Grow or Perish – Why most micro businesses are unable to become small enterprises
India's micro, small, and medium-sized enterprise (MSME) sector is thriving. According to the Ministry of Micro, Small, and Medium Enterprises' MSME census, India has over 6.5 crore MSMEs. This figure is only expected to rise as the fifth generation of founders expand their enterprises. In many other countries, business entities progress from micro to small to medium to Large (at times). As a result, at any given time, these entities are distributed across the spectrum.
As per definition, who qualifies as an MSME in India is based on investment and turnover and applies to entities in manufacturing and services sectors:
Micro: Enterprises with investment up to INR 10 million, turnover up to INR 50 million are defined as micro units.
Small: Enterprises with investment up to INR 100 million, turnover up to INR 500 million are defined as small units.
Medium: Enterprises qualify as medium-sized units if they have investment up to INR 200 million and turnover up to INR 1 billion
Micro firms dominate the distribution in India. Here, there are more than 95 micro firms, four small-to-medium businesses, and less than one giant corporation for every 100 organisations. Developed nations, on the other hand, have roughly 50 micro entities and 40 small-to-medium businesses in the same sample size. Economists describe this gap as the "Missing Middle," which is the absence of small and medium-sized businesses in the India distribution.
In other words, while there are many micro enterprises in India, there are very few small or medium businesses. Most micro firms in India remain micro forever, which means they can't scale up quickly enough, can't compete globally, and can't efficiently develop their activities outside of their local market.
Let's take a look at the primary reasons why most micro businesses remain just that: micro.
A). The founders' lack of business skills and expertise to scale their Business is a major reason why micro enterprises remain micro.
India is short on entrepreneurs who can take their businesses to the next level. Most micro-business owners do not have an enterprise background. They are instead engineers, doctors, or managers who are new to entrepreneurship. As a result, many entrepreneurs have minimal knowledge of how to run an efficient, scalable business. And these founders frequently lack the fundamental business abilities, such as marketing or financial management, that are required to take the next step. Last but not the least, old gen entrepreneurs often lose the spirit to grow and modernise, leading to lack of growth for their business.
B). Founders often are afraid of compliance
Micro businesses often fail when entrepreneurs don’t have the resources or knowledge to properly execute their ideas, and the lack of expertise makes them afraid of compliance. Non –compliance with laws or ethical misconduct may lend Business in serious troubles like fines, punishments, revocation of license's, litigation expenses, etc. which may cause an adverse effect on the limited capital of their business which leads them to remain small and out of compliance Radar. The solution is to invest in an expert who can guide them through different phases of business.
C). Another issue is a lack of access to financing for growth or expansion, as well as funds for reinvestment.
Only 4% of MSMEs in India have access to a formal source of credit, compared to 37% in Vietnam. Access to financial resources is a major challenge for many Indian MSMEs. Credit-bureaus don’t differentiate Micro from Small or Medium while Rating. This means that most Micro enterprises are assigned a low credit score and may only borrow from informal lenders at exorbitant interest rates. Expensive Credit hiders the growth of micro firms.
D). There aren't enough mentors or counsellors to help MSME founders make key business decisions.
Entrepreneurs are frequently urged to seek mentors to help them navigate the perilous waters of business. Finding the appropriate mentor, however, can be difficult, even for a seasoned entrepreneur. This is especially true for Indian MSMEs. Many entrepreneurs are unsure of where to turn for support or counsel. Schemes | Ministry of Micro, Small & Medium Enterprises (msme.gov.in)
E). Because failure is punished in Indian culture, most Indian entrepreneurs are risk-averse and lack the motivation to take risks when expanding their firms.
If you fail in something in India, you are considered a failure. You're punished for trying something new here. Failure is the first step towards success in the United States: many successful entrepreneurs failed multiple times before reaching success. However, in India, the risk-averse mentality has led to most entrepreneurs making conservative business judgments. They would rather stay in their comfort zones and risk failure than take a risk and hope to succeed.
F). The Indian consumer and client market is particularly price sensitive, which implies that firms would struggle to grow quickly enough if they rely solely on organic growth.
Indian consumers are extremely price conscious and would always choose the lowest choice. This makes it difficult for MSMEs to grow rapidly and organically based solely on sales. The price sensitivity pushes Most business owners to cut corners on Quality, they don’t hire Quality people or Engage external Experts to guide them.
G). Lack of knowledge on Govt Push and schemes for Micro and Small Enterprises .
Govt had formed a separate ministry to push agenda for MSMEs Growth. Indian MSME Sector Contributes over 30% to India’s GDP and Over 40% to Indian Exports. Govt have agenda to Give priority to Purchase goods from them when it comes to Internal consumption to compete on Global Market Govt had been pushing Various financial and non-financial schemes. ZED certifications . Govt had formed a separate ministry to push agenda for MSMEs Growth. Indian MSME Sector Contributes over 30% to India’s GDP and Over 40% to Indian Exports. Govt have set agenda to Give priority to Purchase goods from MSMEs when it comes to Government departmental Purchases. To compete on Global Markets Govt had been pushing Various financial and non-financial schemes. ZED certifications ZED | Zero Defect Zero Effect (msme.gov.in) for MSMEs is a big initiative by Govt to guide MSMEs to better compliance and Quality which will help them to compete in Global Markets. Micro and Small Entrepreneurs needs hand holding to make use of such policies and Overcome fears.
H). Small firms find it difficult to expand due to a lack of suitable digital infrastructure.
Many micro firms in India have attempted to expand their operations, but have encountered difficulties due to a lack of digital infrastructure. Vendors and suppliers, for example, have requested digital payments; however, many small firms have been unable to comply due to a lack of infrastructure. DIGITAL MSME .
To summarise, while micro enterprises are the foundation of a prosperous economy, they must scale up in order to become a part of the larger picture. Fortunately, entrepreneurs have begun to appreciate the importance of these micro-organizations and have begun to develop innovative strategies to assist micro-enterprises in scaling up and becoming small or medium-sized enterprises. Acehours Mobile Application (acehours.com) is an Platform to Address all the needs of MSMEs and shall be working as a Catalyst for their Growth.
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