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 Foundation.

Samir 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 growth?

Samir 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?

Samir 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?

Samir 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 consolidation?

Samir 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?

Samir 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 determinants?

Samir 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.

Samir 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.