Management Perspectives

The automobile industry is one of the most competitive sectors in India’s economy. The government has been encouraging FDI, but it mostly happens in large enterprises. Hence, startups and SMEs do benefit from it. One such example is Maruti, which was set up as a startup and later joined hands with Suzuki in Japan. Maruti Suzuki was started back on February 24, 1981, to manufacture cars for middleclass Indians. The company was formed as a Government company, incorporated as Maruti Udyog Ltd with Suzuki as its minor partner. Maruti Udyog then signed the license and joint venture agreement with Suzuki Motor Corporation, Japan, on October 2, 1982, which began the start of the longlasting and successful partnership. This is when the very first factory of Maruti Suzuki was established in Gurgaon, Haryana. In the first two years, when Maruti was set up, the company was engaged in the importing of fully-built cars from Suzuki, which later grew to include only 33 per cent components from India. This was not what the indigenous company had planned.

The company started its production in 1983, and launched the Maruti 800—an affordable, highly-popular car back then. When Maruti Suzuki entered the Indian market, the most prominent factor which made it the market leader at that time was the price of its cars. They were very successful in launching cars with excellent features and reliability at an Indian budget-friendly price which made it ‘people’s car.

Most SMEs were encouraged to be a part of Maruti Suzuki as vendors and were enabled to collaborate with Suzuki vendors in Japan; they presented a very successful example of collaborations and joint ventures, technology transfers, and brought India from a net importer of components and vehicles to be a net exporter of vehicles. Today, India exports two-wheelers, scooters, motorcars, trucks, and buses in large numbers. As of 2020, the total assets of Maruti Suzuki is R63,627 crore (US$8.9 billion).

Maruti Suzuki India Ltd has grown to be India’s largest passenger car maker company, with more than 42.75 per cent market share in the passenger vehicles segment in FY22. The company recorded passenger vehicle sales of 1,165,483 units in FY22.

The contribution of automobile industry to the National GDP has risen to about 7.1 per cent now from 2.77 per cent in 1992-93. It provides direct and indirect employment to over 19 million people. India aims to double its auto industry size to R15 lakh crores by end of year 2024.

Overview of MSMEs in Madhya Pradesh

Madhya Pradesh contributes 4 per cent of MSMEs in the country, with Indore being a hub. The state is rich in natural resourcesfuels, minerals, agriculture, biodiversity, significant reserves of limestone, manganese and dolomite. Madhya Pradesh is home to all types of industries which range from automobile to pharmaceuticals, from software to retail, and from textile trading to real estate. There are several economic zones in the state which promote exports and economic development of Madhya Pradesh. On the automobile industry front, Pithampur is also known as Detroit of India due to presence of Indore special economic zone. By virtue of Madhya Pradesh’s centralised location, it has excellent connectivity to several parts of India and its robust road network of over one lakh km makes it an ideal destination for centralised manufacturing and distribution hub.

There are more than 10 original equipment manufacturers (OEMs), 2770 engineering manufacturers, and 200 auto component manufacturers present in the state. They employ a workforce of 200,000 technical professionals. Some of the specific skill development institutes in this sector are: the Indo-German Tool Room—an initiative between Government of India and Federal Republic of Germany, the Pithampur Auto Cluster Ltd (PACL)—an initiative of Government of Madhya Pradesh, the MSME Technology Centre in Bhopal—an initiative between Government of Government of Madhya Pradesh and Government of India with support from World Bank, and the Central Farm Machinery Training & Testing Institute, Budni—an initiative of the Government of India.  Pithampur auto cluster is an emerging auto hub of central India. It is home to top-notch industrial infrastructure, spans across total area of around 4,500 hectares and provides excellent industrial infrastructural facilities. The Pithampur auto cluster has over 120 large and 450 MSME units. Madhya Pradesh’ auto clusters contributed exports of $26.24 million from the state in FY 2021-22.  “Automobile industry, together with battery cell segment, is expected to attract an investment of R1.20 lakh crore in the next five years and Madhya Pradesh is a potential destination for auto investments due to economic cost of land, lower logistics cost, and industrial peace,” said Vinod Aggrawal, Vice President, Society of Indian Automobile Manufacturers (SIAM). MP has the potential to attract investments from auto industry in new technologies, research and development and component manufacturing. MP has a big potential to attract major investments to setup an Automobile Manufacturing and Assemble ProjectsMadhya Pradesh and Government of India with support from World Bank, and the Central Farm Machinery Training & Testing Institute, Budni—an initiative of the Government of India.

Pithampur auto cluster is an emerging auto hub of central India. It is home to top-notch industrial infrastructure, spans across total area of around 4,500 hectares and provides excellent industrial infrastructural facilities. The Pithampur auto cluster has over 120 large and 450 MSME units. Madhya Pradesh’ auto clusters contributed exports of $26.24 million from the state in FY 2021-22.

“Automobile industry, together with battery cell segment, is expected to attract an investment of R1.20 lakh crore in the next five years and Madhya Pradesh is a potential destination for auto investments due to economic cost of land, lower logistics cost, and industrial peace,” said Vinod Aggrawal, Vice President, Society of Indian Automobile Manufacturers (SIAM).

MP has the potential to attract investments from auto industry in new technologies, research and development and component manufacturing. MP has a big potential to attract major investments to setup an Automobile Manufacturing and Assemble Projects.

Government policies

In 2021, the Government came up with a policy for Production Linked Incentive in the PLI Scheme to boost industrialisation, particularly manufacturing. Initially they opened the scheme to three sectors, namely, electronics, medical device & drugs and active pharmaceutical ingredients. India has added 10 more sectors which makes it 13 sectors. Where foreign investors have been encouraged and SMEs are benefiting because SMEs manufacturing accessories and components for automobiles and electronics have benefitted the most.

Today, almost 97 per cent of mobile phones sold in India and are manufactured in domestically. Many SMEs are now getting attracted to Global Value Chain (GVC) particularly, in the area of automobiles and electronics, giving rise to vertical integration and mostly they are at the tier I and tier II level.

In the initial stages of Industrialisation, after India’s Independence, the Government had encouraged ancilisation, manufacturing components and parts, and supplying to large public sector enterprises which has a very symbiotic relationship since the parent company will prove to be an assured market. This has graduated into a large company and vendor relationship, ie, BHEL, Bhopal. Now, SMEs are joining the GVC and succeeding.

Missions like ‘Make in India’ are expected to give a big boost to the manufacturing sectors and ‘Startup India’ to enterprise development.

Indian SMEs have been sharing their experience and expertise with other developing countries. I have been personally promoting investments and JVs, SME development, innovations, technology transfer, particularly in Mauritius, Botswana and other countries from India. In addition, we encouraged collaborating in many other countries through technology exposition and facilitating technology transfer.

Based on my knowledge and experience, I find SMEs are not only growing in international business both in imports and exports, but are also going beyond that in setting up industries and businesses in other countries particularly the neighbouring countries and in Africa.

Moreover, Government of India has also been ramping up its efforts to revolutionise the auto sector through necessary policy interventions. In the same direction, the Central Government, in September 2021, issued a notification regarding a PLI scheme for the automobile and auto component industry worth R25,938 crores (about $3.49 billion).

The Government has also collaborated with various Indian automotive industry associations and envisioned the Automotive Mission Plan 2016-26 (AMP 2026) as an initiative driving sector growth. AMP 2026 is the composite vision. The vehicles, auto components, and tractor industries are expected to grow over the coming decade in terms of size, global footprint, technological advancement, exports, economic growth, and institutional structure capabilities. It also defines the evolution trajectory of the automotive ecosystem in India, including the regulations and policies governing research, design, technology, testing, manufacturing, and recycling of automotive vehicles.

The automobile industry of India manufactured more than 22 million vehicles from April-March 2020, including passenger and commercial vehicles, three-wheeled vehicles, two-wheelers, and quadricycles, of which more than 4 million were exported. India holds a strong position in the international heavy vehicles arena as the largest tractor manufacturer, second-largest bus manufacturer, and the third-largest heavy trucks manufacturer globally. The sector pundits have predicted India to become the world’s third-largest automotive market in terms of volume by 2026, which is currently worth more than $100 billion and contributes to 8 per cent of the country’s total export accounting for 2.3 per cent of India’s GDP.

The Indian auto industry is expected to record strong growth in 2022-23, following the recovery from the effects of the Covid-19 pandemic. This growth is expected to reach up to R18.18 trillion ($282.8 billion) by 2026, where the centrally located state of Madhya Pradesh is expected to be one of the major driving forces.

Innovation – key to success for enterprises*

India is ranked 40th out of 132 among the top innovative economies globally as per the Global Innovation Index (GII) 2022.

Innovation could be in the form of a new product or new design or a new process or a new marketing technique or change in the organisation it could lead to innovation. The MSMEs face a lot of challenges and simultaneously a lot of opportunities are emerging which the young people have to grab and put up successful enterprises.

As you know, MSMEs are provider of a highest number of jobs in the country next only to Agriculture Sector. We have to continue motivating young people to set up their own business and industries, so that they may be job creators and not job hunters. They could own their business and become their own boss. We at AIMA have been organising programs for African Students in India on ‘Don’t Hunt For The Job, Be Your Own Boss’ when they get back home after their studies. This have been very successful.

Innovation is the lifeline of an SMEs to grow and prosper and continue providing employment. Innovation has to be encouraged, we find SMEs have constraints as they do not have funds to innovate.

To encourage innovation amongst MSME, the Expert Committee has recommended that an SMEs Innovation Fund may be created to motivate enterprises to innovate. Simultaneously it is essential that SMEs must benefit from IPR.

On December 26, 2022, Shri Shivraj Singh Chouhan, Chief Minister, Madhya Pradesh, unveiled the Madhya Pradesh Science, Technology and Innovation Policy 2022.

The main objective of this policy is to rank Madhya Pradesh as the top science, technology and innovation (STI) destination in the country, and to strengthen factors such as human resources, investment and knowledge-based labour force to position the state in the top five in the ‘India Innovation Index’ (from its current rank of 13) by the year 2030.

The policy will also focus on developing an effective STI ecosystem and help Madhya Pradesh to increase knowledgebased production in the state by strengthening indicators such as research publications, innovations, startups, industrial design innovations and patents.

There are plans to increase the enrolment ratio in STEM (science, technology, engineering and mathematics) courses at undergraduate, masters and PhD levels by promoting STEM education right from the elementary level, especially among girl students, by enriching the curriculum with STEM experiments and competitions.

Further, in order to promote innovation and science education, top institutions such as IITs, IIMs, will be encouraged to adopt a district in Madhya Pradesh and promote science and innovation locally in that district.

Innovation clusters, incubators and accelerators will be set up in leading institutions to help startups take advantage of early funding mentorship, training and best practices through coordination with the private sector.

Innovation ecosystem

India is and has always been at the center stage of some great innovations—be it the digit ‘0’ by Aryabhatta or the contribution to astrology and technology. The world is coming back to accept the knowledge of ayurveda and yoga for the betterment of individual life. The recent success of indigenously built Mars Orbiter— Mangalyaan on its first attempt is a tribute to not only frugal innovation (cost incurred R7 per kilometer in covering the 650 million km distance to Mars, least amount spent—$74 million, which is one-tenth of the $670 million that NASA spent on its Maven explorer)—but also a demonstration of India’s mastery of technology and leadership.

In the recent years, a lot of young people are scouting to setup their own enterprises, while others do so after gaining some work experience. Based on our assessment, we find that the entrepreneurial spirit in India is gaining ground. Some of the youth are setting up the industries and service enterprises based on the well-known technologies or family/ businesses/experience. However, several of them do evaluate available technologies & market potential and evolve an idea for a creative and innovative product. Then, they undertake research & development and gravitate to a hub and setup a business venture.

India has earned its name as an innovation and R&D centre for IT & IT-related activities. It is serving as a global hub for offshore knowledge—intensive IT services and industry. It has set a leading example of economic possibilities which innovations can bring. India has also excelled in frugal innovations by creating high-quality products using existing technology and infrastructure. However, to be world-class and considering aspirations of the nation and motivation ushered by the Hon’ble Prime Minister of India, Shri Narendra Modi and rising expectation of the people, universities and institutions of higher learning and industries both public and private sectors have to play a major role in this R&D effort.

Since the end of the previous millennium, India has been able to establish itself as a major player in the information technology and technology-enabled services (ITES). India’s exports of software services (excluding exports through commercial presence) are estimated to have increased by 17.2 per cent to US$ 156.7 billion during 2021-22. Computer services continued to account for over two-thirds of total software services exports.

Emerging future opportunities

In the wake of the Covid-19 pandemic, the world is shifting to a new norm where digital platforms enable the entire ecosystem. This shift is no longer a push but a pull now. It started with demonetisation, further accelerated by the introduction of the Goods and Services Tax (GST) and has now reached unprecedented levels. Advancements in artificial intelligence (AI)- and machine learning (ML)-driven technologies are assisting the entire business pipeline in discovery, conversations, transactions and fulfilment for smart decision making. These platforms are progressively becoming available even for small businesses as well.

AI can carry out routine jobs, such as scheduling corporate meetings and responding to frequent client inquiries, it can accurately assess billions of consumer purchasing patterns in a matter of seconds and dynamically fine-tune marketing efforts that improve audience signals, etc. These are just some of the benefits that make AI the most appropriate choice for SMEs. Understanding AI, however, is quite complex, due to the numerous definitions and illustrations of too many scholars and experts. This article makes an attempt to explain and illustrate the concepts of AI in layman terms.

It has been observed that SMEs that implement digital technologies supported by AI increase their productivity and competitive edge. The time is right for small businesses to invest in AI solutions to monitor user behaviour and offer recommendations, enhance search results, and media communication, increase sales, improve organizational performance, and cut expenses.

As a first step, MSMEs should start investing in gathering and capturing data, which could help them build AI applications. The good news is that MSMEs already generate huge volumes of data, which included data of transacting parties, sales on credit, payments, reminders etc. This data is a highly valuable resource in this digital age, and can act as a raw material for the development of innovative products or services.

It would not be wrong to say that the road to recovery of the MSME sector is paved with data. Data can provide the fuel to power better and faster decisions, and improve their resilience at this time of economic uncertainty and beyond.

Tech startups are increasingly leveraging technologies in data science and AI to offer business solutions that solve unique problems of MSMEs. They are fast emerging as technology partners of MSMEs looking at new-age solutions that are based on data and analytics to improve operational performance.

Conclusion

Studies have shown that innovations for most participating SMEs meant adapting others’ basic designs with minor modifications, undertaken mainly though their in-house efforts. However, it was heartening to note that a few owner-innovators did recognise the need for innovating novel products, not only new to the firm but even globally and working in this direction. Though the nation has invested heavily in creating scientific and technological infrastructure by way of publicly funded R&D laboratories/ institutes, universities, polytechnics, etc, it was surprising that the SMEs were largely not aware of their expertise, facilities, and knowledge assets or averse to availing of their assistance owing to bureaucratic attitude, failure to maintain delivery schedules, inadequate contemporary knowledge of the specific sector etc. Fostering of innovation in SMEs is crucial for their growth and development. Hence, SMEs need to be encouraged to innovate, and for which, awareness and financial incentives are required.

Innovation is the strongest tool for an entrepreneur to succeed in business. Innovation is often also viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. As an entrepreneur, one should always keep in mind that change is inevitable. If one does not innovate or bring any changes, his/her business will suffer. Fostering innovation through product, process, marketing, and organisation will not only bring monetary profits but also increases the life span of the business.

An innovation backed by entrepreneurial spirit is the ultimate mantra for success of an enterprise, even if raises the need for continuous innovation in an ongoing enterprise.

The government must encourage creativity and innovation among SMEs. Innovation is the lifeline for MSMEs to grow and prosper and continue serving the nation by providing products and services generating much needed employment for the millions. To encourage innovation amongst MSME, One Man Committee headed by Mr. Prabhat Kumar, Former Cabinet Secretary, GOI, has recommended that an MSME Innovation Fund may be created to motivate enterprises to innovate. Through the fund with an initial corpus of say R500 crore, it should be possible to provide financial incentive for developing innovative ideas and promote improvements in processes and techniques. Since our experience has shown, many innovations stay at the jugad stage for lack of funds and cannot realise their potential.