Market diversification vital for MSMEs to grow: Experts
Namrata Kath Hazarika | 07 May, 2010
To expand market reach and become profitable in a competitive business environment, it is crucial for Micro, Small and Medium Enterprises (MSMEs) to foray into new markets and diversified market segment, according to experts.
Anil Bhardwaj, Secretary General, The Federation of Indian Small and Medium Enterprises (FISME) told SME Times that MSMEs should look out for profitable partners to enhance their business prospects and achieve higher growth.
He explained, "What happens is that when maximum number of suppliers are there in the market and also where the market is crowded, there will be immense competition and the profitability will be less."
"That is why, is it is essential especially for MSMEs to look for new markets, which can provide good opportunities and profitability," he added.
Bhardwaj also opined that strategic diversification is the key to capture a large global market share and increase profitability. MSMEs should share strength and flexibility. And, their strength is their 'innovative approach'.
In comparison to their larger counterparts, MSMEs are the best suited for searching new markets. He said, "The large companies usually come into picture when they feel that the opportunities are well-identified and purpose for new development are demonstrated."
While, small and mid-sized firms should look forward beside competing with the larger counterparts. And, actually should make a move to go ahead and reach out to the unconventional markets, which are imperative for SMEs, said Bhardwaj.
For many entrepreneurs, diversification is about growing revenue while for many it is reducing the risk. For instance, during the economic slowdown many entrepreneurs in the export business in India have initiated to explore new geographical boundaries -- an alternative destination besides the key export market such as US and Europe to reduce the risk factor of being at loss.
To remain profitable, it is essential to diversify market segment at times. Although sometimes it becomes a risky proposition, said N.K.Sagar, Chairman, Enkay Sagar Holdings Pvt Ltd.
Sagar told SME Times, "It is a fact that the small and medium firms usually get adjusted to their old clientele but if the growth of the company is not sustainable and is stagnant, I think small businesses need to look for new clients and market segments."
Risk factor is always there in business. Stating this Bhardwaj added, "It is a risky proposition. There is no gain without a risk in business. The point is that the risk should be calculated risk."
He suggested that by keeping certain amount of profit, finance or earmarking as venture capital, MSMEs can use those to explore and develop new markets.
Observing that, Sagar said, To diversify market and product portfolio, it is essential for MSMEs to keep a detailed knowledge about branding.
"It is the branding of the product that would catch the attention of customers. The branding of the products which are familiar and for the mass appeal should be focused on. This would help MSMEs to diversify their market," he added.
In fact, keeping in mind customer-fashion, demand, trend, adaptability, sustainability, market research, technology upgradation and capability are few measures that can provide help before foraying into new markets, Sagar pointed out.
Sagar opined many companies in SME division initially provide a sample to their buyers/customers for their feedback before signing a deal or producing goods in quantum.
In this context, Bhardwaj also stated that MSMEs should focus on few measures before looking into new markets. He said, a market study is vital for MSMEs as they usually do not implement the process of market research prior tapping new market. SMEs usually participates in trade fairs where they get access to a particular market and its customers.
He also said, "The cost of serving the market is too high. There are the transportation costs, the working culture also is important and as well as the hidden costs especially in terms of non-tariff barriers (NBT) creates hindrances for MSMEs."
It would be logical if MSMEs tests the market with smaller supply of goods which will help them to know the market and remain profitable, Bhardwaj
SME Small and medium enterprises must manage their fiscal structure with utmost care to leap in better and organized way