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5 - Effective Management

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CHAPTER 4

EFFECTIVE MANAGEMENT
by Prof. Arun Shridharan Pillai

Mahatma Education Society’s


PILLAI COLLEGE OF ENGINEERING
CHAPTER 4
EFFECTIVE MANAGEMENT
• Effective Management of Business: Issues
and problems faced by micro and small
enterprises
• Effective management of M and S enterprises
(risk management, credit availability,
technology innovation, supply chain
management, linkage with large industries).
• e-Marketing
Prof. Arun Shridharan Pillai
ROLE OF SME in INDIA

Small and Medium Enterprises (SMEs) play a


vital role for the growth of Indian economy by
contributing 45% of industrial output, 40% of
exports, employing 60 million people, create
1300000 jobs every year and produce more
than 8000 quality products for the Indian and
international markets.
TOWARDS GDP
• SME’s Contribution towards GDP in 2011 was
17% which is expected to increase to 22% by
2012.
• There are approximately 30 million MSME
Units in India and 12 million persons are
expected to join the workforce in the next 3
years

Dr. Arun Shridharan Pillai


PCE, New Panvel
What do mean by GDP?
Gross Domestic Product (GDP) is the monetary
value of all finished goods and services made
within a country during a specific
period. GDP provides an economic snapshot of a
country, used to estimate the size of an economy
and growth rate.

GDP = private consumption + gross investment +


government investment + government spending
+ (exports – imports).
GDP INDIA
• DECLINING
GDP growth in INDIA
PROBLEMS FACED BY MSME
• Lack of credit from banks-The MSME`S are
presently facing the problems of credit from the
banks. The banks are not providing the adequate
amount of loan to the MSME`S. The loan
providing process of the banks is very long and
formalistic. The owners of the MSME`S has to
produce different types of documents to prove
their worthiness. The banks are providing on an
average 50% total capital employed in fixed
assets. The cost of credit is also high.
OUTSTANDING BANK CREDIT TO MICRO AND SMALL
INDUSTRIES
Competition from multinational
companies

In present era of globalization, the


MSME`S are facing the great from the
international manufacturing companies
who are proving quality goods at
cheapest price. Therefore, it is very
difficult to compete with the
multinational companies.
Poor infrastructure-
Though MSME`S are
• developing so rapidly but their infrastructure
is very poor.
• With poor infrastructure, their production
capacity is very low while production cost is
very high.
Unavailability of raw material and
other inputs

For MSME’s required raw material skilled work


force and other inputs, which are not
available in the market. Due to unavailability
of these essentials, it is very difficult to
produce the products at affordable prices.
Lack of advanced technology
• The owners of MSME`S are not aware of
advanced technologies of production.
• Their methodology of production is
traditional and outdated.
• The owners are using older method in the
field of fabricated metal and textile.
Lack of distribution of marketing
channels
• The MSME`S are not adopting the innovative
channels of marketing.
• Their advertisement and sales promotion are
comparatively weaker than the multinational
companies are.
• The ineffective advertisement and poor
marketing channels leads to a very poor
selling.
Complex labor laws and red-tape
• All the laws related to the all aspects of
manufacturing and service concern are very
complex and compliance with these laws are
practically difficult .
• The various decisions of factory’ are depend
upon the factory commissioner and inspector,
so there are so many chances of red tape in
the operation of MSME’S.
ENTERPRENEURSHIP DEVELOPMENT
AND MANAGEMENT

Effective Management of Micro and Small


Enterprises
Risk Management
What is a Risk?
• A risk is a potential uncontrolled loss of
something of VALUE

• VALUE can be gained or lost.

• Action to avoid risk can be planned or


unplanned.
Risk Management
What is a Risk Management?
• It is a process of forecasting and evaluation of
risks together with the identification of
procedures to avoid or minimize their impact.
Risk Management

Types of Risk

Economic Operational Strategic


Legal Risk
Risk Risk Risk
Risk Management
Various risk management
techniques by the Entrepreneur
for effective management of
SME’s
• Risk avoidance – Use of existing technology
• Risk sharing – Joint Venture
• Risk reduction – use of modern technology,
etc.
Credit Facility
Small Industrial Development Bank of
India (SIDBI)
• Formed: 02/04/1990
• Headquarter: Lucknow (UP)
• Purpose of formation: Its purpose is to provide
refinance facilities and short term lending to
industries, and serves as the principal financial
institution in the Micro, Small and Medium
Enterprises (MSME) sector
Credit Facility
Other facilities includes:
• Term Loan/ Demand Loan/ Deferred payment
guarantee
• Working capital by way of cash credit, OD
• Bills purchase/ Discounting under L/c.
• Export Credit facility like packing credit
• Bank Guarantees, etc.
Supply Chain Management (SCM)
Meaning:
• All activities associated with the flow and
transformation of goods from raw material to
end users

• Refers to the entire network of companies that


work together to design, produce, deliver and
service product.
SCM in SME’s
• an approach that helps the organization to
function in a more agile and cost effective
manner by integrating the processes of various
partners at all three levels – strategic, tactical,
and operational.

• SCM can improve the performance of SMEs: by


increase their profitability by enhancing their
ability to obtain supplies of the right quality, at
the right time, and at the most favored prices.
Benefit of SCM in SME’s
• Better customer satisfaction
• Allows your orders to be executed at the best prices
• Costs are reduced in logistics items
• Increases productivity and capacity
• Provides better control on demand forecasts
• Delivery performance gets better
• Supply cycle time shortens
• Provides production continuity
• Provides resilience to sudden changes in the market
• Save money on total operational costs
Large Industries and SME Linkages
• Motivation
Focus on core activities and outsource of non-
competitive activities
Reduced transaction and factor cost for large
industries through operations with local firm
Increase flexibility/ speed by off-loading some
operation
Productivity gains
Large Industries and SME Linkages
• Benefits of Linkages:
Technological and Managerial Up gradation of
SME’s
Facilitation of other business alliances
Transformation into Internationalized SMEs
Market access, guaranteed outlet for promotion
Facilitate access to credit or other financial
support
Dynamic Entrepreneurship and Specialization
Large Industries and SME Linkages
• Some of the LARGE INDUSTRIES and SME
linkages
Hitachi
Motorola
Philips
Toyota
Unilever, etc.
Large Industries and SME Linkages
• Risks in linkages:
Overly dependent on the Large Industrial
customers
Caught in “COST DOWN” market cycles imposed
by Large Industries global players
Exposure to constantly increase non-trade barriers
such as high corporate competition and
International quality standards, etc.
Large Industries and SME Linkages
Role of Government and support
institutions in linkage development
• Business Environment
Re-orientation for globalization
Political and Economical Stability
• Financial Aids
Incentives
Tax exemption
Large Industries and SME Linkages
Role of Government and support
institutions in linkage development
• Good Infrastructure
Access/ Transportation
IT Capability
• Market access
Information
Consultancy support
THANK YOU

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