individuals and

organizations that would otherwise not have been connected”. Trabold

views this indirect conjugation holds platform for successful transactions

and Balabanis feels they often help their clients to identify customers,

financing and distribution infrastructure providers. Mediator’s plays vital

role by bringing in their expertise of working in foreign countries thus

reducing risks related to international operations. Li suggests it would be a

better idea to appoint export mediaries, having a much better knowledge of

the consumer demography to look after low cost exportation to the said

country. We may cite Peng and Ilinitch who feel conducting market

research and negotiation costs would be so high that manufacturers would

be more likely to appoint the assignee before entering the unexplored

market.

Peng and York further added that Export mediators would also helps in

saving costs related to customer mapping and costs incurred in monitoring

the enforcements of contracts. Notwithstanding the potential negative

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outcomes like loss of control over the assignee (Blomstermo and Sharma,

2006) or additional costs –transaction expenses and rent extractions (Acs

and Terjesen, 2006), the overall benefits of using the intermediary stand

out. Mediators could either be the agents or the distributors who are settled

within the same country or the foreign country (Peng and York, 2001) and

could also be the local subsidiaries of existing Multinationals. According to

Dunning : Multinational Enterprises by the virtue of their operational nature

minimize costs through mass production. Kuemmerle puts forward the

strategic linkages of SMEs with larger foreign firms.

Dated SME export research, like Cavusgil’s and Nevin’s in 1981, focuses on

the direct approach by including product uniqueness as the focal point. In

contrast to this, the study on the role of external factors, such as

government support for internationalization (Wilkinson, 2006),

environmental turbulence (Westhead, Wright and Ucbasaran, 2004), and

the characteristics of foreign markets and domestic markets develops and

tests two theories of external environment factors: resource dependency

and institutional theory.

Sherer and Lee further works on these two theories and specified the

common points of the same. According to them both the theories were

restricted to the nature of relationship between the firm and its

environmental factors, both the theories are regulated by external factors ,

and that organizations are concerned with building legitimacy and

acceptance vis-à-vis external stakeholders, and hence conclude the two

theories may prove to have greater predictive potential when used together.

Resource dependency theory further explains how lack of resources forces

the organization to look for new and unconventional resources. Institutional

theory, Scott defines, organizational practices that accepted and legitimized

within the specific organization. Both the theories described the impact of

external factors on the organization. The difference between resource

theory and institutional theory is that where resource theory focuses on the

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presence of other factors that are directly proportional to resource

accessibility institutional theory gives more importance in imitating the

behavioral norms of other factors in the organizational field.

Autio, Sapienza and Almeida later investigated upon the effect of resources

on the export activities without giving much emphasis on the availability of

the resources. It can be concluded from the resources theory that the

export capacity of SMEs is very much affected by the market in which it

operates.

It is found that SMEs working in the home markets which are endeavoring

through direct mode are more successful as compared to other SMEs which

are working in other environment. This is because of favorable production

costs, intellectual property rights protection, government regulation and the

presence of related and supporting industries in the home market.

A firm targeting export market is also influenced by export-entrepreneurial

orientation. According to Ibeh and Young a firm with high export-

entrepreneurial shows greater innovation and higher proactivity in

initiating exportation. Analyzing the correlation between owners’ degree of

entrepreneurial orientation and the organization’s competitive

accomplishment Kazem and Van der Heijden (2006) arrive at the juncture

from where exporters are perceived to be better self-starters than non-

exporters. The study by Francis and Collins- Dodd (2000) indicates the

fallacy of conservative approach in the unstable environment and goes on to

reflect that high proactive approach proves effectual in enhanced export

performance. Studies spanned over couple of years, by Ibeh, 2004; Marino

and Weaver, 2002 also concluded the strong relation of high SME

orientation, including that of the owner or manager works directly in

proportion with export performance.

According to Suarez-Ortega, the financial resources that restrict the timely

accumulation of internal resources need to be given some attention by the

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internal resources of the firm. Some other barriers as suggested by Suarez-

Ortega are Knowledge gap, or knowledge barriers. Furthermore lack of

adequate knowledge about the potential market and that of the availability

of the assistances in the market also leads to the deterioration in the export

market.

SMEs in India are quite advantageous as it generates employment at low

capital investment, increases the availability of skilled and semi-skilled

workforce and also helps in reducing the gap between the rich and the

poor. The studies done by Kazem and Ven der Heijden (2006) have shown

the importance of SMEs in any nation as its development results in

industrialization and economic development. Despite of the fact that SME

sector is very significant sector for any economy and various studies has

tried to make a linkage between the export competitiveness and SME

development in the western countries it has not received much focus by

researchers in the Indian sub-continent.

In India SMEs plays vital role in the development of the economy and

provides several economic benefits. These are: (i) Higher employee to

capital investment ratio, thereby generating higher employment with lesser

investment (ii) Low time and money required for establishment (iii) Niche

focus on smaller markets; (iv) Development of a pool of skilled and semi-

skilled workforce; (v) Bridging the divide in income disparities by creating

value for the lower and lower-middle class; (vi) Facilitate innovation and

entrepreneurialism at a large scale; and (vii) Ensures better utilization of

capital and low-skill manpower resources

The whole SME industry is based on three main hypotheses as per the study

conducted by UNIDO. These are: focus on overall economic upliftment of

the country and not just economic development; generation of employment

opportunities so as to provide support to large scale sectors; and support

needed for the development of SMEs in order to overcome the

23

disadvantages that SMEs face because of its small size. SME sector in India

is becoming competitive day by day as country is liberalizing. As such SMEs

don’t get any financial support from the government due to deregulation but

in order to develop this sector and to make it competitive with the

multinationals government needs to develop some policy based institutional

support for the SME sector. The institutional based support that SMEs

needs from the government is: advancement in technologies and backing of

their working capital needs. SMEs also require government support in

order to increase co-operation within the SMEs and to share resources that

are common to SMEs while working with other organizations. The UNIDO

report also explores some of the hurdles in the development of SME cluster.

These are : due to the cultural differences there is little co-operation

between individual companies as well as larger organizations; higher

spending on developing suitable tie-ups and building partnerships;

unavailability of the government support in terms of financial incentives

that is needed in order to implement common projects. Although these

challenges poses some problem for the SME industry but there are positive

signs which indicates that the SME cluster is stabilizing and is moving

towards SME growth in the country.

2.6 SUMMARY

SMEs sector is one of the fastest growing sectors of the country. It provides

huge employment opportunities and its presence is very important for the

emerging countries like India. The contribution of SME sector to the

economy is increasing day by day. It is second largest employment provider

sector of the country after agriculture. The contribution of SMEs in the total

export is also significant which is one-third of the total exports of the

country Apart from all these contribution SME sector still faces some

adverse treatment from the big organizations.

24

SME sector in India is becoming competitive day by day as country is

liberalizing. As such SMEs don’t get any financial support from the

government due to deregulation but in order to develop this sector and to

make it competitive with the multinationals government needs to develop

some policy based institutional support for the SME sector. SMEs today are

in the transformation phase and for the better development of the sector

various administrative measures and policies need to be studied carefully.

Now is the time to plan some long term strategy for the development of the

SMEs so that it continues to contribute more to the economy in a more

effective way.

25

Chapter 3

RESEARCH METHODOLOGY

AIMS AND OBJECTIVES




research have accomplished following objectives:




export promotion




1.3 RESEARCH QUESTIONS






growth?



RESEARCH APPROACH

26

In this project report Inductive research is used, which focuses on

generalizing specific form of observation. It give a general view to the

researcher’s. Researchers have to make an assumption if they want to

analyze any form of observation in the society and then conduct an

experiment based on survey so to check his assumptions to reach toward a

certain conclusion. Other than this Deductive research is also used, by

which deductive thought can change the ordinary theory into new

hypothesis. The researcher’s thought goes from general to the specific to

observe facts and to collect the data to come to a certain conclusion. His

primary objective is to form a new thinking to test the hypothesis. If the

data helps this thinking then we can assume that his theory is correct.

The Inductive method with its generalized approach explains about the

workings of thought in a pure, unemotional and neutral way, rather than on

pre implicit notions. It believes the fundamental form of science starts with

observing ideas which can be derived from the real happening of senses.

Thus it explains the relationship between sensory experiences and the

object of those experiences. Its conclusion helps in indentifying new areas

of research which is beyond the limit of actual experience.

Critics argue that this method is a descriptive and does not explain anything

and fails in establishing a clear generalized view. They further their point by

stating that there is no such logical inductive method which can make a

universal statement from a singular set of opinion and it’s a ardent task to

make the infinite observations and prove them universal in all case.

To make research flawless all the major dominant factors which affect the

method of raw data collection are identified. Key themes are often left

obscured and unorganized as the flaws in the method of data collection and

analysis forced by deductive data testing and making hypothesis on that.

27

For data analysis in various type of quantitative approach inductive

approach is used and is very obvious. Some researchers have described

their approach explicitly as “inductive” while many others use the approach

without giving an explicit label to it.

The general inductive approach suggests an appropriate way of analyzing

the qualitative data for research purposes. Analysis derived from it are in

discrete from those perception derived from a general views for data

collection. Many researchers are engaged in finding a general inductive

approach for traditional and quantitative approach of data analysis.

Silverman, D. (2002), Doing qualitative research: A practical handbook,

London: Sage, Remenyi, D, Williams, B, Money, A, Swartz, E (2000), Doing

Research in Business and Management – An Introduction to Process and

Method, London, Sage, Ketchen, D.J. and Bergh, D.D. (2006), Research

Methodology in Strategy and Management, JAI Press, Greenwich

RESEARCH METHOD

Qualitative research has its origin in social science and is more concerned

with understanding the approach of how people behave in regards to their

knowledge, beliefs, fear and attitude etc. It trend to find the estimated

differences between various groups by calculating things. This method

provides valuable information which might have been missed by any other

method and thus it increases the area of quantitative research methods.

Focus groups

In this method the group size is kept precisely small, so that its members

can freely express their views on any topic. Before the actual

implementation of thought into action a solution guide is always prepared.

This ensures that various aspects of the topic can be explained in a

28

convenient way. The discussion can be frequently tape-recorded for further

use and analysis.

Direct observation

This method is very effective when a researcher want to understand the

values and belief of the population under study. Researcher becomes the

part of the population so that they can find out the details. The collected

information in the form of data can be stored by an external observer or it

can be collected by a participant observer.

In-depth interviews

Basic purpose of interviews is to enquiry about predetermined set of

questions which helps in conducting a quantitative survey. The interviewees

express their views and feeling over the concern topic. In critical incident

study interviewees are asked to give their views on real events which are

later generalized. Thus it helps in focusing more about the beliefs behavior

and attitudes.

Quantitative Method:

It’s a research method which rely more on the case studies and subjective

report and method like interviews, observations and questionnaires are of

less importance. Quantitative research on other hand relies much more

on interviews and case studies. It creates reliability among user. It help

researcher for the study of the population in an unbiased manner. The

designing of questionnaire helps in predetermining the hypotheses. The

research part is supposed as an outer part of actual research, aid to conduct

research.

Qualitative research methodologies explore the interaction of culture

situation so to come at the desired result. On the other hand qualitative

methods are used for social marketing which helps in the depth study which

29

includes interaction of culture situation of observations among focused

groups. Hypotheses are made on the basis of data collection and its analysis

explains the trend of market. Under this approach, the researches become

more goal oriented in terms of data collection, and results which may vary

from researchers to researchers.

Quantitative methods are advantageous as it furnishes detailed information

over the particular subjects and their behavior. Only drawback of this

method is the ample amount of labor intensity and time-consuming. That’s

why this method is not generally accepted by the mainstream public health

units. Researchers might find it more difficult and confusing for outside

people in the practice of social marketing.

Neuman, W. L. (2004), Social research methods: Qualitative and

quantitative approaches. 6th ed, Allyn & Bacon, Boston, MA.

Creswell, J. W. (2002). Research Design: Qualitative, Quantitative, and Mixed

Methods Approaches. Thousand Oaks, CA: Sage Publications

Patton, M. Q. (2002). Qualitative evaluation and research methods (3rd ed.).

Sage Publications, Inc., Thousand Oaks, CA.

Punch, K.F. (2003), Survey Research: The Basics, Sage Publications Ltd.,

London

DATA COLLECTION

The method by which the results of our research are checked and the way it

is applied in our decision making it is very important. Researcher will have

information about how the data collection, planning, and its implementation

will help in analyzing the potentiality of a method for decision making.

Material level problem can be collected through secondary method, but it is

not effective for collecting the information for the existing data.

30

Primary information is collected mainly by observation and is gathered

mainly to help the users whom you are addressing. There is multiple way of

data collection but this method is more flexible way to get data from its

desired group of audiences.

Observation is the process through which methods and information for

reference materials are examined, or the amount of time it would take to

complete a certain phase of work.

Surveys Interviewing is one of the method by which a survey is conducted.

Written questionnaires are another method which is commonly used for

gathering information. There are various other methods by which we can

gather information and response from audience.

Depending upon the population size and information type we can choose

different sampling method. If the target audience is too large then by

choosing a small number of people to represent mass population is the

most suitable method for it or you can also try to remove the biasness

approach by using: (i) Random sampling; (ii) Stratified sampling; and (iii)

Quota sampling .

Sekaran, U. (2003), Research Methods for Business: A Skill Building

Approach, John and Wiley Inc., USA.

Robson, C. (2000) Real World Research. Blackwell Publishers, Oxford

Easterby-Smith, M. et al. (2002), Management Research – An Introduction,

2nd edition, London: Sage

Perakyla, A. (1997) Reliability and Validity in Research Based on

Transcripts. In: D. Silverman, ed., Qualitative Research: Theory,

Method and Practice. London: Sage, 201-220.

31

Bryman, A and Bell, E (2003) Business Research Methods Oxford

University Press

32

Chapter 4

FINDINGS AND ANALYSIS

4.1 INTRODUCTION

This research was purposed to answer the following research questions:

What is the contribution and responsibility of small scale industries towards

the development of Indian economy in the context of employment

generation; What is the contribution and responsibility of small scale

industries towards the development of Indian economy in relation to

export growth; Whether the potential of Indian small scale industries’ have

been underestimated or exaggerated. Both primary and secondary data

were collected in order to answer these research questions. Secondary data

were in the form of literature review and primary data were in the form of

data collected through questionnaire survey. This chapter analyses the

collected both secondary and primary data.

4.2 ANALYSIS OF FINDINGS

Small scale industries & economic restructuring and development

This research literature emphasized on small scale industries and it is

consider very vital from the employment generating, lessening indigence

and making contribution to economic growth point of view. In the

developing economies small-size enterprises are generally considered as the

dynamic source of employment generation, which is a engine of growth.

(Lunsche and Barron, 1998). In an economy which faces complex political

and economic challenges their willingness to undertake new or risky

projects is regarded as very vital. Both willingness to undertake new or

risky projects and small-size enterprises are crucial for taking economy to a

33

higher level (Glass and Drnovsek, 2001). In such a situation small scale

industries are said to be very vital and they are very crucial for economic

restructuring. Empirical data was collected in this research to establish as

how the role is played by small scale industries in economic restructuring

and development of India, which conform our hypothesis. The empirical

data collected reveals that small scale industries have played very

commendable role in economic restructuring and development of India.

(see table and figure 4.1).

Table 4.1: Small scale industries & economic restructuring and

development

From the table it is evident that for the larger part of the total respondents

(57% of the total 30), small scale industries have played ‘highly creditable’

role in economic restructuring and development of India; for a considerable

part of the total respondents (33%), small scale industries have played

34

‘reasonable’ role in economic restructuring and development of India; for

the remaining small part of the respondents (10%) small scale industries

have played ‘negligible’ role in economic restructuring and development of

India. Thus it can be concluded that these data have played highly

creditable role in economic restructuring and development of India.

Contribution of small scale industries in economic development

The research literature shows a positive contribution in the growth of an

economy is made by small scale industries. Their contributions can be

expressed in diverse way: their is ample opportunities for the new entrant

in labor market both in urban and rural areas with the upcoming of small

and medium enterprises; they have an active role in the modernization for

the whole economy. Dependency ratio of people over small scale industries

is very large. Today’s big enterprises were earlier small and medium

enterprises which have grown with time. There are three main differences

between Small scale industries and large scale enterprises. Small and

medium enterprises can be segregated on the basis of their size, such as

very small enterprises, small enterprises and medium enterprises. Inception

of small and medium enterprises originates with the industrialization of an

economy (Fida, 2008). Small scale industries also influences the economy in

many other considerable ways like division of earnings, tax proceeds,

opportunities of jobs, well-organized deployment of assets and steadiness of

wages and income. Empirical data was collected to establish a relation

between small scale industry contribution and their economic development

of India. Employment generation and export growth are the most creditable

contribution of small scale industries in economic development of India as

reveled by the empirical data. Research participants conclude that

employment generation and export growth are the most creditable

contributions of small scale industries in economic development of India

(see table and figure 4.2).

35

Table 4.2: Contribution of small scale industries in economic development

The data account in this table illustrates that for the greater part of the

total respondents (70% of the total 30), ‘employment generation’ (40%) and

‘export growth’ (30%) are the most commendable contributions of small

scale industries in economic development of India; and for the remaining

small part respondents (30%), ‘entrepreneurial and other innovation’ (17%)

and ‘desirable sustainability’ (13%) are the most commendable

contributions of small scale industries in economic development of India.

To conclude these data reveled that employment generation and export

growth are the most commendable contribution of small scale industries in

economic development of India.

Government policies are discriminatory for small scale industries

It is evident from the research literature that small scale industries need due consideration as it act as distinguishing foundation of the economy. As compared with large enterprises small scale industries face unfavorable

36

treatment. This is due to the fact that big organizations are much familiar with economic environment thus they can deal with and crack their difficulties. On contrary, small scale do not have competence because of their small extent and the consequential oddities which become hurdle in their smooth operation. Though there is no straight legal or governmental bias for small and medium enterprises but they are victim of disparate dealings which leads to deformed and non-competitive working atmosphere. In the light of these propositions empirical data was collected in this research to establish as whether government policies are discriminatory for small scale industries in India comparing large scale industries. It reveals that government policies are discriminatory for small scale industries as compared to large scale industries in India. As the greater part of the total research participants conclude that government policies are discriminating for small scale industries in India comparing large scale industries (see table and figure 4.3).

Table 4.3: Government policies are discriminatoryfor small scale industries

From the data enlisted in the table it can be easily comprehended that for

the greater part of the total respondents (73% of the total 30), they find

‘yes’ that government policies are discriminating for small scale industries

in India comparing large scale industries; and for the remaining part

respondents (27%), they find ‘no’ that government policies are not

discriminatory for small scale industries in India comparing large scale

industries. overall, these data conclude that government policies are

37

discriminating for small scale industries in India comparing large scale

industries.

Growth of small scale industries and problems

From the research literature it can be easily understood that small and

medium enterprises are more labor-intensive which require more workers

compared to big enterprises. As a result, create more employment

opportunities and play a vital role in poverty alleviation by providing

earnings. Small scale industries brought a transition from agriculture base

economy to industry-based economy by providing basic favorable conditions

for systematic operations. This leads to channelizing of resources and

accelerates the rate of growth. Small and medium enterprises create a link

between small and large businesses in the economy as it assist in attracting

fruitful assets. This in turn results in inflow of investment from other

countries. However, there are as well some latent and obvious problems

which becomes a hurdle in the path of growth of small scale industries and

these are political instability, law and order situation, financial constraints,

energy crisis, taxation problems, labor issues, lack of coordination and

regular information exchange mechanism among institutions, etc (UNIDO,

2006). Empirical data collected in this research shows growth of small scale

industries in India and problems which are requires to be most effectively

dealt with by the government in the country. Growth of small scale

industries in India, financial constraints and labor issues are some of the

problems which are require to be most effectively dealt with by the

government in the country. As in accordance with the larger part of the

total research participants, for the growth of small scale industries in India

financial constraints and labor issues as problems require to be most

effective dealt with by the government in the country (see table and figure

4.4).

38

Table 4.4: Growth of small scale industries and problems

From the given data which is described in the table for the larger part of

the total respondents (63% of the total 30), for the growth of small scale

industries in India, ‘financial constraints’ (33%) and ‘labor issues’(30%) as

problems require to be most effective dealt with by the government in the

country; and for the remaining part respondents (37%), for the growth of

small scale industries in India, ‘taxation problems’ (17%), ‘law and order

situation’ (13%) and ‘energy crisis’ (7%) require to be most effectively dealt

with by the government in the country. From a holistic point of view, the

growth of small scale industries in India, financial constraints and labor

issues as problems require to be most effectively dealt with by the

government in the country.

Globalised business environment and small scale industries

39

As from the research literature it can be inferred that their has been a

transformation in small scale industries as a reaction to the various

necessities of internationalization. In the emerging countries the prospects

of neo-localism having been greatly highlighted. Small scale industries have

been a rich source of employment but now it seems less important objective

compared to new policies of attracting foreign inclination, achievement of

comparative productive capacities and becoming distinguished performer in

the world (Das, 2007). It is indispensable to concentrate over this issue,

which act as a limitation for small scale industries for foreign inclination

and a worldwide viewpoint for the sector. Empirical data was collected

keeping in mind these propositions to establish as how favorable has been

globalised business environment of India for the growth of small scale

industries. The empirical data collected reveals that overall globalised

business environment of India has been average favorable (not highly

favorable) for the growth of small scale industries. As in accordance with

the larger part of the total research participants, globalised business

environment of India has been reasonably favorable for the growth of small

scale industries (see table and figure 4.5).

Table 4.5: Globalised business environment and small scale industries

40

The data detail in this table illustrates that for the larger part of the total

respondents (53% of the total 30), globalised business environment of India

has been ‘reasonably favorable’ for the growth of small scale industries; and

for the remaining part respondents (47), globalised business environment of

India has been either ‘highly favorable’ (30%) or ‘not favorable’ (17%) for

the growth of small scale industries. So, to conclude it can be said that

overall globalised business environment of India has been average favorable

(not highly favorable) for the growth of small scale industries.

Small scale industries and employment generation

In agreement with the research literature there are two studies that

determine job generation capacity of small enterprises. In the first one

cross-sectional data are used to calculate job share of small units, while in

the second one classification of the enterprises is done on the basis of size

and area. From the first study it is concluded that small units were

increasing their significance because share of big enterprise in total

employment was decreasing. Second study categorized enterprises

according to their volume and location in the base year with the help of a

database (Acs and Audretsch, 2001). Taking these propositions empirical

data was collected for this research to conclude whether small scale

industries have played a substantial role in employment generation in India.

Findings from the empirical data collected reveals that unquestionably

41

small scale industries have played role in employment generation in India.

As per the greater part of the total research participants, they find that

small scale industries have played a substantial role in employment

generation in India (see table and figure 4.6).

Table 4.6: Small scale industries and employment generation

The data detail in this table shows that for the greater part of the total

respondents (60% of the total 30), they find ‘yes’ that small scale industries

have played a substantial role in employment generation in India; and for

the remaining part respondents (40%), they find ‘no’ that small scale

industries have not played a substantial role in employment generation in

India. To conclude about the finding it can be said that indisputably small

scale industries have played role in employment generation in India.

New employment in small scale industries

42

For the research literature, the studies revealed the real picture as

published labor data statistics had been used by the economists at that time

and most of the time their study revealed that the largest size category

were producing most of the new jobs. In this method analysis was done by

counting the number of persons employed in the same category with in a

period of two year. Presumption for this analysis was based on the

movement between different classes was insignificant. Birch’s studies on

the other hand made it clear that the development of small units before

becoming large enterprises was a major reason in influencing increase in

total employment. Critics of Birch’s method challenged its analysis (Davis,

Haltiwanger and Schuh, 1996), an acknowledged fact is that in small

enterprises not only gross job generation but job destruction is also high,

which is more significant. Empirical data were collected keeping these

propositions in mind. The main purpose of empirical data is to establish a

relation as whether increasing share of small scale industries in India’s total

employment is due to a net employment decline of large scale industries

than new employment in small scale industries. From the finding it can be

concluded that there is an increase in share of small scale industries in

India’s total employment, due to a next employment decline of large sale

industries than new employment in small scale industries. As per the

greater part of the total research participants, they either strongly agree

or just agree to the fact that increasing share of small scale industries in

India’s total employment is due to a net employment decline of large scale

industries than new employment in small scale industries (see table and

figure 4.7).

Table 4.7: New employment in small scale industries

43

The data enlisted in this table describes that for the larger part of the total

respondents (67% of the total 30), they either ‘strongly agree’ (40%) or

‘agree’ (27%) to the fact that increasing share of small scale industries in

India’s total employment is due to a net employment decline of large scale

industries than new employment in small scale industries; and for the

remaining part respondents (33%), they either ‘disagree’ (20%) or ‘strongly

disagree’ (13%) to the fact. On a whole, these data conclude that

unquestionably there is an increase in share of small scale industries in

India’s total employment which is due to a next employment decline of large

sale industries than new employment in small scale industries.

Small scale industries as employment creators

As per the research literature, Hohti in the year 2000 discovered that there

is an inverse proportion to the size of businesses between jobs generation

and jobs obliteration in Finland. Hohti (2000) on the basis of Finnish

manufacture business data between 1980-1994 has established that the

rates of per year job flow, in terms of births and deaths which is alike to

what Broesma and Gautier (1997, p. 215-216) come across for Dutch

manufacturing businesses and by Klette and Mathiassen (1996) identified

for Norwegian manufacturing firms. It is commonly agreed that new

enterprises, have the highest rates for both job generation and job

obliteration. Thus experience shown in North America is analogous to

Finland, Sweden and the Netherlands. So to prove whether small scale

industries are greatest employment creators in India and as well greatest

44

employment destructors in India empirical data were collected. It reveals

that this is undoubtedly a fact that small scale industries are the greatest

employment creators in India and as well greatest employment destructors

in India. As per the larger part of the total research participants they find

that small scale industries are greatest employment creators in India and as

well greatest employment destructors in India (see table and figure 4.8).

Table 4.8: Small scale industries as employment creators

The data enlisted in this table describes that for the larger part of the total

respondents (63% of total 30), they find ‘yes’ that small scale industries are

greatest employment creators in India and as well greatest employment

destructors in India; and for the remaining part respondents (37%), they

find ‘no’ that small scale industries are not greatest employment creators in

India and as well greatest employment destructors in India. So on the

whole; it can be comprehended from the data that small scale industries are

greatest employment creators in India and as well greatest employment

destructors in India.

Small scale industries lacking and training employees

As per the research literature, the advocators of internationalization and

technical changes, Audretsch (1995), Audretsch and Thurik (2001) and Acs

45

and Audretsch (2001) have concluded that businesses based on information

technology relatively more advantageous. In those businesses person who

carries information is of more important than the company. The argument is

that lack of symmetry in knowledge and ambiguity about the prospective

value of that knowledge lead to diverse assessment by company and person.

This in turn leads the person to quit from the current company to start a

company of his own business taking commercial advantage his knowledge.

This is where; entrepreneurship is getting a novel meaning as it becomes an

important instrument by which knowledge earned in one institution (for

example an university or business enterprise) is implemented for profit in a

new company. The distinction amid small and big enterprises in service

segment is the creation of job by little net entry. It is observed from the

data that in the big job generation very tiny enterprises firms influences the

size sharing of enterprises in both sectors. Empirical data was collected to

establish the proposition as whether small scale industries in India lack in

providing training to the employees in order to efficiently take part in

knowledge based economic activity. It can be comprehended from the

empirical data that in India small scale industries certainly lack in providing

training to the employees in order to make them efficient to take part in

knowledge based economic activity. For the larger part of the total research

participants they find that for the greater part of the total research

participants either strongly agree or just agree that small scale industries in

India lack in providing training to the employees in order to efficiently take

part in knowledge-based economic activity (see table and figure 4.9).

Table 4.9: Small scale industries lacking and training employees

46

The data enlisted in this table shows that for the greater part of the total


‘agree’ (33%) that small scale industries in India lack in providing training

to the employees in order to efficiently take part in knowledge-based

economic activity, and for the remaining part respondents, they either

‘disagree’ (20%) or ‘strongly disagree’ (10%) to this fact. To conclude it can

be certainly said that small scale industries in India lack in providing

training to the employees in order to efficiently take part in knowledge

based economic activity.

Small scale industries in India and the policies of labor market

reforms

For the research literature, the new economic policy of liberalizing has

made small scale industries very vulnerable. However, it cannot be

understood that for Small scale industries the path ahead is totally lifeless.

On contrary they are expected to perform better because big enterprises

47

are very sluggish in job creation (Papola, 2004). It is implicit that small

scale industries are more cost advantageous and can compete to achieve

high rate of development. Thus given a liberalized milieu small scale

industries can penetrate huge markets which is untapped by them and were

specifically reserved for big enterprises. Small scale industries are flexible

in their manufacturing schemes and division of manufacturing activities by

sub-contracting can help them to achieve an increase growth rates.

Problems for big enterprises can become serious if there is degree of

protection and abolition of the job safety section are part of the labor

market modifications (Nagaraj, 2004). Auxiliary to it, liberalization and

abolishing licensing in the economy has lined the way of the casualisation

and feminization of labor (Mitra, 2001). The era of liberalization has opened

new opportunities and broadens the awareness about the informal segment.

To find out whether small scale industries in India wish to achieve a faster

growth and add more contribution in the economy, they should comply with

the policies of labor market reforms, empirical data was collected for the

same. It shows that small scale industries in India wish to achieve a faster

growth and add more contribution in the economy, they should comply with

the policies of labor market reforms. As per the greater part of the total

research participants they find that if small scale industries in India wish

to achieve a faster growth and add more contribution in the economy they

should comply with the policies of labor market reforms (see table and

figure 4.10).

Table 4.10: Small scale industries in India and the policies of labor market

reforms

48

The data enlisted in this table illustrates that for the greater part of the

total respondents (77% of the total 30), they find ‘yes’ that if small scale

industries in India wish to achieve a faster growth and add more

contribution in the economy, they should comply with the policies of labor

market reforms; and for the remaining part respondents, they find ‘no’ that

if small scale industries in India whish to achieve a faster growth and add

more contribution in the economy, they do not need to comply with the

policies of labor market reforms. So to conclude it can be said that small

scale industries in India wish to achieve a faster growth and add more

contribution in the economy, they should comply with the policies of labor

market reforms.

Small scale industries and export growth

For the research literature, according to Ruzzier et al (2006) small and

medium size enterprises have played a vital role in both economic

advancement and augmenting the employment opportunity. In the field of

internationalization globalization has always been the focus area of most

scholars, particularly focusing on big enterprises, until the publication of

McDougall and Oviatt’s (1994) recognized the significance of the

internationalization of small scale industries or international

entrepreneurship. However, contemporary works (Sharma, 2004, Cerrato,

2007) shows the impact of location on small scale industries

49

internationalization seeking more in-depth research on the study of

internationalization from various socio-economic environments. Empirical

data was collected in to study whether small scale industries have played a

significant role in export growth of India or not. Findings from the empirical

data reveal that small scale industries have played a significant role in

export growth of India. As per the larger part of the total research

participants, they find that small scale industries have played a significant

role in export growth of India (see table and figure 4.11).

Table 4.11: Small scale industries and export growth

The data enlisted in this table shows that the larger part of the total

respondents (67% of the total 30), they find ‘yes’ that small scale industries

have played a significant role in export growth of India, and for the

remaining part respondents (33%), they find ‘no’ that small scale industries

have not played a significant role in export growth of India. On the whole

these data conclude that small scale industries have played a significant

role in export growth of India.

50

Export promotion agencies and government incentives for promoting

small scale industries

To integrate strategic aspects with globalization process, the Resource-

based Internationalization structure (Rutihinda, 1996 and Ahokangas, 1998)

which is based upon the resource-based view of the firm is used. As the

domestic market reaches the saturation level this would eventually lead

companies to seek expansion over international arena; which in turn will

make competition tougher every day and only solution for this is innovation

and efficiency for companies to survive the rat-race. Government patronage

in term of favorable situations of the local market namely government

incentives and support (like low interest loans) and existing supporting

institutional framework e.g. export development bodies, which act as a big

inspiration to the Small scale industries to explore alternative markets.

Empirical data collected in this research shows how supportive have been

export promotion agencies and government incentives for promoting small

scale industries led export growth of India. Findings from the empirical

data reveals that generally export promotion agencies and government

incentives are average supportive for promoting small scale industries led

export growth in India. As per the larger part of the total research

participants , export promotion agencies and government incentives are

reasonably supportive , they find that small scale industries have played a

significant role in export growth of India (see table and figure 4.12).

Table 4.12: Export promotion agencies and government incentives for

promoting small scale industries

51

The data detail shows that for the larger part of the total respondents (53%

out of the total 30), export promotion agencies and government incentives

are ‘reasonably supportive’ for promoting small scale industries led export

growth of India, and for the remaining part respondents (47%), export

promotion agencies and government incentives are either ‘highly supportive

(17%) or ‘not supportive’ (30%) for promoting small scale industries led

export growth in India. To conclude it can be said that generally export

promotion agencies and government incentives are average supportive for

promoting small scale industries led export growth in India.

Export challenge of small scale industries

According to Sharma and Erramilli (2004) to penetrate in the foreign

market small scale industries may attempt various entry routes, depending

upon the benefits and costs associated by various alternatives. Peng and

York (2001) suggested two options for exporting firms: Reach the foreign

customer directly or going through some mediator. For an Indirect path to

trans-nationalization direct approach was well-discussed and much

addressed. Fletcher (2004), elaborated it as the means whereby exporting,

sourcing or distribution agreements are done by small scale industry with

intermediary companies who manage, on their behalf, the transaction, sale

or service with overseas companies. The pivotal role of export mediators

was explained by Peng and York (2001) which emphasize on “linking

52

individuals and organizations that would otherwise not have been

connected”. Trabold(2002) views this indirect conjugation holds platform

for successful transactions and Balabanis feels they often help their clients

to identify customers, financing and distribution infrastructure providers.

The mediators bring in the expertise of operating in another country and

reduce the risks related to international operations. Li (2004) favored

appointment of export intermediaries who is well acquainted with consumer

demography so to look after low cost exportation. Empirical data was

collected so to establish a relation between export challenge of small scale

industries in India to be effectively dealt for enhancing their role and

contribution in export. From the data collected it can be concluded that risk

operation and knowledge gap as export challenges of small scale industries

in India need to be effectively dealt for enhancing their role and

contribution in export. As per the greater part of the research participants

risk of operation and knowledge gap as export challenges of small scale

industries in India need to be effectively dealt for enhancing their role and

contribution in export (see table and figure 4.13).

Table 4.13: Export challenge of small scale industries

53

The data detail in this table explained that for the greater part of the

respondents (73% of the total 30), ‘risk of operation’ (40%) and ‘knowledge

gap’ (33%) as export challenges of small scale industries in India need to be

effectively dealt for enhancing their role and contribution in export and for

the remaining part respondents (27%), ‘high uncertainty’ as export

challenge of small scale industries in India need to be effectively dealt for

enhancing their role and contribution in export. So to conclude it can be

comprehended from the empirical data that risk operation and knowledge

gap as export challenges of small scale industries in India need to be

effectively dealt for enhancing their role and contribution in export.

Export policy and small scale industries orientation

The research literature shows that a export-entrepreneurial orientation is

the main factor of a firm’s choice of internationalization and export

involvement. Ibeh and Young pointed out that greater innovation and higher

proactivity is displayed by the high export-entrepreneurial firms in initiating

exportation. Kazem and Van der Heijden (2006) arrive at the juncture from

where exporters are perceived to be better self-starters than non-exporters

by analyzing the correlation between owners’ degree of entrepreneurial

orientation and the organization’s competitive accomplishment. The study

by Francis and Collins- Dodd (2000) pointed out the misleading notion of

conservative approach in the dynamic environment and shows that for an

enhanced export performance, high proactive approach is required. Studies

conducted over the last couple of years ( Ibeh, 2004; Marino and Weaver,

2002) concluded that there is a positive relation of high small scale

industries orientation, including that when the owner or manager works

directly in proportion with export performance. Empirical data was

collected in this research to find whether if India wishes to enhance its

export performance then the export policy should have high small scale

industries orientation or not. From the data collected, the results shows that

if India wishes to enhance its export performance then the export policy

54

should have high small scale industries’ orientation. As per the greater part

of the research participants they either strongly agree or agree that if

India wishes to enhance its export performance then the export policy

should have high small scale industries orientation (see table and figure

4.14).

Table 4.14: Export policy and small scale industries orientation

The data enlisted in this table explains that for the greater part of total


‘agree’ (23%) that if India wishes to enhance its export performance then

the export policy should have high small scale industries orientation; and

for the remaining part respondents (30%), they either ‘disagree’ (20%) or

‘strongly disagree’ (10%) that if India wishes to enhance its export

performance then the export policy should have high small scale industries

orientation. So to conclude it can be said that, if India wishes to enhance its

export performance then the export policy should have high small scale

industries’ orientation.

Small scale industries role in Indian economy

55

From the literature review it can be inferred that the small scale industries

in India are quite advantageous as it generates employment at low capital

investment, increases the availability of skilled and semi-skilled workforce

and also helps in reducing the gap between the rich and the poor. The

studies done by Kazem and Ven der Heijden (2006) have shown the

importance of SMEs in any nation as its development results in

industrialization and economic development. Despite of the fact that SME

sector is very significant sector for any economy and various studies has

tried to make a linkage between the export competitiveness and SME

development in the western countries it has not received much focus by

researchers in the Indian sub-continent.

To better understand the role of the small scale industries in the Indian

economy some empirical data was collected. The data shows that the role of

small scale industries is not stable in the economy. (see table and figure

4.15).

Table 4.15: Small scale industries role in Indian economy

56

From the data it can be seen that half of the total respondents ( 50% )thinks

that the role of small scale industries is unstable while other half of the

respondents feels that the role of the small scale industry is duly

acknowledged(27%) or exaggerated (23%). So overall it can be said that the

SMEs in India is undermined and needs more focus by the government so as

to make its role more significant.

4.3 SUMMARY

Small scale industry has very significant role in the Indian economy. It has

contributed a lot to the economy in terms of employment generation and

exports. Government of India is a bit bias towards small industries but in

order to develop this sector more effectively some good long term policies

should be developed by the government. The increase in the employment in

the small scale industries is due to the decline in the employment share in

the large scale industries. Small scale industry in India is somehow not able

to provide training to the employees because of which they are not able to

contribute efficiently to the economy. Small scale industry needs to follow

the policies of the labor market in order to achieve faster growth. The next

contribution of the small scale industries is in export market. Many

promotion agencies and government incentive schemes helps small scale

industries to contribute better to the export market. Small scale industries

also face some challenges like risk operation and knowledge gap which

needs to be dealt carefully so that contribution of SMEs in the export

57

market can be increased. The role of small scale industries in Indian

economy is destabilized which needs to be worked upon so as to make its

role more stabilized and significant.

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Chapter 5

CONCLUSION

5.1 INTRODUCTION




research have accomplished following objectives: To perform a literature

review to analyze the contribution and responsibility of small scale

industries towards the overall development of economy in the context of

employment generation and export promotion; To carryout a field studies to

observe contribution and responsibly of small scale industries towards the

overall development of economy in the context of employment generation

and export promotion. The research has answered following research

questions: What is the contribution and responsibility of small scale

industries towards the development of Indian economy in the context of

employment generation; What is the contribution and responsibility of small

scale industries towards the development of Indian economy in relation to

export growth; Whether the potential of Indian small scale industries’ have

been underestimated or exaggerated.

5.2 SUMMARY OF FINDINGS

The main purpose of data collected was to study how the role is played by

small scale industries in economic restructuring and development of India.

Data collected shows very obvious positive result regarding creditable role

in economic restructuring and development of India. Its role is also very

evident in the employments generation and export growth. Government

patronage to small scale industries in term of their discriminating policy for

59

small scale industries in India comparing large scale industries is also

reveled by data. Empirical data reveals that hurdle like financial constrain

and labor issues should be more effectively dealt by the government.

Further, the empirical data collected reveals that overall globalised

business environment of India has been average favourable (not highly

favourable) for the growth of small scale industries. The crux of the data is

that the small scale industries have played role in employment generation in

India

Unquestionably small scale industries have lead to employment generation in India. It is said,

small scale industries are the greatest employment creators in India and as well greatest

employment destructors in India as it lack providing effective training to the employees. As a

result it leads to a detrimental effect on our knowledge based economic activity. To overcome

this and to achieve a faster growth, small scale industries in India should conform the policies of

labor market reforms. Small scale industries role in export growth of India is very commendable,

this is due to active support of export promotion agencies and government incentives.

Data reveled if India wishes to achieve a faster growth and boost its

economy then small scale industries in India should comply with the policy

of labor market reform. Data shows a positive sign of small scale industries

role in export growth in India. More importantly, the empirical data

collected reveals that generally export promotion agencies and government

incentives are average supportive for promoting small scale industries led

export growth in India.

Risk operation and knowledge gap is another major finding from the

empirical data. This is one of the major challenges faced by small scale

industries and should be dealt effectively for enhancing their contribution in

export. Further the data revels if India wants to escalate its export

performance then the export policy should have high small scale industries’

orientation. Research concludes if India wishes to enhance its export

performance then the export policy should have high small scale industries

60

orientation. Finally, the data collected reveled that the small scale

industries in India economy is undermined.

61

BIBLIOGRAPHY

62

Appendix

Questionnaire

1. What according to you is the role of small scale industries in economic restructuring and development of India?

Highly creditable

Reasonable

Negligible

2. Which among the following will you rate the most commendable contribution of small scale industries in economic development of India?

Employment generation

Desirable sustainability

Enteprenurial and other innovation

Export growth

3. Are government policies discriminatory for small scale industries in India comparing large scale industries?

Yes No

63

4. Which of the following problems are required to be most effectively dealt with by the government in the country for the development of Small scale industries?

Law and order situation

Financial constraints

Energy crisis

Taxation problems

Labour issues

5. How favorable has been globalised business environment of India for the growth of small scale industries?

Highly favorable

Reasonably favorable

Not favorable

6. Do you feel that the employment generation in India has improved due to rise in small scale industries?

Yes No

7. Which among the following option about the “increasing share of small scale industries in India’s total employment is due to a net employment decline of large scale industries than now employment in small scale industries” do you agree?

Strongly agree

Agree

64

Disagree

Strongly disagree

8. Do you agree with the statement “small scale industries are greatest employment creators in India and as well greatest employment destructors in India”?

Yes No

9. What is your degree of acceptance of the fact that small scale industries in India lack in providing training to the employees in order to efficiently take part in knowledge based economic activity?Strongly agree

Agree

Disagree

Strongly disagree

10. Should small scale industries comply with labor market

reform in order to achieve a faster growth and add more

contribution in the economy?

Yes No

11. Do small scale industries have played a considerable role

in export growth of India?

Yes No

65

12. For the growth of Small scale industries how supportive

have been export promotion agencies and government

incentives?

Highly supportive

Reasonably supportive

Not supportive

13. Which among the following option of export challenges of

small scale industries in India should be deal initially for

enhancing their role and contribution in export?

Knowledge gap

High uncertainty

Risk of operation

14. What is your degree of acceptance about the statement “if India wishes to enhance its export performance then the export policy should have high small scale industries orientation”?

Strongly agree

Agree

Disagree

Strongly disagree

15. How do you view small scale industries role in Indian

economy?

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Duly acknowledged

Undermined

Exaggerated

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small scale industries and thier impact on indian economy

Documents

small scale industries

small scale industry

large scale industries

remarkable growth of

export growth of india

employment generation

smallsize enterprises

indian economy smes