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CHAPTER – V
PROBLEMS FACED BY SMALL SCALE INDUSTRIES
The development of small-scale industries is hampered by a
diversity of problems. There are certain problems common to all types of
cottage and small scale industrial units. In this context, the present
chapter is devoted to a detailed study of the problems of the small-scale
industrial sector. It also seeks to suggest remedial measures. The basic
requirement for the industrial development of a region is the presence of
entrepreneurship in that area. The non-availability of adequate finance,
paucity of raw materials, absence of technical and managerial guidance,
and non-availability of industrial accommodation and marketing facilities
are the other major problems facing the small-scale sector.
The slow growth industries in Tamil Nadu have been due to lack of
entrepreneurship, which performs the function of initiating, establishing
and organizing industries. The people of Tamil Nadu, in fact lack
enterprising character as compared with people in other states. Under
the circumstances, the state Government entered the economic field and
established important industries in the public sector. Without private
participation, it is very difficult for an under-developed state to active
industrialization. Therefore, the development of local private talent is
highly essential. In this connection, it should be kept in view that
entrepreneurship talent is not the monopoly of any particular race.
210
Entrepreneurship can be developed by proper education, training,
and provision of necessary cost and market data. It also requires
complete reorientation of the curriculum so that young persons are
provided with opportunities to develop new skills and attitudes that
would turn them into entrepreneurs. The provision of proper training
facilities helps in the development of entrepreneurship. Proper training,
persuasion, guidance and assistance can bring about radical change.
The self-employment schemes in the state can be made successful by the
formulation of gainful schemes of industries mainly based on local
factors, endowments and demand conditions.
Problems of Small Scale Industries
In this section problems faced by the small scale industrial units
are discussed. Problems related with marketing, Labour, Production,
Finance, Technology and Management are ranked and the scores are
taken for analysis. Plan for expansion the units are also assessed in this
section.
The problems of small-scale industries may be classified as
external and internal. External problems are those, which are beyond
the control of the industrialists, such as the availability of power, and
other infrastructural facilities required for running the units. Contrarily,
the internal problems are those which are not influenced by external
forces like problems involved in organization, structure, and production
process, channel of distribution, technology, know-how, training,
industrial relations and inadequacy of management
211
Marketing Problems
Marketers are increasingly recognizing the importance of formal
approaches to market planning, to meet the challenges of growing
competition, rising material costs, declining profit margins and limited
cash reserves. Market decisions made by the entrepreneurs at a
particular time influence the direction and fate of the small-scale units
for a number of years. Successful market planning involves an analysis
of market opportunities and assessment of the firm’s ability to take
advantage of these opportunities. The success of an industrial unit
depends on the marketing of its finished products.
Marketing is a crucial area especially in small units whose
marketing infrastructure is susceptible to frequent and chronic illnesses.
Units with strong marketing set-up grow better even in rough weather.
The organizational design should be so planned as to meet any
marketing situation. The marketing team should be dynamic and
aggressive enough to produce and market such have been contemporary
needs and the products should be better than those of competitors. The
market for a product is an external element, which cannot, in general, be
controlled by small-scale industrialists. They should constantly study the
trend and adjust their production to meet it. Small-scale industrialists
may need to change their marketing techniques from time to time.
The marketing problems of the small-scale industrial units of
Pudukkottai are identified as competition from large-scale industries,
slackness in demand, price competition and competition from
established brands.
212
Scores are calculated by giving weights to each response namely 4
/ 4 for first rank and 3 / 4 for second rank and 2 / 4 for third rank and
1 / 4 for fourth rank. Competition from large scale units is considered
the foremost problem by 40 per cent of the respondent. Slackness in
demand is the second problem with 25 per cent and the third rank is for
the problem of price competition (19 per cent).
The competition from large-scale units has been the greatest
problem. Being organized and large in size they could have economies of
scale and thereby could sell at lower rates than the small units. In price
competition is also similar to competition with large-scale units and the
slackness in demand may be indirectly caused by sharing of the markets
with the large-scale units, which might be providing products at lower
prices. Therefore, it is possible that the second and third rank problems
are also creates indirectly by the competition from large units.
The problem of marketing the products of small-scale industrial
units has arisen chiefly due to the reasons stated below.
i) An abnormal increase in cost of production during the
last few years, and increase in the selling price.
ii) Competition from the large scale firms producing similar
goods at cheaper rate and selling at lower prices.
iii) Lack of advertising at national and international levels.
The role of the Government in this connection has been
insignificant.
iv) Absence of market research either by the private
manufacturer cum traders or by the State Government.
The small-scale industrial workers are not in a position to
bear the cost involved in market research.
213
The following Table 5.1 shows the percentages and the ranks for
marketing problems of different categories, there has been lost by the
sample units.
Table 5.1
Marketing Problems fased by different Categories of Industries
Category of
Industries
Sample
units
Slackness
in
Demand
Price
Competition
Competition
Withlarge
Scale units
Competition
with other
Products
Agro based Industry
10 4
(40%)
2
(20%)
3
(30%)
1
(10%)
Forest based industry
15 3
(20%)
5
(33%)
4
(27%)
3
(20%)
Mineral based
Industry
05 3
(60%) -
1
(20%)
1
(20%)
Textile based industry
30 5
(17%)
7
(23%)
13
(43%)
5
(17%)
Engineering based
industry
10 2
(20%)
1
(10%)
4
(40%)
3
(30%)
Chemical based
industry
10 3
(30%)
1
(10%)
5
(50%)
1
(10%)
Miscellan eous based
industry
20 5
(25%)
3
(15%)
10
(50%)
2
(10%)
Total
100
25
(25%)
19
(19%)
40
(40%)
16
(16%)
Rank II III I IV
Sources: Complied by the Researcher
Note: figures ins brackets indicate percentages to total.
214
Labour Problems
Labour is an active and essential factor of production. The supply
of labour in the State has rapidly increased because of increase in
population. It is however, important to mention that mere increase of
population is not helpful in the economic advancement of a nation,
which can put its material resources to better economic use only if
labour of a superior quality becomes available. The quality of labour can
be improved by proper education and training. General education is
important for every citizen but an industry requires special type of
literate persons i.e., technical and managerial personnel.
The small-scale sector is predominantly labour-intensive and it
provides employment to a large number of people. The role of labour is
many sided and varied in the small industrial sector. Therefore, the over-
all development of labourers is inevitable for the growth of this sector.
The small scale units under survey indicated that they face some labour
problems like absenteeism, high wage rates, work stoppages, training
cost and unionization. Labour is a major contributor to industrial
production. Small Scale Industrialists have to be abreast of labour laws,
since the legal codes are changing from time to time.
Labour related problems are classifying into absenteeism, high
wage rate and frequent work stoppages. The perception of refurnish is
presented in Table 5.2. Training of workers, unionization were the two
problems where no response was received and hence these two problems
were ignored.
215
Absenteeism is assessed the first rank. It has a score value of 38
per cent. In case of small-scale industrial units, almost all the units face
this problem since they engage temporary workers. Unlike large-scale
industries where most of them are in direct or permanent employment
provided with all benefits as per law, the small-scale units hardly provide
such benefits. They normally appoint only casual labour so every now
and then there may shift from unit to another. Since they are casual or
temporary in nature they tend to move to concerns where they are
offered higher wages. Similarly higher wages offered by other industries
and other sectors attract labour and thereby cause scarcity and increase
of wages.
This would in turn compel small units to pay higher wages and
return low profit margins. It is observed from the sample units that the
workers are not permanent employees. The majority of the units keep the
workers on daily wages.
The researcher has further observed that the entrepreneurs have
not taken care to provide safety measures to the workers. This has
caused problems. Poor working conditions and low piece rate system of
payment has caused dissatisfaction. Naturally the problem of labour
absenteeism, is acute most of the workers have migrated from the
surrounding villages and in sowing and harvesting seasons they go home
to attend to agricultural activities.
216
The following Table 5.2 showed the different categories of small
scale industrial units for labour problems of rank and percentages.
Table 5.2
Labour Problems fased by different Categories of
Industries
Category of
Industries
Sample units
Absent-deism
High Wages Rates
Work stoppage
Training cost
Unioniza- tion
Agro based
Industry 10
6
(60%)
2
( 20%)
1
(10%)
1
(10%) _
Forest
based
industry
15 9
(60%)
2
(13%)
2
(13%)
1
(7%)
1
(7%)
Mineral
based
industry
05 1
(20%)
2
(40%)
2
(40%) - _
Textile
based
industry
30 7
(23%)
8
(27%)
6
(27%)
7
(23%)
2
(7%)
Engineering
based
industry
10 4
(40%)
3
(30%)
2
(20%)
1
(10%) _
Chemical
based
industry
10 3
(30%)
1
(10%)
2
(20%)
1
(10%)
3
(30%)
Miscellane
ous based
industry
20 8
(40%)
3
(15%)
3
(15%)
5
(25%)
1
(5%)
Total 100
38
(38%)
21
(21%)
18
(18%)
16
(16%)
7
(7%)
Rank I II III IV V
Sources: Complied by the Researcher Note: figures in brackets indicate percentages to total.
217
The industries also face the problem of labour unrest in the form of
unionization and strikes. It is noticed that low wages and poor working
and living conditions create labour unrest. Except for five units, others
have faced problems of unionization and strikes. Low wages, bad working
and living conditions, bad treatment by the owner, managers, etc., are
the main causes for unrest.
Production Problems
The objective of an entrepreneur is achieved when he is able to
dispose of his products at a price, which covers necessary profits to
maintain production levels. In a competitive market, an individual
producer or seller has to supply such goods as are not inferior to the
goods of other competing firms. Therefore, the problem is to maintain
and improve quality of production. The inferior quality of goods
produced in the small-scale industrial sector is due to certain reasons:
i. The small-scale producers tend to produce goods of poor
quality for the simple reason that inferior production
involves a lesser capital outlay and production time.
ii. The small-scale producers are encouraged to produce
goods of poor quality because such goods are easily sold
in the market as a result of their low prices.
iii. Shortage of raw materials of good quality at reasonable
rates also compels the small-scale producers to utilize
inferior raw materials, which are available easily at a
cheaper rate.
218
iv. The quality of goods is inferior due to the inappropriate
use of modern technology by the small-scale industrial
units, which cannot afford to pay the expenditure
involved in production research.
The price of a product is determined by its quality. It is essential
that quality products are produced at reasonable prices. Therefore, the
main aim should be to motivate the small-scale sector to produce high
quality goods by providing them necessary financial assistance, raw
materials, technical guidance, marketing assistance, etc.
The Small-Scale Units are faced with the problems of scarcity of raw
materials. There is shortage of raw materials like iron and steel, pig iron,
‘A’ grade coke, chemicals etc., small scale industries are weak in
financial position. They have to utilize the services of intermediaries to
get raw materials on credit. Such an arrangement results in higher costs
and is disadvantageous when raw materials are imported, for the profit
margins of intermediaries are rather high.
Different types of industries require different types of raw materials.
There are industries, which use indigenous raw materials while there are
also industries, which are based on imported raw materials. According to
their availability, raw materials can be classified into scarce raw
materials and freely available raw materials. The non–availability of raw
material in sufficient quantities has been the main problem with small-
scale industries.
219
The shortage of scarce raw materials is likely to continue in future
also. Therefore, the strategy for the further development of industries
should be such that the industries based on indigenous and local raw
materials are encouraged and those based on imported raw materials are
discouraged. However, it should be the responsibility of the state to meet
all the needs of the existing industries by guaranteeing liberal
distribution of raw materials from the state depots and issuing import
licenses for reasonable quantities of foreign raw materials required for
production.
It is clear from the following Table 5.3 that 28 units out of the 100,
i.e., 28 per cent, suffer from shortage of raw materials. Industry-wise 4
units from agro based, 3 units from forest- based, 2 units from Mineral
based, 4 units from Textile based, one unit from Engineering- based, 3
units from chemical based and 11 units from the service and
miscellaneous units face problems of raw material shortage. Cashew nut
units have recovered from problems in cashew nut supply. Though the
units are located in cashew growing areas in the Gandarvakottai block,
the required supply of cashew has become a major problem. This is due
to export of cashew to Kerala State by cashew wholesalers.
A sawmill a forest-based industry is also suffering from shortage of
wood. As the unit is far away from the place of supply of wood,
transportation problems, create shortage of wood. The raw materials are
to be brought from various places far away from the location. Hence, the
entrepreneur is bound to get them in smaller quantities. The financial
hindrances involved in purchasing raw material in bulk quantities lead
to raw material shortage.
220
The following Table 5.3 shows by the units in the sample
production problems faces analyses by the researcher.
Table 5.3
Production Problems fased by different Categories of
Industries
Category of Industries
sample units
Shortage of Raw
materials
Lack of finance
Power shortages
Govt. support inadequ
ate
Price fluctuation
Changes in
Technology
Agro based Industry
10 4
(40%)
1
(10%)
2
(20%)
1
(10%) -
2
(20%)
Forest based
industry
15 3
(20%)
6
(40%)
2
(13%)
1
(7%) -
3
(20%)
Mineral based
Industry
05 2
(40%)
1
(20%) - - -
2
(40%)
Textile based
industry
30 4
(13%)
4
(13%)
6
(20%)
2
(7%)
4
(13%)
10
(34%)
Engineering based
industry
10 1
(10%)
3
(30%)
4
(40%) - -
2
(20%)
Chemical based
industry
10 3
(30%)
1
(10%)
2
(20%)
1
(10%)
2
(20%)
1
(10%)
Miscellaneous based industry
20 11
(55%) - -
4
(20%)
3
(15%)
2
(10%)
Total 100
28
(28%)
16
(16%)
16
(16%)
9
(9%)
9
(9%)
22
(22%)
Rank I III III IV IV II
Sources: Complied by the Researcher
Note: figures in brackets indicate percentages to total.
221
Four units among the textile-based industries suffer due to
shortage of raw materials. One engineering-based unit too has expressed
problems of raw material shortage. These units are established in the
industrial estates located in Aranthangi and Pudukkottai.
They are not allotted any quota of raw materials. All these pose
problems of raw material shortage to these units. Two units in the agro-
based category 2 units in the forest-based industries, 6 units in textile
industries, 4 units in engineering based industries and 2 units in
chemical based industries actually have been experiencing problems of
power shortage. The erratic supply of power results in damage to the
machinery and causes suspension of work for long hours keeping men,
materials and machines idle.
One agro-based unit, 6 forests based units, one mineral-based
unit, four textile units, three engineering based units and one chemical
based unit, suffered from lack of finance. One unit each of the agro,
forest and chemical based industries two textile units and four units
comber service and miscellaneous industries faced problems due to
inadequacy of governmental support.
Price fluctuation problems were faced by four units among the
textile-based industries, 2 units among the chemical based industries
and 3 units among the service and miscellaneous industries. Two agro
based units, three forests based units, 2 mineral-based units, and 10
textiles based units, two engineering based units; one chemical based
unit and two service and miscellaneous units suffered from the problems
arising from changes in technology.
222
Financial Problems
Industrial finance has been one of the most important problems of
the small scale industrial producers who are persons of small means and
require short-term and medium –term finance to meet their business
obligations. Short-term loans are needed for meeting the current
expenditure on items like purchase of raw materials, payment of wages,
overheads, etc, and medium term loans are required for purchase of fixed
assets like land and building, machinery, utensils, furniture and other
equipments of a permanent nature. The success of the small-scale
producers is largely affected by their ability to arrange adequate money
in time.
From the following Table 5.4 analyses of the problems of finance
and their weighted scores are given in Table 5.4. The problems identified
are shortage of working capital 33 per cent of rank respondents this on
the foremost problem 26 per cent face inadequate assistance from
commercial banks, 19 per cent suffer from shortage of funds for fixed
assets. The hostile attitude of Government agencies is listed by 14 per
cent.
Efforts have been made to analyses the various financial problems
of the small-scale sector. The analysis is done based on the data
obtained from the sample units. In addition, care is taken to draw
meaningful conclusions. Small Scale Industrialists do not have sufficient
funds of their own for fixed capital as well as for working capital. The
shortage of funds makes it difficult for them to install modern machinery
and tools and to maintain well-organized factories. Generally, the small-
scale units are not in a position to offer the guarantees required by the
223
banking sector. The Small Scale units have to depend on more than one
source for their working capital and pay heavy interest and pass through
many an ordeal and consequent delay.
The different categories of sample units for finance problems
shown in the Table 5.4 for analysis by the researcher.
Table 5.4
Financial Problems fased by different Category of Industries
Category of Industries
Sample units
A
B
C
D
E
Agro based Industry
10 4
(40%)
2
(20%)
2
(20%)
2
(20%) _
Forest based industry
15 6
(40%)
3
(20%)
1
(7%)
4
(27%)
1
(6%)
Mineral based Industry
05 2
(40%) _
1
(20%)
2
(40%) _
Textile based industry
30 7
(23%)
8
(27%)
2
(7%)
9
(30%)
4
(13%)
Engineering based industry
10 4
(40%)
2
(20%)
2
(20%)
2
(20%) _
Chemical based industry
10 2
(20%)
1
(10%)
4
(40%)
3
(30%) _
Miscellaneous based industry
20 8
(40%)
3
(15%)
2
(10%)
4
(20%)
3
(15%)
Total 100
33
(33%)
19
(19%)
14
(14%)
26
(26%)
8
(8%)
Rank I III IV II V
Sources: Complied by the Researcher
Note: figures in brackets indicate percentages to total.
A. Shortage of working capital B. Shortage of income for fixed assets C. Hostile attitude of Govt. agencies D.Inadequate assistance from Bank E. Inadequate assistance from financial institutions
224
Working capital shortage has been the foremost problem followed
by inadequate assistance from banks. It is best a corollary of the
previous factor since working capital is mainly granted by banks and if
the banks are not extending sufficient assistance then the shortage of
working capital will be the result. Banks prefer only those industries,
which could repay regularly. The small units often fail to repay the loan
in the stipulated period and therefore banks are not willing to assist of
the small units and therefore there is hardly any profit reinvest able in
future. Most of the small units remain small due to lack of profits to
plough back.
Sources of Finance
Most of the entrepreneurs in the small-scale sector see shortage of
finance or capital as the most important factor responsible for a host of
problems. Small scale sector units generally depend on two kinds of
capital, viz.,(a) equity or own capital and (b) borrowed capital consisting
of (i) long term capital for investment in equipment and other capital
assets and (ii) short term capital to meet current needs of the industry.
The industrialists themselves usually provide equity capital. The
resources obtained from friends and relatives as either partners or
shareholders sometimes supplement it. Small entrepreneurs generally
do not encourage equity capital from outside agencies as it involves
sharing of management and control. Much of this initial capital is
225
required for the purchase of fixed assets like land, building, plants and
equipments and the balance for working capital.
Owned capital may not be sufficient to meet the long-term needs.
In such cases, besides owned capital, long-term capital is needed for
expansion and renovation of plants, and modernization of machinery.
Short-term credit is needed for working capital to buy raw materials and
stores, to pay wages, to hold stocks of finished goods, etc.
From the following Table 5.5, it can be observed that out of the
total capital of sample units as much as 61 per cent has been raised
through bank loans. The second rank (13 per cent) is assigned to
borrowing from friends and relatives. 10 per cent received assistance
from the commercial banks and state finance corporations, and
remaining 7 per cent borrowed from moneylenders. The least score and
rank (4 per cent) borrowed from banks, money lenders, friends and state
finance corporation, only 3 per cent received finance from state finance
corporations, and 2 per cent borrowed from money lenders and friends.
Small-scale entrepreneurs cannot bank upon their own resources
alone to meet their needs and the need to resort to some external
resources on their part is obvious. During the survey, it was observed
that many industries are unable to make good progress owing to the
shortage of finance. They have depended on borrowed capital.
226
The following Table 5.5 shows that the percentages and ranks for
sources of working capital analysis by the researcher.
Table 5.5
Sources of Working Capital for different Categories of
Industries
Category
of
Industries
sample
units A B C D E F G
Agro
based
Industry 10
4
(40%)
2
(20%)
1
(10%) _
2
(20%) _
1
(10%)
Forest
based
industry
15 10
(67%) _
3
(20%)
2
(13%) _ _ _
Mineral
based
Industry
05 5
(100%) _ _ _ _ _ _
Textile
based
industry
30 20
(67%) _
3
(10%)
5
(17%) _
2
(6%) _
Engineeri
ng based
industry 10
2
20%) _ _ _
5
(50%) _
3
(30%)
Chemical
based
industry
10 6
(60%)
1
(10%) _ _
3
(30%) _ _
Miscellan
eous
based
industry
20 14
(60%) _
6
(30%) _ _ _ _
Total 100
61
(61%)
3
(3 %)
13
(13%)
7
(7 %)
10
(10%)
2
(2%)
4
(4%)
Rank I VI II IV III VII V
Sources: Complied by the Researcher Note: figures in brackets indicate percentages to total. A. Borrowing from Commercial Banks B. State Finance Corporation
C. Friends and Relatives D. Moneylenders
E. Banks and State Finance Corporation F. Friends and Money Lenders
G. Banks, Money lenders, friends and state finance corporation
227
Borrowing Capital
The following Table 5.6 shows details of financial assistance
received from the various organized agencies by the sample units.
Table 5.6
Financial Assistance Received from Various Organized and Unorganized agencies by Sample Units of Different Category of
Borrowed Capital
Category of Industries
Commercial Banks
State Finance
Corporation
Money lenders
Friends &
Relatives
Total Borrowed capital
Agro based Industry
87.21
(59%)
54.37
(37%)
2.00
(1%)
4.55
(3%)
148.13
Forest based Industry
0.87
(100%) - - -
0.87
Mineral based Industry
4.70
(100%) - - - 4.70
Textile based Industry
0.52
(100%) - - - 0.52
Engineering based
Industry
24.50
(72.1%)
7.50
(22.0%) -
2.00
(5.9%) 34.00
Chemical based
Industry
19.00
(90.5%)
2.00
(9.5%) - -
21.00
Miscellaneous Based
Industry
0.61
(67.0%) - -
0.30
(33.0%)
0.91
Total 137.32
(65.35%)
63.87
(30.39%)
2.00
(1%)
6.85
(3.26%)
210.13
(100%)
Rank I II IV III
Sources: Complied by the Researcher
Note: figures in brackets indicate percentages to total.
228
It is observed from the Table 5.6 that out of the total borrowed
capital of 210.13 (100%) lakh, assistance by the commercial banks,
accounts for 137.32 (65.35%) lakh. The second rank Rs. 63.87 (30.39%)
lakh is taken by state financial corporations, the third position Rs.6.85
(3.26%) lakh is for borrowing from the friends and relatives and that
remaining alone is from money lenders Rs.2.00 (1.00%) lakh.
The following Table 5.7 observed that these units have secured a
significant proportion of their total capital from commercial banks and
SFC’s. Scores are calculated by giving weights to each response namely
5/5 for moneylender’s first rank, 4/5 for friends and relatives borrowing
capital second rank. The capital borrowed from state finance corporation
3/5 for third rank, 2/5 for the capital borrowing from the commercial
banks fourth rank and remaining 1/5 for the own capital of the small
scale industrial entrepreneur’s.
It is observed from the table, which furnishes the extent of finances
received by sample units of different industries, that the units secured a
significant proportion of their total capital from commercial banks and
state finance corporation and others.
The professional moneylenders had been an important link in
financing the small-scale product producers. The moneylenders charge
high rates of interest and adopt such policies that the permanent
debtors. “Short-term credit in the form of cash or raw materials sold on
credit is provided by money lenders and dealers to producers often to the
advantage of the latter due to unjust terms on which the bargain is
struck between the parties of the transaction.” 1 Thus, this source of
finance is against the interest of the borrower and should be replaced by
some better alternative method of financing.
1. Ramakrishna, K.R., Finances for Small Scale Industry in India, Asia Publishing House, 1962, p.10.
229
The following Table 5.7 shows the percentage of borrowed capital
obtained by the sample units from various financial institutions.
Table 5.7 Financial Assistance Received from various Organized and
Unorganized Agencies by Sample Units of Different Category as a percentage of Total Capital
Category of
Industries
Own
Capital
Commerci
al banks SFC
Money
lenders
Friends
&
Relative
Total
Capital
Agro based
Industry
259.20
(63.6%)
87.21
(21.4%)
54.37
(13.3%)
2.00
(0.5%)
4.55
(1.2%)
407.33
Forest based
Industry
16.00
(94.8%)
0.87
(5.2%)
_ _ _
16.87
Mineral based
Industry
49.00
(91.2%)
4.70
(8.8%)
_ _ _
53.70
Textile based
Industry
5.00
(90.6%)
0.52
(9.4%)
_ _ _
5.52
Engineering
based
Industry
76.00
(69.1%)
24.50
(22.3%)
7.50
(6.8%)
_
2.00
(1.8%)
110.00
Chemical
based
Industry
33.50
(61.5%)
19.00
(34.9%)
2.00
(3.6%)
_ _
54.50
Miscellaneous
Based
Industry
9.25
(91.0%)
0.61
(6.0%)
_ _
0.30
(3.0%)
10.16
Total
447.95
(68%)
137.41
(21%)
63.87
(9.7%)
2.00
(0.3%)
6.85
(1%)
658.08
(100%)
Rank I II III V IV
Sources: Complied by the Researcher
Note: figures in brackets indicate percentages to total.
230
Agro based industry in small scale sector secured 63.6 per cent of
its total capital from own as against 21.4 per cent,13.3 per cent, 0.5 per
cent, 1.2 per cent from commercial banks, state finance corporation,
money lenders and friends and relatives respectively.
Forest based industries secured 94.8 per cent and 5.2 percent of
assistance of the total capital from own and commercial banks only.
Mineral and Textile based industries are secured 91.2 and 90.6 per cent
assistance of the total capital from own, 8.8 and 9.4 per cent of
assistance of the capital from commercial banks.
Engineering based units have secured 69.1 per cent own capital,
22.3 per cent capital from commercial banks, 6.8 per cent and 1.8 per
cent from state finance corporation and friends and relatives respectively.
The Chemical based industrial units have obtained 61.5 per cent of their
total capital from own capital as against 34.9 per cent from commercial
banks and 3.6 per cent assistance from state finance corporation. The
miscellaneous industrial units have secured only 6 per cent of total
capital from commercial banks and remaining capital for the own capital
of the entrepreneur’s. The financial assistance rendered by commercial
banks, SFC, Moneylenders, friends,
And relatives to the small-scale units. From the Table 5.7 it is
clear that commercial banks have played a dominant role in financing
small-scale unit. Banks also granted loan to industrial units under
various government schemes. The banks’ assistance to small-scale units
under study under different schemes.
231
Financing Small Scale Units
The facilities available for financing small scale units in
Pudukkottai district are reflected in the analysis of the actual amount of
loans granted to them by various organized and unorganized agencies.
Commercial banks have played a vital role in financing the
different categories of industries. In each category, the role of the banks
is significant, as they have helped the largest number of units compared
to other organized and unorganized agencies. From the following
analysis, it can be seen that in the case of small-scale units the role of
borrowed funds is found to be significant. The role of banks in this
regard is found to be significant.
From the following analysis the sample units out of 100 units, 82
units (82%) have borrowed from nationalized commercial banks, 8 units
(8%) from the TIIC, 7 (7%) from the SIPCOT, remaining 3 units (3%)
have approached the DIC.
Thus, commercial banks have established supremacy over other
sources of financing. No other single agency has sanctioned so much as
banks. Thus, it is observed, that a majority of units borrowed to meet
their working capital needs.
232
The following Table 5.8 shows that the sample units have
approached various financial agencies to assistance.
Table 5.8
Financial Assistance Obtained from different Agencies
Category of Industries
Sample units
Nationalized Bank
TIIC DIC SIPCOT
Agro based Industry
10 10
(100 %)
_ _ _
Forest based
industry
15 15
(100 %)
_ _ _
Mineral based
Industry
05 3
(60%)
2
(40%)
_ _
Textile based industry
30 20
(67%)
4
(13%)
_ 6
(20%)
Engineering based industry
10 10
(100%)
_ _ _
Chemical based
industry
10 4
(40%)
2
(20%)
3
(30%)
1
(10%)
Miscellaneous based industry
20 20
(100%) _ _ _
Total
100
82
(82%)
8
(8%)
3
(3%)
7
(7%)
Rank I II IV III
Sources: Complied by the Researcher Note: figures in brackets indicate percentages to total.
233
Total Capital of Small Scale Units
The particulars of the composition of total capital of small-scale
units are presented in the following table 5.9.
Table 5.9
Particulars of capital of different categories of industries
(Rs. in lakh with units)
Category of
Industries
Own
capital
Borrowed
capital
Total
capital
Agro based
industries
259.20
(64%)
148.13
(36%)
407.33
(100%)
1 9 10
Forest based
Industries
16.00
(94.8%)
0.87
(5.2%)
16.87
(100%)
2 13 15
Mineral based
Industries
49.00
(91.2%)
4.70
(8.8%)
53.70
(100%)
2 3 05
Textile based
Industries
5.00
(90.6%)
0.52
(9.4%)
5.52
(100%)
_ 30 30
Engineering based
Industries
76.00
(69.1%)
34.00
(34.9%)
110.00
(100%)
3 7 10
Chemical based
Industries
33.50
(61.5%)
21.00
(38.5%)
54.50
(100%)
_ 10 10
Miscellaneous based
Industries
9.25
(91.0%)
0.91
(9.0%)
10.16
(100%)
4 16 20
Total
447.95
(68.0%)
210.13
(32.0 %)
658.08
(100 %)
Units 12 88 100
Sources: Complied by the Researcher Note: figures in brackets indicate percentages to total.
234
From the above Table 5.9 shown the total capital of the small-scale
units in the samples is presented. It shows the capital structure of the
sample units. Out of 100 units, 12 units maintain the own capital
funds. Remaining 88 units have borrowed from commercial banks and
other financial institutions.
Problems of Sample Units
Small-scale industrial units suffer a lot for want of financial
assistance. Though 88 units received assistance from various
commercial banks for their total capital, it is not sufficient for their
smooth running. These units fail to benefit from other sources of finance
and are over dependant on commercial banks and SFC’s. The main
reasons for these units not approaching other sources of finance are high
rates of interest levied by moneylenders and lack of information about
other sources.
The major source of long and medium term finance to the small-
scale sector has been the State Financial Corporation while the
commercial banks cater to the need for short-term loans. In getting
finance from these sources, several problems are reported to have been
faced by small-scale industrialists.
Various problems are encountered by small-scale entrepreneurs in
dealing with the financial agencies in raising funds and repaying the
loans to them. The important among them are security, delay in
sanction, insufficient financing, high rates of interest and cumbersome
procedures. This can be seen from Table 5.9.
235
Table 5.10 shows that the problems of sample units an analyzed
by the researcher.
Table 5.10
Problems Experienced by Sample Units
Category of Industry
Security
Delay
in
sanction
Insufficient
Financing
High
Rate of interest
Cumber
-some
procedures
No. of Units approached
the Financial
Agencies
Agro based Industry
2
(22%)
1
(11%)
4
(45%)
1
(11%)
1
(11%)
9
Forest based
Industry
2
(15%) -
3
(23%)
4
(31%)
4
(31%)
13
Mineral based
Industry
1
(33%)
1
(33%)
1
(34%) - -
3
Textile based
Industry
- - 30
(100%) - -
30
Engineering based
Industry
- - 7
(100%) - -
7
Chemical based
Industry
3
(30%) -
5
(50%) -
2
(20%)
10
Miscellaneous based Industry
6
(37%) -
6
(37%) -
4
(26%)
16
Total 14
(16%)
2
(2.3%)
56
(63.6%)
5
(5.6%)
11
(12.5%)
88
Sources: Complied by the Researcher Note : figures in brackets indicate percentages to total.
236
The table makes clear that the out of the 88 units, 56 units (63.6
per cent) expressed problems of insufficient financing. 14 units (16 per
cent) faced the problems in offering securities for loans. 11 units (12.5
per cent) have expressed problems with the cumbersome procedures of
the government, 5 units (5.6 per cent) faced problems of high rates of
interest and 2 units (2.3 per cent) experienced problems of delay in
sanction. The main reasons for these units not approaching other
sources of finance are higher rate of interest levied by moneylenders and
lack of information about the other sources.
It is worth mentioning that some of the units from the small-scale
sector admitted that they could not approach the financial agencies due
to the problems with security. From the above analysis, it is clear that
the majority of the small-scale units that have approached the financial
agencies faced problems of security.
From the above discussion it can be clearly seen that commercial
banks are taking much time for sanctioning the advances from the date
of application, and that when once the funds are sanctioned, they are
released immediately or whenever required, in most of the cases.
Technology and Management related problems
Adoption of new technology is the base of all industrial activities.
One of the major handicaps of small-scale industrialists has been the
absence of latest technology, which ensures fine quality, and high rates
of productivity. The small industrialists, therefore, should keep
themselves abreast of developments in technology so as i) to remain in
the market, ii) to improve the quality of their products, iii) to lower the
cost of production and iv) to pass on the benefits to the consumer.
237
Existing small-scale industries sometimes experience technical
difficulties due to which they fail to run the plant smoothly and ensure
the quality of production. The small-scale units are also in search of
better techniques of production and marketing. The improvement can be
effected by providing modern training facilities to the entrepreneurs. The
training programme becomes essential not only to make the workers
familiar with latest techniques of production but also to attract new
talents to the industry. The State Government has realized the
importance of training.
Management problems of small sale industries are different from
those of large-scale industries, which are managed by professional
managers. Owner-managers who mostly do not possess any formal
training manage small-scale industries. Most of them lack efficiency in
the management of business affairs. It is unfortunate that Government
stresses the need for training entrepreneurs for increasing production
but it does not mention the necessity of training managerial personnel
for these units. The problem of ineffective consultancy service by
government agencies is given the first rank for 33 per cent followed by
have access to new technologies for 26 per cent. 23 per cent procure
problems of non-availability of professional managers remaining. 18 %
note the problem of non-availability of skilled work force.
It is often emphasized that the small-scale units become sick
primarily due to mismanagement and lack of up gradation of technical
expertise. It is also true that monitoring agencies or Government
agencies fail to provide effective consultancy services. Therefore, the
small-scale units remain backward in technical and managerial aspects.
238
Technology and management related problems and their weighted
scores are given in Table 5.11.
Table 5.11
Technology and Management Problems and Rank
Category of Industries
Sample units
Non-availability of Skilled work force
Non-availability of professional managers
Ineffective consultancy service by
Govt. Agencies
In access to new
Technology
Agro based Industry
10 1
(10%)
1
(10%)
6
(60%)
2
(20%)
Forest based industry
15 4
(27%)
3
(20%)
5
(33%)
3
(20%)
Mineral based Industry
05 1
(20%)
2
(40%)
1
(20%)
1
(20%)
Textile based industry
30 7
(24%)
10
(33%)
9
(30%)
4
(13%)
Engineering based
industry 10
2
(20%)
3
(30%)
2
(20%)
3
(30%)
Chemical based
industry 10
1
(10%)
2
(20%)
2
(20%)
5
(50%)
Miscellaneous based industry
20 2
(10%)
2
(10%)
8
(40%)
8
(40%)
Total 100 18
(18%)
23
(23%)
33
(33%)
26
(26%)
Rank
IV III I II
Sources: Complied by the Researcher
Note: figures in brackets indicate percentages to total.
239
Lack of access to new technology is inherent in small units as they
are very small in scale. Their ability or capacity to absorb new
technology is very limited particularly due to financial reasons. The other
two reasons namely non-availability of professional managers and skilled
labourers may also be attributed to their poor economic status and their
problems in survival. They may not be able to pay for skilled workers
with efficient technical expertise or qualified and experienced managers.
Role of Power Cut
From the following survey, it is revealed that about 57 per cent of
the units are affected by power cut 25 per cent units follow the shift
system in production and the rest 18 per cent have stated that they are
not affected by power cut. The majority of the units have immediate
power cut as a major hardship.
The Tamil Nadu government has also announced power cut timings
to the industries. Apart form the scheduled timings; additional power
cuts were also made. Most of the units have taken some remedial action
against power-cut-problems. The majority of the units use generators as
an alternative. A few units are adopting the shift system in their
production process. It is observed from the study that most of the units
have planned strategically to avoid the problems arising out of power
cuts.
240
The following Table 5.12 gives the details of the ranks of power cut
problems in the sample unit’s analysis by the researcher.
Table 5.12
Role of Power Cut
Category of Industries
Sample units
Affected Not
Affected Shift System in Production
Agro based Industry 10 5
(50%)
3
(30%)
2
(20%)
Forest based industry
15 8
(53.3%)
3
(20%)
4
(26.7%)
Mineral based
Industry 05
3
(60%)
1
(20%)
1
(20%)
Textile based industry
30 18
(60%)
5
(16.7%)
7
(23.3%)
Engineering based
industry 10
6
(60%)
1
(10%)
3
(30%)
Chemical based industry
10 5
(50%)
2
(20%)
3
(30%)
Miscellaneous
based industry 20
12
(60%)
3
(15%)
5
(25%)
Total
100
57
(57%)
18
(18%)
25
(25%)
Sources: Complied by the Researcher Note: figures in brackets indicate percentages to total.
241
Plant and Machinery
The following Table 5.13 shown the details of the rank possess the
plant and machinery of the sample unit’s analysis by the researcher.
Table 5.13
Possess the Plant and Machinery
Category of Industries
Sample units
Own Machinery
Own &
Leased Machinery
Own, Leased
& Hired Machinery
Agro based Industry
10 5
(50%)
5
(50%) _
Forest based industry
15 8
(54%)
3
(20%)
4
(26%)
Mineral based Industry
05 3
(60%)
1
(20%)
1
(20%)
Textile based industry
30 14
(47%)
11
(37%)
5
(16%)
Engineering based industry
10 6
(60%)
1
(10%)
3
(30%)
Chemical based industry
10 5
(50%)
2
(20%)
3
(30%)
Miscellaneous
based industry 20
7
(35%)
8
(40%)
5
(25%)
Total
100
48
(48%)
31
(31%)
21
(21%)
Sources: Complied by the Researcher Note: figures in brackets indicate percentages to total.
242
Nearly 48 units possessed their own machinery 31 units are
having both owned and leased machinery in their factories. The other 21
units have a combination of owned, leased and hired machines. It is
gathered from the study that way a few units purchased and owned
machinery with financial assistance provided by commercial banks and
other term-lending institutions. Some of the units have availed the
necessary machinery from the National Small Industries Corporation on
hire purchase.
Industrial Accommodation
At present, many small-scale entrepreneurs have to force the
problem of inadequate space in their industrial location. The problem is
aggravated by the increase in the size of business. Regularity of work
without disturbance is essential for increasing production and labour
productivity. It has therefore become necessary that the entrepreneurs
work in a peaceful and healthy environment and the work place is
adequate to meet their requirements.
Improvement in Techniques
To affect economy and efficiency in production, the use of the
latest techniques and improved tools is highly essential. The small-scale
industries in Pudukkottai District provide vast scope for improvement in
their productive processes as most of them, at present are being run with
traditional techniques, which are less productive. In respect of small
scale, production little attention has been paid in the direction of
improvements in methods and techniques of production. From the
economic and social point of view, the arrangement of study visits by
small-scale entrepreneurs to units in other parts of the country with is a
welcome step.
243
Future plan for Expansion
Every unit will have a plan for the future. The responses of the
sample units about such plans are given in the following Table 5.14.
About 35 per cent of the units have some definite plans for the future
and 28 per cent of the units have expressed that they do not have any
proposed plans. The rest (37 per cent) have not yet decided about the
plan.
The Table 5.14 given below showed the percentages for the sample
units of future plan for expansions analysis by the researcher.
Table 5.14
Plan for Expansion
Category of Industries
Sample units
Yes No Not yet Decided
Agro based Industry
10 4
(40%) 2
(20%) 4
(40%)
Forest based
industry 15
6 (40%)
3 (20%)
6 (40%)
Mineral based Industry
05 2
(40%)
1
(20%)
2
(40%)
Textile based industry
30 10
(33%) 5
(17%) 15
(50%)
Engineering based
industry 10
5 (50%)
4 (40%)
1 (10%)
Chemical based
industry 10
6 (60%)
1 (10%)
3 (30%)
Miscellaneous based industry
20 2
(10%)
12
(60%)
6
(30%)
Total 100
35
(35%)
28
(28%)
37
(37%)
Sources: Complied by the Researcher Note: figures in brackets indicate percentages to total.
244
Development Designs
Design is of basic importance in any production process. It is the
design, which gives identity to any object. Consumers are always in
search of new designs and therefore, it is essential that development of
design be given due weight in any scheme for the development of small-
scale industries.
The Form of Plan
The following Table 5.15 shows the thirty-five units have some
plans for expanding their business in future. The form of such future
plans as described by the units include starting new units improving the
design or layout, introducing or adding new products, installation of new
machinery, making changes in the marketing procedure following new
methods of production and combination of either two or three forms.
Diversification to new products has been planned by most of the
units followed by bringing in new machinery and starting new units.
Thirty-five units have spelt out diversification in the form of new
products, new technology, new units and new area and others did not
have any such plan. It is necessary that the other units also diversify
their plan of production so that they can survive in the field.
Four of the agro based industrial units have indicated the plan of
starting new units. Forest based industrial units are plans to start new
unit; another has plan of improving the design or layout and another
plan to install of new machinery and make change in the marketing
procedure.
245
The following Table 5.15 shows the various forms of plan analyses
the sample units by the researcher.
Table 5.15
The Form of Plan for Various Categories of Industries
Category of
Industries
Sample
Units A B C D E F AB
C
D AE CE BDE
Agro based
Industry 4 4 - - - - - - - - - -
Forest based
industry 6 1 1 - 1 1 - 2 - - - -
Mineral
based
Industry 2 1 1 - - - - - - - - -
Textile based
industry 10 2 1 1 1 1 1 1 - 1 - 1
Engineering
based
industry 5 - 2 1 1 - - - - - 1 -
Chemical
based
industry 6 - 1 - 2 1 1 - 1 - - -
Miscellaneous
based industry 2 - 1 - 1 - - - - - - -
Total
35 8 7 2 6 3 2 3 1 1 1 1
Sources: Complied by the Researcher
Note: figures in brackets indicate percentages to total.
A.Starting new units B.Improving the design or layout
C.Introducing new products D.Installation of new machinery
E.Making change in the marketing production F. Following new methods of Procedure
246
One mineral based unit is going to start a new unit having
improved product design and layout. Two units amount textile based
industries have plans for starting new units. Among engineering based
units.
Two plan to improve the design of work and layout of products.
They have plans for installation of new machinery, introducing new
products and the remaining units plan to introduce new products.
Two chemical-based industries are planning to new machinery
install they also plan to change the marketing procedure, and production
technology. Among miscellaneous and service based industries one unit
has taken steps to improve the design or layout another has taken up
installation of new machinery for production as their plans.
The reasons, which have directed the units to plan for such
changes include competition, low profits and the desire to raise the
earnings. In order to avoid competition from other units they have also
tried to produce other related products using the same machinery. Some
units have planned to diversify their field. In order to raise the earnings,
some of the units have expanded their market area and are introducing
changes in the marketing system. The units believe that all these
changes will further improve their earnings.
Electric power
Most of the small-scale industrial units use electric power for
production purposes and there are possibilities of introducing power for
accomplishing certain processes in small-scale industries. The demand
for power for industrial purposes will increase in the future.
247
Economic Facilities
Production is, no doubt, carried out by combining different factors
of production in a certain proportion, but to make it smooth, it is
essential that the factors of production are assisted by other economic
facilities, which might include regular supply of electric power, goods,
transport and communication system and readymade work sheds.
Transport and Communication
Efficient, quick and cheap means of transportation and
communication are essential for the extension of trade, commerce and
industry. The entire economy is dependent upon road transport in the
absence of rail transport. The position of roads and road transport will
definitely improve in future.
Method of Solving Problems
The following Table 5.16 shown the nearly 60 per cent of the units
solve their problems by themselves and their respective associations
extend a helping hand to 25 per cent of the units. Just 11 per cent of
the units go in for interaction with Government officials and only four per
cent appoint consultants.
Of course self-help is the best help. However, if the entrepreneurs
are not aware of the appropriate techniques to be used to solve the
problems it will give a different dimension to the problems. There fore a
few of them consult the associations and their membership in such
associations plays a positive role. Only very few units go to Government
officials or directly appoint consultants. Associations may be the
cheapest source and therefore many prefer to utilize such sources.
248
The following Table 5.16 showed the method of solving problems
of the sample unit’s analyses by the researcher.
Table 5.16
Method of Solving Problems for the Various Categories of
Industries
Category of Industries
Sample units
Taking
self Decisions
Consulting with the
association of
industries
Interaction
with Govt. officials
Through
engaging consultants
Agro based Industry
10 6
(60%)
2
(20%)
1
(10%)
1
(10%)
Forest based
industry 15
9
(60%)
4
(27%)
2
(13%) _
Mineral based
Industry
05 3
(60%)
2
(40%) _ _
Textile based industry
30 18
(60%)
8
(27%)
4
(13%) _
Engineering based
industry
10 5
(50%)
2
(20%)
2
(20%)
1
(10%)
Chemical based
industry
10 4
(40%)
3
(30%)
2
(20%)
1
(10%)
Miscellaneous based
industry
20 15
(60%)
4
(20%) _
1
(5%)
Total
100
60
(60%)
25
(25%)
11
(11%)
4
(4%)
Sources: Complied by the Researcher Note: figures in brackets indicate percentages to total.
249
Industrial Sheds and Developed Plots
Most of the small-scale entrepreneurs are at present working in the
old structure, which requires repairs / renovation. All these provisions
and facilities are likely to meet the problems of industrial accommodation
of small-scale industries.
Demand Condition
Factor endowments, no doubt, determine the scope of industrial
development but it is the demand of the buyers for finished products,
which finally decides the degree of expansion of industries. The increase
in the income of an industry will push up the demand for products.
Analysis of the Prospects of small-scale industries
A challenge to the Indian economy and in particular to small-scale
industries. The process of development has its own problems, its own
challenges. Small sector, which entered the seventies in a relatively small
way.
1. The availability of credit to small enterprises can often be
increased by removing – or at least reducing – the rate of
interest.
2. Remove reform trade regimes according abuse of
licensing systems.
3. Increase labour skills and mobility of job-training.
4. Improve equipment and technology.
5. Domestic market should be competitive but protected
from foreign goods.
250
The problems faced by the small-scale industrial entrepreneurs
make the situation quite a difficult one. The gospel is better quality, and
better productivity. The process should start with the top and work down
to the middle management, first line management and finally to the first
line employees.
Whether in small industry or large, problems always exist. Some
face problems as if they are a challenge because that is the road to
advancement. It there is no problem or challenge are tends to feel
complacent. In fact, the small-scale industrialist is the kingpin of the
industrial spectrum.
The small– scale industrial sector has vast potential in terms of
employment, output, export promotion, expansion of base for indigenous
entrepreneurship and dispersal of industries and entrepreneurship skills
to rural as well as backward areas. A challenge to the Indian economy
and in particular to small-scale industries. Motivating and encouraging
planned small scale industrial development is a complex task.
A well designed Programme to provide equal incentives and access
to scarce resources for all small-scale enterprises has to be forced. We
have a ensure;
1. The availability of credit to small scale enterprises.
2. Raw materials replay should be guaranteed.
3. Increase the labour skills and mobility by supplement
among job training.
4. Access to new technology.
5. “Industrial estates” are valuable for small enterprises
and “sites and services” Programme has to be
implemented.
6. Markets should also be surveyed and catered to.
251
Prospects in the 21st century
The present trend does indicate qualitative and quantitative
growth in terms of industrial production and up gradation of technology,
etc., the next decade should witness certain changes in the structure of
small industries. The entrepreneurs should play a pivotal role in
accelerating the industrial process in the country. The process of
liberalization and economic reforms while creating tremendous
opportunities for the growth of small-scale industries, have thrown up
new challenges to the sector. Small enterprises started by groups of
traditional small businesses setup by sole proprietors in retail trade,
services and consumer industries have wrongly diversified. The
development process itself has given rise to new economic opportunities
for entrepreneurs. Small enterprises are able to successfully adapt the
rose less to the changing situations.
Competitiveness is the name of the hottest game now days.
Countries that are more competitive tend to grow faster. As India has
already entered the new millennium where the order of the day is
increasing economic liberalization across-the –borders and growing
globalization of world economy under the World Trade Organisation
(WTO) regime, the small-scale sector is going to face major challenges in
the form of intensified competition, both domestic and external. For its
existence it has to be competitive otherwise with present levels of
technology in use and infrastructural and environmental constraints, it
may find itself in a fierce battle for survival. Both the products and
producers need international exposure.
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The sector has vast potential for being developed into a major
economic player but there is need for change in strategy adopted so far
for its survival and growth. This change in strategy calls for a shift from
individual industries to a cluster approach, linkages between large and
small units, use of state-of-art technology, efficient systems of delivery of
input and output with full support and active involvement of financial
institutions, associations and the government. It is also necessary to
adopt electronic commence which has brought about a revolution in the
field of marketing.
The strategy required has to be multi-dimensional. The present
mode of micro level production is becoming irrelevant in the present
global context. The future of international trade will primarily be based
on global product and trading chain. For being a part of a global village,
the industrial units will have to be part of the globalization. There are at
present two types of international production networks, (1) producer
driven commodity chains and (ii) Buyer driven commodity chains.
K.V.Ramaswamy in his article “Exporting in a globalized economy”-
published in the India Development Report 1999-2000 suggests that the
linkages with the global economy can be viewed as connected through
four export roles:
# Export processing assembly operations
# Component supply sub-contracting
# Original Equipment Manufacturing, and
# Original brand name manufacturing.
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The newly industrialized economies of both East Asia and Latin
America have been engaged in this kind of labor-intensive production. A
country like Mexico, which has the world’s largest export processing
sector has extended the benefits of export processing by locating them in
the special zones. China has set up special economic zones within which
all-economic activities manufacturers, banking, export and import, and
foreign investment take place in a more liberal environment. The East
Asian experience in the electronics industry where firms gain entry by
OEM, and ‘secured’ a market channel and acquire technology is another
example worth consideration.
India has greater opportunities to assume and develop the export
role of assembly component supplier and OEM exporter. The main
avenue to enter the international network according to Ramasamy is
through foreign direct investment. Cross-country studies of foreign
direct investment indicate that infrastructure quality, labour cost and
domestic market size are predominant factors that influence
international investor’s vis-à-vis short-term incentives like corporate tax
rebates.
India has the advantage of a large domestic market but the
critical problem areas are in infrastructure and labour productivity.
Labour costs are rising in South Korea, Taiwan, Indonesia and
Singapore; foreign investors from developed countries could be looking
for cheap labour cost locations with macro-economic stability. If India
could improve its infrastructure and provide for relatively liberal
economic zones of China, it would be possible to attract large-scale
Foreign Direct Investment in India.
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A study of India’s garments exports by K.V.Ramaswamy reveals
the absence of structural change and policy reforms. Buyers in world
markets are expecting more services in terms of minimum performance
standards. Delivery and service emerged as the main weaknesses of
Indian exports as perceived by importers in the E.U, Japan and the U.S.
Access to imported inputs, shipping facilities and proximity to fabric
sources have become more important determinants of outsourcing by
foreign firms than mere manufacturing capacity. In this context, the
policy of product reservation of garments also needs to be looked into
afresh.
The new slogan for development of small-scale industries should be
‘Export and Expand’ to help India become a global economic player in
the Twenty First Century. The production and marketing strategy
should change from, ‘I will sell what I make’ to ‘I will make what you
need’.