SME Times News Bureau | 15 Apr, 2021
Indian Small and Medium Enterprises (SMEs) are capable of
driving the growth of the Indian economy during the post-pandemic period, said Samir
Sathe, Executive Vice President, Wadhwani Advantage at Wadhwani Foundation.
Excerpts of the interview…
Please tell our readers about Wadhwani Advantage and Wadhwani
Sathe: Wadhwani Advantage is a program focused on empowering entrepreneurs of
businesses with revenues > Rs 20 Crore and having the capabilities to
accelerate their economic growth by 2x-10x with automated 'Business Discovery
and Transformation Tools'. The program includes 1-12 months of engagement and
offers up to three years of hand-holding support enabled through a personalized
Artificial Intelligence led business acceleration program.
Wadhwani Advantage is a leading initiative of the Wadhwani Foundation, a
global philanthropy founded in 2000 by Silicon Valley entrepreneur, Dr Romesh
Wadhwani with the primary mission to accelerate economic development in
emerging economies and drive high-value job creation through entrepreneurship,
innovation and skills development. Today the Foundation is scaling impact in 20
countries across Asia, Africa, and Latin America.
Can SMEs become the driving force behind India's post-pandemic
Sathe: During the pandemic, SMEs’ contribution to India’s GDP declined to 25%
from 29% , earlier. If they were to drive India’s growth, we are talking about
taking it at least 33% of not 40%, as envisioned by the government, within the
next three years. It is extremely difficult but not impossible. The SMEs can
drive India’s growth, provided they can build significant management
capabilities as soon as possible and learn to make business decisions using
data, with the age-old wisdom of exercising in the right balance the values of
logos and pathos, to build ethos over a period of time. SMEs need to learn to
balance quality, speed, and scale, together with a clear focus on winning and
growing together and fundamentally rethinking their reason for existence. SMEs
must aim for long term fitness and achieve critical scale when it becomes a
self-perpetuating circle of growth, escaping from the current situation where
their focus is on merely surviving even if unfit, by asking for more credit and
fund support, admittedly so given the recent onslaught of the pandemic. But the
sooner they depart from thinking survival and shift their mindset to focusing
on growth, the better. Policymakers must prioritise the efforts to spend state
and central resources that matter in making India competitive rather than only
democratising their efforts. Should some of these things fall in place, SMEs
can drive India’s post-pandemic growth in time.
Will 2021 be the year of MSME? Do you expect a new beginning for small
businesses in 2021?
Sathe: 2021 will be the year of the sheer refusal of Indian SMEs to yield to
the second wave of the pandemic which is troubling the nation today. Smart SMEs
have already begun recasting their businesses rapidly, while many go back to
their traditional models. The use of data, digital media, sharper focus on
delivering customer experience, forging partnerships to win together than
merely competing with each other, focusing on demand generating engines than
only short term servicing of the demand characterise the new beginning of the
smart SMEs which will win better in the market place.
When should SMEs compete and when should they collaborate?
Sathe: There is not a black and white answer to this question. The intrinsic
motivation to share gains is critical to collaborate, while competition is the
very force of capitalism. We estimate that partnerships could add another $300
Bn of value in the next 5-7 years if SMEs get it right. In a capitalist world,
competition is a given and is encouraged to up the overall growth. What SMEs
and policymakers need to realise post-pandemic is that one would be prudent to
encourage collaborations within strongly placed industries and units when it
comes to both market and resource seeking entries and expansions to amplify the
impact, improve the odds of growth. A 3% point growth would enhance survival
chances by 50%, which is what empirical evidence suggests. It is better to grow
together than fight and die. In the short term, that would be my advice. In the
long run, it depends on how structurally the economy, both macro and micro,
changes and how the fortune of the industries changes. The balance between
competing and collaboration is more critical than either-or situations. I would
focus on how to integrate the best of competition and collaboration.
Should SMEs go in for expansion today or should they focus on
Sathe: I am firm in my reasoning that the expansion should happen only if it
achieves the greater good. Consolidation in Indian SMEs today is needed for
better fitness levels of Indian competitiveness. India has a long tail of
sub-optimal small scale massive entrepreneur base. With the unemployment rising
rapidly in 2020 due to pandemic, we would soon have some rebalancing of job
seekers, with many wanting to become mini and micro-entrepreneurs. On the other
hand, India needs many more than 1000 companies of mid-size if they were to
build economic and social prosperity even in villages. Supporting more
micro-enterprises needs a different approach. If India were to become an
economic superpower, increasing trade between these micro and mid-size
enterprises is the key to make the nation have inclusive growth and yet build a
smaller but fitter base of SMEs.
Why should SME's pricing be value-based?
Sathe: Everything in life is value-based, ultimately. Price is the mirror of
value. If pricing is misaligned with the value it delivers, soon, one would
face poor price competitiveness resulting in slow growth, risking one’s
survival. Value is what customer feels and experiences, not what the producer
demands and needs. The distance between the two needs to be bridged fast. One does
not want to leave the customer feel cheated, disillusioned, unappreciative of
the value one’s offerings. So really, nowadays, value-driven pricing is a
given. In very few instances, producers enjoy a monopoly. Also, competitive
commissions would not allow cartels to take place. As more unorganised markets
become organised, the level of price transparency and discovery would become
better, and industries would move to value-driven pricing. To me, it is not a
choice. It is a natural outcome of a vibrant open economy.
Should the SME partnership tenures be short or long? What can be the
Sathe: SMEs in uncertain environments are showing both tendencies. In some
cases, pandemic and uncertainty in future are forcing SMEs to go for long term
contracts to seal the predictability, while in others, SMEs are waiting to see
which partner would eventually be most beneficial and want to be free to make
better choices in future, and therefore and taking shorter term view. In my
view, it is like going long or short in markets. The studies indicate that it
still makes sense to go for long term tenors, with sufficient exit provisions
for both parties. The reason is that it allows the flexibility for exits but
both parties then want to commit to each other in growth, thereby combining the
forces. Short term contracts give a false sense of being untangled and free to
make choices later, but in reality, it makes one more lonely. In crises, it
does not make sense to be lonely.
Adopting portfolio thinking by SMEs in making decisions. Your views.
Sathe: Portfolio thinking allows one to make choices in customers, products,
markets, resources in a manner that would optimise net gains across the
choices. It is aimed at delivering better ROI. The word of caution here is the
definition of what you want to optimise. If what that definition assumes is to
be questioned and answered in the first place, businesses should evaluate each
question or choice on a stand-alone basis. Broad generalisations of portfolio
vs stand-alone thinking will not help. Also, these are case-specific choices.
At the general level, SMEs should be prudent to look at the problem 360 degrees
to ensure they make a holistic decision. The decision making biases must be
avoided at all costs. I would always recommend SME entrepreneurs to learn
decision making sciences fast and apply them to daily lives.