INDIA: Small and medium enterprises (SMEs) comprise more than 99 per cent of the organizations world over including India. Global factors like increased FDI inflow into India, China opening various business avenues for Indian SMEs, positive outlook of businesses: 71 per cent trade growth in Asian businesses in 2008, are some of the positive external factors for this sector to flourish despite the global factors reflecting a slowdown. However, the Indian SME continues to lack the spark and luster. FII, PE funds, SPV find them less attractive. There is a compelling need to identify the current challenges which startups and SMEs are facing, and a mechanism to overcome them.

Current Day Challenges
Over the last decade, SME sector has witnessed a diverse and deep growth. There has been an acute rise in domestic demand, fueled by increasing domestic consumption and exports. Larger number of enterprises need even larger number of small suppliers, causing extreme price competitiveness. The three most important factors in sourcing decision making process have come down to price, quality and reliability of delivery. In this scenario, SMEs are always pressed on controlling costs and not compromising on quality assurance and delivery.

The challenges are further accentuated by lack of availability of startup funds or working capital, lack of know-how and other regulatory and tax related information. Other factors are lack of skilled labor due to inadequate vocational training facilities and business intelligence for various domains and geographies.

Many times, the FII and PE firms shy away from the small and medium sized companies or even startups, since they find that the business management lacks financial management skills and offers poor financial positions. Due to lack of trust, companies try not to disclose the exact details to hide the poor positioning. They offer insufficient security causing a further degradation in the FII/PE confidence in the investment.

It is not that SMEs and startups have poor management backing the company. It can more reliably be attributed as under developed management due to lack of exposure, mentorship and financial support. Thus an already challenged SME finds it difficult to differentiate itself from rivals.

There is also lack of innovation in an SME in terms of penetration of technology, use of productivity enhancement tools, incubation mechanism and support for research projects, and encouraging or leveraging internal learning and knowledge management.