Though this sector has shown substantial progress, its major problems like inadequate credit flow from banks and financial institutions, inadequate infrastructure facilities, low-quality standards of products, lack of access to technological information and consultancy, marketing problems, use of old technology and machinery and equipment and inefficient management techniques, are still inhibiting the sector.
Problems Faced by Small Business
In addition to these, this sector has to face challenges of competition from the opening up of the economy to globalization, the need for increasing exports and meeting World Trade Organization commitments.
The following are the major problems faced by small business:
- Difficulty in Obtaining Finance
- Obsolete Technology
- Marketing Problems
- Poor Managerial and Organizational Skills
- Poor Infrastructural Facilities
Difficulty in Obtaining Finance
Small businesses find it extremely difficult to obtain credit because of lack of collateral security. This further affects their operations like their ability to hire the good workers, to purchase the latest machinery and equipment or to acquire sophisticated technology.
Most small businesses use old technologies because of financial problems and lack of awareness about sources of technological up gradation. As a result the quality of their goods is inferior and the cost of production is higher as compared to products of big businesses. This weakens the position of small businesses in local and global market.
The small entrepreneur cannot compete with products of large companies as they do not have a brand name. Lack of funds for advertising or sales promotion further makes it difficult for them to compete with big business.
Poor Managerial and Organizational Skills
Compared to big business, management in small business is more difficult and complex. The entrepreneur managing the small business have an experience in only one or two functions usually production and selling and find himself unable to effectively manage other areas like human resource, auditing and control, marketing etc.
Poor Infrastructural Facilities
Only small units in the organised sector and industrial estates get reasonably good infrastructure facilities. The majority of others are poorly served in terms of roads, electricity, drainage and water supply.
Presently, the small scale sector is associated, in public perception, with low quality standards. It is envisioned that the small scale sector will be upgraded through modern and new technologies to achieve global quality standards. Niche markets will be identified and developed for small scale products, including khadi and coir products.
To make their products globally competitive Indian SMEs need to upgrade their technology and put more emphasis on innovation as innovation is an important tool for businesses to differentiate products that can compete and are cost effective. Without this, SMEs will not be able to produce competitive products globally.