Factors Impeding The Productivity Of Indian SMEs

SME in India

Small and Medium Enterprises (SMEs) hold a very important place in the economic development of India. SMEs in India employ about 40 percent of the workforce providing an opportunity for livelihood to a large number of Indians. However, their contribution to India’s GDP is only around 17%. This shows that productivity is a cause for concern for a majority of Indian SMEs.

Having run two SMEs for very long now I realise that to have them be effective will require all components of their machinery working well and in tandem with one another. I share here what, according to me, are the factors that make or mar the productivity in an SME based on my experiences and training.  The factors are listed in no particular order.

Performance of a company can be considered to be its ability to create action to cause acceptable results mainly resulting in high profitability. In today’s competitive environment, we need to look at what factors impact the productivity of these enterprises such that we can get an insight into how to bring about transformation enabling high productivity and profitability. 

The Owner’s Capability

Mostly, an SME is an expression of who its owner is. It will grow to the extent the owner is capable and passionate about the enterprise. If the owner keeps herself or himself updated with the current trends and keeps training to upgrade skills and expand mental horizons then the SME will continue to grow. Else, growth may plateau or recede. Good leadership is a must.

 Competition in the Times of Technology

In this digital world competition is on the rise. One needs to be technically savvy to reach out to the masses. If someone else creates the visibility and supplier base first then that firm has a better chance for producing higher sales.  Old methodologies do not work now as effectively as they did in the past. You have to be everywhere in the digital world such that the buyer finds you first.

Raising of Standards

Having been exposed to globalisation and improved quality of goods, the buyer has become more discerning. They will not buy anything that is not good enough for them, that has not been produced hygienically or ethically, that does not have good packaging etc. It is a changing world. An SME will have to produce the output the way the buyer wants. Staying abreast with the current trends becomes imperative.


Liquidity is a major factor when it comes to SMEs being productive. Sales fluctuate frequently based on the market forces that cannot be controlled. Salaries, cost of production and taxes have to be managed all the time. While a lot of loan options are available, an SME may not really get the amount of loan that is required to generate the desired impetus to cause sufficient sales to generate timely repayment. This results in further issues in liquidity. Interest rates on loans are also very high making a lot of entrepreneurs wonder if it is a good option to take loans. In short, loans would be good only if timely repayment can be worked out. Else they will cause problems. Increasing sales is a better option in the absence of which liquidity becomes an issue.

Generation of Sales

An SME will grow well if it generates good sales. Their capability to generate sales will determine their growth and sustainability. Low sales spell a lot of issues and can really impede the grown of an SME. Systems for selling have to be established and also strengthened time and again. New selling systems have to be looked into avidly and adopted.

Effective Marketing

SMEs need to create an effective marketing strategy and visibility in the new world to drive sales. Limited liquidity and lack of knowledge causes this aspect to not be very widespread. However, a dent needs to be made again and again in the memory of the maximum possible prospective buyers as far as possible such that they recall your firm when they need your product type. Don’t let them forget that you are there for them.


Keeping a consistent eye on the accounts is critical. Where the money is coming from and where the money is going keeps the entrepreneur on the right track. This is the core area that needs to be tracked day in and day out. Else there will be a slip of the grip. Keeping buying costs low is a very important mantra.

Training and Development

Training and development of the staff as well as of the management has to be consistent to keep up with the trends and generate sales. A well trained staff will be able to generate good output with minimum losses saving company’s revenue. Training and development has not only to be provided in terms of manufacturing and sales, but also in terms of expanding the mental horizons such that far reaching impact can be made on the growth of the organisation.

 Managing of Inventory

This is a very important factor in supporting liquidity.  Properly managed inventory will be a ready reckoner of what material is already there and that material will be made available in the shortest possible time saving money and time.

 Quality of Production Processes

Effective production processes carried out by skilled personnel are a very important factor in generating great output in one go. Wastages get minimized and costs get contained to the minimum by this. Being ‘right first time’ is a very good way to ensure high productivity. However, not having it be like this will result in wastage of time and money in remaking the product again and again to the desired specifications causing loss to the company.

Having a Plan for Growth

Having a long term plan of growth broken down into a time wise action plan is very critical in channelizing the funds to propel the enterprise on the right path. An enterprise needs to be clear about what it is out to accomplish. Not having a path to follow or a destination to reach is a big impediment in SMEs growth.

 Hiring the Right Staff

SMEs have to hire staff with wider skill base. They may not find an appropriate person to fit the bill and have to make do with what they get impacting productivity adversely. Also, the attitude and focus of the staff needs to be proper to fit into the company’s culture.

Core Values of the Enterprise

What are the core values of the enterprise? Do you supply what you promise and as per your timeline?  Are you trustworthy and reliable? Do you honour what you promise the buyers? If not, then this is going to truly impact your sales and productivity in a bad way. Also, if your employees feel cared for and the environment is positive your productivity will keep soaring.


Some products are made to the same specification again and again. Innovation here could be made in the processes that produce such products resulting in effectiveness and cost saving. The other types of products require nonstop creativity. New kinds of design have to be presented to the buyers time and again. Here the creativity needs to hit the roof and blow the mind of the potential buyer. Then only the buyer will put in the money. An SME needs to be consistently innovative in terms of processes and creative output to enhance productivity.

Business Systems

All business systems have to be streamlined and run effectively to generate effectiveness. From the time a new buyer touches base with the company to the time his order is handed over to him, and carrying forward to the time where the firm is positioned to generate repeat sales from him, all internal & external systems have to be defined and acted upon with precision. Being tardy here will impede business growth. Strategizing for effectiveness each time is also imperative.

These are some of the factors that impact the productivity of an SME. The more effectively these aspects are managed, the better the performance of an SME is going to be.

Contributed By: Anjana Ashok,
Founder and CEO – MOAH Jewelry by Anjana Jewels (www.moah.jewelry)

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