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
Mastering Financial Analysis: Techniques and Strategies for Financial Professionals: Expert Advice for Professionals: A Series on Industry-Specific Guidance, #1