NEW DELHI, INDIA: SMBs are the backbone of the economy and have remained so despite the challenges which have come their way. While nimbleness has been their greatest asset the recent downturn has hit them unexpectedly and caught them fairly off guard, yet as the axiom of the survival of the fittest comes into play these SMBs are the ones most well adapted to emerge as survivors.

While the government acknowledges the criticality of this segment and has woken up to the challenges which are coming the way of SMBs it is important for these businesses to become self reliant as they move forward.

The fact remains that there is a set of challenges that the SMBs have been facing, of which some have become aggravated in the recent times. Some of the challenges that SMBs have been facing include fragmented markets in respect of their inputs as well as products, vulnerability to market fluctuations, limited access to technology and product innovations, lack of awareness of global best practices, considerable delays in the settlement of dues or payment of bills by large-scale buyers, non-formal business practices and lack of transparent financial information.

To these challenges have been added some more including financial crunch and demand recession. Analysts and social scientist iterate that the implications of the compounded challenges could actually have a social, political and of course an economic impact if not immediately arrested. A more critical understanding of these challenges will go a long way in helping meet them head-on and evolve strategies to overcome them in the new year.

Analysts and the government have acknowledged that most of the employment in the country comes from the SMB segment and that a weakening of the economy should not affect this group adversely. Going forward one can hope that the government will endeavour to obviate the challenges which this sector is facing but collectively the industry bodies, vendors and the SMBs themselves will have to work towards dissipating the effects of these challenges some of which include:

Access to organized finance
SMBs stand at a precarious point where they do not enjoy the kind of goodwill which larger corporate house have, therefore their credit worthiness is low while their requirements are just the same as any other business

Most SMBs rely on costly funds sourced from the unorganized financial sector. They also have to face:

* Delays in the settlement of dues or payment of bills by large buyers.
* Lack of financial transparency and consistency in the ecosystem impacting SMBs.
* Lack of access to business financial information.
* The liquidity crisis, since banks are more conservative  in lending to them.
 
We need measures which on one hand enable affected small industries to tide over this period of financial crunch and on the other can push the demand for their products and services. Credit rating addresses some of these financial challenges. Most banks look for credit rating or improved access to financing, some banks also offer interest concession.

This year, more than ever before, SMBs should aim at being credit rated so that credit becomes accessible. Although everybody is advocating adoption of Keynesian principles for augmenting demand, the fruits of enhanced government spending would not reach the masses, unless participation of small industries is ensured.

Vulnerability to market fluctuations
SMBs don’t have the scale nor do they build on the capability to anticipate the market fluctuation, leaving themselves vulnerable to market changes. They need to increasingly focus on building their systems and process on business intelligence and ERP solutions- this will help them to anticipate future developments as well as work around insulating themselves from impending dangers by extracting information from their current business and taking informed calls on future business investments. An effective ERP system can help them manage erring providers as well as service clients better.

Globalisation of competition
While globalisation has opened new avenues, it has also created tough competition. This poses a set of challenges like the need for higher capital for growth; need to move to professional management, a lack of prior exposure to international environment becoming detrimental, the need for professionalism and most importantly effective leadership to drive the change process. According to a recent Microsoft-AMI Partners report on the IT adoption trends in the SMBs:

* The most vital external business challenge for SMBs is rapidly increasing competition both from foreign players as well as peers from within the country; this has been top-ranked by 67 percent of SMBs
* Forty-eight (48) percent of businesses feel that ‘pricing pressure’ in today’s market place is a major challenge for them.
* Thirty-three (33) percent of SMBs feel that they are unable to cope with the escalating volume of customer demands.
* SMBs also feel that the nature of customer demands has become more complex, this has led to need for customization and bringing in uniqueness in their offering to gain competitive advantage.