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indian manufacturers - SMEs Learn To Weather The Storm by chinara kalyani
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indian manufacturers - SMEs Learn To Weather The Storm |
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Business
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Housed in a building on the busy LBS Marg in the Mumbai suburb of Ghatkopar, Amit Rambhia runs an innovation-driven company — Vardhaman Technology. The company helps large white goods manufacturers, banks, organised retailers and also education companies that leverage on IT, to reach out to their end users easily. Leveraging on its innovative skills, Vardhaman now partners global biggies like Microsoft, Intel and Samsung and also exports its manufactured products to the UK, Australia and Sri Lanka. Notwithstanding the global fears of another financial crisis of Eurozone origin, Rambhia, an IIM Indore graduate, is now looking for newer markets to grow his company. The good news is that Vardhaman Technology — which along with a newly formed group company had a combined turnover of about Rs 18 crore last fiscal year — is not an exception among India’s small and medium-size companies, popularly known as SMEs, showing a dare devil attitude to grow although the global economic situation does not look rosy. “There are several SMEs in India that have weathered the slowdown of the last two years very efficiently. And not only that, some have even come out of it stronger than before,” said Roopa Kudva, MD & CEO, Crisil, the leading ratings agency in India that, other than rating almost all the large corporates, currently also rates over 10,000 SMEs. Industry analysts, bankers, SME managers and other corporate observers say that a combination of factors has helped a large number of SMEs get out of the recent slowdown quicker compared to how they did during the slump years earlier in the current decade. These factors include using lessons from the last slowdown, innovating strategies that have strong customer acceptance, making smart financial management moves like timely cut in cost, working capital and production, and also postponing capex plans which were on the table during the exceptional growth years of 2005 to 2007. Some of the SMEs even exited markets which were not so profitable and moved to explore newer horizons. In contrast, during 2000 to 2003, the affairs on the SME front were much worse and ill-managed. During that bleak period, as the companies continued to produce, all channels got stuck with inventories. They had also run up huge loans to keep production on track, leading to a rise in interest costs while revenue streams dried up. Often they would borrow just to meet the interest outgo. Eventually, weighed down by huge borrowings without a recourse to pay back, many an SME had to exit its business. On top of all these, globalisation was a new thing for Indian SMEs then and quite naturally, they were inexperienced when it came to looking for markets and revenue streams outside India. Around the same time, the rupee also appreciated, prompting foreign buyers to ask for price cuts from Indian SMEs. "This time, price handling (by SMEs) was much better. They could cut costs, leading to cut in prices," said Ashima Bhat, country head, Emerging Corporates Group & Infrastructure Finance Group, HDFC Bank. Effectively, during this slowdown, companies survived much better than the last time. “This time, the level of awareness was much higher and so people did not commit the mistakes of the last time. Flow of information was very good,” Kudva said. SMEs are usually the enterprises that face the brunt of a slowdown which is far worse than the plight of the large companies. Usually the clients SMEs supply to force these companies to extend the credit period, insist on lowering prices of their products and also ask for several other concessions, and each can affect the revenues of these small entities. This time around it was no different. In the last two years, the worst affected were the SMEs belonging to sectors like auto ancillary, engineering, textiles, especially the garment companies and gems and jewellery, said DR Dogra, MD, Care Ratings. “Exportoriented companies were hit more than those which supplied in the local market,” Dogra added. The SME sector was also not spared of the rise in non-performing assets (NPAs). However, the response from the government and the Reserve Bank of India (RBI) was quick. And why not? After all, it is estimated that SMEs accounts for about 45% of the manufacturing output and 40% of the total exports of the country, and these companies together employ about 5.9 crore people, the annual report of the Ministry of Micro, Small and Medium Enterprises for the year fiscal year 2009-10 noted. Acting along with the government, RBI ensured easy flow of credit in the banking system and allowed banks to postpone classifying sticky loans as NPAs by a few months. Banks also extended a helping hand to the companies in trouble. kalyani chinara work for way2trading.com which is a leading online B2B company and provides a feasible environment for exchanging Clothing related information like indian Manufacturers and indian Suppliers. Working since 2012, it has its offices pan in India and enjoys high credibility throughout the business spectrum. way2trading is considered as one of the largest B2B companies in India for more information visit:[www.way2trading.com]
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