MRS:M.MADHAVI MRS.M.

SUJATHA
ASSOC.PROFFESSOR ASSISTANT.PROFESSOR
DEPARTMENT OF MANAGEMENT DEPARTMENT OF MANAGEMENT
AURORA PG COLLEGE AURORA PG COLLEGE
RAMANTHAPUR, RAMANTHAPUR,
HYDERABAD HYDERABAD

ADDRESS FOR COMMUNICATION

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RAMANTHAPUR , MOBILE NO: 9346788688
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E-MAIL-madhaviprani12@gmail.com

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MARKETING PROBLEMS OF SMALL AND MEDIUM ENTERPRISES

Mrs. M. Madhavi Mrs. M. Sujatha

ABSTRACT

Small and medium enterprises (SMEs ) also known as small and medium scale

enterprises are the essential part of healthy economy. The SME sector represents

over 90 percent of enterprises in most of the developing countries and contribute

40-60 percent of the total output or value added to the national economy.

SME sector in India is the key driver of the nation's economic growth with a

contribution of over 40 percent of the country's industrial output and about 35

percent of direct exports and another 15 percent of indirect exports. In terms of

employment it is a very crucial sector being the second largest sector after

agriculture. In recent years the SME sector has consistently registered higher

growth rate compared to industrial sector.

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In the current economic slowdown SME sector has been hit very hard due to

raising interest rates and financial crunch. The small size and capacity of the

firms and their lack of awareness have bred many hindrances to their growth.

In this backdrop this paper tries to throw light on the problems related to

marketing faced by SMEs in the changing economic environment and tries to

give some suggestions to solve the problems.

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INTRODUCTION

Small and Medium Enterprises (SMEs), also known as small and medium scale industries

or businesses, are the essential part of a healthy economy. The SME sector represents

over 90 per cent of enterprises in most of the developing countries and contributes 40-60

per cent of the total output or value added to the national economy. In recent years the

MSE sector has consistently registered higher growth rate compared to the overall

industrial sector. The major advantage of the sector is its employment potential at low

cost.

World wide the Micro, Small and Medium enterprises have been accepted as the engine

to economic growth and for promoting equitable development. MSEs contribute over

90% of the total enterprises in most of the economies and are credited with generating

highest rate of employment growth and account for a major share of industrial production

and exports.

The Indian Scenario

In India, the MSEs play a major role in the overall industrial development of the country.

It is estimated that in terms of value the small and medium enterprises account for 39% of

the manufacturing out put and around 33% of the total export of the country. As per the

available statistics this sector employs an estimated 31 million people spread over12.8

million enterprises and the labour intensity in the sector is almost four times higher than

the large enterprises.

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The president under notification dated 9th may, 2007 has amended the Government of

India (Allocation of Business) Rules, 1961 Pursuant to this amendment Ministry of Agro

and Rural Industries and Ministry of Small Scale Industries have been merged into a

single Ministry, Namely, “Ministry of Micro, Small and Medium Enterprises”. As per

the Micro, Small and Medium enterprises Development Act, 2006, in the manufacturing

sector an enterprise with investment in plant and machinery upto Rs. 5 crore in termed

as a small enterprise, and an enterprise with investment upto Rs.10 crore is defined as a

medium enterprise. In the services sector enterprises with investment in equipment upto

Rs, 2 crores are classified as small enterprises and those with investment upto Rs.5 crore

are classified as medium enterprise.

Small and Medium Enterprises are a major contributor of the GDP of a country and an

even larger contributor to the segments of exports and employment. The SME growth

has been propelled by fresh investments in heavy and basic industries, The contribution

to exports and employment has been significant in the wake of increased manufacturing

activity and the increasing prominence of service sector companies in this space. The

major thrust is on industries like garments, spices and metals, which are net revenue

earners for the country rich in its mineral reserves. The government of India has given

small enterprises an important place in the economic planning for ideological as well as

economic measures, As a result of these efforts the small sector has achieved an

impressive growth in the number of units. In infers, inter alia more chances for

enterprising persons to assume the entrepreneurial careers.

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Thus, SMEs serve as a seed-bed for the emergence of entrepreneurship of the country.

The development of small scale industries contribute to the increase in the per capita

income and contribute to the economic growth of the economy. It provides for more

equitable distribution of the income of the nation. Further they make effective

mobilization of the untapped capital and human skills and leads to dispersal of

manufacturing activities allover the country.

Though the government of India is attaching increasing importance to the development of

small scale enterprises by way of various support measures adopted from time to time,

they are facing several problems in practice. According to the third census of SSIs

(2001-02) out of the 105 lakh registered and un registered SSIs over 95% are tiny units

with a low capital and managerial base. With intensifying competition many SMEs

especially in the consumer goods sector would find it difficult to survive. Items reserved

for SSIs will now face competition from similar products produced by large scale global

manufacturers, imported freely at low tariffs. When the domestic market is fully open to

global competition, the low labour cost advantage that our SMEs claim to enjoy may not

work beyond a point. Low end products will also face competition from export oriented

developing countries.

In the current economic slowdown SME sector has been hit very hard due

to raising interest rates and financial crunch. The small size and capacity of the

firms and their lack of awareness have bred many hindrances to their growth

such as

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Under-utilization of capacity,

Inadequate and untimely credit flows,

Inability in technology up gradation,

Insufficient raw-material procurement

Inability to market finished goods and

Ineffective monitoring and feedback mechanism.

The problem which continue to be a big hurdle for the development of the sector is the

lack of access to timely and adequate credit. The Abid Hussain Committee on

SSIs(1997) examined the problems of SSIs and recommended a package of policies to

restructure the industries in the context of the current global economic challenges. It

endorsed the Nayak committee’s recommendations of financial support through State

Financial Corporations and tapping of other resources funding for the SMEs, addressing

credit rating services to small units. The Nayak committee recommended a desirable

norm of 20% of the value of production to be made available by way of working capital

through term lending institutions, and commercial banks as against the existing 13% of

the value of production (AIMA figures) .Another major problem that is hindering the

growth of SMEs is the Marketing including export marketing.

Marketing Problems:

The nature of marketing is ever changing so does the problems associated with the

marketing. The Indian SMEs are facing a lot of problems related to marketing in the

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national and international arenas. This is mainly due to the fact that these organizations

belong to rural or semi urban areas where the resources are easily available to them and

cheap labour is associated with . But when it comes to selling of these products the SMEs

have to face a difficulty in creating an impression and awareness in the minds of urban

and other potential buyers about the quality and related aspects of their products and

services. The main marketing problems of the SMEs in marketing their products and

services are briefly discussed as follows.

• Most of the SMES established in the developing nations provide products and

services with moderate quality largely applying outdated technologies. Thus they

are faced with tough competition with the high quality products of the MNCs at

lesser price. With the increasing globalization the situation is further worsened.

• Reduced protection has already lowered the SMEs competitive strength. The

sector may face dumping by foreign competitors like China . The cost of anti

dumping investigations may be prohibitive for SMEs.

• The sector is mostly consisting of family run businesses which generally employs

family members at various positions of hierarchy in the business. Some times

these people lack professional knowledge and wisdom needed to market their

products and services. They are continuing with the age old ‘hunch decision ‘

making and use of no modern tools. As well taking the help of professional

organizations of marketing is too costly to them when compared to the value of

the products they are manufacturing.

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• Most of the times the SME sector end up with wrong marketing strategies and

irrelevant strategies applicable to the segment or the total market. Majority of

these are not aware of the modern techniques like supply chain management, just

in time inventory, kanban and other logistics associated marketing.

• These organizations also have a problem of customer awareness as they do not

adopt any publicity and advertisement strategies. Most of their products are sold

through word of mouth publicity and direct selling. Sometimes the government in

association with the local authorities organizes exhibitions to promote the

products of these units. Still the small enterprises are unable to utilize this

opportunity because of the low levels of literacy and shortage of working capital

needs.

• It was often complained that the host country distributors that despite providing

the SMEs with full actual samples of the product at free of cost, they fail to give

result as required. They have a tendency to export what they manufactured

without even having matching of the quality, timing, or presentation of the

product. They learn only when the importer chokes them up in terms of the non-

payment due to inferior stuff or other related things.

• Many companies fail to get buyers or even enquiries because they had never

developed the unique selling point. (USP) of their products. Many enterprises are

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 not sure about how their products were different from those of the market. Since

they were unaware of their vital aspects, they were unable to understand the needs

of their target customers, ….. and that a vicious circle.

• Most of the SMEs don’t market themselves enough because they think that they

can’t afford it. They give up easily if a particular marketing activity does not

immediately set to each registers ringing. To expect a marketing activity, be it a

premium membership with B2B portal or a constitutional advertisement to a news

paper to give business from day one is unrealistic.

• The SMEs particularly in the field of exports lack in awareness about the

institutional support in terms of provision of foreign currency payments and other

related activities of imports and exports. This is resulting in of less percentage of

utilization of the available opportunities in the overall exports and related

activities by these institutions.

• The companies in this sector have a difficulty in explaining clearly the product

features and their utilities they are selling and are inconsistent in their

communications, Most of the SMEs jump from one marketing strategy to

another for no valid reasons. This confuses the prospective buyers and also

creates a low opinion of the company and its product line.

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• Several enterprises have the notion that one has to be a big company to enter the

online arena to market their products. Most of the SMEs are yet to realize that

online marketing can and is the only be the cost effective, measurable and

targeted advertising channel.

• Individual SSI units are scattered throughout the country and their resources are

limited. They find it difficult to participate in Government stores purchase

programmes even if certain items are reserved to them to supply.

• SMEs also encounter a problem in expanding markets due to lack of marketing

arrangements with other bodies. An important factor contributing to this problem

is the interdependence of different strata of the industries ( large, medium and

small) has not been fully realized.

• The cost of production of these units is relatively high because these units tend to

purchse the raw materials in small lots and through middlemen, which results in

high pricing of the goods. By, contrast large organizations are offered raw

materials at lower cost under economies of scale and bulk manufacturing.

• The emerging challenges to the small scale sector are to come from the impact the

of the agreements under WTO> The agreements under TRIPS calls for tighter

patent laws through regulation of intellectual property rights which is becoming a

costly affair to the SMEs.

• Majority of the SMEs are unable to participate in the Industrial exhibitions and

Expos organized nationally and internationally. This is due to the high cost

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 associated with transportation of the produce and traveling costs of the

entrepreneurs themselves. Further these units are not aware of the formalities to

be completed for registering their firms for these fairs. So, the SMEs are finding

it difficult to participate in overseas market.

In most parts of the developing world, the problems being faced by the SMEs are more

or less similar in their nature, and are due to shortcomings in policy and legal frame

work, finance entrepreneurship, management, socio-cultural values and of course,

technology. Most of these units are heavily dependent on the imported technologies and

skills for the maintenance of the plant and operations. Adaptation to the local needs has

always been the least priority and national budget allocation for technology transfers is

quite low. In fact, it vital for the developing nations to examine and understand the

nature of technology transfer process and give effort to execute them successfully in the

development of SMEs.

Some Suggestions for improvement

At times, when major markets are shrinking down consistently, each and every SME

should have a marketing strategy not only to show-case their products, but also to easily

get inquiries form other markets. Some suggestions have have been proposed in this

regard to find solutions to the marketing difficulties faced by the SME sector.

1. There must be some programme on making these organisations aware of the modern

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business tools. SMEs can be greatly benefit if they recognize the power of internet for

exploring and managing the market online.

2. They should develop their websites in English language for spreading their reach

beyond India. Bodies such as CII, Trade India can take up awareness programmes for

them in systematic way and monitor the changes.

3. SMEs cannot do conventional marketing because of the limitation of resources. They

need to think beyond conventional marketing practices of large companies and search for

alternative marketing approaches such as personal contact networks, social networks,

B2B portals, E-Commerce tools, Business Networks and Industry and Marketing

networks.

4. SMEs should realize that on the Internet, a big company will have the same chances as

an SME to make an impact on the buyer. With the correct techniques any SME can make

it to the top leaving behind even the biggest of the companies.

5. Indian SMEs have to take note of technical barriers to trade(TBT) in view of technical

standards set by developed countries.

6. Good planned strategic approach, if adopted by SMEs can help them to overcome

many of the barriers and obstacles that they face now.

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Institutional support

India has already recognized the importance of its SME sector is providing a a wide array

of assistance programmes to this sector to reduce the barriers to the development of this

sector. Policy and implementation bodies along with IDBI, SFCs and Commercial Banks

are working at national and state levels and sometimes at the local government also.

Many forms of assistance are given from the institutions including

• Supply of raw materials at affordable rates

• Provision of fiancé for investment and working capital at subsidized costs

• Provision of technical and other assistance and other advisory services

• Assistance in expansion of markets including Government purchases, reservation

of certain items for government stores, price preferences and support in joint

tendering for government purchase contracts.

A Market development scheme is specially operated by the Ministry of Small and

Medium Enterprises (MSME) to encourage exports from this sector and to increase the

access and development of overseas markets to these units. The scheme offers funding

for participation in international fairs, study tours abroad, trade delegations, publicity etc.

Direct assistance is given to individual sales cum study tours, participation in fairs,

exhibitions and publicity.

SIDBI operates a scheme for direct assistance for financing activities related to marketing

of the products of MSME sector. The financing referred to so far is available for a wide

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range of activities and purposes. Additional financing is available to the purchase of

machinery and investment needs.

As a part of the comprehensive policy package for promotion and development of

MSMEs announced on 30th August, 2000, it was decided that the Small Industries

Development Organisation (SIDO) should have a Market Development Assistance

scheme similar to the one obtaining in the Ministry of Commerce. This scheme will

operate in addition to the SIDO scheme for participation in the international fairs will

cover all activities for which direct assistance is given under the existing scheme MDA

Scheme of the Ministry of Commerce.

Assistance to Individual exporters would be made available by way of reimbursement of

to and fro air fare within the permissible limits. Special assistance programmes are also

in operation by IDBI, SFCs and Commercial Banks to encourage location of industries

in the backward areas . These organizations are providing marketing assistance to the

enterprises located in the backward areas.

To conclude Indian SMES are Presently incapable of developing the right perspective as

they are technologically, financially and organizationally weak compared to global

SMES. It is essential to reposition Indian SMES in some strategic sectors with some

proven comparative advantage. Clusters should be the future strategy for SME

development. There must be emphasis on brand building of products to improve their

marketability

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REFERENCES

Dr. Jain PC, “Government and Business Policy” Galgotial Publishing House, 2001

Mohanty SK “Fundamentals of Enterpreneurship” Prentice Hall of India, 2006

Nicholas Siropolis, “Entrepreneurship and Small Business Management” All India

Publishers and Distributors, 2003

Vasant Desai, “Dynamics of Entrepreneurial Development and Management”, Himalaya

Publishing House, 2006

Dr, Parameshwaran KP “Institutional support for Small scale rural processing enterprises:
The case of India”, Corporate Document Repository

Satyajit Majumdar, “Modelling Growth strategy in small entrepreneurial business

organizations” Journal of Entrepreneurship, Vol.17, N0.2, Jul-Dec, 2008

Dr. Satyanarayanachary T , Syam sundar C , “Institutional finance and SMEs in India”,

Business vision, Oct-Dec, 2008

Vidyanathan A, “Reviving the economy, Problems and Prospects” EPW, Feb 7-13, 2009

Dr. Yeram Raju B. “Small and Medium enterprises( SMEs) , Issues in the changing
global economic environment” banknetindia, 31-1-2009

Notification of the Ministry of Small Scale Industries, Government of India, Dt 9-5-2007

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