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Indian SMEs hit by economic downturn, but remain positive about future: Kadence Survey

30-October-2008
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Indian SMEs hit by economic downturn, but remain positive about future: Kadence Survey

Small to Medium Enterprises (SMEs) in India are confident that their businesses will grow over the coming year, even though they are beginning to feel the impact of a slowing economy. This is based on a study undertaken by B2B insight specialist, Kadence Research India, to identify how the recent economic slowdown has impacted this business sector.

For the purpose of this study, Kadence defined SMEs as private limited companies, sole proprietorships, and partnerships of less than 500 employees.

Kadence Research India interviewed the owners of 300 SMEs across Delhi, Mumbai, Chennai and Kolkata using the Computer Aided Telephone Interview (CATI) technology. Of those questioned, 65 per cent predicted that their turnover and profit would increase over the coming year by an average of 15 per cent. When asked about the Indian economy as a whole, 73 per cent believe that the market will remain stable and perform well in comparison to other developed economies.

Aman Makkar, Managing Director, Kadence Research India, said, “As SMEs account for almost 50 per cent of industrial output in India, 42 per cent of total exports, and create significant employment opportunities, their reaction to a slowing economy and view towards future business prospects can provide real insight into current market conditions.”

To understand how current business confidence relates to past company growth, the study also asked SMEs if their profits had increased over the last 12 months. In general, SMEs have performed well with 57 per cent stating that they had enjoyed strong trading. This was attributed to factors such as improved efficiencies through the introduction of new information technology and machinery, the launch of new products and the creation of partnerships with global companies. Only 16 per cent of businesses commented that their operation had incurred losses, citing increased competition, decreased investment and labour-related problems as the key reasons.

Makkar added, “SMEs view the economic slowdown as a challenge, but one that they are ready for and confident that they will rise above. They identify that new growth opportunities must be generated and marketing and distribution channels need to be strengthened.”

The lack of funding within the banking system is one key concern highlighted by SMEs. They depend heavily on financial institutions for investment and capital borrowing, with only 40 per cent stating that they could easily source additional funds in required. Additionally, SMEs said that they would also like to see the Indian Government assist by reducing taxes and duties for smaller enterprises – highlighted by 77 per cent of the respondents – and inflation on raw materials should be properly controlled.

“As the backbone of industrial development, the continued energy and enthusiasm of SMEs in the marketplace is key to driving economic progress. Although policymakers and regulators have been trying to control the impact of the financial market turmoil, its effects on SMEs are likely to become increasingly apparent in the coming months if more is not done to assist them,” concluded Makkar.

This research was undertaken in early October 2008. Respondents were owners, directors or company managers. 31 per cent of those questioned came from the manufacturing and engineering sector, 23 per cent retail, 11 per cent electrical, and the remaining respondents comprised food & beverages, chemical, automotive, communications and healthcare sectors.

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