Small is Beautiful —— But

I think sometime in the early eighties, an overwhelming creed existed that supported the axiom “small is beautiful”. An extension of such a concept to the corporate sector, I presume, has led to de-mergers and de-coupling of industrial ventures. The vogue that time was “mean and lean” espoused the virtues of being small for administrative and operational reasons. This paradigm is changing and big is not as bad a word as it sounded some years ago.

I am a votary of the small and medium enterprises – not because I belong to that category of businessmen but because of the firm belief that with their inherent advantages, they can contribute more to the economy. More than that, they depict the gradualism in business parlance. They are the stepping-stone for an aspiring entrepreneur, who has the fire in belly but a cash-strapped pocket. I cannot recall any entrepreneur, who has started with a large enterprise unless he or she belongs to the second- or third-generation of entrepreneurs. I also believe that a nation has to invest in creating entrepreneurs. There is a reason for it. A trader, however big he may be, is not a creator of wealth in the strictest sense. He only distributes goods and services, which are produced by others. Let us take a highly qualified technocrat, who is employed either by the Government or the private sector. A substantial investment has to be made to make him productive and deliver goods. Expenses towards that either will go from the public exchequer or from the private sector. But an entrepreneur creates wealth for himself and others. He does not require any crutches or initial investment at others’ cost. He does it on his own. He takes the risk and if he succeeds, he builds a network of stakeholders around him. If he fails, he bears the brunt.

The other day, somebody was mentioning that it is the era of big economies of scale and scope. I beg to differ with them. Big may be good for some sectors and at some critical times. That does not mean small and medium are out of favour. The significance of this sector is also well recognized and acknowledged. That is why across the world, there is a new awareness about the role of SMEs – be it in the US, Europe or in Asia. I know about half a dozen delegations from the US visiting India primarily to promote business ties between SMEs in both the countries. Like in India, more than 40 per cent of the exports are accounted for by the SMEs in the US. Europe also has comparable figures and presently, there is a conscious effort in these countries to revitalize the SMEs.

What then is the issue? I remember some years back, someone higher up in the government did opine that the strategy that has to be followed in the case of SMEs should be progressive, and the small should be empowered to grow into medium size and that category into big ones. A policy could be lop-sided if the small continues to be small and only a few are there to the slot of big. But unfortunately in many fields, particularly in the IT, we are beset with this backlog. There are 4,000 small and medium units in IT in India and the size of big units can be counted on the fingers. This has been the case for quite some time. IT may be growing as a sector and the number of IT companies may be proliferating. But the critical mass of SMEs in IT remains the same. Is it due to the flaws in the Governmental rules and regulations? Or is it due to the deliberate attempt of the SMEs to remain where they are and to eschew risks attached to big enterprises?

I cannot give a precise answer. But my hunch is that the options for an IT company to grow are limited. Their growth path is directly linked to export of their services. How many Indian IT companies are making money by selling their services in the domestic market? I feel none. But look at other manufacturing sectors. They have options. They can cater to the domestic market. They can cater to the government departments. And also they can cater to exports. It is not that we cannot have this dispensation in India. But the hard fact is that we are an IT superpower in the making for the outside world, but internally IT application demand in India at the corporate level is little more than what is offered by Africa or Middle East and definitely several times smaller than what China and Russia offer. This is where we require corrections and that too at the earliest.