Global Risks and Indian SMEs

India is one of the most fertile grounds for small and medium enterprises (SME) growth today. Be it agrarian, manufacturing or service-related, SMEs account for ~45% of industrial output, 40% of the country’s total exports and ~30% of the GDP; in the process, generating employment for over 60 million people and creating over 1.3 billion jobs annually. SMEs are also a key factor in urbanizing rural India since a majority of the population stems from villages and tier 1/2 cities. Despite often being hailed as the new engine for Indian economic growth, there are a number of both internal and external risks faced by SMEs today. It is however the latter, which poses a greater threat owing to the same being outside an average SMEs’ control, influence, and capacity to tackle.

The World Economic Forum classifies and monitors global risks in five categories: economic, environmental, geopolitical, societal, and technological. These risks are further sub-divided into 30 parameters and evaluated based on 1000 global players and stakeholder views.

Global Economic Risks to SMEs

Economic risks have significant implications for SMEs, especially more pertaining to the manufacturing sector. Asset bubbles in an economy can often increase costs by way of inflation, labour shortages and rising wages, coupled with strained access to financial resources in India. SMEs are furthermore jeopardized due to weak cash flows and financial structures, low equity reserves, tightened credit lines and payment delays, and the lack of proper skill to make strategic changes in order to adapt.

Global Environmental and Disaster Risks to SMEs

Vulnerabilities rooted in environmental factors generally show up on four fronts: capital, labour, logistics, and markets. Few SMEs are adequately prepared for unforeseen disasters and the same can bottleneck and disrupt the supply chain networks in which many SMEs are embedded throughout the country.

These enterprises, often being resource-constrained, less resilient, relatively informal and lacking insurance and business continuity plans cut corners, which gets greatly aggravated in the event of a calamity.

Global Geopolitical Risks to SMEs

Geopolitical volatility is a far-reaching consequence for small and medium enterprises. Most of them being cross-border, the impacts are felt across international trade and services. A clear example is the current Russo-Ukrainian war, which despite not having been on or even related to Indian sentiments and land has started making its mark on the military and oil sectors in the country.

Global Technological Risks to SMEs

Technological advancements and processes can have adverse consequences on SMEs, especially in the manufacturing sector. Developing means of production through robotics, automation, cloud computing, and new materials are some key aspects of modernization that can create both opportunities and be disastrous for manufacturing SMEs.

Also Read:- Raw Material Cost: A Concern for the Indian Manufacturing Industry

While the same also offers better access to knowledge and information, communication, efficiency and overall functioning, it also harbours major risks of data theft and cyber-attacks.

Global Societal Risks to SMEs

A failure in proper societal planning leads to haphazard industrial growth, informal growth and sprawling in urban centres and ultimately a poor and fragile infrastructure with its own bag of environmental and health issues. However, SME engagement in risk management and critical infrastructure protection can go a long way in reducing the potential impacts of unforeseen events.

OFB Tech (Ofbusiness) is a tech-enabled platform serving one of the largest SME spaces in the world with a focus on manufacturing and infrastructure sectors. We strive to offer better products, at better prices and in better timelines with comprehensive support throughout the procurement both on and offline.