Role of MSMEs in Developing Countries - Micro, Small And Medium Enterprises | Entrepreneurship & Small Businesses - B Com PDF Download

Role of MSMEs in Developing Countries

1) Large Employment Opportunities: MSMEs are generally labour- intensive. For every Rs. 1 lakh of fixed investment, MSME sector provides employment for 26 persons as  against 4 persons in the large scale sector. Thus in a country like India where capital is scarce and labour is abundant, MSMEs are especially important.

2) Economical Use of Capital: MSMEs need relatively small amount of capital. Hence it is suitable to a country like India where capital is deficient.

3) Balanced Regional Development: Generally small enterprises are located in village and small towns. Therefore it is possible to have a balanced regional growth of industries. India is a land of villages.

4) Equitable Distribution of Income And Wealth: It removes the drawbacks of capitalism, abnormal profiteering, concentration of wealth and economic power in the hands of few etc.

5) Higher Standard of Living: MSMEs bring higher national income, higher purchasing power of people in rural and semi-urban areas.

6) Mobilization of Locals Resources: The spreading of industries even in small towns and villages would encourage the habit of thrift and investment among the people of rural areas.

7) Simple Technology: New but simple techniques of production can be adopted more easily by MSMEs without much investment.

8) Less Dependence on Foreign Capital: MSMEs use relatively low proportion of imported equipment and materials. The machinery needed for these industries can be manufactured within the country.

9) Promotion of Self Employment: MSMEs foster individual skill and initiative and promote self-employment particularly among the educated and professional class.

10) Promotion of Exports: With the establishment of a large number of modern MSMEs in the post independence period, the contribution of the small scale sector in the export earnings has increased much.

11) Protection of Environment: MSMEs help to protect the environment by reducing the problem of pollution. 12) Shorter Gestation Period: In these enterprises the time-lag between the execution of the investment project and the start of flow of consumable goods is relatively short. 13) Facilitate Development of Large Scale Enterprises: MSMEs support the development of large enterprises by meeting their requirements of inputs of raw materials, intermediate goods, spare parts etc. and by utilizing their output for further production.

Problems of MSMEs
Some of the more important problems faced by MSMEs are as follows:

1) Lack Of Managering Experience: They may not be having specialised knowledge in the different fields of management. At the time of initiating the project, they are not in a position to anticipate correctly their financial requirements and the size of market for their products.

2) Inadequate Finance:Generally MSMEs are not in a position to arrange full finance from their own sources. They obtain finance from unorganized finance sector at higher rate of interest.

3) Lack Of Proper Machinary And Equipment: Many MSMEs use inefficient and outdated machinery and equipment. This affects the quality of production.

4) Lack Of Technical Know- How: Do not have the knowledge about different alternative technologies and processes available for manufacturing their products to improve the quality of products and reduce costs.

5) Run On Traditional Lines:They have not yet adopted modern methods and techniques of production. They have not taken adequate interest in research and development efforts. Hence they cannot be run efficiently.

6) Irregular Supply Of Raw Materials:The majority of MSMEs depends on local sources for their raw material requirements. Small entrepreneurs are forced to pay high prices for materials because they purchase materials in small quantity.

7) Problem Of Marketing: The brand name of the products of MSMEs is acute due to tough competition from large industries. It cannot afford to costly advertisement and network of distribution system. There are delays in the payment of bills by large purchasers resulting in inadequate working capital.

8) Personnel Problems:It is difficult for them to get qualified persons to run the business. They cannot provide much training facilities to employees.

9) Lack Of Clear-Cut Policy Of The Govt: The Govt. may take decisions relating to MSMEs on the basis of political consideration rather than on economic consideration.

10) Bogus Units: The government should look into this aspect seriously, break the strong hold of such vested-interested and promote only genuine entrepreneurship in the country.

11) Other Problems: Like inefficient management, non- availability of cheap power, burden of local taxes etc.