Are MSMEs Equipped To Survive Tidal Wave Of Change

The market capitalisation of Reliance Industries became twice the combined market cap of small caps (1,000 companies) and two-third of mid-caps (100 approx) in the last week of August 2020.  This undoubtedly qualifies as a unique phenomenon even by global standards - that a single company is almost as large as the broader market in size. Mukesh Ambani seems to have prospered many folds during this pandemic. While one may laud his achievements; it is difficult to observe the distressing fate of medium and small companies (MSME) whose fortunes seem to be on the wane.

This trend of large companies overwhelming small players is witnessed not only in India but the world over. The frenzy in the stock price of the top-line tech companies, famously called, the FANG i.e. Facebook, Amazon, Netflix and Google continue unabated in the post-COVID era. Then you have the new favourites such as Tesla and Salesforce. The sharp spurt in their profits and prices makes one wonder what alchemy is at play? Not to be laggards, even the large brick-and-mortar companies like Walmart have shown remarkable growth in sales and profits in the second quarter of this year. Causing serious concern, is the trend of the big businesses becoming bigger (faster than ever before) and the smaller ones shrinking rapidly. The acceleration on both sides of the divide has gained momentum amid the pandemic.

India’s recently released GDP report card for the April-June quarter, shows that the economy has fared dismally with a drop of 23.9% - one of the highest in the world. Considering that large players are prospering, and the agriculture sector is showing marginal improvement, it is evident that the brunt of the economic meltdown is borne largely by more than 63 million MSMEs that deliver roughly 31% of India’s GDP.

As such, every small organisation has a compelling narrative of the courage, hard work, enterprise and the generations it sometimes took, to build a business that provides a livelihood to millions, along with a hope for a better tomorrow. But the all-encompassing sweep of the pandemic has flattened many such businesses.

At one time, we were led to believe that the large enterprises are slow to innovate whereas the smaller counterparts would be able to move fast to embrace change. Contrary to this notion, the bigger companies have quickly adopted this disruptive change while small businesses are being waylaid. Further, larger companies are getting more profitable whereas the smaller ones are suffering from chronic unprofitability.  The new survival kit - the existence of valuable intangibles, adoption of technology, access to capital are denied to these entrepreneurs, who are finding it difficult to escape the small size trap.

The spectrum of challenges no doubt is daunting for the MSME sector; the Government is well aware of these challenges and have rolled out several initiatives to insulate the risk of survival, considering how important this sector is, in providing employment. No doubt, the big constraint for the government is lack of adequate resources, more constricted by falling tax revenue. However, it is up to the large companies and society at large, to salvage the situation and offer a lifeline.

One interesting business strategy that I have seen in recent times is that of Reliance Industries, to use Kirana stores as valuable partners for their retail business strategy. It is clearly possible for any company to use this vast distribution network of MSME across the length and breadth of our country to replicate such a model to quickly scale up their distribution channel business, which could present a viable opportunity for micro and small business to contribute and thrive. Clearly, new business models should emerge to rekindle hope for this sector.

The change is here, although it may not be welcome. The large community of MSME players will have to reinvent themselves, reskill if necessary, to overcome the veritable crisis. One can solace from the fact that the human race has survived many crises over centuries, riding on the resolute spirit to endure and sustain.