Why We Need Our SMEs to Go Global
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India is home to around 65 million SMEs, which contribute to 11% of GDP, 45% of total manufacturing output and provide employment opportunities for more than 100 million people. SMEs also play a crucial role in supporting large enterprises as ancillary units and even help in promoting industry in rural & backward areas. So, it's not an exaggeration to say that SMEs are the lifeline and backbone of our economy. A vibrant and financially inclusive India needs a vibrant SME sector!
One thing, these SMEs need today and would need in future for sustainability is 'more business'. While our SMEs may not be endeavoring to the global marketplace for selling their products, other companies throughout the world are not staying put, they recognize the potential global markets has and they are looking to penetrate these markets, including India, aggressively.
Now how do these SMEs get more business in a limited market? It's apparent that dependency on domestic markets is no more an option. At the world economic forum earlier this year, PM Modi highlighted that Make in India has to be Make in India for India and for the World. This would not only allow enterprises to improve their cost economics but also would help in generating tremendous new business opportunities for the local SMEs ecosystem.
So, what could our SMEs do to become sustainable, get 'more business' and explore new business opportunities?
The answer is simple, these SMEs need to explore the 'blue ocean', explore new markets, grow beyond borders and become a global player. Being global not only helps a company grow its business in different markets, it also provides the company with global competitiveness, which makes it perform better in the local markets as well. Further, these globally competitive SMEs would not only be able to 'go global' but also grow their local business by being an active supply chain participant of Make in India initiative.
There are huge opportunities in global trading domain. It's something every producer ultimately needs. However, it's easier said than done. In spite of Government's strong focus on SMEs and exports, only less than 1% of total 65 Million Indian SMEs currently participates in Global Trade. Similarly, only a very small proportion of internationally competitive overseas SMEs currently trade with India. The reason is the global trade barriers.
There are barriers SMEs need to cross
The barrier are many such as lack of reliable data on overseas markets, inability to contact potential overseas customers, unfamiliarity with export rules, procedures & documentation, lack of trained export staff for trade facilitation, difficulty identifying foreign business opportunities, insufficient access to export finance etc.
Some of the barriers are about perception, some related to lack of knowledge & information whilst some about lack of holistic and end-2-end global trade solution for SMEs.
When exporting in a developing nation like India, lack of access to global trade opportunities, trade intelligence and worldwide market demand are significant information barriers faced by SMEs. This lack of information could have potentially high implications. SMEs need to know about procedures, documentation, specifications, rules, regulations, standards etc. in target country or they risk trade execution or worse, product rejection.
Similarly, lack of information on export opportunities in global market could result in high marketing and opportunity cost of targeting the wrong market and of missing the right one. Finally, lack of trade facilitation or access to global trade resources to help execute end to end transactions dissuades SMEs to venture into uncharted territories.
However, the good news is if there are barriers, there are enablers as well.
Technology is a big enabler
The Government hopes to promote SMEs in the fastest way, aiming at enhancing the global supply chain. There are various trade chambers, trade promotion organizations and export promotion councils that help SMEs for global trade. There are also organizations such as ECGC which helps in export finance and export credit guarantee.
The infrastructure for trade, both physical and digital, has continued to improve over last couple of years. This has resulted in increased digital adoption, digital enablement and digital engagement amongst SMEs though the number still remains low.
Technology is another big enabler. Technology today has the power to enable companies to gain meaningful knowledge about global trade and understand prevailing trends and potential. The right application of technology could open up multiple avenues and opportunities at low cost for SMEs to internationalize and connect to the global markets.
Usage of Internet and Technology could make our SMEs globally aware and globally visible, and could reduce the fixed global trade costs for them. These traits were once only reserved for large enterprises, but these are now allowing small businesses to compete directly with larger companies. Even for geographically remote areas, technology can significantly reduce trade costs and allow connecting with distant customers.
Further, Integrated Trade Platforms and SaaS Enabled Managed Marketplace for Global Trade could provide an end-2-end managed solution for SMEs to trade globally using a partner based approach. These platforms are making global trade safe and easy with technology and are helping SMEs 'go global' by partnering with them in every step of their global journey
'Going Global' is no longer a luxury for SMEs
Global trade is a tempting proposition for any business and now, it is a necessity that SMEs cannot afford to ignore. It will not only halt their growth, but hamper their domestic existence with the increasing competition. It also helps in diversifying business and mitigating the market risks. Advantages of greater market reach go beyond selling to a more diverse and international customer base. Access to a larger market allows SMEs to sell more of their products and spread the fixed cost of production over a larger number of units thus achieving economies of scale and higher profit margins.
These profits could further be re-invested for innovation. The Innovation and exporting go hand in hand and together they can promote Indian SMEs growth globally. India is the fastest growing economy in the world and both SME and exports hold key to accelerating India's growth. The international trade market is growing and Indian SMEs could benefit from the growing world markets through exports.
We need to reach USD 900 Billion Exports by 2020 and become a USD 10 Trillion economy by 2030 and for that; we need more and more of our SMEs to trade globally.
'Going Global' is no longer a luxury for our SMEs, it's a necessity they shouldn't ignore!