SMEpost

Funds crunch crippling marketing avenues for MSMEs

Sharad Gupta

The most common issues faced by Micro, Small and Medium Enterprises (MSMEs) are an acute dearth of easy finances and information on emerging markets.

They are often unable to tap the markets because of lack of resources and a sound marketing techniques and infrastructure. They are also financially constrained in competing with large corporate in Advertising and publicity.

Fast changing global economic environment has provided various opportunities and challenges to the MSMEs in India. While on the one hand, it has opened up newer opportunities for growth and business expansion and at the same time it has been creating new challenges to the business. In the present competitive age, Marketing is one of the vulnerable part of the MSMEs sectors. The low cost products flooded by China in global markets including India, has forced MSMEs change not only their technology but marketing techniques as well.

There are examples amongst us of people who have successfully conquered the Chinese challenge. The prime example is that of brass industry of Moradabad where a whole new generation of enterprising businessmen shunned sloth, took to innovation and produced world class products at highly competitive prices. The glass industry of Firozabad and lock industry of Aligarh is also working in that direction but at much slower pace. The buzz word is – innovation and coordinated efforts by MSMEs.

The sector has to increase productivity and explore for new markets both at national and international level. The small business has to improve the technology and they don’t have any strategic alternatives for their business/ market development as it is being available with large industries.

Absence of adequate marketing and export facilities is a major concern. MSMEs tend to face tough competition from the products and sales and marketing strategies of large scale enterprises. They face the difficulty in terms of cost, quality, standards, popularity, meeting ever-changing demands and preferences of consumers.

Most of the time, MSMEs don’t have their own marketing or distribution network. The few who have, spend a fortune on it rendering their venture a non-profitable one.  So, they depend on external agencies for distributing their outputs. This ultimately increases the cost of their products and services. Most of the small entrepreneurs are unaware of the modern marketing and business strategies. As a result, they are unable to cope quickly with changing market scenarios. Though the products they produce has huge market potential but they unable to tap these markets due to lack of efficient marketing techniques.

A funding and resources crunch also limits their marketing and sales operations. They cannot afford to spend much on advertising, sales promotion, market research, etc. They find it difficult to sell their output at a profit because of higher cost of production and non-standardized quality of products. They often sell their products at a loss because they cannot bargain with the big buyers and requirement for the urgent need of working capital. They therefore, need to get standards like ISI or ISO to demonstrate that they have been adhering to national or international quality standards.

Small business often find it difficult to tap foreign markets for their products, either due to lack of awareness on the potential markets or due to inadequate information on various regulations, guidelines and procedures for exporting to the foreign markets.

Thus, it is right to say that most of small and medium entrepreneurs do not correctly understand as to what kind of products are actually needed by the market, how big/small is the market, when the products are needed and how to deliver such products. All these problems keep them mainly isolated from the market trends and conditions and, thus, tend to restrict their operations.

Marketing as a tool for success has not yet developed in the small business sector. Professional marketing companies and consultant are not engaged by small entrepreneurs on account of lack of finance. The concept of marketing is not known to the majority of small entrepreneurs in India For majority of the small entrepreneurs, marketing means advertisement or personal contacts.

This attitude towards marketing needs to be changed. Most of the small business markets their product by themselves by establishing a sales department to identify consumers both domestic as well as international. They establish close contacts with a known selected group of customers by finalizing technical and commercial terms to manufacture and supply. The direct consumer contact is generally long term in nature and helps the company to build strong relationship with them. In many cases the profit realization in this process is more than other mode of marketing.

Some of the common practice among the Small business in India to market their product and services are as follows—

  1. Indenting Agents: MSMEs find an indenting agent who can guarantee a specified business on mutually agreed terms. Indenting agent books orders on behalf of the company and material will be dispatched to the consumer directly by the producer .Based on the projections of indenting agent, SME manufactures the product. In this mode the MSMEs, gets assured business ,without spending on marketing resources.
  2. Traders: MSMEs will identify traders who can guarantee a specified business on mutually agreed terms. Based on projections of traders MSME will manufacture and supply to the traders. The traders stock the material in their warehouse and markets in his jurisdiction. In this mode the MSMEs without spending on marketing resources, gets assured business, but mostly it is of credit sales and fund realization takes long time and the profit margins are low to other modes.
  3. Third Party manufacturing: The MSME manufactures the product as per the specifications of third party i.e. a big enterprise and supplies the finished products to them. The MSME will charge the third party on mutually agreed terms; normally it includes production cost and a small profit margin.
  4. Propaganda-Cum-Distribution: The small entrepreneurs appoint region wise propaganda cum distributing agents. The unit manufactures the product as per the agreed formulation. It is the responsibility of the propaganda cum distributor to promote the product and generate the sale in his jurisdiction. In this mode MSME gets assured sale but margins are low.
  5. Contract manufacturing: In Contract manufacturing, MSMEs gets all raw materials and packaging materials from contracting organization. Material is manufactured using facilities and manpower of MSME. MSME will be paid for the production cost which will be decided on mutual agreed terms. Any liability in manufacturing is the responsibility of the contractor.
  6. Institutional Sales/tender marketing:

To participate in State and Central Govt. tenders, the MSME should have made the products for a minimum of three years. Entrepreneurs with long standing manufacturing activities would opt for institutional marketing.

Majority of organizations follow combination of all above marketing mode to sale their product. New entrants prefer to tie up with large organization as contract manufacturers.

Marketing Assistance Programme by the Government:

Marketing is the most important factor for the success of any enterprise, especially the MSMEs. Large enterprises have enough resources at their command to hire manpower to take care of marketing of their products and services. MSME sector does not have these resources and thus needs institutional support for providing these inputs in the area of marketing.

Ministry of MSME has also been providing marketing support to MSEs under Marketing Assistance Scheme through National Small Industries Corporation (NSIC). There are Governmental and non-governmental specialized agencies which provide marketing assistance. The supports schemes are as follows: