Small Scale Industries and Thier Impact On Indian Economy

Title Page
1
Acknowledgment
2
Table of Content
Serial Topics Page
No. No.
1. Abstracts 4-5
2. Introduction (6-7)
2.1 Background and Rationale 6
2.2 Aims and Objectives 6-7
2.3 Research Questions 7
3. Literature Review (8-21)
3.1 Introduction 8
3.2 Role of SMEs in Economy 8-10
3.3 Role of SMEs in Indian Economy 10-12
3.4 SMEs and Employment Generation 12-16
3.5 SMEs and Export Growth 16-20
3.6 Summary 20-21
4. Research Methodology (22-26)
4.1 Aims and Objectives 22
4.2 Research Questions 22
4.3 Research Approach 22-23
4.4 Research Method 24-25
4.5 Data Collection 25-26
5. Findings and Analysis (27-47)
5.1 Introduction 27
5.2 Analysis of Findings 27-46
5.3 Summary 46-47
6. Conclusion (48-49)
6.1 Introduction 48
6.2 Summary of Findings 48-49
7. Bibliography 50
8. Appendix (51-54)
8.1 Questionnaires 51-54
3
ABSTRACT
The sole objective of this research was to study the contribution and
responsibilities of small scale industries for the sustainable development of
Indian economy, and to accentuate their potential. Following objective has
been achieved:
• To perform a literature review to analyze the contribution and

responsibility of small scale industries towards the overall development
of economy in the context of employment generation and export
promotion
• To carryout a field studies to observe contribution and responsibly of

small scale industries towards the overall development of economy in
the context of employment generation and export promotion
The research has answered following research questions:
• What is the contribution and responsibility of small scale industries

towards the development of Indian economy in the context of
employment generation?

towards the development of Indian economy in relation to export
growth?
• Whether the potential of Indian small scale industries’ have been

underestimated or exaggerated.
To answer these set of questions, data was collected using both secondary
and primary sources. Secondary data comprises of literature review and
primary data was collected through first hand questionnaire survey.
Following are the major findings of the research.
4
There is no doubt in the highly creative role of small scale industries in
economic restructuring and development of India. Majorly their contribution
can be said to be employment generation and export growth which lead to
economic development of India. Government followed a discriminatory policy
for small scale industries in India comparing large scale industries.
Government of India very effectively dealt with financial constrains and labor
issue which lead to healthy growth of small scale industries. Globalization
had a average favorable (not highly favorable) for the augmentation of small
scale industries. Unquestionably small scale industries have lead to
employment generation in India. It is said, small scale industries are the
greatest employment creators in India and as well greatest employment
destructors in India as it lack providing effective training to the employees.
As a result it leads to a detrimental effect on our knowledge based economic
activity. To overcome this and to achieve a faster growth, small scale
industries in India should conform the policies of labor market reforms. Small
scale industries role in export growth of India is very commendable, this is
due to active support of export promotion agencies and government
incentives.
Indisputably if India wishes to augment its export performance then the

export policy should be more oriented toward the small scale industry.
Generally small scale industries’ role in Indian economy is undermined.
5
Chapter 1
INTRODUCTION
1.1 BACKGROUND AND RATIONALE
India witnessed a remarkable growth of small-size enterprises in India since

independence. In manufacturing sector Small and Medium Enterprises
(SMEs) have a vital position because of their creative role in employment
generation and earnings and struggle against provincial inequalities. SMEs
policies have witnessed change due to New Economic Policy 1991, but even
in the early 1980’s SMEs policies were revised so to adapt with changing
external environment. Change in policies accentuated on significance of the
globalization of commerce and mutual dependence in many areas such as
modernizing functions, teaching, promotion and commercial course of action.
To achieve equality in growth, SMEs have played an active role as they
create massive employment opportunities in the rural and semi-urban area
and thus minimize inequalities in different state and provinces. Small scale
industries have served domestic as well as international market at a realistic
cost. Indian government to protect its newly developed indigenous industries
and to minimize import, Indian official embarked a route of trade and
industry reforms of correction in its economic policy but unremitting to
shelter its small-size enterprises. This new strategy focused on external
accustom, contest and partnership with internal and external organizations,
the strategy outline confirms the latest noticeable variation in spotlight. In
view of these assumptions, we try to find out the contribution of small-size
enterprises in growth of Indian economy and to ascertain if their prospects
are weakened or strengthened.
6
1.2 AIMS AND OBJECTIVES
The aim of this research is to study the contribution and responsibilities of

small scale industries towards the development of Indian economy and to
understand whether their potential is underestimated or exaggerated. The
research have accomplished following objectives:

promotion

1.3 RESEARCH QUESTIONS


growth?

7
Chapter 2
LITERATURE REVIEW
2.1 INTRODUCTION
SMEs are becoming one of the important contributors in the national wealth
of the country and its importance is increasing day by day. SMEs include
many small enterprises that are more labor intensive and are more reluctant
to face the external uncertainties. The SMEs working is such that it attracts
both foreign direct investments and exports of the country. It also makes
significant contribution towards increasing the employment of the countries
as well.
2.2 ROLE OF SMES IN ECONOMY
Small size enterprises have significant contribution in the economic growth

of the country. Big organizations pose some challenges for the SMEs because
of its small size. Its working is greatly affected by the range of agents. To
overcome this constitution of cooperatives can be made that will encourage
SMEs more effectively. Being organized is one way by which SMEs can be
more competitive and can also enhance their negotiation power. The growth
of small enterprises cannot be overlooked in both developed and developing
countries as it is linked with employment and creates opportunities for new
jobs. Expansion of SMEs has now become very important as the numbers of
jobless people are increasing and there is a great need to provide
employment to these new entrants.
It is widely recognized that the SMEs, particularly those enterprises which
have inherent ability for rapid development, are an important contributory
factor in creation of employment opportunities and play a significant part in
8
modernization and generation of competitive capabilities (Doi and Cowling,
1998). Moreover, the growing small enterprises are mainly targeted by
financiers, advisors and management consultants.
The working of small enterprises is not that easy and they face some serious
challenges by big organizations. For an economy facing complex political and
economic challenges it is important for small enterprises to undertake some
new and risky projects improving the economic condition of the country.
SMEs are somehow not able to meet these challenges and are finding it hard
to survive upfront. They are considered to be a dynamic source of
employment generation and as soon as the barriers to their progress are
removed they will become sizeable input for the economy.
SMEs made significant contribution in the growth of the economy. It creates

job opportunities for both rural and urban people. The dependency of people
on SMEs is quite large and is increasing rapidly. Many big organizations were
once small enterprises which have developed themselves and grown with
time. Insecurity, novelty and progression are the three basic differences
between small and large scale enterprises. On the basis of the size of the
SME it can be divided into three broad categories- very small enterprises,
small enterprises and medium enterprises. It’s only when economy starts
getting industrialized the Small and medium enterprises evolve. SMEs also
help economy in division of earnings, tax proceeds, opportunities of jobs,
well-organized deployment of assets and steadiness of wages and income.
A small and medium enterprise absorbs more labor as compared to big

enterprises and thus creates more employment opportunities. SMEs also
make some good contribution in changing the agriculture based economy to
industry based economy. This helps in accelerating the rate of growth of the
economy. Small and medium enterprises also assist in establishing links
between small and large businesses in the economy. This helps in attracting
businesses from other countries.
9
Big organizations are more economic stable and they can sort out their
difficulties on their own on the other hand SMEs do not have that much
competency that can help them to continue their operations smoothly.
Although small enterprises do not face direct legal or governmental bias but
they are found to be the victims of unequal dealings that results in non
competitive working atmosphere.
In Pakistan the Small and medium enterprises faces various hurdles such as
governmental volatility, social insecurity, economic limitations, unreliable
power supply, excise and duty problems, workers unrest, dearth of
management and absence of normal information flow system between
organizations, etc.
SMEs are transforming endlessly these days due to the internationalization

and liberalization and to make them more powerful tool clear cut
government policies and more enhanced regulatory system should be
adopted.
2.3 ROLE OF SMES IN INDIAN ECONOMY
The small and medium industries have good command in the overall Indian
market. The presence of creative entrepreneurs adds new dimensions in the
small and medium industry. They are competitive and offer goods at the
minimum operating costs. One more distinctive feature of SMEs in India is
their ability to work in groups that helps them to evolve according to their
field of offerings.
The SME sector is one of the important parts of the Indian economy. It
accounts for about 40% of the manufacturing sector’s value while around
10
95% of the industrial units. It absorbs approximately 80% of the workforce of
the manufacturing sector. The SME sector is the second largest employment
providing sector in India after agriculture. It also accounts for around 35% of
the total Indian exports. The Indian economy is growing at a good rate of 8%
and is targeting a growth rate of more than 9 % in the time to come. To do
this SME sector would be the prime focus for the economy as it smooth the
progress of the small size units into medium and large organizations.
The small enterprises have variety of products and huge offerings but due to
the fact that the goods produced in the small enterprises are not of superior
quality and are made mainly for Indian rural and semi urban population so its
contribution to the total exports is not defensible. The goods in the small
enterprises are mainly from artisans, handicrafts, handlooms etc.
The biggest limitation for the small enterprises is the lack of favorable credit
policy. The Reserve Bank of India (RBI) and the Ministry of Finance has taken
some steps to encourage the small enterprises. They have given directives
to the commercial banks to ease credit facility for small scale enterprises.
But this step is not working for small enterprises since banks are controlled
by RBI and the nature of instructions posed by RBI and the absence of an
incentive system based on accomplishment of proactive bankers is not
allowing the commercial banks to smoothen the credit policy for small
enterprises. According to a study “there are strong structural underpinnings
to the inadequate flow: the organizational structure of banks, and processes
within them, have taken them far from task orientation, and have created a
specific bias against small loan portfolios” (Morris et al., 2001: 11). The small
scale enterprises are finding it difficult to take loans from the banks due to
the tight RBI directives. Although some commercial and other financial
organizations are helping SMEs by introducing some loan assurance schemes
for them.
11
The policy in which some items were completely meant to be manufactured
by the small enterprises has now become obsolete and uncompetitive.
Examining the results the effect of this greatly contentious scheme,
researchers have pointed out the problem of practical incompetence of
goods produced under reserved class in contrast to the non-reserved class of
goods (Balasubrahmanya, 1995; and Morris et al., 2001). Studies have also
proved the irrationality and irrelevance of putting some goods in the
category that is meant to be completely manufactured by small enterprises.
A number of the usual matters concerning the reserve list are: (i) repeated
revision (addition and deletions) of listed goods were not reasonable every
tome and believed to have been manipulated by political considerations; (ii)
attempts to make policy wide-based were careless because investigations
have revealed that broad-basing, as surveys found that manufacturers of
‘reserved’ products did not have any inkling about the policy; (iii) the
medium and large scale units were also engaged in producing some
‘reserved’ items as they were manufacturing them before their inclusion in
the list; and (iv) in most of the cases the quality of items which were
reserved was substandard (Das, 2006: 116-117).
SMEs in India are not competitive enough when it comes to international

market due to several reasons. These are- they are not easily adhered to the
laws, lack of suitable knowledge regarding measures for global
subcontracting, unfamiliarity with complex routine processes relating to
external trade on international front and making use of e-commerce for
executing deals. For increasing the awareness of MNEs towards increasing
their investments in India particularly in the fields like garments,
automobiles, electronics, chemicals, etc a decent change in the norms
concerning FDI is made. This change is quite different from the earlier
policies. Some administrative steps are also been taken so as to establish
strong link between SMEs and foreign business.
12
The objective of SMEs has changed over a period of time. It was known for
creating job opportunities earlier but now SME sector is developing in such a
way so that it becomes more competitive in the international market. The
SME sector in India is moving towards a new direction where it is positioning
itself in the bigger and fresh market. Currently the proficiencies, raw
materials and huge market to target are the three main advantages for the
SME sector. Seeing the growth of the market the people who will be
associated wit this sector will surely be benefited.
2.4 SMEs AND EMPLOYMENT GENERATION
The job generation capacity of the small scale enterprises were focused by
two studies in 1970s. The first study made use of cross sectional data for
calculating the job share of small units and found some appealing proof that
shows that the relevance of small scale units is increasing because of the
reduction in the share of big enterprises in the total employment. On the
other hand the second study uses size and area of the enterprises for
calculating the same. (Acs and Audretsch , 2001).
These two studies show that the job generation capacity of small unit
enterprises is increasing rapidly. Economists at that time use various tools to
prove this point. They counted the number of people employed in the same
category in two different periods. This line of analysis was based on the
presumption that movement between different classes was insignificant. On
the other hand, according to study done by Birch it was found that the
increase in the total employment is due to the conversion of small units into
large enterprises. Birch’s method of analysis was later challenged by Davis,
Haltiwanger and Schuh in 1996.
The increase in the employment in small units may be reflected in two ways-
By the reduction in the jobs opportunities in the big enterprises or increase in
13
the job opportunities in the small enterprises. Hence a careful analysis of
generation of jobs at the unit levels should be done so as to find the reason
behind the increase in job opportunities. Despite of higher .job generation
rate in small enterprises its contribution to the overall scenario is small as
compared to bigger organizations. Furthermore these studies also help in
analyzing the factors that creates differences in the generation of jobs
between small and big enterprises.
While designing the policies for the SMEs the output and the business
environment should be kept in mind. The data based study is more effective
in the establishment and development of the SMEs. This study is based on
the fundamental principle that the small enterprises are the only job creating
sector for the industrialized economy even in the times of recession.
We cannot apply our understanding of enterprises to the whole economy as

there are differences in the industrial and service sector enterprises. The
number of job changes in the service sector is quite higher as compared to
the industrial sector. Other factors that cause differences between these two
sectors are manpower requirements, rates of entry and exit, periodic
variations in demand, differences in the capability of facing external
competition.
In some other region it has been stated that elsewhere that jobs generation
business replacement (settled businesses) is a lot higher (lower) significant
in businesses of service sector compared to the manufacturing one
(Armington and Acs, 1999; and Audretsch et al. , 1998). In order to confirm
whether the overall scenario is similarly applicable in all segments, we
proceed to work out the provision to job generation and part of small
enterprises in total number of jobs in different sectors such as
manufacturing, construction and services.
14
According to Audretsch (1995), Audretsch and Thurik (2001) and Acs and
Audretsch (2001) the businesses these days are now more technology driven
due to internationalization and technical changes. The business involving
information technology has become more beneficial and the main attention
in these businesses is on the person and not on the company. This is due to
the fact that the lack of regularity in the knowledge results in the varied
opinions by the company and the person. This kind of situation led the
person to make a shift from the company where he is working to his own
business. This is the evolution stage of entrepreneurship where a person
applies his knowledge which he earns in one company into his own business.
The small and big enterprises in the service segment differ in the pattern of
creation of jobs.
According to the conclusion drawn from the study it was found that for the
generation of jobs both big and small size enterprises are important. The
rapid increase in the employment of the small sector in other industrialized
economy makes it more important part of the economy and distinctive
approach should be adopted while making policies for this sector. As it is
known that small enterprises acquire relatively higher price towards
organizational hindrance as compared to big organizations so it is important
for small units to follow governmental guidelines. The financial procedures
should also need to be eased in order to provide easy credit to small units so
that they can meet their business requirements effectively
According to the previous studies it can be seen that the job generation and
the business size are inversely related to each other. Likewise, Hohti (2000)
discovers that in Finland total jobs generation and jobs obliteration are in
inverse proportion to the size of businesses. On the basis of data Finnish
manufacture business between 1980-1994, Hohti (2000) has established that
the rates of per year job flow, in terms of births and deaths, is alike to what
Broesma and Gautier (1997, p. 216) come across for Dutch manufacturing
15
businesses and by Klette and Mathiassen (1996) identified for Norwegian
manufacturing firms. Job generation and job destruction both have a high
proportion in the new enterprises. This way, the experience of Finland,
equally as of Sweden and the Netherlands, shows analogous commercial
activity as discovered in North America. Similarly, facts confirm that during
some preceding years small businesses in Germany, as in other
industrialized economies, are rising as the main force of employment
generation. For instance, Haid and Weigand (1998) discover that family
owned small and medium sized businesses creates more jon opportunities as
compared to the big businesses that are managed by administrators.
According to the study conducted by Weigand and Audretsch (1999) on the

non science category it was found that the number of employees in big
companies who works in stock exchanges reduces at a rate of minus 1
percent. Per annum. The SMEs also shows the reduction of 3.97% per annum
in the number of jobs. In case of non listed big companies this rate was
4.60% while for SMEs (non listed) it was 1.26%. Hence it was observed that
in Germany there is a reduction in the number of jobs in the sectors like- big
science-based businesses, big non-science based businesses, and small non-
science based businesses. Apart from this reduction in the number of jobs
there is one sector which experienced the increase in the number of
employees that sector is science based small and medium sized businesses.
Thus from the above data it can be inferred that the entrepreneur business
creates different job opportunities in Europe and United States. On both
shores of the Atlantic Ocean small and new businesses play a pivotal role as
motive force of jobs generation (European Commission, 2002). It can also be
said that the employment opportunities of any business varies according to
its size and its age.
16
The process of globalization is altering the pattern of vying for all activities of
enterprises, making it necessary to adopt a worldwide growth plan to
affirmatively influence their long-standing development and endurance
(Karagozoglou and Lindell, 1998). The small enterprise segment business
sector has grown to be more significant as it has risen to become a leading
power influencing the development of financial systems of countries
(Shridhar, 2006). In the process of their change to a global milieu SMEs
confront many intrinsic drawbacks (Chen and Huang, 2004). SMEs often
faces lack of resources and unavailability of capable workers due to their
small size. With worldwide economic integration and the fall in barricades of
international trade, globalization of SMEs is getting more and more
consideration (Lu and Beamish, 2001; Knight, 2001). The enterprises are
becoming more competitive due to the rapid increase in the number of
enterprise in the global trade arena. More rivalry in the markets causes
decrease in the capability of SMEs to have power over the course of their
own growth (Etemad et al., 2001). In an extreme cutthroat situation, it
becomes imperative to recognize and appreciate aspects that affect global
functioning (Kuivalainen et al., 2004). SMEs symbolize a segment of
increasing significance and make a vital contribution in the progress of
developing countries particularly in the fields of jobs generation and
accelerating economic advance (Kula and Tatoglu, 2003). Initially any
industry is tiny and have limited resource base but it grows with time and
always tries to transform itself from tiny to large industry. Competition,
technical variations and legislative guidelines are some of the factors that
are important for both industrialist and policy creator.
Indian SMEs are also growing at a very good rate. The growing success of
information technology has helped Indian SMEs to grow at a faster rate in the
modern era of globalization. India is providing very good opportunities for
setting up new commercial enterprises. Administrative measures are
important to determine the extent to which India can go on to make
17
improvements in the information sector. Indian government is making
constantly making some new agendas and policies that need to be worked
on properly so as to decide the effectiveness of the policies. It will also help
in analyzing as to how much efforts needs to be put on the Indian SMEs
sector.
SME sector is one of the important sectors in the Indian economy and it has
contributed a lot towards the national wealth of the country since
independence. Its contribution in the net domestic product of the country is
about 60% and that in the total employment is 92%. It is facing number of
difficulties after the economic reforms of 1992 but still manages well to
provide good growth to the country. And the SMEs are expected to perform
better in the future because in big enterprises job creation is very sluggish
and flexibility of employment is shallow and waning (Papola, 2004). Hence,
SMEs can now enter in the market that was earlier meant for big enterprises
only. Furthermore schemes like elastic manufacture schemes and use of sub
contracting for the division of their manufacturing activities also helps SMEs
a lot to make their operations more organized and competent.
Measures like decrease in the degree of protection and abolition of the job
safety section are part of the labor market modifications and can make the
job problem more serious in big enterprises (Nagaraj, 2004). Further,
liberalization of economy and abolishing licensing system has paved the way
of the casualisation and feminisation of labor (Mitra, 2001).
It is shown through various studies that the liberalized policies that were
initiated during the economic reforms have greatly influenced the
manufacturing sector of the country. Due to the policies of reforms
manufacturing sector experienced a decline in the employment growth rate
during 1990s (Nagaraj, 2004). But, these reforms have both favorable and
unfavorable effects on the manufacturing enterprises. Several steps such as
18
abolition of licensing system in industry and import, elimination of limits on
production capacity, tariff decline and permission for foreign investment has
helped industrial enterprises to enter into the sector which was earlier meant
only for informal sectors. Informal sector have some limitations and the
economic reforms of 1990s were also not proved much advantageous to this
sector which results in the decline in its efficiency. The use of obsolete
technologies in the production process of the informal sector is one of the
main reasons behind its declining efficiency. So in order to increase the
productivity of the informal sector more focus needs to be given to the
technology and skills.
2.5 SMEs AND EXPORT GROWTH
According to Ruzzier and Lu and Beamish economic advancements and wide

employment opportunities are the main areas of interest for small and
medium enterprises. Earlier most of the theories were focused on the
globalization. It is only after the publication of the article titled “Towards a
theory of international business studies” by McDougall and Oviatt’s (1994)
that importance of internationalization of SMEs or international
entrepreneurship were recognized. Later on Sharma’s work in 2004 and
Cerrato’s works in 2007 also provided deep knowledge on the
internationalization from various socio-economic environments
Johanson and Mattson in 1998 suggested the network approach to support

internationalization theory in which he explains the process of globalization
through social exchange theory. Rutihinda in 1996 and Ahokangas in 1998
introduced Resource-based Internationalization framework in which he uses
resource based view of the firm to put together strategic aspects with the
globalization processes. This research was proved to be quite important as
companies are constantly working towards the expansion in the international
market because of increased competition. Factors such as government
19
incentives and support (like low interest loans) and export development
bodies helps SMEs to find new markets to penetrate.
Sharma and Erramilli suggests SMEs to attempt various entry routes to

penetrate the foreign market while Peng and York suggested two options for
an exporting firm that are either to reach the foreign customer directly or
through a mediator. Fletcher, in 2004, defined it as the means “whereby
small firms are involved in exporting, sourcing or distribution agreements
with intermediary companies who manage, on their behalf, the transaction,
sale or service with overseas companies”. Peng and York emphasize further
on the pivotal role of export mediators by “linking individuals and
organizations that would otherwise not have been connected”. Trabold views
this indirect conjugation holds platform for successful transactions and
Balabanis feels they often help their clients to identify customers, financing
and distribution infrastructure providers. Mediator’s plays vital role by
bringing in their expertise of working in foreign countries thus reducing risks
related to international operations. Li suggests it would be a better idea to
appoint export mediaries, having a much better knowledge of the consumer
demography to look after low cost exportation to the said country. We may
cite Peng and Ilinitch who feel conducting market research and negotiation
costs would be so high that manufacturers would be more likely to appoint
the assignee before entering the unexplored market.
Peng and York further added that Export mediators would also helps in
saving costs related to customer mapping and costs incurred in monitoring
the enforcements of contracts. Notwithstanding the potential negative
outcomes like loss of control over the assignee (Blomstermo and Sharma,
2006) or additional costs –transaction expenses and rent extractions (Acs
and Terjesen, 2006), the overall benefits of using the intermediary stand out.
Mediators could either be the agents or the distributors who are settled
within the same country or the foreign country (Peng and York, 2001) and
could also be the local subsidiaries of existing Multinationals. According to
20
Dunning : Multinational Enterprises by the virtue of their operational nature
minimize costs through mass production. Kuemmerle puts forward the
strategic linkages of SMEs with larger foreign firms.
Dated SME export research, like Cavusgil’s and Nevin’s in 1981, focuses on
the direct approach by including product uniqueness as the focal point. In
contrast to this, the study on the role of external factors, such as
government support for internationalization (Wilkinson, 2006), environmental
turbulence (Westhead, Wright and Ucbasaran, 2004), and the characteristics
of foreign markets and domestic markets develops and tests two theories of
external environment factors: resource dependency and institutional theory.
Sherer and Lee further works on these two theories and specified the
common points of the same. According to them both the theories were
restricted to the nature of relationship between the firm and its
environmental factors, both the theories are regulated by external factors ,
and that organizations are concerned with building legitimacy and
acceptance vis-à-vis external stakeholders, and hence conclude the two
theories may prove to have greater predictive potential when used together.
Resource dependency theory further explains how lack of resources forces
the organization to look for new and unconventional resources. Institutional
theory, Scott defines, organizational practices that accepted and legitimized
within the specific organization. Both the theories described the impact of
external factors on the organization. The difference between resource theory
and institutional theory is that where resource theory focuses on the
presence of other factors that are directly proportional to resource
accessibility institutional theory gives more importance in imitating the
behavioral norms of other factors in the organizational field.
Autio, Sapienza and Almeida later investigated upon the effect of resources
on the export activities without giving much emphasis on the availability of
21
the resources. It can be concluded from the resources theory that the export
capacity of SMEs is very much affected by the market in which it operates.
It is found that SMEs working in the home markets which are endeavoring
through direct mode are more successful as compared to other SMEs which
are working in other environment. This is because of favorable production
costs, intellectual property rights protection, government regulation and the
presence of related and supporting industries in the home market.
A firm targeting export market is also influenced by export-entrepreneurial

orientation. According to Ibeh and Young a firm with high export-
entrepreneurial shows greater innovation and higher proactivity in initiating
exportation. Analyzing the correlation between owners’ degree of
entrepreneurial orientation and the organization’s competitive
accomplishment Kazem and Van der Heijden (2006) arrive at the juncture
from where exporters are perceived to be better self-starters than non-
exporters. The study by Francis and Collins- Dodd (2000) indicates the
fallacy of conservative approach in the unstable environment and goes on to
reflect that high proactive approach proves effectual in enhanced export
performance. Studies spanned over couple of years, by Ibeh, 2004; Marino
and Weaver, 2002 also concluded the strong relation of high SME orientation,
including that of the owner or manager works directly in proportion with
export performance.
According to Suarez-Ortega, the financial resources that restrict the timely

accumulation of internal resources need to be given some attention by the
internal resources of the firm. Some other barriers as suggested by Suarez-
Ortega are Knowledge gap, or knowledge barriers. Furthermore lack of
adequate knowledge about the potential market and that of the availability
of the assistances in the market also leads to the deterioration in the export
market.
22
SMEs in India are quite advantageous as it generates employment at low
capital investment, increases the availability of skilled and semi-skilled
workforce and also helps in reducing the gap between the rich and the poor.
The studies done by Kazem and Ven der Heijden (2006) have shown the
importance of SMEs in any nation as its development results in
industrialization and economic development. Despite of the fact that SME
sector is very significant sector for any economy and various studies has
tried to make a linkage between the export competitiveness and SME
development in the western countries it has not received much focus by
researchers in the Indian sub-continent.
In India SMEs plays vital role in the development of the economy and
provides several economic benefits. These are: (i) Higher employee to capital
investment ratio, thereby generating higher employment with lesser
investment (ii) Low time and money required for establishment (iii) Niche
focus on smaller markets; (iv) Development of a pool of skilled and semi-
skilled workforce; (v) Bridging the divide in income disparities by creating
value for the lower and lower-middle class; (vi) Facilitate innovation and
entrepreneurialism at a large scale; and (vii) Ensures better utilization of
capital and low-skill manpower resources
The whole SME industry is based on three main hypotheses as per the study
conducted by UNIDO. These are: focus on overall economic upliftment of the
country and not just economic development; generation of employment
opportunities so as to provide support to large scale sectors; and support
needed for the development of SMEs in order to overcome the disadvantages
that SMEs face because of its small size. SME sector in India is becoming
competitive day by day as country is liberalizing. As such SMEs don’t get any
financial support from the government due to deregulation but in order to
develop this sector and to make it competitive with the multinationals
government needs to develop some policy based institutional support for the
SME sector. The institutional based support that SMEs needs from the
23
government is: advancement in technologies and backing of their working
capital needs. SMEs also require government support in order to increase co-
operation within the SMEs and to share resources that are common to SMEs
while working with other organizations. The UNIDO report also explores some
of the hurdles in the development of SME cluster. These are : due to the
cultural differences there is little co-operation between individual companies
as well as larger organizations; higher spending on developing suitable tie-
ups and building partnerships; unavailability of the government support in
terms of financial incentives that is needed in order to implement common
projects. Although these challenges poses some problem for the SME
industry but there are positive signs which indicates that the SME cluster is
stabilizing and is moving towards SME growth in the country.
2.6 SUMMARY
SMEs sector is one of the fastest growing sectors of the country. It provides
huge employment opportunities and its presence is very important for the
emerging countries like India. The contribution of SME sector to the economy
is increasing day by day. It is second largest employment provider sector of
the country after agriculture. The contribution of SMEs in the total export is
also significant which is one-third of the total exports of the country Apart
from all these contribution SME sector still faces some adverse treatment
from the big organizations.
SME sector in India is becoming competitive day by day as country is

liberalizing. As such SMEs don’t get any financial support from the
government due to deregulation but in order to develop this sector and to
make it competitive with the multinationals government needs to develop
some policy based institutional support for the SME sector. SMEs today are in
the transformation phase and for the better development of the sector
various administrative measures and policies need to be studied carefully.
Now is the time to plan some long term strategy for the development of the
24
SMEs so that it continues to contribute more to the economy in a more
effective way.
25
Chapter 3
RESEARCH METHODOLOGY
AIMS AND OBJECTIVES
research have accomplished following objectives:

promotion

1.3 RESEARCH QUESTIONS


growth?

26
RESEARCH APPROACH
In this project report Inductive research is used, which focuses on
generalizing specific form of observation. It give a general view to the
researcher’s. Researchers have to make an assumption if they want to
analyze any form of observation in the society and then conduct an
experiment based on survey so to check his assumptions to reach toward a
certain conclusion. Other than this Deductive research is also used, by
which deductive thought can change the ordinary theory into new
hypothesis. The researcher’s thought goes from general to the specific to
observe facts and to collect the data to come to a certain conclusion. His
primary objective is to form a new thinking to test the hypothesis. If the data
helps this thinking then we can assume that his theory is correct.
The Inductive method with its generalized approach explains about the
workings of thought in a pure, unemotional and neutral way, rather than on
pre implicit notions. It believes the fundamental form of science starts with
observing ideas which can be derived from the real happening of senses.
Thus it explains the relationship between sensory experiences and the object
of those experiences. Its conclusion helps in indentifying new areas of
research which is beyond the limit of actual experience.
Critics argue that this method is a descriptive and does not explain anything
and fails in establishing a clear generalized view. They further their point by
stating that there is no such logical inductive method which can make a
universal statement from a singular set of opinion and it’s a ardent task to
make the infinite observations and prove them universal in all case.
To make research flawless all the major dominant factors which affect the
method of raw data collection are identified. Key themes are often left
obscured and unorganized as the flaws in the method of data collection and
analysis forced by deductive data testing and making hypothesis on that.
27
For data analysis in various type of quantitative approach inductive approach
is used and is very obvious. Some researchers have described their approach
explicitly as “inductive” while many others use the approach without giving
an explicit label to it.
The general inductive approach suggests an appropriate way of analyzing

the qualitative data for research purposes. Analysis derived from it are in
discrete from those perception derived from a general views for data
collection. Many researchers are engaged in finding a general inductive
approach for traditional and quantitative approach of data analysis.
Silverman, D. (2002), Doing qualitative research: A practical handbook,

London: Sage, Remenyi, D, Williams, B, Money, A, Swartz, E (2000), Doing
Research in Business and Management – An Introduction to Process and
Method, London, Sage, Ketchen, D.J. and Bergh, D.D. (2006), Research
Methodology in Strategy and Management, JAI Press, Greenwich
RESEARCH METHOD
Qualitative research has its origin in social science and is more concerned
with understanding the approach of how people behave in regards to their
knowledge, beliefs, fear and attitude etc. It trend to find the estimated
differences between various groups by calculating things. This method
provides valuable information which might have been missed by any other
method and thus it increases the area of quantitative research methods.
Focus groups
In this method the group size is kept precisely small, so that its members can
freely express their views on any topic. Before the actual implementation of
thought into action a solution guide is always prepared. This ensures that
various aspects of the topic can be explained in a convenient way. The
discussion can be frequently tape-recorded for further use and analysis.
28
Direct observation
This method is very effective when a researcher want to understand the
values and belief of the population under study. Researcher becomes the
part of the population so that they can find out the details. The collected
information in the form of data can be stored by an external observer or it
can be collected by a participant observer.
In-depth interviews
Basic purpose of interviews is to enquiry about predetermined set of
questions which helps in conducting a quantitative survey. The interviewees
express their views and feeling over the concern topic. In critical incident
study interviewees are asked to give their views on real events which are
later generalized. Thus it helps in focusing more about the beliefs behavior
and attitudes.
Quantitative Method:
It’s a research method which rely more on the case studies and subjective
report and method like interviews, observations and questionnaires are of
less importance. Quantitative research on other hand relies much more on
interviews and case studies. It creates reliability among user. It help
researcher for the study of the population in an unbiased manner. The
designing of questionnaire helps in predetermining the hypotheses. The
research part is supposed as an outer part of actual research, aid to conduct
research.
Qualitative research methodologies explore the interaction of culture

situation so to come at the desired result. On the other hand qualitative
methods are used for social marketing which helps in the depth study which
includes interaction of culture situation of observations among focused
groups. Hypotheses are made on the basis of data collection and its analysis
29
explains the trend of market. Under this approach, the researches become
more goal oriented in terms of data collection, and results which may vary
from researchers to researchers.
Quantitative methods are advantageous as it furnishes detailed information

over the particular subjects and their behavior. Only drawback of this
method is the ample amount of labor intensity and time-consuming. That’s
why this method is not generally accepted by the mainstream public health
units. Researchers might find it more difficult and confusing for outside
people in the practice of social marketing.
Neuman, W. L. (2004), Social research methods: Qualitative and quantitative

approaches. 6th ed, Allyn & Bacon, Boston, MA.
Creswell, J. W. (2002). Research Design: Qualitative, Quantitative, and Mixed

Methods Approaches. Thousand Oaks, CA: Sage Publications
Patton, M. Q. (2002). Qualitative evaluation and research methods (3rd ed.).

Sage Publications, Inc., Thousand Oaks, CA.
Punch, K.F. (2003), Survey Research: The Basics, Sage Publications Ltd.,
London
DATA COLLECTION
The method by which the results of our research are checked and the way it
is applied in our decision making it is very important. Researcher will have
information about how the data collection, planning, and its implementation
will help in analyzing the potentiality of a method for decision making.
Material level problem can be collected through secondary method, but it is
not effective for collecting the information for the existing data.
Primary information is collected mainly by observation and is gathered

mainly to help the users whom you are addressing. There is multiple way of
30
data collection but this method is more flexible way to get data from its
desired group of audiences.
Observation is the process through which methods and information for

reference materials are examined, or the amount of time it would take to
complete a certain phase of work.
Surveys Interviewing is one of the method by which a survey is conducted.

Written questionnaires are another method which is commonly used for
gathering information. There are various other methods by which we can
gather information and response from audience.
Depending upon the population size and information type we can choose
different sampling method. If the target audience is too large then by
choosing a small number of people to represent mass population is the
most suitable method for it or you can also try to remove the biasness
approach by using: (i) Random sampling; (ii) Stratified sampling; and (iii)
Quota sampling .
Sekaran, U. (2003), Research Methods for Business: A Skill Building

Approach, John and Wiley Inc., USA.
Robson, C. (2000) Real World Research. Blackwell Publishers, Oxford
Easterby-Smith, M. et al. (2002), Management Research – An Introduction,

2nd edition, London: Sage
Perakyla, A. (1997) Reliability and Validity in Research Based on Transcripts.

In: D. Silverman, ed., Qualitative Research: Theory, Method and
Practice. London: Sage, 201-220.
Bryman, A and Bell, E (2003) Business Research Methods Oxford University

Press
31
32
Chapter 4
FINDINGS AND ANALYSIS

4.1 INTRODUCTION
This research was purposed to answer the following research questions:
What is the contribution and responsibility of small scale industries towards
the development of Indian economy in the context of employment
generation; What is the contribution and responsibility of small scale
industries towards the development of Indian economy in relation to export
growth; Whether the potential of Indian small scale industries’ have been
underestimated or exaggerated. Both primary and secondary data were
collected in order to answer these research questions. Secondary data were
in the form of literature review and primary data were in the form of data
collected through questionnaire survey. This chapter analyses the collected
both secondary and primary data.
4.2 ANALYSIS OF FINDINGS

Small scale industries & economic restructuring and development
This research literature emphasized on small scale industries and it is

consider very vital from the employment generating, lessening indigence
and making contribution to economic growth point of view. In the developing
economies small-size enterprises are generally considered as the dynamic
source of employment generation, which is a engine of growth. (Lunsche and
Barron, 1998). In an economy which faces complex political and economic
challenges their willingness to undertake new or risky projects is regarded as
very vital. Both willingness to undertake new or risky projects and small-size
enterprises are crucial for taking economy to a higher level (Glass and
33
Drnovsek, 2001). In such a situation small scale industries are said to be very
vital and they are very crucial for economic restructuring. Empirical data was
collected in this research to establish as how the role is played by small scale
industries in economic restructuring and development of India, which
conform our hypothesis. The empirical data collected reveals that small scale
industries have played very commendable role in economic restructuring and
development of India. (see table and figure 4.1).
Table 4.1: Small scale industries & economic restructuring and development
No.of R
es
ponsein V
alid
V
ar
iab
le
R
es
pon
den
ts Pe
rce
ntage P
er
cen
tag
e
Hig
h ly
1
7 5
6.6
6% 5
7%
c
redita
ble
R
ea
son
able 1
0 3
3.3
3% 3
3%
N
eg
lig
ib
le 3 1
0% 1
0%
From the table it is evident that for the larger part of the total respondents
(57% of the total 30), small scale industries have played ‘highly creditable’
role in economic restructuring and development of India; for a considerable
part of the total respondents (33%), small scale industries have played
‘reasonable’ role in economic restructuring and development of India; for the
34
remaining small part of the respondents (10%) small scale industries have
played ‘negligible’ role in economic restructuring and development of India.
Thus it can be concluded that these data have played highly creditable role
in economic restructuring and development of India.
Contribution of small scale industries in economic development
The research literature shows a positive contribution in the growth of an

economy is made by small scale industries. Their contributions can be
expressed in diverse way: their is ample opportunities for the new entrant in
labor market both in urban and rural areas with the upcoming of small and
medium enterprises; they have an active role in the modernization for the
whole economy. Dependency ratio of people over small scale industries is
very large. Today’s big enterprises were earlier small and medium
enterprises which have grown with time. There are three main differences
between Small scale industries and large scale enterprises. Small and
medium enterprises can be segregated on the basis of their size, such as
very small enterprises, small enterprises and medium enterprises. Inception
of small and medium enterprises originates with the industrialization of an
economy (Fida, 2008). Small scale industries also influences the economy in
many other considerable ways like division of earnings, tax proceeds,
opportunities of jobs, well-organized deployment of assets and steadiness of
wages and income. Empirical data was collected to establish a relation
between small scale industry contribution and their economic development
of India. Employment generation and export growth are the most creditable
contribution of small scale industries in economic development of India as
reveled by the empirical data. Research participants conclude that
employment generation and export growth are the most creditable
contributions of small scale industries in economic development of India (see
table and figure 4.2).
35
Table 4.2: Contribution of small scale industries in economic development
No. of Response in Valid

Variable
Respondents Percentage Percentage
Em ploym ent
12 40% 40%
generation
Desirable
4 13.33% 13%
sustainability
Enteprenurial
and other 5 16.66% 17%
innovation
Export growth 9 30% 30%
The data account in this table illustrates that for the greater part of the total
respondents (70% of the total 30), ‘employment generation’ (40%) and
‘export growth’ (30%) are the most commendable contributions of small
scale industries in economic development of India; and for the remaining
small part respondents (30%), ‘entrepreneurial and other innovation’ (17%)
and ‘desirable sustainability’ (13%) are the most commendable contributions
of small scale industries in economic development of India. To conclude
these data reveled that employment generation and export growth are the
most commendable contribution of small scale industries in economic
development of India.
Government policies are discriminatory for small scale industries
36
It is evident from the research literature that small scale industries need due
consideration as it act as distinguishing foundation of the economy. As
compared with large enterprises small scale industries face unfavorable
treatment. This is due to the fact that big organizations are much familiar
with economic environment thus they can deal with and crack their
difficulties. On contrary, small scale do not have competence because of
their small extent and the consequential oddities which become hurdle in
their smooth operation. Though there is no straight legal or governmental
bias for small and medium enterprises but they are victim of disparate
dealings which leads to deformed and non-competitive working atmosphere.
In the light of these propositions empirical data was collected in this research
to establish as whether government policies are discriminatory for small
scale industries in India comparing large scale industries. It reveals that
government policies are discriminatory for small scale industries as
compared to large scale industries in India. As the greater part of the total
research participants conclude that government policies are discriminating
for small scale industries in India comparing large scale industries (see
Table 4.3: Government policies are discriminatoryfor small scale industries

Variable
Yes 22 33% 73%
No 8 26.66% 27%
From the data enlisted in the table it can be easily comprehended that for
the greater part of the total respondents (73% of the total 30), they find ‘yes’
that government policies are discriminating for small scale industries in India
comparing large scale industries; and for the remaining part respondents
37
(27%), they find ‘no’ that government policies are not discriminatory for
small scale industries in India comparing large scale industries. overall, these
data conclude that government policies are discriminating for small scale
industries in India comparing large scale industries.
Growth of small scale industries and problems
From the research literature it can be easily understood that small and
medium enterprises are more labor-intensive which require more workers
compared to big enterprises. As a result, create more employment
opportunities and play a vital role in poverty alleviation by providing
earnings. Small scale industries brought a transition from agriculture base
economy to industry-based economy by providing basic favorable conditions
for systematic operations. This leads to channelizing of resources and
accelerates the rate of growth. Small and medium enterprises create a link
between small and large businesses in the economy as it assist in attracting
fruitful assets. This in turn results in inflow of investment from other
countries. However, there are as well some latent and obvious problems
which becomes a hurdle in the path of growth of small scale industries and
these are political instability, law and order situation, financial constraints,
energy crisis, taxation problems, labor issues, lack of coordination and
regular information exchange mechanism among institutions, etc (UNIDO,
2006). Empirical data collected in this research shows growth of small scale
industries in India and problems which are requires to be most effectively
dealt with by the government in the country. Growth of small scale industries
in India, financial constraints and labor issues are some of the problems
which are require to be most effectively dealt with by the government in the
country. As in accordance with the larger part of the total research
participants, for the growth of small scale industries in India financial
constraints and labor issues as problems require to be most effective dealt
with by the government in the country (see table and figure 4.4).
38
Table 4.4: Growth of small scale industries and problems
No. of Responsein Valid

V
ariable
L awandorder
4 13.33% 13%
situation
Financial
10 33.33% 33%
constraints
Energycrisis 2 6.66% 7%
Taxation
5 16.66% 17%
problems
Labourissues 9 30% 30%
From the given data which is described in the table for the larger part of the
total respondents (63% of the total 30), for the growth of small scale
industries in India, ‘financial constraints’ (33%) and ‘labor issues’(30%) as
problems require to be most effective dealt with by the government in the
country; and for the remaining part respondents (37%), for the growth of
small scale industries in India, ‘taxation problems’ (17%), ‘law and order
situation’ (13%) and ‘energy crisis’ (7%) require to be most effectively dealt
with by the government in the country. From a holistic point of view, the
growth of small scale industries in India, financial constraints and labor
39
issues as problems require to be most effectively dealt with by the
government in the country.
Globalised business environment and small scale industries
As from the research literature it can be inferred that their has been a
transformation in small scale industries as a reaction to the various
necessities of internationalization. In the emerging countries the prospects of
neo-localism having been greatly highlighted. Small scale industries have
been a rich source of employment but now it seems less important objective
compared to new policies of attracting foreign inclination, achievement of
comparative productive capacities and becoming distinguished performer in
the world (Das, 2007). It is indispensable to concentrate over this issue,
which act as a limitation for small scale industries for foreign inclination and
a worldwide viewpoint for the sector. Empirical data was collected keeping in
mind these propositions to establish as how favorable has been globalised
business environment of India for the growth of small scale industries. The
empirical data collected reveals that overall globalised business environment
of India has been average favorable (not highly favorable) for the growth of
small scale industries. As in accordance with the larger part of the total
research participants, globalised business environment of India has been
reasonably favorable for the growth of small scale industries (see table
and figure 4.5).
Table 4.5: Globalised business environment and small scale industries

Variable
Highly
9 30% 30%
favourable
Reasonably
16 53.33% 53%
favourable
Not favourable 5 16.66% 17%
40
The data detail in this table illustrates that for the larger part of the total
respondents (53% of the total 30), globalised business environment of India
has been ‘reasonably favorable’ for the growth of small scale industries; and
for the remaining part respondents (47), globalised business environment of
India has been either ‘highly favorable’ (30%) or ‘not favorable’ (17%) for the
growth of small scale industries. So, to conclude it can be said that overall
globalised business environment of India has been average favorable (not
highly favorable) for the growth of small scale industries.
Small scale industries and employment generation
In agreement with the research literature there are two studies that
determine job generation capacity of small enterprises. In the first one cross-
sectional data are used to calculate job share of small units, while in the
second one classification of the enterprises is done on the basis of size and
area. From the first study it is concluded that small units were increasing
their significance because share of big enterprise in total employment was
decreasing. Second study categorized enterprises according to their volume
and location in the base year with the help of a database (Acs and
Audretsch, 2001). Taking these propositions empirical data was collected for
this research to conclude whether small scale industries have played a
substantial role in employment generation in India. Findings from the
empirical data collected reveals that unquestionably small scale industries
41
have played role in employment generation in India. As per the greater part
of the total research participants, they find that small scale industries have
played a substantial role in employment generation in India (see table and
figure 4.6).
Table 4.6: Small scale industries and employment generation

Variable
Yes 18 60% 60%
No 12 40% 40%
The data detail in this table shows that for the greater part of the total
respondents (60% of the total 30), they find ‘yes’ that small scale industries
have played a substantial role in employment generation in India; and for the
remaining part respondents (40%), they find ‘no’ that small scale industries
have not played a substantial role in employment generation in India. To
conclude about the finding it can be said that indisputably small scale
industries have played role in employment generation in India.
42
New employment in small scale industries
For the research literature, the studies revealed the real picture as published
labor data statistics had been used by the economists at that time and most
of the time their study revealed that the largest size category were
producing most of the new jobs. In this method analysis was done by
counting the number of persons employed in the same category with in a
period of two year. Presumption for this analysis was based on the
movement between different classes was insignificant. Birch’s studies on the
other hand made it clear that the development of small units before
becoming large enterprises was a major reason in influencing increase in
total employment. Critics of Birch’s method challenged its analysis (Davis,
Haltiwanger and Schuh, 1996), an acknowledged fact is that in small
enterprises not only gross job generation but job destruction is also high,
which is more significant. Empirical data were collected keeping these
propositions in mind. The main purpose of empirical data is to establish a
relation as whether increasing share of small scale industries in India’s total
employment is due to a net employment decline of large scale industries
than new employment in small scale industries. From the finding it can be
concluded that there is an increase in share of small scale industries in
India’s total employment, due to a next employment decline of large sale
industries than new employment in small scale industries. As per the greater
part of the total research participants, they either strongly agree or just
agree to the fact that increasing share of small scale industries in India’s
total employment is due to a net employment decline of large scale
industries than new employment in small scale industries (see table and
figure 4.7).
Table 4.7: New employment in small scale industries
43
N o. of Responsein Valid
V
ariable
Stronglyagree 12 40% 40%
Agree 8 26.66% 27%
Disagree 6 20% 20%
Strongly
4 13.33% 13%
disagree
The data enlisted in this table describes that for the larger part of the total
respondents (67% of the total 30), they either ‘strongly agree’ (40%) or
‘agree’ (27%) to the fact that increasing share of small scale industries in
India’s total employment is due to a net employment decline of large scale
industries than new employment in small scale industries; and for the
remaining part respondents (33%), they either ‘disagree’ (20%) or ‘strongly
disagree’ (13%) to the fact. On a whole, these data conclude that
unquestionably there is an increase in share of small scale industries in
India’s total employment which is due to a next employment decline of large
sale industries than new employment in small scale industries.
Small scale industries as employment creators
As per the research literature, Hohti in the year 2000 discovered that there is
an inverse proportion to the size of businesses between jobs generation and
jobs obliteration in Finland. Hohti (2000) on the basis of Finnish manufacture
business data between 1980-1994 has established that the rates of per year
job flow, in terms of births and deaths which is alike to what Broesma and
Gautier (1997, p. 215-216) come across for Dutch manufacturing businesses
and by Klette and Mathiassen (1996) identified for Norwegian manufacturing
44
firms. It is commonly agreed that new enterprises, have the highest rates for
both job generation and job obliteration. Thus experience shown in North
America is analogous to Finland, Sweden and the Netherlands. So to prove
whether small scale industries are greatest employment creators in India and
as well greatest employment destructors in India empirical data were
collected. It reveals that this is undoubtedly a fact that small scale industries
are the greatest employment creators in India and as well greatest
employment destructors in India. As per the larger part of the total research
participants they find that small scale industries are greatest employment
creators in India and as well greatest employment destructors in India (see
Table 4.8: Small scale industries as employment creators

Variable
Y
es 19 63.33% 63%
No 11 36.66% 37%
The data enlisted in this table describes that for the larger part of the total
respondents (63% of total 30), they find ‘yes’ that small scale industries are
greatest employment creators in India and as well greatest employment
destructors in India; and for the remaining part respondents (37%), they find
‘no’ that small scale industries are not greatest employment creators in India
and as well greatest employment destructors in India. So on the whole; it
45
can be comprehended from the data that small scale industries are greatest
employment creators in India and as well greatest employment destructors
in India.
Small scale industries lacking and training employees
As per the research literature, the advocators of internationalization and

technical changes, Audretsch (1995), Audretsch and Thurik (2001) and Acs
and Audretsch (2001) have concluded that businesses based on information
technology relatively more advantageous. In those businesses person who
carries information is of more important than the company. The argument is
that lack of symmetry in knowledge and ambiguity about the prospective
value of that knowledge lead to diverse assessment by company and person.
This in turn leads the person to quit from the current company to start a
company of his own business taking commercial advantage his knowledge.
This is where; entrepreneurship is getting a novel meaning as it becomes an
important instrument by which knowledge earned in one institution (for
example an university or business enterprise) is implemented for profit in a
new company. The distinction amid small and big enterprises in service
segment is the creation of job by little net entry. It is observed from the data
that in the big job generation very tiny enterprises firms influences the size
sharing of enterprises in both sectors. Empirical data was collected to
establish the proposition as whether small scale industries in India lack in
providing training to the employees in order to efficiently take part in
knowledge based economic activity. It can be comprehended from the
empirical data that in India small scale industries certainly lack in providing
training to the employees in order to make them efficient to take part in
knowledge based economic activity. For the larger part of the total research
participants they find that for the greater part of the total research
participants either strongly agree or just agree that small scale industries in
India lack in providing training to the employees in order to efficiently take
part in knowledge-based economic activity (see table and figure 4.9).
46
Table 4.9: Small scale industries lacking and training employees

V
ariable
Respondents P ercentage Percentage
Stronglyagree 11 36.66% 37%
Agree 10 33.33% 33%
Disagree 6 20% 20%
Strongly
3 10% 10%
disagree
The data enlisted in this table shows that for the greater part of the total
‘agree’ (33%) that small scale industries in India lack in providing training to
the employees in order to efficiently take part in knowledge-based economic
activity, and for the remaining part respondents, they either ‘disagree’ (20%)
or ‘strongly disagree’ (10%) to this fact. To conclude it can be certainly said
that small scale industries in India lack in providing training to the employees
in order to efficiently take part in knowledge based economic activity.
Small scale industries in India and the policies of labor market

reforms
47
For the research literature, the new economic policy of liberalizing has made
small scale industries very vulnerable. However, it cannot be understood that
for Small scale industries the path ahead is totally lifeless. On contrary they
are expected to perform better because big enterprises are very sluggish in
job creation (Papola, 2004). It is implicit that small scale industries are more
cost advantageous and can compete to achieve high rate of development.
Thus given a liberalized milieu small scale industries can penetrate huge
markets which is untapped by them and were specifically reserved for big
enterprises. Small scale industries are flexible in their manufacturing
schemes and division of manufacturing activities by sub-contracting can help
them to achieve an increase growth rates. Problems for big enterprises can
become serious if there is degree of protection and abolition of the job safety
section are part of the labor market modifications (Nagaraj, 2004). Auxiliary
to it, liberalization and abolishing licensing in the economy has lined the way
of the casualisation and feminization of labor (Mitra, 2001). The era of
liberalization has opened new opportunities and broadens the awareness
about the informal segment. To find out whether small scale industries in
India wish to achieve a faster growth and add more contribution in the
economy, they should comply with the policies of labor market reforms,
empirical data was collected for the same. It shows that small scale
industries in India wish to achieve a faster growth and add more contribution
in the economy, they should comply with the policies of labor market
reforms. As per the greater part of the total research participants they find
that if small scale industries in India wish to achieve a faster growth and add
more contribution in the economy they should comply with the policies of
labor market reforms (see table and figure 4.10).
Table 4.10: Small scale industries in India and the policies of labor market
reforms
48
No. of Responsein V alid
Variable
Y
es 23 76.66% 77%
No 7 23.33% 23%
The data enlisted in this table illustrates that for the greater part of the total
respondents (77% of the total 30), they find ‘yes’ that if small scale
reforms; and for the remaining part respondents, they find ‘no’ that if small
scale industries in India whish to achieve a faster growth and add more
contribution in the economy, they do not need to comply with the policies of
labor market reforms. So to conclude it can be said that small scale
reforms.
Small scale industries and export growth
For the research literature, according to Ruzzier et al (2006) small and

medium size enterprises have played a vital role in both economic
advancement and augmenting the employment opportunity. In the field of
internationalization globalization has always been the focus area of most
scholars, particularly focusing on big enterprises, until the publication of
49
McDougall and Oviatt’s (1994) recognized the significance of the
internationalization of small scale industries or international
entrepreneurship. However, contemporary works (Sharma, 2004, Cerrato,
2007) shows the impact of location on small scale industries
internationalization seeking more in-depth research on the study of
internationalization from various socio-economic environments. Empirical
data was collected in to study whether small scale industries have played a
significant role in export growth of India or not. Findings from the empirical
data reveal that small scale industries have played a significant role in
export growth of India. As per the larger part of the total research
participants, they find that small scale industries have played a significant
role in export growth of India (see table and figure 4.11).
Table 4.11: Small scale industries and export growth

Variable
Yes 20 66.66% 67%
No 10 33.33% 33%
The data enlisted in this table shows that the larger part of the total
respondents (67% of the total 30), they find ‘yes’ that small scale industries
have played a significant role in export growth of India, and for the
50
remaining part respondents (33%), they find ‘no’ that small scale industries
have not played a significant role in export growth of India. On the whole
these data conclude that small scale industries have played a significant role
in export growth of India.
Export promotion agencies and government incentives for

promoting small scale industries
To integrate strategic aspects with globalization process, the Resource-based

Internationalization structure (Rutihinda, 1996 and Ahokangas, 1998) which
is based upon the resource-based view of the firm is used. As the domestic
market reaches the saturation level this would eventually lead companies to
seek expansion over international arena; which in turn will make competition
tougher every day and only solution for this is innovation and efficiency for
companies to survive the rat-race. Government patronage in term of
favorable situations of the local market namely government incentives and
support (like low interest loans) and existing supporting institutional
framework e.g. export development bodies, which act as a big inspiration to
the Small scale industries to explore alternative markets. Empirical data
collected in this research shows how supportive have been export promotion
agencies and government incentives for promoting small scale industries led
export growth of India. Findings from the empirical data reveals that
generally export promotion agencies and government incentives are average
supportive for promoting small scale industries led export growth in India. As
per the larger part of the total research participants , export promotion
agencies and government incentives are reasonably supportive , they find
that small scale industries have played a significant role in export growth of
India (see table and figure 4.12).
Table 4.12: Export promotion agencies and government incentives for

promoting small scale industries
51
Variable
Highly supportive 5 16.66% 17%
Reasonably supportive 16 53.33% 53%
Not supportive 9 30% 30%
The data detail shows that for the larger part of the total respondents (53%
out of the total 30), export promotion agencies and government incentives
are ‘reasonably supportive’ for promoting small scale industries led export
growth of India, and for the remaining part respondents (47%), export
promotion agencies and government incentives are either ‘highly supportive
(17%) or ‘not supportive’ (30%) for promoting small scale industries led
export growth in India. To conclude it can be said that generally export
promotion agencies and government incentives are average supportive for
promoting small scale industries led export growth in India.
Export challenge of small scale industries
According to Sharma and Erramilli (2004) to penetrate in the foreign market

small scale industries may attempt various entry routes, depending upon the
benefits and costs associated by various alternatives. Peng and York (2001)
suggested two options for exporting firms: Reach the foreign customer
directly or going through some mediator. For an Indirect path to trans-
nationalization direct approach was well-discussed and much addressed.
52
Fletcher (2004), elaborated it as the means whereby exporting, sourcing or
distribution agreements are done by small scale industry with intermediary
companies who manage, on their behalf, the transaction, sale or service with
overseas companies. The pivotal role of export mediators was explained by
Peng and York (2001) which emphasize on “linking individuals and
organizations that would otherwise not have been connected”. Trabold(2002)
views this indirect conjugation holds platform for successful transactions and
Balabanis feels they often help their clients to identify customers, financing
and distribution infrastructure providers. The mediators bring in the
expertise of operating in another country and reduce the risks related to
international operations. Li (2004) favored appointment of export
intermediaries who is well acquainted with consumer demography so to look
after low cost exportation. Empirical data was collected so to establish a
relation between export challenge of small scale industries in India to be
effectively dealt for enhancing their role and contribution in export. From the
data collected it can be concluded that risk operation and knowledge gap as
export challenges of small scale industries in India need to be effectively
dealt for enhancing their role and contribution in export. As per the greater
part of the research participants risk of operation and knowledge gap as
export challenges of small scale industries in India need to be effectively
dealt for enhancing their role and contribution in export (see table and
figure 4.13).
Table 4.13: Export challenge of small scale industries

Variable
Knowledge gap 10 33.33% 33%
High uncertainty 8 26.66% 27%
Risk of operation 12 40% 40%
53
The data detail in this table explained that for the greater part of the
respondents (73% of the total 30), ‘risk of operation’ (40%) and ‘knowledge
gap’ (33%) as export challenges of small scale industries in India need to be
effectively dealt for enhancing their role and contribution in export and for
the remaining part respondents (27%), ‘high uncertainty’ as export challenge
of small scale industries in India need to be effectively dealt for enhancing
their role and contribution in export. So to conclude it can be comprehended
from the empirical data that risk operation and knowledge gap as export
challenges of small scale industries in India need to be effectively dealt for
enhancing their role and contribution in export.
Export policy and small scale industries orientation
The research literature shows that a export-entrepreneurial orientation is the

main factor of a firm’s choice of internationalization and export involvement.
Ibeh and Young pointed out that greater innovation and higher proactivity is
displayed by the high export-entrepreneurial firms in initiating exportation.
Kazem and Van der Heijden (2006) arrive at the juncture from where
exporters are perceived to be better self-starters than non-exporters by
analyzing the correlation between owners’ degree of entrepreneurial
orientation and the organization’s competitive accomplishment. The study by
Francis and Collins- Dodd (2000) pointed out the misleading notion of
conservative approach in the dynamic environment and shows that for an
enhanced export performance, high proactive approach is required. Studies
54
conducted over the last couple of years ( Ibeh, 2004; Marino and Weaver,
2002) concluded that there is a positive relation of high small scale
industries orientation, including that when the owner or manager works
directly in proportion with export performance. Empirical data was collected
in this research to find whether if India wishes to enhance its export
performance then the export policy should have high small scale industries
orientation or not. From the data collected, the results shows that if India
wishes to enhance its export performance then the export policy should have
high small scale industries’ orientation. As per the greater part of the
research participants they either strongly agree or agree that if India
wishes to enhance its export performance then the export policy should have
high small scale industries orientation (see table and figure 4.14).
Table 4.14: Export policy and small scale industries orientation

Variable
Stronglyagree 14 46.66% 47%
Agree 7 23.33% 23%
Disagree 6 20% 20%
Strongly
3 10% 10%
disagree
The data enlisted in this table explains that for the greater part of total
‘agree’ (23%) that if India wishes to enhance its export performance then the
55
export policy should have high small scale industries orientation; and for the
remaining part respondents (30%), they either ‘disagree’ (20%) or ‘strongly
disagree’ (10%) that if India wishes to enhance its export performance then
the export policy should have high small scale industries orientation. So to
conclude it can be said that, if India wishes to enhance its export
performance then the export policy should have high small scale industries’
orientation.
Small scale industries role in Indian economy
From the literature review it can be inferred that the small scale industries in
India are quite advantageous as it generates employment at low capital
investment, increases the availability of skilled and semi-skilled workforce
and also helps in reducing the gap between the rich and the poor. The
studies done by Kazem and Ven der Heijden (2006) have shown the
importance of SMEs in any nation as its development results in
industrialization and economic development. Despite of the fact that SME
sector is very significant sector for any economy and various studies has
tried to make a linkage between the export competitiveness and SME
development in the western countries it has not received much focus by
researchers in the Indian sub-continent.
To better understand the role of the small scale industries in the Indian
economy some empirical data was collected. The data shows that the role of
small scale industries is not stable in the economy. (see table and figure
4.15).
Table 4.15: Small scale industries role in Indian economy
56
V
ariable
D uly
8 26.66% 27%
acknowledged
Undermined 15 50% 50%
Exaggerated 7 23.33% 23%
From the data it can be seen that half of the total respondents ( 50% )thinks
that the role of small scale industries is unstable while other half of the
respondents feels that the role of the small scale industry is duly
acknowledged(27%) or exaggerated (23%). So overall it can be said that the
SMEs in India is undermined and needs more focus by the government so as
to make its role more significant.
4.3 SUMMARY
Small scale industry has very significant role in the Indian economy. It has
contributed a lot to the economy in terms of employment generation and
exports. Government of India is a bit bias towards small industries but in
order to develop this sector more effectively some good long term policies
should be developed by the government. The increase in the employment in
the small scale industries is due to the decline in the employment share in
the large scale industries. Small scale industry in India is somehow not able
to provide training to the employees because of which they are not able to
contribute efficiently to the economy. Small scale industry needs to follow
57
the policies of the labor market in order to achieve faster growth. The next
contribution of the small scale industries is in export market. Many
promotion agencies and government incentive schemes helps small scale
industries to contribute better to the export market. Small scale industries
also face some challenges like risk operation and knowledge gap which
needs to be dealt carefully so that contribution of SMEs in the export market
can be increased. The role of small scale industries in Indian economy is
destabilized which needs to be worked upon so as to make its role more
stabilized and significant.
58
Chapter 5
CONCLUSION
5.1 INTRODUCTION
research have accomplished following objectives: To perform a literature
review to analyze the contribution and responsibility of small scale industries
towards the overall development of economy in the context of employment
generation and export promotion; To carryout a field studies to observe
contribution and responsibly of small scale industries towards the overall
development of economy in the context of employment generation and
export promotion. The research has answered following research questions:
What is the contribution and responsibility of small scale industries towards
the development of Indian economy in the context of employment
generation; What is the contribution and responsibility of small scale
industries towards the development of Indian economy in relation to export
growth; Whether the potential of Indian small scale industries’ have been
5.2 SUMMARY OF FINDINGS

The main purpose of data collected was to study how the role is played by
small scale industries in economic restructuring and development of India.
Data collected shows very obvious positive result regarding creditable role in
economic restructuring and development of India. Its role is also very evident
in the employments generation and export growth. Government patronage
to small scale industries in term of their discriminating policy for small scale
59
industries in India comparing large scale industries is also reveled by data.
Empirical data reveals that hurdle like financial constrain and labor issues
should be more effectively dealt by the government. Further, the empirical
data collected reveals that overall globalised business environment of India
has been average favourable (not highly favourable) for the growth of small
scale industries. The crux of the data is that the small scale industries have
played role in employment generation in India
Unquestionably small scale industries have lead to employment generation in India. It is said,
small scale industries are the greatest employment creators in India and as well greatest
employment destructors in India as it lack providing effective training to the employees. As a
result it leads to a detrimental effect on our knowledge based economic activity. To overcome
this and to achieve a faster growth, small scale industries in India should conform the policies of
labor market reforms. Small scale industries role in export growth of India is very commendable,
this is due to active support of export promotion agencies and government incentives.
Data reveled if India wishes to achieve a faster growth and boost its
economy then small scale industries in India should comply with the policy of
labor market reform. Data shows a positive sign of small scale industries role
in export growth in India. More importantly, the empirical data collected
reveals that generally export promotion agencies and government incentives
are average supportive for promoting small scale industries led export
growth in India.
Risk operation and knowledge gap is another major finding from the
empirical data. This is one of the major challenges faced by small scale
industries and should be dealt effectively for enhancing their contribution in
export. Further the data revels if India wants to escalate its export
performance then the export policy should have high small scale industries’
orientation. Research concludes if India wishes to enhance its export
performance then the export policy should have high small scale industries
60
orientation. Finally, the data collected reveled that the small scale industries
in India economy is undermined.
61
BIBLIOGRAPHY
62
Appendix
Questionnaire
1. What according to you is the role of small scale industries in

economic restructuring and development of India?
Highly creditable
Reasonable
Negligible
2. Which among the following will you rate the most

commendable contribution of small scale industries in
economic development of India?
Employment generation
Desirable sustainability
Enteprenurial and other innovation
Export growth
63
3. Are government policies discriminatory for small scale
industries in India comparing large scale industries?
Yes No
4. Which of the following problems are required to be most

effectively dealt with by the government in the country for the
development of Small scale industries?
Law and order situation
Financial constraints
Energy crisis
Taxation problems
Labour issues
64
5. How favorable has been globalised business environment of
India for the growth of small scale industries?
Highly favorable
Reasonably favorable
Not favorable
6. Do you feel that the employment generation in India has

improved due to rise in small scale industries?
Yes No
7. Which among the following option about the “increasing share

of small scale industries in India’s total employment is due to a
net employment decline of large scale industries than now
employment in small scale industries” do you agree?
Strongly agree
Agree
Disagree
Strongly disagree
65
8. Do you agree with the statement “small scale industries are
greatest employment creators in India and as well greatest
employment destructors in India”?
Yes No
9. What is your degree of acceptance of the fact that small scale

industries in India lack in providing training to the employees
in order to efficiently take part in knowledge based economic
activity?
Strongly agree
Agree
Disagree
Strongly disagree
10. Should small scale industries comply with labor market

reform in order to achieve a faster growth and add more
contribution in the economy?
Yes No
11. Do small scale industries have played a considerable role

in export growth of India?
66
Yes No
12. For the growth of Small scale industries how supportive

have been export promotion agencies and government
incentives?
Highly supportive
Reasonably supportive
Not supportive
13. Which among the following option of export challenges of

small scale industries in India should be deal initially for
enhancing their role and contribution in export?
Knowledge gap
High uncertainty
Risk of operation
67
14. What is your degree of acceptance about the statement
“if India wishes to enhance its export performance then the
export policy should have high small scale industries
orientation”?
Strongly agree
Agree
Disagree
Strongly disagree
15. How do you view small scale industries role in Indian

economy?
Duly acknowledged
Undermined
Exaggerated
68
69

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Title Page

• To perform a literature review to analyze the contribution and

• To carryout a field studies to observe contribution and responsibly of

The research has answered following research questions:

• What is the contribution and responsibility of small scale industries

• What is the contribution and responsibility of small scale industries

• Whether the potential of Indian small scale industries’ have been

Indisputably if India wishes to augment its export performance then the

1.1 BACKGROUND AND RATIONALE

India witnessed a remarkable growth of small-size enterprises in India since

The aim of this research is to study the contribution and responsibilities of

• To perform a literature review to analyze the contribution and

• To carryout a field studies to observe contribution and responsibly of

1.3 RESEARCH QUESTIONS

• What is the contribution and responsibility of small scale industries

• What is the contribution and responsibility of small scale industries

• Whether the potential of Indian small scale industries’ have been

2.2 ROLE OF SMES IN ECONOMY

Small size enterprises have significant contribution in the economic growth

SMEs made significant contribution in the growth of the economy. It creates

A small and medium enterprise absorbs more labor as compared to big

SMEs are transforming endlessly these days due to the internationalization

2.3 ROLE OF SMES IN INDIAN ECONOMY

SMEs in India are not competitive enough when it comes to international

2.4 SMEs AND EMPLOYMENT GENERATION

We cannot apply our understanding of enterprises to the whole economy as

According to the study conducted by Weigand and Audretsch (1999) on the

2.5 SMEs AND EXPORT GROWTH

According to Ruzzier and Lu and Beamish economic advancements and wide

Johanson and Mattson in 1998 suggested the network approach to support

Sharma and Erramilli suggests SMEs to attempt various entry routes to

A firm targeting export market is also influenced by export-entrepreneurial

According to Suarez-Ortega, the financial resources that restrict the timely

SME sector in India is becoming competitive day by day as country is

• To perform a literature review to analyze the contribution and

• To carryout a field studies to observe contribution and responsibly of

1.3 RESEARCH QUESTIONS

• What is the contribution and responsibility of small scale industries

• What is the contribution and responsibility of small scale industries

• Whether the potential of Indian small scale industries’ have been

The general inductive approach suggests an appropriate way of analyzing

Silverman, D. (2002), Doing qualitative research: A practical handbook,

Qualitative research methodologies explore the interaction of culture

Quantitative methods are advantageous as it furnishes detailed information

Neuman, W. L. (2004), Social research methods: Qualitative and quantitative

Creswell, J. W. (2002). Research Design: Qualitative, Quantitative, and Mixed

Patton, M. Q. (2002). Qualitative evaluation and research methods (3rd ed.).

Primary information is collected mainly by observation and is gathered

Observation is the process through which methods and information for

Surveys Interviewing is one of the method by which a survey is conducted.

Sekaran, U. (2003), Research Methods for Business: A Skill Building

Robson, C. (2000) Real World Research. Blackwell Publishers, Oxford

Easterby-Smith, M. et al. (2002), Management Research – An Introduction,

Perakyla, A. (1997) Reliability and Validity in Research Based on Transcripts.

Bryman, A and Bell, E (2003) Business Research Methods Oxford University

FINDINGS AND ANALYSIS

4.2 ANALYSIS OF FINDINGS

This research literature emphasized on small scale industries and it is

Contribution of small scale industries in economic development

The research literature shows a positive contribution in the growth of an

No. of Response in Valid

Government policies are discriminatory for small scale industries

Table 4.3: Government policies are discriminatoryfor small scale industries