Economic Highlights
New Delhi, 29 March 2007
Despite Reforms…
Small
Sector Survives Competition
By Dr. Vinod Mehta
More
than a decade ago the Abid Hussain Committee had recommended de-reseravation of
the small sector on the economic consideration of efficiency, economies of
scale and use of modern technology. The
Committee never recommended the wounding up of the small sector, but still
doubts persisted. As for as the small
scale sector is concerned there are always the same stereotyped stories like
the entry of large sector and multinationals will spell ruin for them.
After
one and a half decade of economic reforms one can say that the small, as well
as the tiny and the unorganized sectors have responded and are responding well
to the challenges not only of the large domestic industrial sector but also of
the multinational corporations. Short of entering into an expensive and
sometimes unwinable advertising wars, the small, the tiny and the unorganized
sectors are concentrating on quality aspects of marketing to retain and expand
their share of the market. These are the
stories coming out of small and medium towns of India.
Before
we dwell on this, let us be clear about three points. First, as the economic historian would say
that when the market is growing, in a very general way every manufacturer finds
that the absolute demand for its product is also growing whether the
manufacturer is a multinational company or a small-scale sector firm; putting
it differently, along with an increase in the demand of a commodity, the demand
for its substitutes also grows. For
instance, if the demand for multinational soft drink grows, the demand for
lemonade produced in the small sector also grows; if the multinationals
advertise for biscuits, the tiny sector finds that its sales of biscuits are
also growing.
Second,
we always perceive one monolithic market for one kind of product. But reality is somewhat different. For practical purposes market can be broadly
divided into two categories---market of individual or family buyers and market
of institutional buyers (like hotels, hotels, canteens, offices, establishments
etc.). The individual buyers usually buy things in small quantities while
institutional buyers buy in bulk; the institutional buyer is relatively more
cost conscious than an individual buyer.
Again in the case of an individual or a family buyer it is the carry
home pay which generally determines its demand pattern.
Finally,
within these two broad categories of markets, namely individual and
institutional, there are various layers of markets catering to different
segments of people and institutions. For
instance, both a five star hotel restaurant and a dhaba need edible oil for
cooking purposes but both will use different quality of edible oil, and hence
their sources of procurement would be different. The products of multinationals and large
industrial houses may appeal to the people of upper income brackets and to the
institutions patronized by them, the vast majority will still be attracted to
goods which are relatively cheaper and produced in the small sector.
With
these initial observations, we can now go into the changes that are occurring
in the small scale sector. One of the consequences of liberal economic policies
has been that both the consumers and the manufacturers of producers have
suddenly become conscious of quality. The consumers from all income brackets
are now demanding quality products at competitive prices. The small scale sector including the tiny
sector have started responding to this by improving the quality of their
products.
From
biscuits and other bakery products to readymade garments to food processors and
coolers one can see significant improvement in the quality of their
products---in some products the improvement is more and in some others it is
less. But the most important fact is
that the small-scale sector has come to realize that it cannot survive without
improving the quality of its products and that it has to be constantly
innovative. Since these units cannot
advertise their products, one has to see for oneself the quality of their
products in actual shops.
The
second consequence of liberalization for the small-scale sector has been that
it has now started playing serious attention to packaging. The goods are now being packed by the
small-scale and tiny sector in colourful attractive packages whether it is
biscuits or bread, a shirt or a jean, a bath soap or detergent powder. The individual shopkeepers of groceries can
now be seen cleaning bulk products like pulses and packaging them in convenient
packs for retail sale. Similarly, new
garments being sold on the roadside are being packed in a way they are packed
in big stores. Many of the things which
the shopkeepers used to weigh in front of us are today sold in a pre-packaged
form.
Thirdly,
the small and the tiny sector has also started using brand names for their
products even if they find difficult to advertise them. That is to say the small-scale sector has
also started attempting product differentiation. Though these brands are seldom advertised,
yet the small-scale sector is attempting to build its own brand following, even
though in many cases it is limited to a particular territory. For instance, a few years ago the citizens of
Delhi could buy
bread made either by one of the two big manufacturers or from one of the
numerous small bakeries. But in the past
ten years apart from the two big manufacturers in Delhi, a large number of other branded breads
from the small-scale sector are being sold in large numbers.
Fourthly,
the concept of neighbourhood provision stores is slowly giving way to
supermarkets of all kinds where all the products for sale are displayed on the
shelves and one finds the products of small-sale sector getting the same
exposure as the products of large sector leaving it to the consumer to make up
its mind.
This
was not possible under the old provision store concept where one had to demand
an item by name. The arrival of the concept of supermarket has brought the
unadvertised products of small sector on the open shelves for the public to
choose from.
As
for as non-food sector is concerned, the small-scale units are upgrading their
technical base with the help of large companies with which they may have
backward linkages like auto parts. Since
large companies outsource the manufacture of their small components they also
maintain quality control by helping those units buy and assimilate new
technologies. In these kinds of backward
linkages the small-scale units do not have to worry about their sale targets.
There
are some problems with the small-scale units in rural areas as their demand
base is limited to a few nearby villages and have almost no forward linkages
with large companies to sustain them
There is an urgent need to study the impact of economic reforms on small
scale and tiny units in rural areas and then devise policy measures to help
them to sustain themselves.
Therefore,
generally speaking, the small scale sector, far from being overawed by the
multinational corporations and by the large domestic sector has not only
changed but is still continuing to change with the times, adopting new
approaches and strategies to stay put in the vast Indian market. Going by the experience of past 15 years,
competition from MNCs and large domestic companies has not spelt death knell of
the small sector and if the country were to fully dereserve the small sector,
it would not only survive but become more robust.---INFA
(Copyright, India News and Feature Alliance)
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