2. Project Management National Conference 2011 PMI India
Sustaining Challenges In Managing
Micro Small And Medium
Enterprises
Ramakrishna Kavirayani
EMC
2|P a g e
Application of Select Tools of Psychology for Effective Project Management

3. Project Management National Conference 2011 PMI India
Contents
1 Abstract..............................................................................................................................4
2 Introduction........................................................................................................................5
3 References........................................................................................................................13
3|P a g e
Application of Select Tools of Psychology for Effective Project Management

4. 1 Abstract
Micro, small and medium enterprises (MSME) have been the growth engine in
today’s world characterized by low investment, operational flexibility, location
wise mobility, and import substitution. India’s vibrant micro and small enterprise
sector, which thrives on entrepreneurship and innovation, plays an important role
in sustaining the economic growth contributing around 45 percent of the
manufacturing output and 40 percent of the total exports of India in 2009-2010.
Today’s MSMEs which are successful, shape up to become tomorrow’s large
industries. Classification of MSMEs is looked at based on the capital investment
ceilings to start the business. These play a key role in the development of a
country’s economy with their effective, efficient, flexible and innovative
entrepreneurial spirit. In this growth path, numerous challenges are encountered.
The process of economic liberalization and market reforms has further exposed
these enterprises to challenges from both domestic and global competition. The
major challenges confronting the sector are:
• Technological
• Managerial
• Cash Flows
• Raw materials & Products
• Incidence of Sickness
• Infrastructure
• Environmental Competition
• Marketing and Export
• Growth Opportunities for individuals
An attempt is made here to explore the various challenges and ways to
encounter the same. The best practices that could be used are highlighted.
Contribution from MSMEs to the GDP has grown over the past decade. Finally a
mention of the task force report on MSMEs presented to the Hon’ble Prime
Minister of India is touched upon.
Keywords: Challenges, Sustenance, MSME

5. 2 Introduction
Micro, small and medium enterprises (MSMEs) play an important role in
contributing to the overall industrial development of the country. These also
include khadi, village as well as rural enterprises. The MSME sector accounts for
45 per cent of the manufacturing sector and employs 43 million people. Studies
revealed that the awareness levels of Government MSME policies have
increased from 25% in 2008 to 35% in 2009, but still two-thirds of the MSMEs
are not even cognizant about the MSME Development Act. The MSME
Development Act came into effect from 2nd October 2006. The Policy of
Reservation of Products for exclusive manufacture in SSI (now MSMEs) was
initiated in 1967 with the objective of achieving socio-economic development,
through development and promotion of small units all over the country. The
Ministry of MSME implements the National Manufacturing Competitiveness
Programme (NMCP) to enhance the capacity of Indian MSMEs for overcoming
competition globally and sustain challenges due to the entry of multi-nationals in
domestic market. The formidable challenges so generated for them have led to a
novel approach of cluster development for the sector. As a result, private and
public sector institutions, both at the Central and State levels are increasingly
undertaking cluster development initiatives. Clustering and networking has
helped the small and medium enterprises in boosting their competitiveness. India
has over 400 SME clusters and about 2000 artisan clusters. MSMEs have been
the significant contributor to the exchequer. Though this sector has been given a
priority status by both the Central and the State Governments, still the MSMEs
continue to face several problems in their day-to-day operations. These are not
limited to production, marketing of their products, sell output at remunerative
prices, expense for advertising, marketing research, stiff competition from large
firms, inadequate infrastructural facilities and credit access, etc are among the
major problems. The plan outlay for the Ministry of MSME for 2010-11 was Rs.
2550.00 crores. The 4th All India Census of MSMEs was completed during 2010-
2011.

6. Literature review related to the current article:
Milind Kumar Sharma and Rajat Bhagwat [2] analyzed the need for performance
measurement system as a vital decision support tool at the strategic
management level in SMEs in the developing nations. Their study identified
critical issues that are important viz – PMS strategy, competitive priorities,
benefits observed/perceived by effective management of PMS function and
barriers observed in implementing PMS practices that would contribute to the
effective performance measurement function in Indian SMEs. Md. Ariful Islam et
al [3] developed a theoretical framework which covers the risk management of
the issues that SMEs undergo in their operations that detract from their business
performance. Their empirical investigations cover the internal and external
disturbances that have been encountered in their daily operations. Gill Maxwell
et all [4] investigated the incidence and impact of flexible working arrangements
in smaller businesses. Positive impacts of flexible work arrangements in
recruitment and talent retention, quality working relationships for employees,
loyalty and long term engagement are found, coupled with disadvantages of
operational problems and administrative issues. The study proposed that the gap
between the potential for, and current practice in, flexible working arrangements
could be bridged by targeting information and guidance on such arrangements
specifically to the smaller businesses owner-managers. Seema Sharma and
Milind Sharma [5] have examined the relative production efficiency of state-wise
clusters in the registered small-scale sector in India. It was found that in most of
the states operations were carried at decreasing returns to scale which signifies
the scope for further investment and employment generation. Syed et al [6] study
examines the issues, and explains how the business owners of SMEs in
Malaysia strategize their operation to overcome the failure. The outcome
indicates that business success is a result of implementing a mix of business,
operation and management strategies with the possible remedies,
recommendations and future enhancements. Catherine [7] outlines the dynamics
that businesses face during an economic crisis. Leaders play psychological and
emotional roles to optimize morale and productivity during turbulent times.

7. Michael and Robert [8] explored the capabilities to sustain innovations and
business success as companies transform from start-up to mature organizations.
Results indicated the importance of market orientation, knowledge, management
capabilities, social networks to innovation, success and sustainability.
Definition for Micro, Small and Medium Enterprises in India
Micro, small and medium enterprises as per MSMED Act, 2006 are defined
based on their investment in plant and machinery (for manufacturing enterprise)
and on equipment for enterprises providing or rendering services. The present
ceilings on investment for enterprises to be classified as micro, small and
medium enterprises are as follows:
Classification Manufacturing enterprises service enterprises
Micro Rs. 2.5 million / Rs. 25 Rs. 1 million / Rs. 10 lakh
lakh (US$ 50,000) (US$ 20000)
Small Rs.50 million / Rs. 5 crore Rs. 20 million / Rs 2 crore
(US$ 1 million) (US$ 0.4 million)
Medium Rs 100 million / Rs 10 Rs. 50 million / Rs 5 crore
crore (US$ 2 million) (US$ 1 million)
Enterprises in MSME sector in India
35
30
25
# in millions
20
15
10
5
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
Year

8. Employment in MSME sector in India
80
70
60
# in millions
50
40
30
20
10
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
Year
Contribution of MSMEs (%)
60.00
50.00
40.00
Percentage
30.00
20.00
10.00
0.00
1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Industrial Production Gross Domestic Product (GDP)

9. Investment in MSME sector
900.000
800.000
700.000
Rs (1000s Crores)
600.000
500.000
400.000
300.000
200.000
100.000
0.000
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
Production - Gross Output from MSME Sector
1200
Value in Rs (1000 Crores)
1000
800
600
400
200
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
The major challenges confronting the sector are:
• Technological
• Managerial
• Cash Flows
• Raw materials & Products
• Incidence of Sickness
• Infrastructure
• Environmental Competition

10. • Marketing and Export
• Growth Opportunities for individuals
An elaboration on the challenges and ways to overcome them is dealt hereunder.
Technological: Retention of trained and experienced employees is a hurdle for
small enterprises as they cannot bear high salaries and spend much on learning
and development skills for their employees. Recruiting and motivating skilled
personnel – both technical and managerial - is difficult for small organizations.
Expertise in a niche area demands more cost and hence it has been observed
that skilled personnel move to large scale industries. Prime problems that small
businesses encounter in sourcing technology are: obtaining information about
technology, actual procurement of technology, acquiring finance for technology
upgradation. MSMEs need to look out for creativity and innovation in producing
products of high quality with the latest technology available currently. Research
and development focus will enhance patents contribution and higher revenues.
Managerial: Small scale businesses are run predominantly by families which lack
required skills for managing the enterprises efficiently. Lack of work distribution
and advantages of specialized skills are not available. Reluctance to adoption of
modern art of organization and management hinders growth and scalability.
These issues could be limited to a large extent by: management training
programmes, training and consultancy, research and development, implementing
management methodologies for effective owner-employee relationships, etc.
Cash Flows: Finance is vital for any enterprise to meet the fixed and working
capital needs. MSMEs need credit support not only for running the enterprise
and operational requirements but also for diversification,
modernization/upgradation of facilities, capacity expansion, etc. Prime challenge
observed is inadequate access to credit which gives operational leverage for
MSMEs.
Raw Materials & Products: Timely-availability of quality raw materials in an
adequate quantity is one of the main problems faced by MSMEs. They do not get
the benefits of bulk buying. For instance, the handloom industry faces shortage
of yarn. Small scale industries also face shortage of power due to which they are
unable to make full utilization of plant capacity. Majority of them cannot afford to
install their own power generating plants to ensure uninterrupted operations.
Raw Material Assistance Scheme of NSIC aims at helping small scale industries
by way of financing the purchase of raw material (both indigenous & imported).
This gives an opportunity to MSMEs to focus better on manufacturing quality
products. NSIC takes care of all the procedures, documentation & issue of letter
of credit in case of imports.
Incidence of Sickness: Most of the times financial problems (credit availability,
non-timely receipt of payments, funds availability for expansion, etc) lead to

11. closure of MSME units. This could be nullified to a greater extent by proper
planning, devising ways to understand the business strategies, etc.
Infrastructure: Adequate infrastructure facilities prove to be conducive for the
overall development across sectors of the economy. Due to liberalization and
globalization, its relevance for the proper growth of MSMEs cannot be
undermined. State and Central Governments have been taking constructive
steps for the same. Still there exist infrastructural bottlenecks, which restrict their
day-to-day business operations as well as their potential growth prospects.
Transportation facilities, well connected telecommunication channels, adequate
power supply, etc can help the businesses overcome infrastructural problems to
a great extent.
Environmental Competition: MSMEs face stiff competition from large scale
businesses due to the distribution network. Enterprises that have goodwill in the
market or have intellectual property rights/ standardization for their products or
produce large range of products, etc., are more likely to dominate the business
environment. Small and medium scale enterprises mainly deal in one specialized
line of products, have very small production and distribution network, and
generally have no protection for their products. As a result, in spite of having
useful and good quality products or having products similar to those produced by
large scale firms, they are largely not able to create/ hold demand for their
products and tend to lose customers to large scale enterprises owing to cut-
throat competition.
Marketing & Export: MSMEs often have to face difficulties in the marketing and
distribution of their products as most of them do not have their own marketing
network. Selling the output at remunerative prices is a hurdle due to higher
production cost and non-standardized product quality. Spending on advertising,
sales, promotion, marketing research, etc is also limited. This might result in
selling their products at lesser prices due to weak bargaining power and financial
problems/crunch. Stiff competition from large firms is threat as well. Due to the
stiff competition from the products and sales/ marketing strategies of large scale
firm's entrepreneurs, at times, MSMEs find it very difficult to cope with large
businesses in terms of cost, quality, standards, popularity, meeting ever-
changing demands/ preferences of consumers, etc. Since small and medium
scale enterprises are the most significant contributor in the field of India's
exports, they need to be innovative and strategize in devising ways to overcome
the issues observed above. E.g. they need to be aware of all the steps involved
in the process, like, registration of exporters; selection of export market and
buyers; receipt of enquiries, letter of intent, letter of credit, bill of lading, etc;
insurance coverage; obtaining shipping order; certificate of origin; sending
documents to importers; etc.
Individuals Growth: MSMEs to a greater extent operate closely within family
houses. This curtails growth for talented individuals who tread the path of
entrepreneurship when they continue to exist in the smaller businesses. To retain
talent and contain attrition, enterprises need to invest in innovation and creativity

12. uplevelling. IP Patenting is one form to look at. To an extent the various institutes
that offer the Entrepreneurship programmes help kick start the thought process
amongst the younger generation.
The Task Force on Micro, Small and Medium Enterprises setup in August 2009
presented their report to the Hon’ble Prime Minister of India on 30th January,
2010 which dealt with the roadmap for the development and promotion of
MSMEs. Relief and incentives to the MSMEs were recommended post the recent
economic slowdown; institutional changes and detailed programmes that need to
be completed; setting up of legal and regulatory structures to create a good
environment for entrepreneurship, innovation and growth of MSMEs in the
country were elaborated.
The recommendations cover major areas that include:
1. Credit
2. Marketing
3. Labor, rehabilitation and exit policy,
4. Infrastructure,
5. Technology and skill development
6. Taxation

13. A copy of the “Report on Task Force on MSMEs’ being presented to Hon’ble
Prime Minister on 30th January, 2010 by Shri T.K.A. Nair, Principal Secretary to
Prime Minister. Also seen in the picture are Shri Dinsha Patel, Hon’ble MOS (I/C)
MSME, and Shri Dinesh Rai, Secretary (MSME).
3 References
1. MSME Annual Report 2010-2011, published by GOI, Ministry of Micro, Small
and Medium Enterprises.
2. Performance measurement system: case studies from SMEs in India Milind
Kumar Sharma, Rajat Bhagwat - Int. J. of Productivity and Quality
Management 2007 - Vol. 2, No.4 pp. 475 – 509.
3. Managing operational risks in Small- and Medium-sized Enterprises (SMEs)
engaged in manufacturing – an integrated approach Md. Ariful Islam, J.D.
Tedford, E. Haemmerle - Int. J. of Technology, Policy and Management 2008
- Vol. 8, No.4 pp. 420 – 441.
4. The incidence and impact of flexible working arrangements in smaller
businesses Gill Maxwell, Laura Rankine, Sheena Bell, Anna MacVicar -
Employee Relations, Vol. 29 Issue: 2, pp.138 – 161.
5. Seema Sharma, Milind Sharma, "Analyzing the technical and scale efficiency
of small industries in India: state-wise cluster study", Measuring Business
Excellence, Vol. 14 Issue: 2, pp.54 - 65.
6. Business challenges and strategies for development of Small- and Medium-
sized Enterprises (SMEs) in Malaysia, Syed Zamberi Ahmad, Nazatul Shima
Abdul Rani, Siti Kasmah Mohd Kassim, International Journal of Business
Competition and Growth 2010 - Vol. 1, No.2 pp. 177 – 197.
7. Sandler, Catherine, The psychological role of the leader in turbulent times,
Strategic HR Review, Volume 8, Number 3, 2009 , pp. 30-35(6).

14. 8. Lewrick, Michael; Raeside, Robert, Transformation and change process in
innovation models: start-up and mature companies. International Journal of
Business Innovation and Research, Volume 4, Number 6, 3 October 2010,
pp. 515-534(20).
9. Outcome Budget 2010-2011 Ministry of MSME, Government of India.