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India in Spotlight


                                                                     THE GROWTH OF SMEs


Indian small and medium enterprises (SMEs) have traditionally been conservative. The Asean market is huge and there are a large number of SMEs that could be takeover targets. How would the new Indian owners adapt to the local culture given their limited experience outside India. These and other issues will be discussed in the following conversation that Asean Affairs had with two SME specialists.
Sudip Banerjee is Chief Executive Officer of L&T Infotech, India, is a 30-year veteran of the software industry in India. He received a management degree from the All India Management Association and graduated with a bachelor’s degree in economics from Shri Ram College of Commerce. Mr. Niraj Sharan is the Founder, Chairman and CEO of Aura Inc & Aura Energy that has operations in the U.S., India and Italy. Aura provides Manufacturing, System Integration and Technology, consulting to oil gas and power firms and the petrochemical industry.
>>For Indian SMEs in particular, it (Asean common market) creates opportunities to improve the quality of their product and servicing offerings and compete on a global scale. With technology giants like IBM making noises to use their war chest to acquire firms in India to actively participate in the SME market segment, the opportunities for at least Indian independent software vendors catering to the SME segment are very high.<<

With the launch of the Asean Common Market in 2015, what are the prospects for Indian SMEs to penetrate that market?

Banerjee:Essentially the Asean Common Market creates a market of around 4 billion consumers, making it the largest single area of economic activity in the globe. With two of the BRIC nations in this common market, it creates tremendous opportunities for SMEs not just Indian but also Chinese, Thai, Malay, Indonesian, Philipino, Singaporean and others to cater to a wider audience. For the Indian SMEs in particular, it creates opportunities to improve the quality of their product and servicing offerings and compete on a global scale. With technology giants like IBM making noises to use their war chest to acquire firms in India to actively participate in the SME market segment, the opportunities for atleast Indian ISVs catering to the SME segment are very high. But, this is not simply restricted to technology. Global companies will be using the acquisition route to actively participate and play in the Asean market.

Sharan: Customs duty barriers historically in Asean have been significantly higher than rest of the world with duties touching 50 percent plus in some cases. This has been one of the major bottlenecks in this “collaborative” environment where value addition with price performance drives the market fiercely. With the “zero” duty regime signed recently and a common market, this relatively under leveraged market will see major trade boom – both between each other as well as globally as a value added Made in “Asean” brand.

What are the major factors that an Indian SME would look at before entering the ASEAN market ?

Indian SMEs are usually very conservative by nature and are loath to invest ahead of the curve, except those in the high tech areas, the SME’s would look at support from the member countries in terms of an ‘ecosystem’. Taking the carpet weaver from Saharanpur’s story forward, he/she would look for introductions to ‘carpet buying groups’ within the ASEAN member nations and would look to some short cuts on understanding policies around ‘approved vendors’. In many countries, it may mean creating limited liability companies with local equity participation. In such cases, they would look at assistance from either the Big 5 (KPMG, E&Y etc) on tax, labor and repatriation issues. Largely, SMEs are good corporate citizens, so, they would not cut corners, but definitely look for fast track assistance in the form of a single window clearance, transparent tax and labor laws etc . Indian SMEs or Indian firms serving the SME segment will also be looking for active global partnerships to play in the ASEAN market, thereby minimizing some risks.

Sharan: SME will do well to start from the fact that trade and markets will increase almost exponentially in this regime. Having said that, sustained availability of soft and hard infrastructure, a safe and just environment, banking support, labor laws and work visa , would be essential for any SME to evaluate. Availability of lower cost capital should be evaluated carefully by an Indian SME as they have been bogged down with this impediment in India for decades. I say this because, Capital in India is available more freely to the large Industry and SME’s have still a hard time getting funded.

What are the advantages and disadvantages for Indian SMEs doing business in ASEAN ?

Banerjee: There are no disadvantages as such, the opportunity cost for not participating in a global market is enormous. I am assuming that this is not lost on our SMEs. Some of the more enlightened ones have already taken a leadership position in this. There is a feeling that this common market creation will separate the men from the boys.

Sharan: Advantages – this is the first step for Indian SMEs to go “global” in a controlled environment with minimal risks. It also allows a more fair play as many Indian bottlenecks of labor laws, capital scarcity and challenging infrastructure would not be there, allowing for full potential initiatives. Disadvantage- lack of global management practice, inability to work in teams with almost disdain for compliance.

What would be the preferred headquarter location in Asean for an SME to do business? What would be the important factors to be considered in making that selection? Are there any countries that are especially appealing at this time and why?

Banerjee: There is no one answer for this, because it is going to be industry and geography specific, some folks in manufacturing would prefer to go to either Malaysia or around Shanghai, some in semiconductor design may want to go to Taiwan or Korea, whilst some in retail may want to go to Singapore or Philippines’, others in oil and gas may prefer Indonesia, folks from agri industry may prefer Vietnam. Singapore is increasing by becoming a gateway to India.

Sharan: For many Indians, Thailand would be the preferred location within the Asean region. Indians share social, cultural and spiritual beliefs with Thailand and there is an innate sense of bonding and comfort and to me this is a strong point infavor of Thailand. On top, Thailand offers a large God fearing, educated and disciplined work force. Indian SME’s have struggled with these inadequacies and such support will catapult operations to the next level.

What can Indian SMEs bring to Asean, that Asean does not already have ?

Straight off the bat, I can say that Indian software product companies have already been working here for eons and they have done reasonably well, however, their performance in Europe, Africa and the Middle East has been a lot better, the banks and telecom companies there have readily acknowledged that enterprises who used Indian products survived and weathered the storm better than products from other vendors.

Sharan: Indian entrepreneurship, the never say die attitude, strong multitasking, survival instincts, backed with strong technical and professional legacy is what Indian SME’s bring pretty fresh and strong on the table. Ability to fire fight and work against all odds using street smart innovation ( jugaad) is another thing pretty unique that Indian SME’s will bring to Asean region. 

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