SME Connect Series 2014 -Ernakulam Key Findings

1

Dun & Bradstreet India (D&B India) in association with Federal Bank and the Times Group launches “SME Connect Series 2014: Ernakulam”, the fourth in the series of reports dedicated exclusively for the small and medium enterprises of the country. This report focuses on SMEs from Ernakulam and offers insights in terms of their business perspective, financing requirements & preferences and outlook on growth prospects among others.

Some of the key findings from the study include:

• More than 50% respondents mentioned that Kerala provided the best business environment in the country

• Around 40% respondents preferred public sector banks as the most ideal financing option for entrepreneurs, while around 22% preferred private sector banks

• 46% of respondents were aware about SSI-MDA scheme and 35% were aware about Credit Guarantee Fund Scheme

• Shortage of skilled manpower along with lack of infrastructure facilities emerged as significant challenges for SMEs based in Ernakulam

• Higher level of assistance from local government bodies/SME centers/associations and enhanced initiatives for international collaborations emerged as the two most important initiatives required for the development of the sector

• Around 38% respondents were of the opinion that entrepreneurs in Ernakulam would earn ROI of around 10-20% per annum over the next two years

• Marketing and customer service emerged as the two major areas of business in which the adoption of information technology would have maximum positive impact over the next two years

The SME segment is expected to emerge as one of the key growth engines for the Indian economy. In its endeavor to aid the growth, D&B India will continue to keep track of the developments in the SME segment. We hope that this study will be a reliable and useful source of reference to the SMEs. We look forward to your comments and suggestions.

Key Findings

2Ernakulam Cluster Insights SME Connect Series 2014: Ernakulam

Ernakulam Cluster InsightsIntroduction

Dun & Bradstreet (D&B) conducted a primary study to capture and analyse the business trends of the small and medium enterprises (SMEs) operating in Ernakulam. The survey aims to capture and highlight the SME trends in terms of revenue, exports, financing,and policy initiatives required and major challenges faced by the small and medium enterprises (SMEs). The respondent mix comprised companies operating in the manufacturing, trading, and services industries. Companies with income below ` 1 bn during FY14 were considered for the study.

Following are the key findings of the study:

Kerala is considered as the state offering best business environmentThe survey tried to understand the respondent’s opinion on which state offered the best business environment in India. Around 50% of the overall respondents mentioned Kerala as the state offering the best business environment, with the percentage being higher at 58% for SMEs operating in the service industry. Karnataka and Gujarat were mentioned as states offering best business environment by around 14% respondents each, with around 21% of the manufacturing SMEs mentioning Gujarat and around 16% of service SMEs mentioning Karnataka. Tamil Nadu and Maharashtra were the others states mentioned to be offering the best business environment.

Majority of the SMEs fall in the income bracket of below ` 50 mnMajority of the SMEs surveyed in the Ernakulam cluster earned income below ` 50 mn in FY14. Only around 2.5% of the total SMEs surveyed earned income in the range of ` 500 mn – ` 1 bn. Around 73% of the SMEs surveyed had income below ` 50 mn in FY14. Amongst the manufacturing SMEs surveyed, around 3% of the companies surveyed earned income in the range of ` 500 mn - ` 1 bn in FY14.

Income composition in FY14

0% 20% 40% 60% 80% 100%

Total

Manufacturing

Services

72.5%

71.9%

72.9%

25.0%

25.0%

25.0%

2.5%

3.1%

2.1%

Below Rs 50 mn Between Rs 50 mn - Rs 500 mn Between Rs 500 mn - Rs 1 bn

Source: D&B Research

Only around 56% of the surveyed SMEs earned export income during FY14. Around 66% of the manufacturing SMEs surveyed reported export revenues during FY14, while around 50% of SMEs in the service sector reported export income.


Further, contribution of exports to total income was in the lower range. Export revenue accounted for less than 10% of income for around 45% of the overall companies surveyed and for more than 40% of total income for only around 25% of the companies surveyed.

Banks emerged as the most preferred financing option for entrepreneurs The survey tried to understand what SMEs considered as the most ideal option for sourcing funds for entrepreneurs looking to venture into businesses. Banks emerged as the most preferred option for sourcing of funds. Around 65% of the respondents mentioned banks as the most ideal financing option.

Around 40% of the respondents preferred public sector banks as the most ideal financing option for entrepreneurs, while around 22% preferred private sector banks. Government agencies and Own savings were the other most preferred options, with around 12% citing government agencies and 9% preferring ‘own savings’. Amongst the service SMEs, around 26% of the respondents mentioned private banks as the most preferred source of financing for an entrepreneur and 14% mentioned Government agencies.

SSI-MDA scheme and Credit Guarantee Fund Scheme emerged as the topmost schemes, which most of the SMEs are aware ofVarious schemes are run by the government with the aim of aiding the SMEs. The survey tried to understand the awareness level of the various government-run schemes among the SMEs in Kerala. The awareness level of various government-run schemes among the SMEs is low. Credit Guarantee Fund Scheme and SSI-MDA scheme are two schemes, which most SMEs are aware of, as these schemes are linked to getting collateral free funding and to increase the business potential in export markets. Around 46% of the SMEs surveyed were aware of the SSI-MDA Scheme - Participation in Overseas International Trade Fairs/Exhibitions, while around 35% of the SMEs were aware of the Credit Guarantee Fund Scheme. Around 50% of the manufacturing SMEs were aware of the SSI-MDA scheme.

Awareness level amongst SMEs of the schemes

16

30

31

35

46

0 10 20 30 40 50

National Manufacturing CompetitivenessProgramme

Credit Linked Capital Subsidy Scheme

Micro & Small Enterprises Cluster DevelopmentProgramme

Credit Guarantee Fund Scheme For Micro AndSmall Enterprises

SSI-MDA Scheme: Participation In OverseasInternational Trade Fairs/Exhibitions

Percentage


Barring the SSI-MDA scheme, of which the awareness level amongst service SMEs was around 44%, the awareness levels of other schemes among the service SMEs was low. Only around 21% of the surveyed SMEs in the service sector were aware of the Micro and Small Enterprises Cluster Development Programme and Credit Linked Capital Subsidy Scheme.


Shortage of skilled manpower emerged as the top most obstacle faced by SMEs in ErnakulamThe survey tried to understand the major challenges that hinder growth of companies operating in Ernakulam. Around 23% respondents mentioned shortage of skilled manpower as the major obstacle/challenge faced by them. Lack of infrastructural facilities have been mentioned by 18% of the respondents as the major challenge faced by them.

Challenges faced by SMEs

8

19

3

3

13

16

18

23

0 5 10 15 20 25

Nothing

Others

Taxation

Climate change and natural calamities

Slow implementation of government policies

Competition

Lack of Infrastructure facilities

Shortage of skilled manpower

Percentage


Competition, government policies and issues related to taxation were the other challenges mentioned by the SMEs operating in Ernakulam.

Around 38% respondents expected ROI of around 10-20% per annum over the next two yearsReturn on investment (ROI)is a performance measure used to evaluate the efficiency of an investment. The survey tried to understand the expectations of the respondents with respect to ROI over the next two years given the current economic climate and business environment.

Expectations on Return on Investment

Total

Manufacturing

Service

25

29

23

38

32

42

22

29

17

15

10

19

Percentage

Less than 10% returns p.a. 10-20% returns p.a.

20-30% returns p.a. More than 30% returns p.a.



Around 38% respondents believe that they would earn a ROI between 10-20% over the next two years, while 25% expect an ROI of around less than 10% over the next couple of years. Around 15% respondents are expecting ROI of more than 30% per annum over the next couple of years.

The SMEs in the service sector are more optimistic with around 19% of them expecting an ROI of more than 30% per annum over the next two years, while the percentage stands at 10% for manufacturing SMEs.

Marketing and customer service are two functions that will benefit the most with the adoption of information technologyThe survey tried to capture the business areas that would benefit the most with the adoption of information technology. The survey respondents mentioned marketing and customer servicing as the two major areas of business in which the adoption of information technology would have maximum positive impact over the next two years. Nearly 38% respondents mentioned that marketing would be the area, which would benefit the most with the adoption of information technology, while 28% mentioned customer servicing. Around 12% respondents mentioned that Human Resource management is the business area, which would benefit the most with the adoption of information technology over the next two years.

The manufacturing SMEs mentioned that marketing would be the business area that would benefit the most with the adoption of information technology. Around 52% of the manufacturing SMEs mentioned marketing. Further 19% of manufacturing SMEs mentioned customer servicing and another 10% mentioned product design and improvement.

Amongst the SMEs in the service sector, around 34% mentioned that customer servicing is the business area, which would benefit the most with the adoption of information technology. Around 15% of them believed that human resource management is the business area that would benefit the most with the adoption of information technology.

Business areas which are expected to benefit with adoption of information technology

38

52

30

28

19

34

12

6

15

9

10

9

5

3

6

4

6

2

3

4

1

3

Total

Manufacturing

Service

Percentage

Marketing Customer ServicingHuman Resource Management Product Design & ImprovementOperations & Production Management Managing Customer & Supplier DataFinance & Accounts Basic Office Automation


More than half of the SMEs mentioned higher assistance from local government bodies/SME centres/associations as an important initiative for the development of the SME sector The survey tried to capture what were considered by SMEs as the two most important initiatives that would be required for their development. Higher assistance from local government bodies/SME centers/associations and enhanced initiatives for international collaborations were mentioned as the two most important initiative for the development of the sector, with 54% and 46% respondents mentioning them respectively. Around 32% respondents mentioned SME friendly policies and


around 31% mentioned initiatives from banks and FIs as important initiatives required for the development of the SMEs in the Ernakulam cluster.

Important Initiatives for development of SME sector

8

27

31

32

46

54

0 10 20 30 40 50 60

Easy access to tool room and testingcenters

Improved access to finance

Initiatives from banks & Fis

SME friendly policies

Initiatives for internationalcollaborations

Assistance from local governmentbodies/ SME centers/Associations

Percentage


Faster clearance of the projects emerged as the top most initiative that would drive industry growthThe survey tried to understand from the respondents the policy initiative required from the government to drive industry growth. The response varied from faster clearance of projects, faster implementation, relaxation of rules and regulations, subsidy support, improvement in infrastructure, measures to promote growth, and measures to provide technology support, amongst others. Around 16% respondents mentioned that policy measures relating to faster clearance of projects would drive industry growth.

Policy initiatives which can drive growth of the industry

14

10

4

5

8

9

10

11

14

16

0 2 4 6 8 10 12 14 16 18

No comments/nothing required

Others

SME friendly policies

Technology

Financial support

Subsidies

Economic growth and growth in user industries

Infrastructure

Tax

Faster clearance of projects

Percentage


Economy & Finance

SME Connect Series 2014 -Ernakulam Key Findings