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Dun & Bradstreet - Oriental Bank of Commerce SME Cluster Series 2014 : Chennai

 

Cluster Trends

Faridabad is one of the major industrial cities in India, with proximity to the national capital. It has industrial units across various sectors ranging from small enterprises to large establishments that produce auto components, tractors, motorcycles, refrigerators, machinery, footwear and helmets.

Dun & Bradstreet (D&B) conducted a primary study to capture and analyse the major business related trends in the Faridabad cluster, largely in terms of operations, financing, major export challenges faced by the small and medium enterprises (SMEs) operating within the cluster, and their outlook on growth prospects. Companies with a turnover below ` 1,000 million in FY13 were considered for the analysis. The key findings of the primary survey are elucidated in this section.

Ownership Pattern

The study revealed that majority of the surveyed companies (53%) in Faridabad are proprietary firms. Private limited enterprises and partnership companies accounted for 34% and 13% of the total companies, respectively.

It was observed that ~78% of the surveyed SMEs have been operating for more than or equal to 15 years in the Faridabad cluster, of which ~57% recorded revenue up to ` 10 million.

Around 44% of the companies were established prior to the liberalisation time, whereas one third of the companies were formed during 1991-2000 period. About 6% were established during 2001-2005, and the remaining 17% in the post 2005 era.

Companies from the automobiles and related ancillary units turned out to be most prominent in the Faridabad cluster, accounting for around 19% of the total surveyed companies, followed by engineering companies, which accounted for a share of 13.5%.

Operational Analysis

The survey furnished results, which suggested that around 56% of the SMEs operating in the Faridabad cluster recorded incomes up to ` 10 million during FY13. Further, 71% of proprietary companies recorded incomes up to ` 10 million during FY13.

In addition, about 31% of the SMEs in Faridabad reported an income between ` 10 million and ` 100 million. Around 11% of the SMEs in Faridabad generated income between ` 100 million and ` 500 million, while only about 2% fell in the highest income bracket of ` 500 million to ` 1,000 million.

The companies covered under the study in this cluster encompass varying operations such as manufacturing, exports, imports, wholesalers, distributors and dealers. The companies are engaged in business activities across a range of sectors, including automobile components, forgings, construction chemicals, safety pins, gear manufacturing, engineering, aluminium needles, handicrafts, and consultancy services, among others.

Export Scenario

Among the surveyed companies, 35% of the respondents reported that their exports revenues contributed 20-40% of their total income, while for another significant 33%, their share of exports in the total income was below 20%.

The survey results also revealed that 60% of the companies with income bracket between ` 100 million and ` 500 million had export income of less than 20% of their total income. About 46% of the respondents with income up to ` 10 million had export income in the range of 20-40% and 42% of the respondents with income between ` 10 million and ` 100 million recorded export income in the range of 40-60%. For about 5% of the respondents with income bracket up to ` 10 million, exports accounted for 60-80% of their revenues.

Currency fluctuation emerged as the biggest challenge while operating in the export markets for the companies in the Faridabad cluster. About one third of the respondents with income less than ` 100 million and 60% of respondents with income between ` 100 million and ` 500 million ranked currency fluctuation to be the major challenge, while none of the respondents cited delayed payments from international buyers as a concern. Excessive documentation and lack of access to new markets are the other important challenges faced by the SMEs in this cluster.

Business Travel Trends

The survey results revealed that on an average, annually about 56% of the respondents undertake more than five domestic trips via airlines for business purpose. As regards international business trips, 32% of the respondents informed that they do not undertake international business trips. About 30% of the respondents undertake an average of 2-5 international business trips, with 36% of them falling in the revenue bracket of up to ` 10 million and an equal percentage falling in the revenue bracket of between ` 10 million and ` 100 million.

Further, 68% of the respondents informed that in 2014, they expect their air travel expenses to increase.

Technology Scenario

More than one-third of the respondents cited high implementation cost as the biggest hurdle while implementing/upgrading IT.

In terms of benefits of implementing IT, 34% of the respondents believed that it resulted in increased efficiency and about 31% indicated improvement in quality. Moreover, 23% of the respondents cited cost reduction, while 13% reported improved processes due to implementation of IT.

The survey results also revealed that high costs of implementation of IT was the major hurdle for around 35% of the respondents with income up to ` 10 million. However, 7% of the respondents with income between ` 10 million and ` 100 million felt that their business was too small for IT applications, while none of the respondents with income between ` 100 million and ` 500 million faced poor consultancy support services while implementation of IT.

Increase in efficiency and quality improvement turned out to be the two main factors driving technology implementation in the Faridabad cluster. These findings also hold true for 60% of the respondents with income up to ` 10 million and 69% of the respondents with income group between ` 10 million and ` 100 million. However, only about 13% with income up to ` 10 million cited that IT implementation resulted in process improvement.

Cluster - Business Environment

Tax benefits emerged as the most significant benefit of operating in the Faridabad cluster, followed by export promotion. Interestingly, the least cited benefits of operating in the cluster were less bureaucratic hurdles and ease of access to bank finance.