Reeg - Case of India - Deutsches Institut für Entwicklungspolitik

Transcription

What determines MSE upgrading?
Evidence from India
Caroline Reeg
Presented at the DIE Workshop on Micro and Small Enterprise Upgrading
Bonn, 28 November 2012
Outline
1. Introduction
2. The Indian case study
4. Main Results
5. Example: ICT
6. Conclusions and Policy Recommendations
© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
2
1. Introduction
3
MSMEs in India
India
Population (billion
inhabitants)
1.224
GDP per capita (in constant
PPP$ 2005) – lower middle
income country
3039
MSMEs (% of all companies)
95-99
Informal MSMEs (% of all)
95
Informal employment
outside agriculture
(% of total workforce outside
agriculture)
83
Source: Ministry of Micro, Small and Medium Enterprise
4
India – Importance of MSMEs

Micro, Small and Medium Enterprises
(MSMEs) provide employment to 60
million people through 28.5 million
enterprises.

The sector contributes 8 per cent to the
country’s GDP, 45 per cent to the
manufactured output and 40 per cent
to the country’s exports.

Today, the sector produces a wide range
of products, from simple consumer
goods to high-precision, sophisticated
finished products. It has emerged as a
major supplier of mass consumption
goods as well as a producer of electronic
and electrical equipment and drugs and
pharmaceuticals. An shock to this sector
is likely to have a multiplier impact on the
whole economy and employment.
Data has to be interpreted with
caution: In 2006 the Small-ScaleIndustry (SSI) sector was
„rebranded“ into the MSME sector
by the MSME Act. This covered
more enterprises than before. This
was the first and so far only MSME
Census in India.
28.5 million MSMES
7.7 MSMEs in manufacturing
18.5 MSMES in services
Only 1,5 million MSMEs are formal
MSME sector employs 60 million
people
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2. The Indian Case Study
6
India – Research Question, Methodology
RQ:
What factors matter for upgrading &
How does upgrading unfold?
Aim:
learn from succesful cases;
allow for variety in factors & upgrading trajectories,
systematically exclude factors that do not matter
Tools:
 Quantitative: Closed questionnaire and ranking of factors (using
the „Onion-Model“.
 Qualitative: In-depth interview with open-ended questions
regarding success factors, constraints & interrelationships
(evolution of upgrading).
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India - Using the ‚onion model‘
Business Environment
Business Networks
Social Networks
The Enterprise
The
Entrepreneur
8
India - Definition of MSME
1. EMPLOYMENT
Micro
1-9 regular/
permanent
employees
Small
10-19 regular/
permanent
employees
Medium
20-99 regular/
permanent
employees
1. INVESTMENT IN PLANT & MACHINERY/ EQUIPMENT (Indian MSME Act 2006)
India – Identification of an Upgrader
 Quantitative:
1. Passed threshold of 20 permanent, regular employees &
2. Grown at least 10% annually over a period of 10 years
 Qualitative:
3. has reported to innovate in a product, technology,
organisational process, marketing/ sales & entered new market &
4. grown faster than competitors (innovation rent)
10
India - Method: Tracing Back Success Stories
Number of
permanent/
regular
employees
69
41
26
Threshold 20
17
15
15
6
3
1997
7
2000
10
2012
Time
11
India – Fieldwork
14 weeks of fieldwork
 1 Researcher + 2 Interpreter
 Partners:
KfW India
Small Industries
Development Bank of India
(SIDBI)
Local collaboration:
Foundation for MSME
Clusters
UNDP Office Chennai/
Cluster Programme
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India - Sample Composition
Identification of Enterprises
TOTAL Interviews
Company registries
and other representative
lists:
Near-to representative lists:
Recommendation
by experts, business
associations or lead firms in
sector:
‚Walking the street‘
(especially in geographic
clusters):
India
Sample
India
Upgraders:
Non-upgraders:
42
51
10
Garment & textile :
Leather & footwear:
ICT:
29
37
27
34
Formal at start:
Informal at start:
28
65
Female entrepreneurs:
Male entrepreneurs:
4
89
93
-
49
13
India - Size of Enterprises & Upgrading
In 2012
In 2012
Medium
9%
Micro
55%
Medium
21%
At start
Small
9%
U
P
G
R
A
D
I
N
G
INVESTMENT
EMPLOYMENT
Large
24%
Micro
91%
Large
3%
Small
31%
Micro
57%
At start:
Small
5%
U
P
G
R
A
D
I
N
G
Micro
95%
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India - Regional & Sectoral Coverage
Sectors
Regions
Rajasthan
8%
Leather &
Footwear
40%
Location
Others
3%
Semi-urban
8%
ICT
29%
Textiles &
Garments
31%
NCR
27%
Rural
39%
Tamil Nadu
62%
Urban
53%
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3. Main Results
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Entry barriers for women
entrepreneurs*
Access and reliability of electricity,
particularly in Tamil Nadu
Low education and training of shop
floor workers
Access to affordable land, in Tamil
Nadu and NCR
Availability of workers/ high degree of
fluctuation
Delay in payments by clients/ buyers
Difficulties in access to bank finance
Difficulties in understanding/
predicting laws and regulations
SECTOR SPECIFIC
ACROSS SECTORS
India – Structural Constraints
Corruption & “Inspectors/ official
visits” (to a certain extend)
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Human capital
Family Background and Mindset
Availability of alternative finance &
Role of Social Networks
 The entrepreneur’s decisionmaking power within enterprise
Employee welfare
Benefiting from outsourcing and
political vacuum in (global) value
chains
Strategic “Growth Intelligence”
Access to markets (both national &
international)
Integration into GVCs & embedded
BDS
Benefiting from booms in certain
products & “quality “ associations
SECTOR SPECIFIC
ACROSS SECTORS
India – (Major) Success factors
 Cluster dynamics in fostering the
dissemination of environmental and
social standards
 Location and Access to land
 ….
18
Access to markets at enterprise start-up –
local markets vs. national & international exposure
Frequencies
Number of enterprises
60
50
40
30
NonUpgrader
48
2
20
10
Upgrader
20
11
9
0
local & regional
national
2
national &
international
international
19
Access to markets in 2012 – Strong outward focus, but
with one feet in the domestic market
Frequencies
40
35
30
25
20
NonUpgrader
37
15
10
12
21
Upgrader
16
5
1
0
local & regional
4
national
national &
international
international
20
Enterprise Finance at start-up –
Similar patterns, but different strategies
Frequencies
cash advance, in-kind credit, others
31
18
3
bank loan
11
informal finance
5
6
friends/ investors
12
8
family savings
33
29
personal savings
28
0
5
Non-Upgrader
10
15
Upgrader
20
25
30
31
35
21
Enterprise Finance in 2012 –
Consolidation of funding sources
Frequencies
cash advance, in-kind credit, others
25
6
bank loan
29
25
9
informal finance
friends/ investors
family savings
2
4
5
7
4
4
personal savings
enterprise returns
49
32
0
10
Non-Upgrader
20
30
Upgrader
40
50
60
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..... So how are constraints and success factors
interrelated?
... And which combinations of success have worked for
entrepreneurs in India?
23
4. Example: ICT
24
India - The ICT sector
Information and Communication Technologies (ICT) in India:
 Role in job creation: industry directly employs around 2.24 million
professionals
 India is the leading global economic actor in the offshore services
industry.
 The country’s gross revenue in the industry was US$ 58.8 billion (2008)
 with US$ 46.3 billion in exports, over 5% of India’s GDP
 and US$ 12.5 billion in domestic sales
 In 2000: IT service sector was highly developed ; Activities within the BPO
and higher value added activities were just beginning to emerge
 By 2006: Broadening and deepening of IT activities was combined with
greater emphasis on higher value-added services, esp. in the financial and
health care industries.
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India - Major challenges for ICT entrepreneurs
 Access to Markets - The market is becoming increasingly consolidated
on the supply side
 Access To Finance – Bank finance is still a massive issue for service
industries as banks are traditionally structured to support manufacturing
(e.g. collateral)
 Access to Labour- High pressure on human capital to serve the software
sector’s needs and attrition rates are high
 Access to Technology/ Creative Learning – Entry barriers to developing
value-added services/ products in the standard range are increasing
 Reliable protection of Intellectual Property Rights – Enterprises that
face high upfornt investment costs in R&D fear losing their future returns
due to unethical practices/ competition
26
ICT-Upgraders
27
ICT-Upgraders
Software Service , HRM
and BPO companies
Mainly R&D, KPO, Software
Product Companies
28
29
ICT Challenges – How do Entrepreneurs overcome them?
Most ICT Upgraders had a
business partner & shared
responsibilities
Most ICT Upgraders had a client/
market channel BEFORE starting
their business!!!
University+ Work Experience
Human Capital + Work Expereince
Use of alumni & work networks
to attract talent/ partners
Use of strategic advice
from current/former
colleagues/ potential
partner
Strategies of employee welfare
+ bottom-up personal
development + shareholding
to keep attrition low
ACCESS TO LABOUR
Acquisition of clients via
established position in former
employer (e.g. Adobe)
ACCESS TO MARKETS
30
ICT in India - Combinations of success
The
Entrepreneur
The Enterprise
The Social
Network
The Business
Networks
The Business
Environment
Finance
Labour
Security
Markets
SECTOR -SPECIFITY
ENTREPRENEUR
Challenges
Technology
and
creativity
31
Challenges
The
Entrepreneur
The Enterprise
The Social
Network
The Business
Networks
The Business
Environment
Finance
personal
savings
Partners/
employees as
shareholders
family
savings /
Friends
cashadvance/
bootstrap
bank loan
SECTOR -SPECIFITY
ENTREPRENEUR
32
Challenges
The
Entrepreneur
The Enterprise
The Social
Network
The Business
Networks
The Business
Environment
Finance
personal
savings
Partners/
employees as
shareholders
family
savings /
Friends
cashadvance/
bootstrap
bank loan
personal
labour
Exciting
work
atmosphere
Hire friends
& excolleagues
pooling
outsourcing
availability
of (skilled)
workers
Labour
SECTOR -SPECIFITY
ENTREPRENEUR
33
Challenges
The
Entrepreneur
The Enterprise
The Social
Network
The Business
Networks
The Business
Environment
Finance
personal
savings
Partners/
employees as
shareholders
family
savings /
Friends
cashadvance/
bootstrap
bank loan
personal
labour
Exciting
work
atmosphere
Hire friends
& excolleagues
pooling
outsourcing
availability
of (skilled)
workers
readiness to
accept risk
Portfolio
specialisatio
n
Readiness
to accept
risk
insurance
economic
stability,
rule of law
Labour
Security
SECTOR -SPECIFITY
ENTREPRENEUR
34
Challenges
The
Entrepreneur
The Enterprise
The Social
Network
The Business
Networks
The Business
Environment
Finance
personal
savings
Partners/
employees as
shareholders
family
savings /
Friends
cashadvance/
bootstrap
bank loan
personal
labour
Exciting
work
atmosphere
Hire friends
& excolleagues
pooling
outsourcing
availability
of (skilled)
workers
readiness to
accept risk
Portfolio
specialisatio
n
Readiness
to accept
risk
insurance
economic
stability,
rule of law
International work
exposure
Marketing
strategy/
domain
personal
outreach
Access to
international clients
Booming
Market for
ICT
Labour
Security
Markets
SECTOR -SPECIFITY
ENTREPRENEUR
35
Challenges
The
Entrepreneur
The Enterprise
The Social
Network
The Business
Networks
The Business
Environment
Finance
personal
savings
Partners/
employees as
shareholders
family
savings /
Friends
cashadvance/
bootstrap
bank loan
personal
labour
Exciting
work
atmosphere
Hire friends
& excolleagues
pooling
outsourcing
availability
of (skilled)
workers
readiness to
accept risk
Portfolio
specialisatio
n
Readiness
to accept
risk
insurance
economic
stability,
rule of law
International work
exposure
Marketing
strategy/
domain
personal
outreach
Access to
international clients
Booming
Market for
ICT
quality
education
In house
R&D
Exchange of
ideas
Exchange of
Info
Availability
of external
training
Labour
Security
Markets
Technology
and
creativity
SECTOR -SPECIFITY
ENTREPRENEUR
36
Everything should be made
as simple as possible
but not simpler
-Albert Einstein-
37
5. Conclusion & some policy
recommendations
38
India - Conclusions
1. There are huge entry barriers for women entrepreneurs.
These are historically and culturally rooted, but there
are exceptions!
2. There is little social mobility across socio-economic
groups.
3. The Entrepreneur & his social network (matter…a lot)
4. Work Experience & Business Linkages with Clients/
Buyers can compensate for the lack of finance.
39
ACCESS FINANCE
ACCESS MARKETS
Policy Recommendations 1
Market is segmented; strong entry barriers like brand equity, interface skills & high
marketing costs for standard products
Upgraders: used their personal and work networks to attract business linkages (in &
outside India). Also exposure to international markets to access mentorship, business
intelligence.
Policy recommendation: Use the potential of the domestic market for
“home-grown” ICT enterprises by recognising ICT enterprises as MSEs when
operating from home/ technology incubators.
Development banks have a bias against service-based businesses as they fall under the
category of risk finance (due to missing collateral)
Upgraders have mainly used personal savings and strategic in-kind credits/ advance from
clients
Policy recommendation: Replace collateral base financing with riskfinancing, at least for a small group. Assessment requires use of ITdomain know-how inside our outside of development banks.
40
ACCESSLABOUR
ACCESS TECHNOLOGY
Policy Recommendations 2
There is quality technical knowledge in Indian IT companies, but they are way behind in
domain knowledge when it comes to develop higher value-added products (software).
Upgaders have specialized in one domain, got appreciated and a brand and then
diversified later on!
Policy Recommendation: Platforms for linking Indian domain enterprises
(e.g pharmaceuticals; financial) and ICT enterprises could be mutually
fruitful.
If India is to evolve to higher value-added activities and other areas such as engineering
services, the offshore and ICT services industry will need more qualified staff with superior
technical and management skills
Upgraders have used their social networks as leverage point for recruiting scarce talent.
Policy Recommendation: The country must reinforce its education system
and strengthen the interaction and communication channels between
education institutions and the offshore industry sector.
41
Thank you very much
for your attention!
caroline.reeg@die-gdi.de
http://www.die-gdi.de
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Reeg - Case of India - Deutsches Institut für Entwicklungspolitik

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