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Current Coir - BDS
Initiative |
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Resources |
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| How to guide - a practical approach |
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| 1. |
Case Vignette |
| 2. |
Pro-active Financiers: Creating a demand for BDS – Hyderabad |
| 3. |
Computer Software: The Case of Trust. |
| 4. |
The Mind-set Issue |
| 5. |
Willingness to Pay: The Choice of Survival versus Growth |
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Support Services for SME's of One Community: The case of AKEPB |
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BDS Providers who started with SME - Two Contrasting Growth Trajectories |
| 8. |
A Mismatch Between what SME's Seek and what they Need |
| 9. |
Market Pull - the Creation of Demand for Some Services |
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| Case Vignette |
Coir Floor Furnishings was looking to increase its production and needed to apply for a working capital loan to do so. However, they needed help in preparing their projections and other related documents that the banks required.
The project put them in touch with Gopalan Nair, an experienced BDS provider who specializes in financial services. Despite being an old coir hand, having once been the second in command of a major coir exporter, Gopalan has had little to do with coir as a BDS provider. He was therefore pleased to be back working with his old sector, and managed to secure a Rs. 3,500,000/- working capital loan for Coir Floor Furnishings.
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Gopalan is now working with the project to develop a set of financial services that are particularly focused on the needs of the coir sector in the current economic downturn. One product he plans to launch - for which he will be hiring a few new staff, which he will train and mentor - focuses on financial analysis of coir business, particularly looking at how to reduce costs through things like debt restructuring. He plans to use this initial entry to then work with coir businesses in their operations, helping them continue to rationalize costs and so better weather the tough economic times ahead.
Mahadevan of Travancore Cocotuft is not new to BDS. He has used the services of BDS providers to reengineer his business processes, touching everything from how orders are managed to his staff incentive scheme. He also has an IT-related BDS provider on retainer, having her come in to constantly update and add to his custom-developed back-office enterprise system. Despite this, his business had a very limited presence on the web. This was particularly strange in light of the strong push he has been making over the past 2 years to develop new designs for mats and actively get them to market through attending major global trade fairs.
With the help of the project team, he decided to remedy this, and get his 4000-plus designs up onto the internet, where customers from all over the world (his product reaches over 40 countries) can browse his extensive catalogue. Partnering with Subhash P M, of i-designs Bay, an Alappuzha-based web site developer, Mahadevan has launched Cocotuft’s new site. |
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| Case Vignette |
Kishore Kumar is a geotextile producer in Alappuzha, looking to find new markets for his product. Through the project, he met S Purshotam, a new BDS provider that is being cultivated by the project team.
Through his research, S Purshotam found an interesting opportunity for the application of geotextiles. The sponge iron industry in Rourkela produces large mounds of small particle waste, mainly iron dust, charcoal, and ash which are contributing to intolerable levels of air pollution in the surrounding area. S Purshotam and his client therefore traveled to Rourkela to propose blanketing the industry’s waste mounds with coir geotextiles. The sponge iron producers proved very receptive to the idea, also suggesting some product alterations to the traditional geotextile to make it more appropriate to their needs.
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| The first orders from Rourkela are small - Rs. 50,000. However, Kishore is confident that he will generate more and also be able to apply his geotextiles to other industries that also produce similar mounds of small particle waste. S Purshotam and Kishore are also looking into how to package the geotextile product with coir pith, which can be used as a base on which to grow grass. S Purshotam plans to turn the polluting ash-grey mounds of Rourkela into pleasant green hills, making some good money for himself and his client in the process. |
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| Pro-active Financiers: Creating a demand for BDS – Hyderabad |
One of the engineering units we studied had a phenomenal growth in the last 5 years. The unit manufactures solar panels and devices. Apart from the vision , the most important feature in this business is the amount of institutional support available in this sector. For the unit, getting finance was somewhat simple once they had a good feasibility report. It was important to have a credible feasibility report before institutions funded the unit.
The feasibility report was almost as significant an investment by the promoter as the plant and machinery itself. He therefore got one of the topnotch consulting firms of the country to do it.
Ever since the unit has been set up, they have got tremendous amount of support from institutions. Now, they do not hesitate to seek professional help in whatever areas they need support, not restricting themselves to areas where subsidies are available.
They now recognize the value of external professional input, apart from the comforting fact that "grant-type" funding is available for some activities. This great impetus and initial thrust that the unit has got from the institutional sources has helped it to grow at a phenomenal rate to achieve a Rs. 100 million turnover |
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| Computer Software: The Case of Trust. |
| In the process of the study we found a peculiar instance where a first generation entrepreneur had developed computer software that helps the students take competitive examinations to practice on the tests. The software has a question bank, can time the answers, and rank them in order of difficulty and in terms of different sorts of capability sought by the student. This needs a massive distribution channel. The question is can the entrepreneur trust a service provider to find a distribution and marketing channel without running the risk of the CD being duplicated overnight by somebody? How does he ensure that he gets fair returns for the two years of work that he has put in? A very delicate issue indeed -
considering that the product took about two years to develop, it can be easily copied and he does not have an established brand or channel to leverage on - at the same time, he desperately needs to depend on the traditional channels. |
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| The Mind-set Issue |
| Apart from the other issues there is an issue pertaining to the mindset of the SSE. An entrepreneur in the Pharmaceutical sector put it very succinctly - " We are constantly dealing with regulatory authorities and small issues of compliance. We constantly encounter problems and most often than not we see that the most effective way of sorting the problem is pay a bribe. Transaction cost wise, it makes more sense than fight out a case. So over a period of time we have learnt to buy short-term patchwork solutions and have never addressed the problem at its root. We just do not trust anybody - because whatever solution we have got – it ultimately boils down to paying a bribe somewhere! If I can do a job of purchasing a solution off the market more effectively than anybody else, then I do not need a service provider for that” |
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| Willingness to Pay: The Choice of Survival versus Growth |
There is also the problem of day to day survival - one of the computer software developers told in the process of the interview: "I know that I have a problem. I have reached the growth I could have reached on my own steam. I now need to take one large step to grow and I recognise that I need to get somebody to advise me on how to take that step. I keep thinking of getting somebody to advise me on some strategic breakthrough. I think of going to a consultant to look into my problems and then I re-think, if it costs Rs.10,000 to hire one to advise me, then I may as well upgrade my machine and get some more efficiency into the current system. So the choice is between doing my current business well or thinking about growth. Both never happen simultaneously !
As a result, I end up discussing my plans informally with several friends and keep getting off-the cuff ideas. Unfortunately that won't do. |
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| Support Services for SME’s of One Community: The case of AKEPB |
While doing the study, we came across an interesting model being tried by the Aga Khan Economic Planning Board, Mumbai. The community leaders have over the last few years have been articulating that the businesses of several of the Ismaili Khojas have stagnated and not grown. In response to this articulated need, the AKEPB has now hired a consulting firm to provide BDS to the members of its community on experimental basis for about a year in Surat and Bhavnagar where the members of the community are concentrated.
Based on a study of around 80 businesses, it was found that the major areas where the community needed help were in the areas of costing, marketing and accounting. Now the agency has placed a consultant at each of the locations to work exclusively with the community. BDS services are charged on the basis of the client's ability to pay. The AKEPB pays a fixed fee for the consultant andthere is a significant element of subsidy involved only in beginning stage |
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| BDS Providers who started with SME - Two Contrasting Growth Trajectories |
We found it very interesting to look at two service providers – Nalanda Associates, which essentially started out working with SME’s - but very soon outgrew their clients. Though they continue to remain small themselves (Nalanda does not want to grow beyond a certain size , their client profile is no longer small) they do not think that SME’s maintain pace with the growth of their service providers. This is a contrast to Sathguru who want to work through and through with the client once they take the SME on. Possibly this is because they are a specialist service provider.
In contrast we have the case of a Excel Peripherals - a computer support service company which has remained small while its client group is growing and moving away from the support service provider. Small enterprises typically tend to use this company for ordering their first computers and giving them the service contract for maintenance. But as the client grows, they would want to shift to branded computers, bought out software and longer warranty periods, thereby leaving the neighborhood assembler to look for other clients. This possibly happens because by the time a SME gets to a stage of ordering a computer it is most likely to have crossed the barrier of mindset and possibly is moving towards some growth. |
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| A Mismatch Between what SME’s Seek and what they Need |
Sathguru Management Consultants do a quarter of their business with SME’s. They work with a clear strategy that their revenues have to be telescoped - the fee grows as the ability of the SME to pay grows. However they are very choosy about their clients. Till now they have worked with around 40 SME’s of which 20 no longer remain small. Sathguru would like to take on a client only if they are willing to be a part of the core strategy. Though they have capabilities of transaction related service by virtue of having an audit firm - they never use this as an entry strategy. Sathguru never accepts a one time consulting assignment.
Sathguru thinks that there is a very large mismatch between what SME’s seek and what they need. This is the classic problem of mindset. For instance in the Coir industry around Alappuzha, there is no sense of worry about the EU REACH regime in relation to dyes being used for mats & mattings. All the small units are still bogged down by how to get an export order.
"They are in a sense like the fishermen of Orissa before the Cyclone. They are blissfully unaware of what is going to hit them !" |
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| Market Pull - the Creation of Demand for Some Services |
Apart from BDS providers selling their services to the SME’s, there has been an interesting trend that has been forcing the entrepreneurs to seek certain services from some types of service providers. With larger firms who are buyers of the products of the small industries (this is particularly true in case of ancillaries) insisting on certain quality norms, it has become imperative for the smaller firms also to seek certification. This is particularly true in case of large industries that have been issued the ISO certification. They are in turn required to maintain some tab over the processes adopted by their suppliers to retain their certification. If the supplier is also ISO certified, then their job of monitoring is taken care of the periodic audits, which the supplier gets done. It reduces both hassle and costs. So with larger ISO certified units moving to purchase inputs from small industries that are ISO certified, there is a pressure for the smaller units also to get themselves certified.
The second area where there is market pull is due to the scheme of Modified Value Added Tax (MODVAT) introduced by the central excise. Though MODVAT was introduced over a decade and a half ago, it has gone through several rounds of refining. Due to MODVAT where the larger industrialist who in any case would fall in the excisable limits prefers to source raw materials from units which are also paying excise so that they could claim exemption to the extent of tax already paid. Because of this, several larger units prefer to source their material from the units that are registered with the Central Excise and are paying tax. This has helped in several smaller units going in for Central Excise registration, possible reduced spawning of firms to avoid excise and created a demand for the services of an excise consultant. |
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