Problems related to Marketing-

Problems related to Marketing-

MSMEs have to face a major obstacle when it comes to expanding sales in new and existing markets. This is generally due to inadequate market research. Markets today are created and captured through aggressive publicity campaigns using icons. Gathering richer data about market can make a more compelling backbone for sound business decisions in the world of marketing. But in absence of adequate money to invest in market research and direct access to markets/ market information MSMEs are unable to carry out design and technical improvements to keep up with market demands.

The challenge is now to encourage market research and product diversification; and to create a demand for products of MSMEs by flaunting their USP. Product diversification here does not imply a rejection of the traditional designs but means developing new products using the traditional designs adapted to modern tastes through sequential steps of Idea Generation, Idea Screening, Concept Development and Testing, Business Analysis, Market Testing, Technical Implementation, Commercialization, and Product Pricing. But the efforts of MSMEs are limited to follow the domestic and international competitors for their designing.

There is a very little innovation in their product design development. A study by ‘National Knowledge Commission of India’ reveals that only 17% of MSMEs as compared to 42% of large firms have introduced ‘new to the world’ during the course of their business.

Moreover SMEs are facing the problem of numerous functionaries working under different names at different rural places for different products i.e., Village Trader, Itinerant Trader, Kuchcha Arhatiya, Pukka Arhatiya etc. Middlemen in normal case make the task easier for both seller and consumer; however they sometime become and act as enigma for SMEs. It has been observed that they are always been a threat especially for the SMEs. The survey result shows that SMEs perceive middlemen as their exploiter because they are only interested in their commission. They invariably shift their loyalties based on their profitability which affects the financial viability of SMEs.

Another problem of marketing for SMEs is the issue of certification. Whatever your product, it is subject to laws and regulations regarding relevant certification of consistency, purity and the quality standards due to safety and environmental concerns. It not only ensures the customers about better quality products but also provides SMEs more market shares, legal protection, image benefit, and strategic tool leading to sustainable development. Certification like AGMARK, CONAGRA related to hygiene for food stuff is very important for Indian SMEs as many of them (about 14%) act in this sector. But acquiring these certifications is often costly for SMEs. However, without them, their sales tend to be more limited. The same problem of certification of ISO 22000 arises when the Indian SMEs enter in international markets with their food stuff.

Besides this SMEs also face problems in building buyer’s consciousness. In this turbulent and hyper competitive business environment brand positioning is even more difficult for them than capturing new customer. MSMEs fail to visualize the changes in the buyers’ preferences, their perceptions and attitudes and therefore fail to provide them the desired product.

Moreover these units are not in a position to spend lavishly for advertising their products. Running a full-page Sunday newspaper advertisement or TV commercial is no financial hardship for large units but such costs are obviously prohibitive for MSMEs. Thus many small units use local advertising and word-of-mouth publicity. But these tools are not sufficient and efficient in capturing the whole market. Moreover MSMEs are still totally unarmed in the use of new and innovative techniques (hardware, software, security, broadband etc) which can support the distribution, sale, purchase, marketing, and servicing of products/ services.

Because of these marketing issues, the MSMEs are now facing stiff competition from large enterprises in selling the same item in their competition at a higher price and still to remain competitive. Therefore the operator of MSMEs normally concentrates on surviving rather than on marketing. Their marketing efforts thus far have been only limited to organizing buyer–seller meets only. Thus to match the production and market demand, Indian MSMEs need to rethink and reformulate their entire marketing strategies and work towards creating a brand image for their products.

Problems related to Market-

The most emerging example in this respect is dumping by the Chinese products in Indian markets. According to FICCI, Chinese products are reaching in domestic market at prices lower by 10-70% compared to Indian items. Out of the 110 SMEs units surveyed, about 2/3^rd reported that they have been seriously affected because of competition from Chinese products, whose landed price in the Indian market was lower by 10-70 % as compared to prices of similar Indian products.¹

Therefore MSMEs are facing tough competition from the large units of domestic and international markets not only for sales, but also for technical know-how and skills. In this environment, their competitiveness depends crucially on the speed with which new products can be brought to the market and new cost-saving improvements can make. Similarly, the creation of wealth and employment depends to a large extent on the speed with which scientific and technological breakthroughs are converted into practical and attractive solutions.

Innovation- the ability to reap the rewards of scientific achievement - requires much more than the ability to turn a new idea into a working product. Efficient flows of technology are not enough - ready supplies of finance and of business skills are also needed. There must be accessible protection for intellectual property, and adequate incentives for entrepreneurial drive. But MSMEs in India due to lack of adequate credit, entrepreneurial ability, technology and most especially R&D are much far away from these innovations. For this, they have to depend on the innovations made by the large units. Only 2.6% Indian MSMEs were into some or the other kinds of the innovation, however the rate of involvement in these activities majorly into the product innovations were found high 13.9% in the large companies. This innovation is most prevalent in IT, electronics and pharmaceuticals.¹

If anyhow Indian SMEs become able to make any innovation the next problem arises due to ‘Intellectual Property Rights’ (IPR). Intellectual property tends to have very high costs of development, but low costs of reproduction once developed. But the small units generally do not ensure sufficient legal protection and security for their intellectual property with proper investment in developing trademarks, copyrights for protection of brands, artistic work and software. In absence of proper legal protection their innovations can be copied by others and distributed at minimal costs. By using legal means to protect their intellectual property, SMEs will not only safeguard their innovation but also increase their value in the eyes of their customers and investors.

Without an effective R&D program and new product development, MSMEs have to forge alliances with large units and to rely on acquisitions, and networks to tap into the innovations of others. These alliances may in form of Subcontracting, Licensing, Joint-Venture, Strategic Alliance and Consortium. This may benefit the MSMEs in several dimensions i.e., increased skilled employees, wealth creation, accelerated knowledge, opportunities to innovate, upgrade and increase competitiveness, standards, more diversified client and market structures, more stable relationships to buyer/producer organizations, access to new domestic and/ or foreign markets, risk-sharing through joint funding and/ or operations, facilitation of access to finance, attraction of additional FDI etc. But unfortunately the large units exploit the interest of MSMEs and only focus on their own benefits. About 25 to 30% units in the unorganized sector operate under contract with large units (under some system of subcontracting). A study conducted in 2004 found that more than 93% of such units under sub contracting with large units reported delayed payments by the parent company.¹

Low penetration in Indian markets by SMEs is the result of a combination of their low level of innovation, limited grasping of export opportunities, and extremely limited product range offered by them. According to Fourth Census only 23% of total rural MSMEs in India are providing 3 product/ service as compared to 70% providing 1 product/ service and 6% providing 2 products/ service. This condition is same in Uttarakhand state where only 26% rural SMEs are providing 3 product/ service as compared to 64% providing 1 product/ service and 10% providing 2 product/ service. It has been observed during the survey that the financial viability of SMEs providing 3 products is much better than the others.

The next problem is internationalization. Internationalization is more than just exporting; it refers to the SMEs engaged in international businesses, and developing cooperation, partnerships, linkages and networks with foreign companies and institutions. A survey of over 8000 SMEs in Europe (2003) revealed that internationalization spurs growth and competitiveness in SMEs. FDI is considered to be an important channel for internationalization, besides catalyzing technology flows and investments. In case of SMEs, several countries have opened up to 100% FDI while in some it is restricted. Therefore there is a need to relax the FDI barriers so as to make the SMEs able to face stiff competition from their global counterparts and to internationalize their business.

SMEs are contributing 45%-50% of the total Indian exports. But the matter of concern is that only 14740 rural MSMEs are exporting units while in Uttarakhand this number is just 144. This is because the SMEs are not having experience and there is a real dearth of information and awareness of the steps involved in doing business abroad. Moreover the channel of export is also a problem. Direct exports from the SMEs account for nearly 35% of total exports. Besides direct exports, it is estimated that SMEs contribute around 15% to exports indirectly. Out of the exporting SMEs only 27.47% are exporting directly as compared to 13.61% dependent on other agencies for exporting their products, and 58.92% exporting their products both directly as well as through other agencies.

Therefore Government should promote SMEs to make direct export so they can reap the benefits of direct exporting and can enhance their competitive vision, efficiency, and capability.