In a developing country like India, MSME growth has been widely seen as an important segment of industrial policy. The Centre's 'Make in India' initiative lay emphasis on increasing the share of MSME sector's manufacturing in the GDP, expected to touch from the present 14-15 per cent to 25 per cent by 2022. State or local governments are also encouraging their entrepreneurs to attach them to Centre's vision of building companies that fill the vacuum left by large corporates or MNCs in creating pervasive business opportunities and equitable employment.
But what does it take for MSMEs to transform into big organisations or MNCs? While there is a lot of literature available on what business strategies help MNCs grow, in comparison there is little available to understand the successful strategies or constraints that enable or inhibit the growth of SMEs. In the past, many businesses have failed or incapacitated, rest few could not transform themselves into global firms. Few stay as SMEs as that is how they are planned to operate for all times to come. There is a need to explore and dive into knowing how appropriate business models have taken SMEs far and above.
The process of transforming into large corporations or MNCs is complex and at times hostile for SMEs. They often end up being acquired or merged in the first few years of their operations. In today's scenario, hyped valuations are making this look rather neat, killing competition in the longer run, good for established MNCs but not so encouraging for SMEs. A strong will to grow big is what keeps SMEs above the waters. Passion and leadership are the essential qualities that will direct SMEs further. A clear strategy helps taking the business global. Though it is unlikely that the frontrunners of these SMEs may have the resources, time and skills or the bent towards using business models, they also seem to hold less need to take others into account when it comes to decision making. They remain as the dominant stakeholders unless a part or equity is shared with an investor. Most of the times, SME managers are preoccupied coping with immediate business needs, they lack skills when it comes to strategising for future.
Business strategy and growth models in SMEs are largely instinctive or mildly emergent as per founder's personal business goals allowing businesses to remain flexible to respond to unforeseen threats and opportunities yet preventing them to run into many dead ends. In well established MNCs, strategies are conscious or deliberate based on prescriptive techniques or sophisticated methods.
There is a flow chart to arrive at an appropriate business model which ideally should not rely on gut or instincts, at least not entirely:
1. Define Core Business Strategy Before Customer Interface: Describes main or central activity, competition and how a firm competes within the landscape. Businesses may have multiple functions, product lines or services etc, but defining on a core business activity helps keep key resources and employees focused. Whether it is a confectionary specializing in handmade fruit candies or a textile manufacturer trading in silk fabrics, understanding the core function helps a business run more optimally and providing a competitive edge. An essential part of business model is customer interface. It is the moment of truth that creates ultimate impression of a brand.
2. Know Your Customer: The business has to identify its customers, understand deeply its requirements and needs and tweak the product accordingly. Pricing of product or service is the key and has to be carefully done. Price segmentation, customer segmentation and paying capacity of customers are crucial. Any mismatch may cause havoc.
3. Mission & Vision Are Essential Parts: Explains to audiences both internal and external why a business exists and what it wants to accomplish in short or long term. Positioning and branding comes out of this.
4. Does It Solve Pain Points Or Offers Solutions To Customers: What products or services a firm has to offer and whether it addresses a need gap or fulfils a pending promise satisfying the requirements of customers, is a key part in forming a business model.
5. Strategic Resources And Fit: This planning process gives you a good idea of the resources that will be required to turn your idea into an opportunity. Resources business has in plenty or which may be distinctive or not so distinctive from other businesses to contribute to core competencies of the business. To understand what the market needs and realistically take account of capabilities you have to be able to provide it. It pronounces whether the business will stick to its core business function or may extend to garner bandwidth for forward or backward or horizontal integration. It also lists strategic assets of the company like goodwill, intellectual, networks, finance etc.
6. Business Model: There are few pre-defined models describes as under:
a). Leadership or Breadth to Depth Strategy: Increasing knowledge and exposure to related areas to create possibility of developing additional areas of expertise. Eg. In the 90s, an Asian multinational hardware and electronics corporation specializing in advanced electronics technology, then a SME, pursued this strategy by adding expertise on software development and supply chain management, along with their core assembly business hence increasing capabilities to leverage more opportunities and a wider market. With this costs are kept minimal using same resources or established infrastructures aiming for higher revenues.
b). Transformation or Differentiation Strategy: By doing this a SME is already thinking big and futuristic. They think ahead of what space they are currently occupying. While a SME begun thinking expansion, they start doing some of the things bigger established companies or even what MNCs do. This means the business competes on the basis of providing unique or differentiated products on the basis of quality, service timelines or some other distinctive parameters. For eg. In 1990s again, one of the biggest global consumer durable company now, established a number of R&D centres to consolidate company's technological foundation. Also the same Asian hardware and electronics company as discussed above kept only few large MNCs as clients at the early stage of its development. It focused on ensuring global quality standards and meeting expectations before getting into international markets. Within few years, it grew very fast and acquired technology from its MNC partners (or customers). Gradually, it began building up brand name and shifting its customer base from a few large MNCs to large and diverse individual customers.
c). Fulfilment and Diversify Strategy: Here, the firms fulfils the initial promise and then expands their product or service range and perhaps even production capabilities based on their core competencies. Specific or niches markets can also be catered to that can use earlier established technological and local resources to diversify into new but related products. The companies as illustrated expanded their operations as per their earlier BTD experience to augment product value chains.
Summarizing the above, it is important to observe that for any startup to succeed as per its growth forecasts, it has to have a novel and efficient business model in place, a framework through which an organisation interacts with its stakeholders including customers, partners, investors and suppliers. This further indicates an organisation's attributes and traits that holds potential for a company to scale, perform and excel. Contingent or external factors like environmental dynamism or hostile competition landscape are also considered closely while a model is designed to best suit as per the stage of a startup in either a predictive or non-predictive control approach.
