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Small and medium enterprises in India have to desist from competing on price and start focusing on innovation and differentiation.
Most modern economies have a thriving Small and Medium Enterprises (SME) sector. Indeed, much of the success of countries like Taiwan, Italy and Germany can be attributed to SMEs. Unfortunately in India, sickness in the small-scale sector has reached unprecedented levels.
Much has been written in recent times about the woes of our small-scale units. Various reasons have been given for their plighthigh interest costs, poor infrastructure, competition from large industries, badly directed government incentives and poor marketing.
In their book, Plowing the Sea (Harvard Business School Press, 1997), Michael Fairbanks and Stace Lindsay have identified seven factors that prevent industries in these countries from generating sustainable competitive advantages in the long run.Fairbanks and Lindsay have developed the framework based on their experiences in Latin America. However, the framework is relevant even in our context.
The name of the game today in business is innovation. Companies, which rely on natural factors of production, are bound to be overtaken by others as the advantages they have can be easily replicated. The PC hardware industry in Taiwan, the ceramic tiles industry in Italy, the cut flower industry in the Netherlands and the printing press industry in Germany, have all succeeded through innovation and differentiation. Unfortunately, our SSIs have fooled themselves into thinking that they can continue to compete on price.
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