As global giants like Apple flock to India, the country's micro, small and medium enterprises (MSMEs) are poised to reap benefits from the "Make in India" initiative, experts told BW Businessworld. However, they warned that bureaucratic hurdles, financing woes and quality control challenges threaten to derail this momentum.
To tap into the USD 500 billion Indian manufacturing market, experts said that MSMEs must bridge the productivity gap, which currently stands at 50 per cent compared to large enterprises, according to World Bank data. With many of them still relying on traditional manufacturing methods, technology adoption is crucial.
“As global giants shift their focus towards local manufacturing, this growing demand for domestically produced goods provides a significant opportunity to strengthen our manufacturing sector. In my view, "Make in India" not only expands manufacturing capabilities but also enhances efficiency, scalability, and the ability to meet global quality standards. These factors position MSMEs to capitalise on the growing demand and play an even more prominent role in shaping India's industrial future,” said Pradeep Palelli, Co-founder and Chief Executive Officer (CEO), Thanos Technologies.
In India, initiatives like the production linked incentive (PLI) scheme have encouraged MSMEs to invest in automation, with 16 per cent already accessing financial support, as per the Ministry of Commerce and Industry. Moreover, MSMEs contribute 30 per cent to India's GDP and employ 110 million people. By 2025, the sector is expected to contribute 50 per cent to India's gross domestic product (GDP).
MSMEs' Response To Make In India: The Apple Effect
India's MSMEs are grappling with significant hurdles as they strive to become integral cogs in the global supply chains of behemoths like Apple. Despite their potential, MSMEs are struggling to meet stringent quality standards and scale up production to match the demands of multinational corporations.
As per the think tank Global Trade Research Initiative (GTRI), imports from China are hurting India's cash-strapped MSMEs, as many of the imported products are also made by these local businesses. The report added that the cheaper Chinese goods make it tough for MSMEs to compete, leading to struggles for survival. It revealed, “Some MSMEs have to shut down or reduce their operations, and they find it hard to grow due to the easy access to low-cost Chinese products."
The key pain points include inadequate infrastructure, outdated technology and a yawning skills gap, which hinder their ability to comply with international norms. According to PayNearby's report, the 'MSME Digital Index 2024, about 36 per cent of MSME owners cited new technology adaptation as a challenge and 18 per cent struggled with the high costs of implementation.
Stakeholders from the sector have expressed concerns about the Modi government's Digital Competition Bill (DCB), its negative impact on MSME's competitiveness and global markets and its potentially detrimental effect on their ability to serve consumers.
While speaking at the India SME Forum's event in New Delhi in August, small and medium businesses highlighted their perspective on technology and competition frameworks. Notably, the bill intends to regulate and provide a level playing field however it is being used as a measure to solve commercial disputes between private parties. This can derail the vibrant MSME ecosystem in India, they added.
Moreover, limited access to funding and fragmented supply chains exacerbate the challenges, making it daunting for MSMEs to transition from local players to global stakeholders. Notably, only 16 per cent are able to access financial support, which restricts investment in advanced technologies. Additionally, nearly 70 per cent of MSMEs still rely on traditional manufacturing methods, resulting in technological obsolescence that limits their ability to produce high-quality products efficiently.
The skills gap further complicates matters, as many MSMEs struggle to find qualified labour to operate advanced machinery, leading to production delays. To address these issues, MSMEs are forming partnerships with educational institutions for tailored training programs, leveraging government initiatives like the Skill India Mission, and adopting digital learning platforms for cost-effective upskilling.
“When it comes to fixing the quality and scalability standards of large firms like Apple there are various issues that MSMEs come across in India. Among these, the most crucial is the problem of financial constraints since small businesses can rarely obtain the necessary funds for modifications in infrastructure and advanced quality control systems,” said Ramya Chatterjee, Chief of Solitaire Brand Business, Chief Executive Officer (CEO) and Director, Prointek Global Innovations.
Chatterjee added that the issue of a complicated set of regulations, technological integration barriers, and low market exposure reduces the prospects for their expansion. Furthermore, the acquisition and retention of talent is also a major challenge as the company competes with other larger firms. Issues of economic uncertainty make effective long-term planning elusive.
Managing Logistics And Quality Control
Leveraging technology will be key in optimising logistics, inventory management and quality control to meet the expectations of global clients. For instance— cloud-based solutions provide secure access to critical data, ensuring that only authorised personnel can manage operations efficiently.
A recent 'SME Digital Insights' study revealed that 50 per cent of MSMEs in India are prioritising cloud adoption for expansion in FY2024, with 51 per cent focusing on customer engagement and 40 per cent emphasising security. Additionally, 20 per cent have transitioned over half of their workloads to the cloud, signifying a growing commitment to leveraging digital tools.
“To better align themselves with global clients' expectations, MSMEs must leverage technology to manage logistics, inventory, and quality control effectively. The adoption of cloud-based solutions, IoT, and AI is crucial for real-time tracking, predictive analytics, and automated quality inspections. Advanced technologies like blockchain can help them enhance transparency and efficiency across their supply chains. Additionally, continuously training employees on these technologies is vital to maximise their effectiveness, said Priyanka Kulkarni, Manager– Telecom, Media and Technology Sector, Aranca.
Effective logistics and inventory management are crucial for institutional performance, reducing costs, and enhancing customer service, said experts. India’s logistics and supply chain sector is vast and diverse, including players from global corporations, MSMEs, and the unorganised sector. However, the industry faces challenges such as expensive transportation, poor infrastructure and a lack of skilled manpower.
“MSMEs can boost efficiency by investing in technology like cloud-based logistics software to track shipments and manage inventory. Building strong customer relationships through timely deliveries and competitive pricing. Partnering with third-party logistics providers can streamline supply chain management while tracking inventory levels to prevent stock disruptions. Standardising processes and optimising routes further reduce costs and improve performance, helping MSMEs compete with larger businesses,” added Chatterjee.
Bureaucratic Hurdles And Regulatory Complexities
While the “Make in India” initiative has paved the way for growth for MSMEs, navigating bureaucratic hurdles and regulatory complexities remains a challenge. Indian MSMEs face significant challenges due to the complex compliance requirements associated with this initiative.
“Engaging with government initiatives aimed at simplifying the regulatory framework is crucial. Additionally, prioritising workforce development through targeted training ensures employees possess the necessary skills to adapt to evolving manufacturing demands and compliance-related aspects thereby enabling them to better navigate the regulatory challenges,” said Priyanka Kulkarni, Manager – Telecom, Media and Technology Sector, Aranca.
Notably, to address these issues, MSMEs are investing in digital solutions to automate compliance processes, enabling real-time tracking of regulatory changes. Forming strategic alliances with industry associations allows them to collectively advocate for streamlined regulations. Palelli added that by collaborating with bodies such as FICCI and CII, MSMEs can stay informed about regulatory updates and ensure compliance. These advancements equip MSMEs to better navigate the regulatory landscape and focus on growth.
Cracking The Global Manufacturing Code
MSMEs are the backbone of economic development and it has also been reported that globally they account for 90 per cent of businesses and two-thirds of employment. However, they experience a major problem, the productivity gap, which is only half of that of large enterprises.
“To unlock their potential, MSMEs require tailored support to address their diverse needs. This includes access to finance, technology adoption, and links in the markets. Initiatives like Make in India can go a long way in attaining this objective by enabling an environment that supports innovation and simplification of procedures, along with involving MSMEs with big businesses,” stated Chatterjee.
“Over the next five to ten years, MSMEs in India envision their role as pivotal players in the manufacturing ecosystem, driving innovation and sustainability. To remain competitive in a dynamic global landscape, they will focus more on adopting smart manufacturing practices, integrating automation and data analytics to enhance productivity and reduce costs. Sustainability will also emerge as a key priority, thereby aligning themselves with global trends related to responsible manufacturing,” said Kulkarni.
Experts predict that in the next decade, MSMEs will transform from small-scale suppliers to key players in the manufacturing ecosystem. To achieve this, they will leverage digital technologies like automation, AI, and IoT to boost efficiency and quality.
According to a Nasscom report, Indian MSMEs are expected to invest USD 2.6 billion in digital transformation by 2025. This shift will enable them to support larger manufacturers and cater to emerging sectors such as green energy, electric vehicles, and advanced electronics, which are projected to reach USD 15.7 billion, USD 14.8 billion, and USD 100 billion in market size by 2025, respectively, as per the industry data.
“By forming new trade partnerships, focusing on upskilling, and collaborating with larger industry players, MSMEs will unlock new market opportunities and enhance their competitiveness. These strategic alliances will not only enable rapid scaling but also position MSMEs to move up the value chain, ensuring their relevance in a rapidly changing global manufacturing landscape,” stated Palelli.
Meanwhile, to crack the global manufacturing code, MSMEs must bridge the productivity gap, adopt digital technologies, and enhance scalability. Experts stated that addressing financial and bureaucratic woes will be crucial to unlocking MSMEs' potential, enabling them to become competitive players in the global landscape and propel India's economic development.
