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ISSN: 2249-7196

IJMRR/ November 2014/ Volume 4/Issue 11/Article No-6/1069-1084

Dr. Suhail Mohammad Ghouse/ International Journal of Management Research & Review

*Corresponding Author www.ijmrr.com 1069

EXPORT COMPETITIVENESS OF INDIA: THE ROLE OF MSMEs TO PLAY!

Dr. Suhail Mohammad Ghouse*1

1Asst. Prof, College of Business, Dar Al Uloom University, Riyadh, Saudi Arabia.

ABSTRACT

The present paper is based on the objective of increasing the export competitiveness of Indian

MSMEs. An attempt to explore the export performance factors and the various challenges/

constraints associated with the sector to overcome them for a superior export performance

and make the MSMEs export competitive, ultimately filling the trade deficit of the Indian

economy, has been made in the paper. The role of the government, private sector and the

international sector has been discussed to play an active role in the growth of MSME exports.

Since the sector is one of the key performers in Indian exports as well as in the overall Indian

economy, it has the potential to increase Indian share in global small sector exports which is

dominated by emerging economies like China, Korea, Taiwan, etc.

Keywords: MSMEs, export-competitiveness, growth, challenges, sustainability, etc

INTRODUCTION & OVERVIEW

The Micro, Small and Medium Enterprise (MSME) sector constitute an important fragment

of the Indian economy in terms of its contribution to the country’s industrial production,

exports, employment and creation of consumerist base (Nanjudappa, D.M.2002). Indian

MSMEs represent the model of socio-economic policies of Government which emphasized

job creation at all levels of income stratum and diffusion of economic power in the hands of

few, discouraging monopolistic practices of production and marketing; and contributing to

growth of economy and foreign exchange earning with low import-intensive operations.

Indian MSMEs also play a significant role for nation development through high contribution

to Domestic Production, Significant Export Earnings, Low Investment Requirements,

Operational Flexibility, Location Wise Mobility, Low Intensive Imports, Capacities to

Develop Appropriate Indigenous Technology, Import Substitution, Contribution towards

Defense Production, Technology – Oriented Industries, Competitiveness in Domestic and

Export Markets and Generate new entrepreneurs by providing knowledge and training.

Through the experience and aid coming from the financial institutions, the small and medium

enterprise can compete in both domestic and international market. Small and Medium

Enterprises (SMEs) play a vital role for the growth of Indian economy by contributing 45%

of industrial output, 40% of exports, creating 1.3 million jobs every year and produce more

than 8000 quality products for the Indian and international markets. SME’s contribution

towards GDP in 2012 was around 22% which is expected to increase in 2012. There are

approximately 30 million MSME Units in India and 12 million people are expected to join

the workforce in the next three years. SMEs are the fountain head of several innovations in


Copyright © 2012 Published by IJMRR. All rights reserved 1070

manufacturing and service sectors, which plays a major role in the supply chain of corporate

and the PSUs. SMEs are now exposed to greater opportunities than ever for expansion and

diversification across the sectors. . The sector is viewed as the strategic thrust for the future

and one of the greatest agents of growth. The policy based changes; investments into the

sector, globalization, and India’s growth story have opened up several latent business

opportunities in the sector.

Due to several key strategies by the Indian government for the sector’s competitiveness,

quality upgrading, finance and technology, there has been a dramatic change in the sector

progressing in the production of simple consumer goods to the manufacturing of

sophisticated and precision goods. MSME in India are considered to be important members

within the supply chain and are established in almost all major sectors in Indian industry such

as food processing, agricultural inputs, chemicals and pharmaceuticals, engineering such as

electronics and electrical, electro-medical equipments, textiles and garments, leather and

leather goods, meat products, bio-engineering, sports goods, plastic products, computer

software, etc. India has over 400 SME clusters and about 2000 artisan clusters that have

created a conducive ground for the development of inter-firm cooperation to promote local

production, innovation and collective learning. It is estimated that these clusters contribute

60% of the manufactured exports from India. The sector has realized the need for favorable

policies from the government, increased credit flow and need for the technological and

modernization initiatives. Indian MSMEs face huge competition from the foreign companies,

both at the domestic and international levels. There is a huge market out there where many

other countries such as China, Korea, Taiwan, Thailand, etc are well established and their

export share is much higher than India’s MSME export share globally. As global

competitiveness becomes intensive, MSMEs are transitioning to a new business environment

with emergence of global supply chains. MSMEs form an integral part of almost every value

chain and there is a symbiotic relationship between the large corporations and their relatively

small sized suppliers. As the competitive pressures of a free market are catching up in India,

the domestic market is also flooded with many low cost, reasonable quality, bulk produced

goods giving tough competition to Indian MSMEs. With the opening up of the economy, this

sector needs to catch up with the global standards of excellence in order to remain

competitive and profitable. In order to help the economy lower the current trade deficit, and

survive in the global market place, MSMEs need to bounce back and make it in form of

innovation-technological, strategic, financial, human resource and compete with the

competitors of the emerging world. MSMEs from viewpoint are less equipped/ prepared to

face the challenges posed by the export competitiveness or to exploit the opportunities

presented.

LITERATURE REVIEW

Our research is linked with the literature on the marketing strategies required in Micro, Small

and Medium scale Enterprises (SMEs) to enhance the export performance and

competitiveness. Given that micro and SMEs are major providers of new jobs (Audretsch et

al., 2002), increasing understanding of the key determinants of their success is essential. It is

understood that SMEs in pursuit of organizational goals do not adopt the marketing concept



to the same extent as larger firms (Pollard and Jemicz, 2006), and that marketing practice in

SMEs is situation specific, and variable, regarding the levels of sophistication and

effectiveness (Hill, 2001). “However, it is recognized that small firm owner -managers do

engage in marketing, but that the form this marketing takes is not fully understood”

(O’Donnell, 2004). Previous studies have also indicated that there is a positive association

between entrepreneurship and export performance. For instance, positive relationships have

been found between export performance and technological innovativeness, management's

attitude toward risk taking, and aggressive (Aaby and Slater, 1989; Zou and Stan, 1998). A

more recent research (Balabanis and Katsikea, 2003) has also reported a positive association

between entrepreneurial orientation and export performance, though moderated by contextual

variables such as organizational and environmental factors. Studies have shown that

entrepreneurial orientation of the owner or manager has also been found to have a positive

relationship with performance and competitiveness (Covin and Slevin, 1991; Entrialgo et al.,

2001; Hult, Snow and Kandemir, 2003; Ibeh, 2004; Kickul and Gundry, 2002; Marino and

Weaver, 2002; Wiklund, 1999). Kazem and van Der Heijden, (2006) have argued that a

firm’s ownership, regardless of size or structure, is characterized by a particular

entrepreneurial orientation, certain decision-making style, and by a set of operational

strategies. As with larger companies, SMEs must generate sales to survive, but need to

market their products to generate sales (Carson, 1993). SME growth stems from engaging in

some form of marketing activity, which will focus on attaining and retaining competitive

advantage by engaging in marketing practice, that addresses market share, market

development, product promotion, product pricing, product differentiation and

distribution(Carter and Tzokas, 1999).The marketing function in SMEs is hindered by

constraints such as poor cash flow, lack of marketing expertise, business size and strategic

customer-related problems (Doole et al., 2006). Much of this successful marketing is driven

by innovation, however, to date, the preponderance of Innovative Marketing Research has

focused on firm-specific characteristics of innovation, and/or the effect of external

environment (Wolfe, 1994); large firms(Damanpour, 1991); market based constructs

(Daneels and Kleinschmidt, 2001); barriers to SME innovation(Fritz, 1989; Sweeney, 1983);

product innovativeness (Schmidt and Calantone, 1998); product or business success (Sethi et

al., 2001), with little research undertaken into the core of this research: Enhancing the Export

competitiveness of Indian MSMEs. Hence, the primary aim of this research project is to

explore the growth prospects and problems in the export performance of the Indian MSMEs.

OBJECTIVES & METHODOLOGY

The objectives of the research study were to find out:

1. The factors responsible for the export growth of Indian MSMEs;

2. The relative magnitude of problems/constraints related to the exporting MSMEs;

3. To assess the role played by the various players in the export growth of the MSMEs.

The work done on the research paper- “Export Competitiveness of India: The Role of

MSMEs to Play” is of exploratory nature and the research survey was undertaken in the year

2013. It endeavors to explore the problems associated with the 178 MSMEs exporters in the

sampling frame and the growth prospects of the industry and the exporters. The secondary



data was used as a framework for the research study; the primary data from the industry

sources was collected primarily to know the exact nature and the quantum of the various

parameters under the research study to substantiate & supplement the secondary data and

check its accuracy and relevance. The information was collected through a face to face

situation from the sampling frame. The final list of exporters was arranged from the trade

directory of the respective export promotion councils with the ‘non probability judgment

sampling’ method and the MSME sectors chosen for the research were handicraft, textiles

and the leather industry spanning the states of Uttar Pradesh, Delhi and Rajasthan because of

the known contacts and the ease of the data availability from the exporters.

ANALYSIS & FINDINGS

1. GROWTH PROSPECTS

The country’s open door policy of globalization has brought intense competition for the

MSMEs both in the domestic and overseas market and has made imperative for the Indian

MSMEs to overcome the challenges and improve themselves to sustain and compete globally

by lower costs, improved quality, adopting various innovative practices and up- gradation of

technology. The government needs to identify the thrust areas like technology, human

resource development, finance, marketing, and entrepreneurship development where the

sector lags when compared with its international competitors and make the MSMEs

competitive with the global players and survive in the competition (Table 1).

Finance is one of the critical inputs for the promotion and development of the micro and

small enterprises. Presently only 4 million accounts are operated by MSMEs in India as most

of the exporters of the sector doesn’t know how to prepare and present a loan application.

Rarely do they have collateral acceptable to banks as a security against a loan. Government

institutions like SIDBI should work in this regard to promote micro-finance by which they

can sustain in the market. The government should also focus on promoting the emerging

sources of finance like primary and secondary security market, venture capital, private equity,

external commercial borrowings, factoring services, etc especially for the MSME sector.

Government Support: When there is a talk competition at the global level, exporters from

countries like China outscore Indian exporters because of better state run schemes like

subsidies, infrastructural facilities, export sales leads and market assistance in foreign

markets, duty drawback schemes, etc. The government should also try to facilitate such

attractive sops to the exporters of the Indian MSME sector. Export Promotion Councils

should come into action by incorporating themselves for marketing activities abroad with the

exporting MSMEs. Since a large chunk (total in case of export oriented units) of MSMEs

revenue generation is from exports and during the times of global slowdown and recession,

the sector should be given priority and keen attention by the government so that the micro

and small enterprises stand firm during the times of crisis, as in the case of China’s state

support which is heavily export oriented.

Technology is one of the most important aspects in the sustenance of the MSMEs.

Enterprises with heavy infusion of technology are much better adapted to meet the business

needs and compete in the domestic as well as global markets. The potential for information

and communication technologies (ICT) to deliver efficiency gains is widely accepted. While



large firms are often at the forefront in recognizing and investing in IT advancements, small

firms can be slower to catch up and appreciate the benefits that these can deliver

(Giannakouris and Smihily 2010). The adoption and use of information and communications

technology (ICT) is widely seen as critical for the competitiveness of SMEs in the emerging

global market. Appropriate ICT can help SMEs cut costs by improving their internal

processes, improving their product through faster communication with their customers, and

better promoting and distributing their products through online presence. An appropriate

information and communication technology (ICT) intervention can help them to stay ahead of

others which have been the story of many successful MSMEs today

Infrastructure: The survey study supports the fact that present Indian infrastructure is not

adequate as compared to other exporting MSMEs nations and is one of the major reasons of

Indian MSMEs low share in the international market. One important aspect which can greatly

help in building the competitiveness and sustainability is to develop the export clusters near

the sea ports, perfect example can be China. The transportation costs involved in bringing the

shipment to the ports can be minimized resulting in the lowering of the product costs. The

other main problem as revealed by the exporters is the power problem which has insufficient

supply and high priced compared to other competing countries, especially China.

Intra and Inter-Firm Coordination: One important aspect which needs proper attention of

the MSMEs for export competitiveness is the intra and inter-firm coordination. Internally, the

coordination strategies may be like proper representation of the cross functional teams in the

export cell so that the export objectives can be clearly communicated to the other functional

areas. Externally, the export manufacturers should deploy multiple strategies to coordinate

activities with the importers and foreign distributors so that they know the target of export

sales, make adjustments as per the fluctuating demand and environmental conditions in the

export market, etc. The combined use of these strategies can yield a superior export

performance of the MSMEs.

Low subsidies: As compared to the other competing countries in the MSME scenario, Indian

offer of the export subsidies is lower than their Chinese and Korean counterparts which

results in the low export volume. Duty drawback scheme to be made more attractive by the

government as it becomes very difficult to compete especially with Chinese exporters

because of their state support in securing the prized low margin high volume buyers.

Human Resource/ Training and Development: One very important aspect which needs

proper attention of the government is the shortage of skilled manpower in the sector.

Specialized training institutes and centers for each cluster should be set-up under the

supervision of the centre. The institutes will produce skilled manpower on regular basis with

an exposure to the latest technologies in the sector. Lack of proper remuneration and proper

motivational factors to the skilled persons is one of the major causes of the shortage of skilled

manpower in the MSME sector. A proper remuneration scheme with attractive incentive

schemes need to be implemented so that they shall feel motivated and work with full

efficiency. A sound HRIS should be developed entailing all modern HR practices including

pay in the Indian MSMEs.

Branding/IPRs: A National Knowledge Commission of India study reveals that 42% of large

firms and 17% of MSMEs have introduced ‘new to the world’ innovations during the course



of their business. India boasts of more than 10 million MSME units with a double digit

growth in the last four years, collectively with a product portfolio of more than 800 products

but mostly unbranded with almost negligible intellectual property rights like patents or

copyrights. There is weak implementation of IPRs among the MSMEs in India, especially

those which are innovation driven. The MSMEs should go for exclusive IPRs in case of

innovation which will help them in monetizing their innovations as well as competitiveness

in the global market by developing their own brand portfolios.

Sustainability is the need of the hour. The government should promote the adoption of

climate friendly green technologies by the MSMEs which is highly acclaimed in the

advanced markets. Reducing the carbon emissions by the adoption of green technology as a

mark of sustainability can serve as a promotional technique as most of the emerging countries

like China are centers of carbon emissions. Responsibility towards environment and self

reliance on energy must be met by the MSME sector. Sustainability strategies create many

synergistic effects for SMEs working collaboratively, as well as systemic benefit for the

commons. The different incentives for SMEs to optimize sustainability are:

� Becoming valuable sustainable investment targets for larger firms;

� Creating highly competitive networks of sustainable SMEs in market spaces where large

enterprises are less successful;

� Becoming highly efficient suppliers in global supply chains through sustainable practices.

The recent CSR initiative by the government of compulsory 2% spend on CSR by companies

having 5000 millions annual turnover can prove to be a remedy for the revival of MSMEs in

their run for export competitiveness. Initiatives taken to revive the sick export units,

upgrading the medical and health facilities for MSME workers, setting up educational and

training institutes for the workers, raising the HR standards in the sector, etc can help the

MSMEs to be more productive in terms of export growth.

Liberalization: Recent approval of the FDI in retail can be of crucial importance to the

MSME sector. Multinational retailers like Wal-Mart, Carrefour, IKEA, TESCO, etc who are

behemoths and cash rich organizations can prove to be potential buyers for the MSMEs. The

mandatory 30% sourcing clause in the single brand retail to be met by the retailers can be a

very good option for the sector to prove their competence. The government should also, in

turn offer tax benefits to the buyers so that the overall cost comes at par with the low cost

suppliers like China. If found attractive, these companies can increase their sourcing

percentage from Indian MSMEs which can help the Indian MSMEs settle in the huge

domestic market against cheap imports.

Tie-up for Innovation: Certain academic and technical institutions show that world-class

innovation can take place in an environment where academia and business collaborate. A

strong culture of communication between public & private universities and the MSMEs can

help conduit the gap between academics and industry which is a critical component in

unleashing a country’s innovation potential. MSMEs being the country’s future will highly be

benefited in terms of innovation and the R&D from the academic-sector tie-up, resulting in

the recognition of the sector globally and sustainable development. The academics in turn

will get an exposure to the industry and can prepare themselves in a better way as per the

industry requirements.



PROBLEMS & CONSTRAINTS IN INDIAN MSMEs

The MSME sector is such a sector where it faces problems at every stage of their operation,

whether it is purchase of raw materials, manufacturing of products, marketing of goods,

raising of finance, and so on. Some of the key challenges Indian MSMEs faces are discussed

below:

Inadequate infrastructure: India lags infrastructural when compared to its export

competitors. The sector must be availed infrastructural technology and skilled manpower in

tune with the global trends. Most of the MSMEs are either in decades old industrial estates, or

functioning in the urban areas or have come up in scattered fashion in rural areas where the

state of infrastructure like power, water, roads, etc are in poor condition or unavailable. The

scale of manufacturing must also be focused upon.

Limited access to global markets: The inward performance of foreign companies has been

highly successful in India but the outward performance of the Indian companies is not a

success story as a result of globalization. Same is the case with Indian MSME sector, which

is a serious threat to the sector. Reasons cited can be technological obsolescence, scale of

operations, lack of promotional marketing, inability to access institutional credit and intense

competition are some of the shortcomings of the sector while addressing the global market.

Collateral requirements: Banks ask for collateral in order to grant loans to MSMEs but their

position doesn’t allow them to do so, hence the access to credit is denied. The problem is

highly experienced among the micro and the small exporters.

Limited access of export credit: Individual exporters are usually too far removed from the

foreign buyers in the marketing chain to receive a letter of credit enabling them to approach a

bank for financing to meet an export order. Even with support from a financial institution

their frequent lack of skills in costing and pricing can result in a net loss in their operations.

They rarely have time to spend on managerial, no production tasks such as overseeing the

financial side of their business. Banks, trade promotion organizations and other support

institutions can take measures to help overcome such problems.

Also due to high risk perception among the banks about the sector, there is a problem of

access to adequate and timely credit at a reasonable cost. The transition costs for the loan

appraisal are also high for the sector.

Problem Uncertainty: One of the problems of concern which can have long term adverse

effects is the policy formulation of the Indian government. The policies are highly unstable

and reflect the protectionist perception of the government towards the market. Since the

country is one of the major emerging nations having bright prospects, the policy makers and

the regulatory bodies should devise investor friendly compliances.

High cost of local purchases: Small quantity purchases with financial constraints as

compared to the big industrial purchases, the MSME sector is limited to purchases within

local territory. There is no scope of bulk buying and the MSME units are heavily subjected to

the ups and downs of the commodity market.

Problems in warehousing, packaging and merchandising: The sector faces problems of

storage and display besides the packaging as compared to other countries’ small sector. Non-

availability of selling/promotional outlets at major POS (point of sales) for their products is a



serious constraint which shadows down the emerging horizons to the sector in the

international markets.

Export Insurance: Export Credit Guarantee Corporation (ECGC) is one such scheme by the

Indian government which provides a sort of insurance in case of fraud, theft, accident, etc

during the shipment export. The schemes should be made exporting MSMEs centric and

promoted in a better way so that the start-ups are benefitted by the scheme. The scheme is

least popular in the micro segment as most of the exporters are either unaware or are hesitant

in approach to the facility.

Obsolete technology: Except a few industries, the MSME sector is characterized by low and

outdated technical practices, making it a handicap when compared with other emerging

markets technological levels. Also the sustainability gets jeopardized with an increased

competition in the domestic market from imports. The government should focus on technical

imports from technologically developed countries so that our products should get an indirect

association with an established label which is already recognized in the export market.

Lack of skilled manpower in manufacturing and services: Though the recent census has

termed India as “Youth” because of its young population, proper training and lack of

manpower with right set of skills continue to be the major problem of the sector. The

manpower lacks updated technological information and there is a shortage of consultancy

services due to shortage of relevant training institutes. The mandatory CSR clause can help

the sector up-to a great extent in this regard by establishing technical consultancies and

manpower training institutes.

Branding and Marketing: The branding and marketing activities of the MSMEs are

extremely low due to low exposure of the market, low promotional outputs, and the high

costs involved in the branding of the products. Though Provenance Paradox is observed in

case of products from emerging economies (BRICS) to developed nations, branding

strategies should be developed in such a way that offers minimal resistance for the acceptance

of the products from the emerging economies in the export markets. A tie-up in contract

manufacturing with a foreign branded manufacturer & marketer, a strategic alliance with a

technology provider, a stake sell out to a foreign partner, a merger or an acquisition with a

foreign entity, etc can help the MSMEs in this regard to enhance their brand image in the

overseas market.

PLAYERS AND ROLES

Analysis of the present and previous researches done in the sector and by drawing

conclusions from the success stories of the exporting countries like China, Thailand, Taiwan,

etc, it can be rightly said there should be a genuine and clear involvement of the government,

the private sector and the international community in order to revive the Indian export MSME

sector and help it achieve the export potential to the fullest. The roles to be played by the

different players are discussed below:

Government: The government is the most important entity in the revival of the MSME export

industry. It should create and develop a business friendly environment enabling MSMEs to

start exports or to help consolidate the already exporting companies by checking the

corruption and red-tapism that hinders the growth of MSMEs, proper infrastructure and

ensure a proper legal framework to guarantee MSMEs a sustainable working business



environment. The government should also devise long term sustaining growth oriented

policies which can bring in the faith and makes a positive impact on the investors.

The government should adopt measures to improve exporting MSMEs access to finance by

providing credits to MSMEs directly from state owned banks, liquidity incentives to

commercial banks that provide loans to the sector, interest rate subsidies, guarantee

programs, etc. The government should also think in creating a fund especially for the MSME

sector which can aid in the development of emerging and existing MSMEs in India.

As discussed in the preceding section regarding the 30% sourcing clause in case of single

brand retail by foreign retailers, the government should take it as an opportunity to revive the

MSMEs sector which can ultimately increase local sourcing from Indian MSMEs by these

retailers instead of cheap imports provided their interests are not affected by the

government’s policies. In the same manner, measures to encourage TNCs to create linkages

with the Indian MSMEs are adopted, be it marketing, technical or social responsibility, which

is burning issue these days.

Private Sector: A wide range of measures could also be considered at the B2B level to boost

the export competitiveness of the Indian MSMEs. MNCs working together with Indian

MSME suppliers can help them by upgrading their tools, techniques, strategies, functions, etc

which can help them in making competitive. Clustering is a very important initiative to group

the MSMEs according to their specialty and make them compete at the international level.

Lessons from the successful clusters and industrial districts like those in Taiwan, China, Italy,

etc can be considered and implemented in the sector.

One important initiative which can be undertaken by the established large players in the

country to stabilize and promote the MSMEs can be the co-branding exercise. Most of the

MSME products are unbranded and the successful marketing entities in the industry can

accommodate related MSMEs in their marketing campaigns locally and globally.

A recent clause for the large industrial houses by the Indian government to spend the 2% of

their earnings on the corporate social responsibility (CSR) can help the MSMEs. Though

considered as a social initiative, many researchers have coined CSR as a marketing strategy

aimed at making the goodwill and penetration in the society. The concept is made mandatory

recently and many organizations are associated with the society in form of education, health,

development, etc in India in varying degrees. Initiatives targeted at the sector can be market

oriented (marketing, co-branding, etc), employees oriented (training, institutes, etc), society

oriented (sector’s child education, health awareness, etc) or environment oriented

(technology, green initiatives, etc) which can be aimed at making the Indian MSME sector

competitive.

International Sector: The MNCs and other international corporations could play a driving

role in enhancing Indian MSME development and its export competitiveness in particular

through FDI and linkages. The international community should play a more active role in

facilitating the MSMEs access to finance. There should be coordination between financial

and non-financial support institutions so that the MSMEs access the medium to long term

finance at preferential interest rates and export development investment funds (EDIF) to



improve the export performance of MSMEs at comparative low interest rates. The

international community should also enhance MSME export credit and long term finance

under the new Basel II accord in lieu with the Bank for International Settlements (BIS) for

industrial and MSME policies.

Multilateral financial institutions like World Bank, Asian Development Bank, International

Monetary Fund, etc can help in the improvement of the MSME finance programmes in the

framework of existing inter-regional, regional and sub-regional trade agreements. Funded

projects aimed at micro or macro levels in the sector can be highly helpful across the sector

for all types of MSMEs.

DISCUSSION

The MSME sector play a key role in Indian economy as it constitutes 80% of the total

industrial enterprises and contribute 34% of the total exports of the country. The sector has

performed well and better in the recent downturn than the other sectors involving large

enterprises. It can rightly be rightly said that the MSME sector is the backbone of Indian

economy and will continue to be act in the same way in future provided the government

policies are made in the favor of sector’ growth and development. MSME sector is a major

contributor in India’s exports and can be a way to enhance the export growth of the country

by improving the quality standards of the MSME products and capturing more global

customers. In order to compete at the international level, the Indian MSME sector needs to

undergo technological and modernization initiatives as there is a big threat from countries

like China, Thailand, Taiwan, Korea, etc to the Indian sector.

Export competitiveness of Indian MSMEs can be promoted by working on the key

performance areas of the sector and overcoming the key challenges/barriers to them and a

healthy involvement of the government, private sector and the international sector (Table 3 &

4). Whether it is technology obsolescence, high cost of credit, collateral requirements, raw

material costs, improper infrastructural facilities, lack of skilled manpower, etc. Apart from

all these issues, the sector needs innovation in certain areas as discussed to create sustainable

MSMEs which can have the valor to face and compete the emerging nations’ exporters and

increase India’s share in the global exports. Certain sectors need to be highly focused and can

prove to be significant export earners for the emerging economy.

The government, private sector and the international community can play an important role in

promoting the export competitiveness of the Indian MSMEs. The MSMEs can compete

internationally in specific niches and high profiled productions. MSMEs can also link

themselves with MNCs and large national exporters in form of co-branding. Developing

MSME export clusters and industrial networks with active role of ICT systems can aid in the

promotion of export competitiveness in the Indian MSMEs. Information technology or

Internet-enabled environment helps in fast and accurate decision-making by the SMEs due to

increased mobility. The critical components before MSMEs are speed of services, access to

information, empowering employees in terms of skill and delivering highest valued services

at competitive cost. The sector need IT-based solutions in terms of multi-tasking, expanding

customer base, raising productivity, controlling cost, working remotely, fast and accurate

decision-making and facilitating collaboration. MSMEs have various needs to function in an



aggregative manner in order to reach out for value addition by keeping in mind the variable

cost model. IT usage by the MSMEs raises productivity of the sector in particular and the

economy in general.

LIMITATIONS & DIRECTIONS FOR FURTHER RESEARCH

The findings of the research need to be interpreted in the light of the following limitations:

First, although we explored the combined study of the various export performing areas and

the problems associated with the export competitiveness under the limited number of

exporters, further research can be performed on a large number of exporters which can yield a

better preview of the performing factors and problems associated with small business exports

in India.

The second limitation of the study was the selection of only three areas of exports whereas

the MSME sector has several other sectors under its umbrella. The study could have been

better if all the sectors of MSMEs could have been covered spanning different states in India

which would have exposed the state’s role in the MSME development and its

competitiveness. The researcher would then have discussed the role of the state and its

efficacy in improving the exports from the small sector.

The third limitation revolves around time frame of the study as the survey research was

conducted in a limited time frame raising concerns of predicting a firm’s long term

performance under different environment factors which adjust the performing as well as

problem areas. A sort of longitudinal study incorporating the above two limitations with a

longitudinal time frame can yield a much better view of the performing and non-performing

factors in the MSME exports. The study will be highly helpful at the micro and macro levels

both and can be used in devising the strategies for promoting the MSME exporters and Indian

economy.

Lastly, a comparative study between the Indian and Chinese (or any other successful

emerging nation) can be done in the context of MSMEs export performance where the

researchers can find the different performing areas and problems of foreign MSMEs and

make a comparative with Indian MSME exporters, which can be of great significance to

increase the competitiveness of exporting MSMEs. We hope that the insights provided by our

current investigation, together for the suggestions for future research, will encourage

subsequent scholarly work in the area of export performance of Indian MSMEs.

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APPENDICES

Chart 1: Classification of MSMEs

Source: Annual Report, Ministry of MSME, Ministry of Commerce, Govt. of India

Table 1: Export Performance of MSMEs in India

Export Performance of MSMEs during 2005-06 2006-07 2007-08

Total exports from the country 456,417 571,779 655,863

Total exports from the MSMEs 150,242 182,537 202,017

Share of MSMEs in the total exports of the country (%) 32.92 31.92 30.80

Growth of MSME exports over the previous year (%) 20.76 21.50 10.67

Growth of India’s exports over the previous year (%) 21.60 25.28 14.71

Source: Annual report, Ministry of MSME, Ministry of Commerce, Govt. of India

7124486013

97644

124417

150242

182538

202017

0 0 0 0

0

50000

100000

150000

200000

250000

Export Performance of MSMEs

Graph 1: Export Performance of Indian MSMEs



Table 2: Growth Factors of MSMEs (Export Related)

S.No. Growth Prospects Rank Percentage

1 Technology 3 85 percent

2 Sourcing/Availability of Finance 1 95 percent

3 Government Support (Markets & Finance) 2 90 percent

4 Liberalization (FDI in Retail) 7 55 percent

5 Human Resources/Training & Development 6 60 percent

6 Intra and Inter-firm coordination 5 65 percent

7 Branding /IPRs 7 55 percent

8 Academia-Industry tie-up for Innovation 8 45 percent

9 Export Oriented Port Cluster/Infrastructure 4 80 percent

10 Sustainability Approaches 7 55 percent

11 Low Subsidies/Drawback 5 65 percent

9590

8580

65 6560

55 55 5545

0

10

20

30

40

50

60

70

80

90

100

Export Growth Factors of MSMEs

Graph 2: Growth Factors of MSMEs (Export Related)

Table 3: Export Related Problems of MSMEs

S.No. Problem Rank Percentage

1 High Cost of Raw Materials 3 80 percent

2 Obsolete tools & Equipments 4 75 percent

3 Limited Access to export credit 2 85 percent

4 High cost of credit/collateral 6 65 percent

5 Scarcity of skilled labor 7 55 percent

6 Poor infrastructure 1 90 percent

7 Policy uncertainty 4 75 percent

8 Warehousing, Packaging & Merchandising 5 70 percent

9 Export Insurance 8 50 percent

10 Market Awareness 2 85 percent

11 Branding & Marketing 9 45 percent



90 85 85 80 75 75 70 6555 50 45

0

10

20

30

40

50

60

70

80

90

100

Export Related Problems of MSMEs

Graph 3: Export Related Problems of MSMEs

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