What Keeps Indian Enterprises from Growing

Friday, May 2, 2008

In the last one week, I have had the privilege of interacting with over 300 entrepreneurs from the small and medium enterprises segment. 70% of them have been in business for at least a decade; 40% have completed two decades. Yet they are still “small” – in revenues, profits, employees. 15% have global aspirations but do not know how to achieve that goal.

Small and medium enterprises account for 80% of Indian businesses (3 million small and medium enterprises and counting), produce over 8000 products, contribute 35% to industrial output, 40% to direct exports, and employ nearly 30 million people. And yet, they continue to remain small even after 20 or 30 years. Given a choice, they still want some form of protection. The forces of competition, rapid technological change and globalization mean very little to these otherwise successful enterprises.

What are the challenges faced by entrepreneurs in scaling up and making it to the big league? How much of this can be attributed to the external environment and how much to the entrepreneur’s mindset itself? Based on the responses I have, here are the major constraints:

Treating the business like a family – almost literally: this might come as a surprise to those in the developed countries, but promoters of small businesses develop an emotional attachment to everything about the business, including the people. The leadership style is patriarchal. A significant majority have not fired anyone in their business. Performance orientation is lacking and a comfort with the status-quo is palpable.

Inability to prioritize: entrepreneurs engaged in small businesses are in a perennial “fire-fighting” mode. Everything appears to be a crisis. Considerable time and effort is expended on trivial matters often at the expense of growth, creativity and innovation. Strategy is conspicuous by its absence. Not surprisingly, the business remains small.

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Source: Harvard Business Blog (link opens in a new window)