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Tuesday, 1 April 2014 00:57 - - {{hitsCtrl.values.hits}}
This article is an analysis of the opportunities and threats presented with the development of infrastructure (focusing on roads) and its effects on the SME sector in the country.
It is indeed encouraging to witness the rapid development of the road network in the country. This development is cause for more efficient information dissemination in country to every nook and corner which provides for more information being shared more regularly with the consumer.
What are the implications of this? Consumers will be driven in their purchasing behaviour more to do with emotional drive, attractive advertisements and promotions rather than based on need. Large companies also use popular personalities to endorse their product whilst making it more attractive for the user.
Therefore, any SME company which used to dominate a single market in the regions will be under severe threat to maintain their market share unless they also reach out to the other regions. The question is: Do they have the marketing spending power to create awareness? Or build a brand that secures consumers’ attention? This brings about opportunities for marketing and advertising firms to reach the SME sector to prepare them for the oncoming challenges.
Furniture manufacture
Taking into consideration SMEs on furniture manufacture, the future does seem a bit bleak. Gone are the days when people placed orders for furniture they did not see/touch prior to purchase. Presently most people would like to touch and feel the product before any purchase and be assured that the same quality product is delivered to them.
This has been fulfilled by the large scale manufacturers of furniture who have island wide branches and distributor network. There are now competitors for the SMEs and the SMEs engaged in manufacture of furniture (even other products) will have to scale up their production with new designs to suit the customer whilst keeping economies of scale under check. Or else, they will have a natural death over a period due to advanced technology used by the large manufacturers, DIY products and also quality imported furniture.
Those businesses that relied on a captive customer base on the road network will now have to deal with the new expressways with its potential to cause a serious diversion of former travellers/potential customers. This could even wipe out the sustainability of a town or village business activities overnight.
Strategic partnerships
The SME sector which is feeder to the large manufacturing entities will survive until such time the large manufacturers try to backward integrate their business proposition due to easy access to raw material or the source. Hence, strategic partnership through contractual terms will reduce this risk to a certain extent.
Whilst there are many threats that are posed more towards SMEs rather than the large manufacturers, there are also some opportunities available to SMEs through the development of infrastructure such as the road network.
SME manufacturers of goods will have to upgrade their production through more of machinery to increase productivity and quality of product than manual labour. Further, branding the product, certifications for quality, improved packaging, strategic partnerships and efficient distribution methods will have to be adopted to be in par with the large manufacturers.
Depending on what industry a business is in, it will have its own dynamics to counter competition. If the economics work in favour of the SME sector due to easy access to raw materials due to its locality, it will be a great opportunity to widen its market to other regions.
Having said that, Sri Lanka’s market is limited to a population of 20.2 m living in the country out of the total population of 22 m. The next best option for SMEs is to reach the export market if the product meets international standards and is price competitive with access availability on common terms (without tariff and non tariff barriers in the importing country).
Biggest beneficiaries
The biggest beneficiaries due to road network development will be the service sector SMEs in the regions who will see their customer base increasing over a period, since people will not need to reside outside the home town to attend work in the city. Instead there may be a trend of people moving back to their home towns. However, the ambience of the service provision institutes will have to be upgraded to make it appealing to customers, since customers are exposed to better experiences than before.
Trading firms will have much to gain with good brands at their doorstep. However, potential opening of hyper-malls, supermarkets and malls will pose a threat in the long run. With an increased customer tendency to make every purchase more of an experience than just to fulfil a need, trading firms will have to embrace customer service practices. This will be a skill that staff irrespective of the size of the firm will need to acquire so as to reduce possible threats.
Other opportunities that can be available to SMEs through infrastructure development are to align business with the macro development of the country. Meaning that infrastructure development like ports, airports and free trade zones will bring in new opportunities. However these benefits may not be visible in the short term.
Taking stock of these opportunities and threats, the banking sector can play a major role in bringing about change needed for SMEs since they are partisan to one another.
[The writer – FCMA(UK), FIB(SL), MBA(UOC), CCM(FASEC), CGMA(USA) – is a corporate trainer and can be contacted on [email protected]; website : www.jkseconsultants.com.]
