Title Page
1
Acknowledgment
2
Table of Content Serial No. 1. 2. 2.1 2.2 2.3 3. 3.1 3.2 3.3 3.4 3.5 3.6 4. 4.1 4.2 4.3 4.4 4.5 5. 5.1 5.2 5.3 6. 6.1 6.2 7. 8. 8.1
Topics
Page No.
Abstracts Introduction Background and Rationale Aims and Objectives Research Questions Literature Review Introduction Role of SMEs in Economy Role of SMEs in Indian Economy SMEs and Employment Generation SMEs and Export Growth Summary Research Methodology Aims and Objectives Research Questions Research Approach Research Method Data Collection Findings and Analysis Introduction Analysis of Findings Summary Conclusion Introduction Summary of Findings Bibliography Appendix Questionnaires
4-5 (6-7) 6 6-7 7 (8-21) 8 8-10 10-12 12-16 16-20 20-21 (22-26) 22 22 22-23 24-25 25-26 (27-47) 27 27-46 46-47 (48-49) 48 48-49 50 (51-54) 51-54
3
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? •
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.
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. 4
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.
5
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. 6
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: •
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
1.3 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.
7
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 8
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 between small and large businesses in the economy. This helps in attracting businesses from other countries. 9
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. 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 10
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 and other financial organizations are helping SMEs by introducing some loan assurance schemes for them.
11
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 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. 12
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 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 waysBy the reduction in the jobs opportunities in the big enterprises or increase in 13
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 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.
14
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 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 15
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 nonscience 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 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.
16
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. 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 17
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).
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 18
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 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
19
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 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 20
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 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
21
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 exportentrepreneurial shows greater innovation and higher proactivity in initiating exportation.
Analyzing
entrepreneurial
the
orientation
correlation and
the
between
owners’
organization’s
degree
of
competitive
accomplishment Kazem and Van der Heijden (2006) arrive at the juncture from where exporters are perceived to be better self-starters than nonexporters. 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 internal resources of the firm. Some other barriers as suggested by SuarezOrtega 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.
22
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 semiskilled 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 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 23
government is: advancement in technologies and backing of their working capital needs. SMEs also require government support in order to increase cooperation 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 tieups 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. 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 24
SMEs so that it continues to contribute more to the economy in a more effective way.
25
Chapter 3
RESEARCH METHODOLOGY 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: •
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
1.3 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. 26
RESEARCH APPROACH 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 convenient way.
The
discussion can be frequently tape-recorded for further use and analysis. 28
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 includes interaction of culture situation of observations among focused groups. Hypotheses are made on the basis of data collection and its analysis 29
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. Primary information is collected mainly by observation and is gathered mainly to help the users whom you are addressing. There is multiple way of 30
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
most suitable method
population is the
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. Bryman, A and Bell, E (2003) Business Research Methods Oxford University Press 31
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 higher level (Glass and 33
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 V a r ia b le
N o .o f R e s p o n d e n ts
R e s p o n s ein P e r c e n ta g e
V a lid P e r c e n ta g e
H ig h ly c r e d ita b le
1 7
5 6 .6 6 %
5 7 %
R e a s o n a b le
1 0
3 3 .3 3 %
3 3 %
N e g lig ib le
3
1 0 %
1 0 %
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 ‘reasonable’ role in economic restructuring and development of India; for the 34
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 Variable
No. of Respondents
Response in Percentage
Valid Percentage
Em ploym ent generation
12
40%
40%
Desirable sustainability
4
13.33%
13%
Enteprenurial and other innovation
5
16.66%
17%
Export growth
9
30%
30%
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
36
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 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 Variable
No. of Respondents
Response in Percentage
Valid Percentage
Yes
22
33%
73%
No
8
26.66%
27%
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 37
(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 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
V ariable
N o. of R espondents
R esponsein Percentage
V alid Percentage
L awandorder situation
4
13.33%
13%
10
33.33%
33%
E nergycrisis
2
6.66%
7%
T axation problem s
5
16.66%
17%
L abourissues
9
30%
30%
Financial constraints
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
39
issues as problems require to be most effectively dealt with by the government in the country. Globalised business environment and small scale industries 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 Variable
No. of Respondents
Response in Percentage
Valid Percentage
Highly favourable
9
30%
30%
Reasonably favourable
16
53.33%
53%
5
16.66%
17%
Not favourable
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 crosssectional 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 small scale industries 41
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 No. of Respondents
Response in Percentage
Valid Percentage
Yes
18
60%
60%
No
12
40%
40%
Variable
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.
42
New employment in small scale industries 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
V ariable
N o. of R espondents
Stronglyagree
R esponsein Percentage
V alid Percentage
12
40%
40%
A gree
8
26.66%
27%
D isagree
6
20%
20%
Strongly disagree
4
13.33%
13%
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 44
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 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 Variable
No. of Respondents
Response in Percentage
Valid Percentage
Y es
19
63.33%
63%
No
11
36.66%
37%
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 45
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 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). 46
Table 4.9: Small scale industries lacking and training employees N o. of R espondents
R esponsein P ercentage
V alid Percentage
Stronglyagree
11
36.66%
37%
A gree
10
33.33%
33%
D isagree
6
20%
20%
Strongly disagree
3
10%
10%
V ariable
The data enlisted in this table shows that for the greater part of the total respondents (70% of the total 30), they either ‘strongly agree’ (37%) or ‘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 47
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 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
V ariable
No. of Respondents
Responsein Percentage
V alid Percentage
Y es
23
76.66%
77%
No
7
23.33%
23%
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 49
McDougall
and
Oviatt’s
internationalization
of
(1994)
recognized
small
scale
the
significance
industries
or
of
the
international
entrepreneurship. However, contemporary works (Sharma, 2004, Cerrato, 2007)
shows
the
impact
of
location
on
small
scale
industries
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 Variable
No. of Respondents
Response in Percentage
Valid Percentage
Yes
20
66.66%
67%
No
10
33.33%
33%
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 50
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. 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
Variable
No. of Response in Respondents Percentage
Valid Percentage
Highly supportive
5
16.66%
17%
Reasonably supportive
16
53.33%
53%
Not supportive
9
30%
30%
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 transnationalization direct approach was well-discussed and much addressed. 52
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 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
Variable
No. of Response in Respondents Percentage
Valid Percentage
Knowledge gap
10
33.33%
33%
High uncertainty
8
26.66%
27%
Risk of operation
12
40%
40%
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 54
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 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 Variable
No. of Respondents
Response in Percentage
Valid Percentage
Stronglyagree
14
46.66%
47%
Agree
7
23.33%
23%
Disagree
6
20%
20%
Strongly disagree
3
10%
10%
The data enlisted in this table explains that for the greater part of total respondents (70% of the total 30), they either ‘strongly agree’ (47%) or ‘agree’ (23%) that if India wishes to enhance its export performance then the 55
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 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
V ariable
No. of Respondents
D uly acknow ledged
8
Responsein Percentage
V alid Percentage
26.66%
27%
U nderm ined
15
50%
50%
Exaggerated
7
23.33%
23%
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 57
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 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.
58
Chapter 5
CONCLUSION 5.1 INTRODUCTION 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: 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 small scale 59
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 commendable contribution of economic development of India?
will you rate the most small scale industries in
Employment generation Desirable sustainability Enteprenurial and other innovation Export growth
63
3. Are government policies discriminatory for small industries in India comparing large scale industries?
Yes
scale
No
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
64
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 Disagree Strongly disagree
65
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
11.
No
Do small scale industries have played a considerable role
in export growth of India?
66
Yes
12. have
No
For the growth of Small scale industries how supportive 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
67
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?
Duly acknowledged Undermined Exaggerated
68
69
