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

 

Pune Cluster Insights

Dun & Bradstreet India (D&B India) carried out a comprehensive study based on primary survey of the small and medium enterprises (SMEs) operating and based in Pune. The survey aimed to highlight the business trends of the SMEs operating in Pune in terms of their operations, financing, technology, exports, their outlook on growth prospects, and major challenges faced. Companies with a total income below ` 1,000 mn during FY13 were considered for the purpose of survey analysis.

Pune, which is popularly known as the ‘Cyber City’ is the second largest district in Maharashtra and accounts for around 5.10% of the total geographical area of the state. Over the years, Pune’s transformation from “Oxford of the East” to “Knowledge City” has been remarkable. It has gradually emerged as one of the major industrial hubs of India and has huge concentration of several auto component manufacturers and IT and ITeS related service providers. This is supported by the availability of highly educated and skilled manpower, geographical advantage and sound transportation connectivity.

Some of the key findings from our primary study are highlighted in this section.

Pune SME Cluster - SME Perspective

More than half of the companies were earning income between ` 10 mn - ` 100 mn

Our survey study revealed that around 58% of the SMEs operating in the Pune cluster were earning income between ` 10 mn - 100 mn during FY13. Further, only around 3% of the SMEs were part of the highest income bracket between ` 500 mn to ` 1,000 mn and 18% were earning income upto ` 10 mn.

As highlighted in the chart below, majority of the SMEs were earning income in the range of ` 10 mn - ` 100 mn in both the sectors i.e. auto components and IT & ITeS. Further, around 36% of the companies in case of auto components sector were earning income upto ` 10 mn, whereas only around 5% of the companies in case of IT & ITeS sector were earning income upto ` 10 mn.

None of the companies were part of highest income bracket between ` 500 mn - ` 1,000 mn in case of IT & ITeS sector, whereas around 7% of the companies were part of highest income bracket between ` 500 mn - ` 1,000 mn in case of auto components sector.

Majority of the companies in the auto components sector expect their sales turnover to increase in FY14, whereas majority of the companies in the IT & ITeS sector expect their sales turnover to remain flat in FY14

Amid, the uncertain domestic economic scenario, high inflation and fuel prices, around 45% of the surveyed companies which were part of the auto components sector, were optimistic about their sales and expect their sales turnover to increase during FY14. Whereas, the remaining were pessimistic about the same.

Whereas, around 46% of the companies which were part of IT & ITeS sector, expect that their sales turnover would remain flat in FY14. While, about 44% expect increase in sales turnover, rest 10% expect decline in the same.

Financing Trends

Procuring funds and access to alternative source of funding was rated as ‘Moderately Easy’ by majority of the SMEs based in Pune

Majority of the surveyed SMEs in Pune i.e. around 46% rated ease in procuring funds as ‘Moderately Easy’. Similarly, access to alternative source of financing was also rated as ‘Moderately Easy’ by around 47% of the SMEs.

Interest subsidy in case of pre-payment of loans emerged as the most important measure to enhance SME funding

High interest cost is one of the major obstacles which SMEs face in procuring finance. Thus, nearly 63% of the respondents expect interest subsidy in case of pre-payment of loans as the most crucial factor which can boost SMEs funding. This was followed by offering value added services from financial institutions (Around 60% share in various factors for boosting SME funding) would be next important step that would boost SME funding.

Around 42% of the respondents state that the limit up to bank’s grant credit should be increased to improve SME funding. Interestingly, making credit rating mandatory emerged as the least crucial factor according to SMEs for enhancing funding.

Labor & Human Resource Trends

Availability of managerial talent and retention of skilled labor was ranked as ‘Moderately Easy’ by majority of the SMEs based in Pune

Availability of managerial talent and retention of skilled labor is not a major problem for SMEs based in Pune. This is due to presence of several educational institutes and fairly well-established industrial units. However, the supply of labor needs to be kept in pace with demand from various industries, which is estimated to grow at a faster rate.

D&B India’s study revealed that, in terms of availability of managerial talent and retention of skilled labor, overall Pune was rated as ‘Moderately Easy’ by majority of the SMEs operating in Pune. Similar trend was observed in case of sector-wise analysis i.e. in case of IT and ITeS and auto components sector.

Only around 3% of the SMEs in the auto components sector rated ‘Availability of managerial talent’ as extremely difficult, while none of the SMEs in the IT & ITeS sector rated the same as extremely difficult.

Retention of skilled labor was ranked as ‘Extremely difficult’ by nearly 7% and 13% of the SMEs operating in the auto components and IT & ITeS sector respectively.

Pune was rated as ‘Reasonably Costly’ in terms of cost of skilled labor as compared to other competitive locations such as Chennai, Bengaluru and Mumbai

D&B India’s findings revealed that, in terms of cost of skilled labor, Pune was overall rated as ‘Reasonably costly’ as compared to other competitive locations such as Chennai, Bengaluru and Mumbai. Similar trend was observed in case of auto components and IT & ITeS sector analysis too.

Further, Pune was ‘Highly costly’ by around 3% of the SMEs part of each auto components and IT & ITeS sector. Interestingly, none of the SMEs part of auto components as well as IT & ITeS sector, rated Pune as ‘Highly Cheap’ in terms of cost of skilled labor.

Technology & Industrial machinery

Availability of SME specific technological solutions and industrial machinery was rated as ‘Easy’ by SMEs from auto components sector operating in Pune

Majority of the SMEs based in Pune, which were part of auto components sector, ranked availability of SME specific technological solutions and availability of industrial machinery as ‘Easy’.

Availability of SME specific technological solutions was rated as ‘Extremely Easy’ by around 26% of the SMEs part of auto components sector, and only around 3% of the SMEs part of auto components sector rated the same as ‘Extremely Difficult’. This is likely due to presence of several IT and ITeS based companies in Pune, which offer such low cost solutions to SMEs.

Similarly, availability of industrial machinery was rated as ‘Extremely Easy’ by around 3% of the SMEs and ‘Extremely Difficult’ by nearly 7% of the SMEs part of auto components sector. This is probably due to good transportation connectivity and availability of imported industrial machinery.

Access to market & marketing

Over 90% of the SMEs were earning export revenues up to 20% of their total income

Our survey findings revealed that, over 90% of the respondent SMEs were earning export revenues in the range of 0% to 40% of their total income during FY13. Further, only around 7% of the SMEs were earning export revenues in the range of 40% to 80% of their total income during FY13. None of the respondent SMEs were earning export revenues in the range of 80% to 100%.

Around 71% of the SMEs which were part of the auto components sector, earned export income upto 20% of their total income, whereas in case of IT and ITeS sector, nearly 57% of the SMEs earned export income in the range of 20% to 40% of their total income.

Meeting foreign standards and overseas laws & regulations and collection of payment emerged as the top three challenges while operating in exports markets

Meeting foreign standards emerged as the topmost challenge for the SMEs operating in the Pune cluster, accounting for around 46% share in the export related challenges. This was followed by meeting overseas laws & regulations accounting for 43% share and collection of payment accounting for about 36% share in the export related challenges. Lack of information about target market, trade financing, high export duties, cumbersome process and cultural differences were the other export related challenges.

Reaching out to target customers was rated as ‘Moderately Easy’, whereas availability of skilled marketing & sales personnel was rated as ‘Difficult’ by majority of the SMEs in Pune

Around 32% of the overall SMEs, rated reaching out to target customers as ‘Moderately Easy’, whereas about 34% of the overall SMEs, rated availability of skilled marketing & sales personnel as ‘Difficult’.

Reaching out to target customers was rated as ‘Moderately Easy’ by around 33% of the SMEs part of auto components sector, whereas it was rated as ‘Easy’ by nearly 37% of the SMEs part of the IT & ITeS sector.

Similarly, availability of skilled marketing & sales personnel was rated as ‘Difficult’ by around 40% of the SMEs part of auto components sector, whereas it was rated as ‘Moderately Easy’ by nearly 32% of the SMEs part of the IT & ITeS sector.

Infrastructure & Facilities

Access to ports & airports and roads & highway connectivity was rated as ‘Easy’ across auto components and IT & ITeS based sector

The roads & highways are well developed throughout Pune and have good connectivity with Mumbai through Mumbai- Pune expressway. Our survey findings revealed that, around 44% of the overall SMEs rated connectivity of roads & highways as ‘Easy’. Similarly, access to ports and airports was also rated as ‘Easy’ by nearly 42% of the SMEs.

Similarly, across auto components and IT & ITeS sector the above mentioned infrastructure facilities parameters were rated as ‘Easy’ by majority of the SMEs part of these sectors.

Nearly 7% of the SMEs part of the auto components sector, rated access to ports and airports and connectivity of roads & highways as ‘Extremely Difficult’. Whereas, none of the SMEs in the service sector i.e. IT & ITeS sector rated these parameters as ‘Extremely Difficult’.

SME Business Travel Trends

Majority of the SMEs take between two to five domestic trips annually, whereas in case of international travel, majority of the SMEs take only upto one business trip

Our survey findings revealed that around 46% of the SMEs take between two to five domestic business trips annually through airways, whereas majority of the SMEs i.e. around 83% of the SMEs take only upto one international business trips through airways.

Further, the sector-wise analysis as depicted in the chart below revealed that in case of companies falling in the IT & ITeS sector, around half of the respondents did not take even a single international business trip via airlines. Whereas, in case of domestic business travel around 56% of the SMEs falling in the IT & ITeS sector take between two to five trips annually.

Similarly, for SMEs falling in the auto components sector, nearly 74% of the SMEs did not take even a single international business trip via airlines. Whereas, in case of domestic business travel around 32% of the SMEs falling in the auto components sector take between two to five trips annually.

Over half of the SMEs in the IT & ITeS sector, allocated between 3%-5% share from their company’s total budgeted expenditure, for their business airfare travel needs, whereas in case of auto components sector, majority of the SMEs allocated less than 2% for the same

Overall, over 45% of the SMEs allocated between 3%-5% share from their company’s total budgeted expenditure, for their business airfare travel needs. Within that, majority of the SMEs i.e. around 54% of the SMEs, falling in the IT & ITeS sector allocated between 3% - 5% share from their company’s total budgeted expenditure, for their business airfare travel needs. Similarly, in case of auto components sector, about 48% of the SMEs allocated less than 2% from their company’s total budgeted expenditure, for their business airfare travel needs. Furthermore, none of the SMEs, in case of both auto components and IT & ITeS sector allocated more than 15% share from their company’s total budgeted expenditure, for their business airfare travel needs.

Moreover, income-wise analysis revealed that, all of the SMEs part of the lowest income bracket i.e. earning income up to ` 10 mn, allocated upto 5% share from their company’s total budgeted expenditure, for their business airfare travel needs.

Whereas, SMEs part of the highest income bracket i.e. earning income between ` 500 mn to ` 1,000 mn, around half of them allocated between 11% - 15% share from their company’s total budgeted expenditure, for their business airfare travel needs.

Asia, Europe and North America emerged as the most frequent travel destination across both IT & ITeS and auto components sector

Asia (excluding Middle East), Europe and North America emerged as SMEs three most frequent travel destinations, accounting for around 65%, 39% and 19% share in various frequently traveled destinations. Similar trend was revealed in case of sector-wise analysis as highlighted in the chart underneath:-

Reward points / corporate discounts emerged as the most significant benefit, which SMEs derived from choosing a particular airline

Reward points / corporate discounts, value added services such as assistance in hotel & car booking and free travel insurance emerged as the top three benefits which SMEs derived from choosing a particular airline. Further, nearly 7% of the SMEs did not derive any benefit from choosing a particular airline. However, in case of auto components sector, value added services emerged as the most significant benefit, accounting for nearly 55% share in various benefits derived from choosing a particular airline, followed by free travel insurance. In case of SMEs part of the IT & ITeS sector reward points was revealed as the key benefit, accounting for nearly 81% share in various benefits derived from choosing a particular airline.

Using the cheapest airline, reducing the number of staff travelling and lowering class of travel emerged as the top three preferred means of managing business travel cost better over the next year

Using the cheapest airline emerged as the most preferred means of managing business travel cost over the next year, with its rank of 2.4 amongst various factors for managing business travel cots. This was followed by reducing the number of staff travel and lowering class of travel as next significant factors for managing business travel cost.

For auto components sector, lowering class of travel emerged as the most crucial factor for managing business travel cost better over the next year. Whereas, for IT & ITeS sector, using the cheapest airline emerged as the most crucial factor for managing business travel cost better over the next year.

Growth Strategies & Outlook

Implementation/Upgradation of technology and launch of new products/services were cited as the priority for business growth

Implementation/upgradation of technology and launch of new products & services emerged as the priority for business growth by SMEs based in Pune as evidenced by around 79% share of each in various business growth strategies.

Over 40% of the SMEs part of auto components sector expects their industry’s growth to increase by less than 5%, whereas around 60% of the SMEs part of the IT & ITeS sector expects their industry’s growth to increase between 5%-10%

Around 90% of the respondent SMEs part of the auto components sector expects their industry’s growth rate to increase over the next six months period. Out of which, around 43% of the SMEs expects their industry’s growth to increase by less than 5%, nearly 27% anticipate it to increase between 5% to 10% and 23% of the respondent SMEs expects it to increase by more than 10%. Further, around 3.3% believe industry’s growth rate to decline by less than 5% and rest (around 3%) anticipate it to remain flat

Similarly, for SMEs which were part of the IT & ITeS sector, nearly 83% of the respondent SMEs expect their industry growth rate to increase, nearly 18% expects it to remain flat, while none of them expects it to fall over the next six months period.

Around 60% of them expect it to increase between 5% - 10%, while nearly 18% anticipate it to increase by less than 5% and 5% believe it to increase by more than 10%.

Over 60% of the respondents ranked ‘Pune’ as ‘Favorable’ destination in terms of ‘Ease of doing businesses’ as compared to other competitive locations such as Chennai, Bengaluru and Mumbai

D&B India’s survey findings revealed that, around 63% of the overall respondent SMEs rated ‘Pune’ as a favorable destination for doing business as compared to its competitive locations such as Chennai, Bengaluru and Mumbai. Around 28% of the respondent SMEs rated it as the ‘Top’ destination in terms of ‘Ease of doing businesses’ as compared to its competitive locations.

Further, around nearly 30% of the respondent SMEs rated it ‘On Par’ and remaining 7% rated Pune as ‘Unfavorable’ location in terms of ‘Ease of doing businesses’ as compared to its competitive locations such as Chennai, Bengaluru and Mumbai.

Transportation connectivity, geographical advantage and lower cost of setting up business were revealed as the top three factors for Pune emerging as the major industrial hub

D&B India’ survey findings revealed that, around 69% of the respondent SMEs rated access to ports & road connectivity as the top factor for Pune emerging as the major industrial hub. This was followed by geographical advantage and lower cost of setting up business as compared to other competitive locations such as Chennai and Mumbai as the next crucial factor for Pune emerging as the major industrial hub.

Miscellaneous Trends