Small and Medium-sized Enterprises (SMEs) face many challenges that come in the way of their sustained growth and expansion. Increasing market integration and rapid technological advances are integral part of the globalisation effects and together with the lowering of protective tariff and non-tariff walls these have led to an environment where SMEs are faced with huge competition in the domestic market. Thus, SMEs cannot rely anymore on the domestic market alone. Hence, they have to sharpen their competitive edge and prepare for the global market.
The major challenges to and constraints of SMEs are:
- Difficulty in using state-of-the-art technology due to various factors such as lack of information on sources and cost of technologies; size limitations; lack of labour skills to work on new technologies; raw material constraints; infrastructure limitations; and financial limitation.
- Incapability to use information & communication technology (ICT) as an effective business tool because of high cost of installation; lack of skills/ knowledge; and connectivity problem. Although an increasing trend in use of social media (part of ICT) has been seen in recent years, still a major chunk of SMEs lack the skills and technical know-how in using it to their business advantage. It will take many more years for proper ICT diffusion in terms business utilization among the SMEs.
- Little scope for expansion or diversification of business as SMEs lack adequate finance – the necessary life blood for business. Their existence in the unorganized/ informal sector along with lack of collateral as well as record keeping are the major hurdles in getting finance from organized financial institutions.
- Incapability to exploit global market owing to SMEs’ lack of market information and commercial intelligence; inability to network; inability to forge linkages to meet large demands; uncompetitive product – price and quality wise; inability to create brand loyalty; general ignorance about trade agreements & international trade rules; and Inadequate institutional support and backing.
- Adoption of modern business strategies becomes difficult due to lack of knowledge about new strategies; inability to spare time and manpower to acquire new management skills; lack of knowledge to profitably use e-commerce; inability to hire appropriately qualified and talented people.
- Incapable of attracting foreign investment due to their technical limitations to act as suppliers to foreign investors; low and middle range quality products; and non-compliance to international green business practices & quality standards.
Keeping the above challenges in mind that are critical to the sustainable growth of SMEs, ISSME has set the following focus areas in its endeavor for SME development across the world: