i

RECEIVABLES MANAGEMENT OF MSMEs: A STUDY OF MSMEs IN TAMILNADU

A THESIS Submitted by

V. M. PONNIAH
(Reg. No. 77506003) In Partial Fulfillment of the Requirements for the Degree of

DOCTOR OF PHILOSOPHY
Under the Guidance of

Dr A. CHANDRA MOHAN
Professor of Management

SCHOOL OF MANAGEMENT FACULTY OF ENGINEERING AND TECHNOLOGY SRM UNIVERSITY, KATTANKULATHUR- 603 203
JULY 2011

ii

DECLARATION

I hereby declare that the dissertation entitled RECEIVABLES MANAGEMENT OF MSMEs: A STUDY OF MSMEs IN TAMILNADU submitted for the Degree of Doctor of Philosophy is my original work and the dissertation has not formed the basis for the award of any degree, diploma, associateship, fellowship of similar other titles. It has not been submitted to any other University or Institution for the award of any degree or diploma.

Place: Kattankulathur Date: 20th July, 2011

(V M PONNIAH)

iii

SRM UNIVERSITY, KATTANKULATHUR -603 203

BONAFIDE CERTIFICATE
Certified that this thesis titled RECEIVABLES MANAGEMENT OF MSMEs: A STUDY OF MSMEs IN TAMILNADU is the bonafide work of Mr. V.M.PONNIAH who carried out the research under my supervision. Certified further that to the best of my knowledge the work reported herein does not form part of any other thesis or dissertation on the basis of which a degree or award was conferred on an earlier occasion for this or any other candidate.

Dr. A. CHANDRA MOHAN RESEARCH SUPERVISOR Professor of Management Studies School of Management Kattankulathur- 603 203

iv

4. ACKNOWLEDGEMENT
I first and foremost salute the ALMIGHTY for giving me the health and strength to pursue endeavours leading to a holistic life and for the

continuous blessings throughout the research work. I am grateful to all my teachers for their persistent efforts in shaping me. I am most grateful to my Research Supervisor, Dr. A.Chandra Mohan, Professor School of Management, SRM UNIVERSITY, whose critical comments, valuable suggestions and encouragement helped me throughout to complete the research work successfully and on time. This thesis will be meaningless without mentioning all those who have helped me to make it possible. With utmost sincerity, I thank

Dr.C. Muthamizhchelvan, Director, Faculty of Engineering and Technology, Dr. Jayshree Suresh, Dean of School of Management, Dr. Narayana Rao, Director ( Research) and Dr. S.Kasmir Raja, Dean of Research, SRM University for their constant and valuable support. I humbly express my sincere thanks to Dr.T.R.Pachamuthu, Chancellor of SRM University for providing all the required facilities to

v complete this thesis successfully. I thank Prof. P.Sathyanarayanan, President, SRM University, Dr.Ponnavaikko, Vice Chancellor, SRM University, Dr.T.P.Ganesan, Pro-Vice Chancellor, Dr.N.Sethuraman, Registrar and Dr.Ponnusamy of SRM University, for their valuable advice and guidance. I am grateful to Mrs. Parvathi Ponniah, my wife, for valuable help rendered throughout the research work and constant encouragement. My special thanks to Sri. P.Meenakshisundaram and Smt. M. Kuppammal, my parents and Sri. D.Meenakshisundaram and Smt M.Ulagammal, my in-laws, for their moral support. I thank all my brothers and other family members for extending their support. Last but not the least, I must thank all my friends and well wishers who have provided me with the right ground to complete the thesis work in a successful way.

(V.M. PONNIAH)

vi

5. ABSTRACT
The performance of SSI was focused mainly at National level, while issues like size, growth, structure and productivity were left to the States, which paid inadequate attention to these issues. Liberalization has exposed Indian MSMEs to unequal competition with its counterparts in the industrially advanced countries. The history of funding of the MSMEs reveals that the sector has been mostly relying on self finance and debt finance through banking system. Lack of demand and shortage of working capital are the main reasons for acute and incipient sickness in both the registered and unregistered units in SSI sector. Task force of Prime Minister on MSMEs in January 2010 reported that shortage of capital, particularly working capital, is the major problem faced by the enterprises in the unorganized sector, which constitutes 94 % of MSMEs in India. According to the Task Force on MSMEs, workable legal options should be developed for the securitization of trade credit receivables and for the promotion of factoring services. Considering the need for managing receivables, it is decided to find out how many MSMEs have practised an efficient receivables management practices. Further the type of problems that could be caused by this inefficient

vii management of receivables in MSMEs, need to be investigated so that appropriate corrective and preventive measures could be designed and commissioned in these MSMEs. This research is undertaken to determine the variables of Receivables Management of MSMEs and to find out association of receivables with other variables in managing the business. The present research identified gaps in the literature on the receivables management which leads to the formation of the research instrument (questionnaire). 525 respondents have been covered from 12 districts in Tamilnadu, with questionnaire, containing 50 questions in four parts. Trade credit occurs when there is a delay between the delivery of goods or the provisions of services by a supplier and their payment. For the seller this represents an investment in account receivable, while for the buyer it is a source of financing that is classified under current liabilities on the balance sheet. Twelve receivables management variables were identified based on literature review, discussions with MSMEs and their inputs and a pre-test was conducted. Based on the outcome of analysis, seven variables have been retained for further research. Retained variables are 1) Receipt of advances before supply of goods, 2) Receipt of advances at the time of supplying the goods, 3) Whether credit period extended or not, if extended the duration of such period, 4) Collection of Receivables within the stipulated credit period or not, if extended the duration of such extension 5) Debts doubtful of recovery

viii 6) Business with top one customer and 7) Business with top three customers. The predominant problems of MSMEs namely, Marketing issues, Finance issues, Human resources issues, Operations issues and General problems are collected besides personal characteristics, business details and investment in plant and machinery / equipments, through the questionnaire. Data collected through primary and secondary data are analysed using the various analytical and statistical tools like Percentage Analysis, Chi-

square test, Karl Pearsons Co-efficient of Correlation and One-Sample t- test by using Statistical Package for Social Science (SPSS). The higher order statistical tools viz Factor analysis, Cluster analysis and Multiple Regression analysis are exploited systematically to establish the association as well as relationship among independent and dependent variables. Discriminant Analysis is used to develop an empirical model to evaluate the Receivables Management Strategy of MSMEs in Tamilnadu. There is a deep association between domestic sales of MSMEs with business profile of MSMEs, with top one customer and with top three customers. The advances at the time of supply are essential for venturing into domestic sales. It is found that credit period is an essential component of receivables management.

ix It is found that the advances received before supply and at the time of supply are able to encourage net profit of MSMEs. It is also found that doubtful recovery percentage hampers the net profit generation. Receivables Management variables as well as problems mutually acted as independent and dependent variables. The subsequent usage of discriminant analysis followed by linear combination of the variables sharply estimated a mutual relationship between receivables management and problems. Personal and entrepreneurial traits of MSMEs owners are vital in determining their capabilities to withstand against the consequences of receivables management. It is found that gender, age, educational level of MSME entrepreneurs etc, influence on credit period decisions, receivables collection, number of customers and advance receipts. Investment on MSMEs has their anatomical association with receivables management within the framework of nature of investments. The Model presents that personal, business details and investments in productive fixed assets are highly influencing the receivables management, to have an influence in the form of total revenue and net profit. The

conglomeration of receivables management and problems of MSMEs have been clearly proved in the model. Every MSME can evaluate itself with reference to the model constituents and determine the direction to strengthen the management of receivables. Rather this model could become a tool for

x raising the alarm, when the management of receivables is not on right directions. This will help MSME entrepreneurs not only to sustain their

business without any problems in realisation of trade credit receivables, but also to achieve growth of their business.

6. TABLE OF CONTENTS
CHAPTER NO.

TITLE ABSTRACT TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES LIST OF SYMBOLS, ABBREVIATIONS

PAGE NO. vi x xviii xxii xxiii

1.

INTRODUCTION 1.1 1.2 CONTEXT DEFINITION OF ENTREPRENEURSHIP DEFINITION OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSME) AND CHALLENGES 1.4 DEFINITION OF RECEIVABLES MANAGEMENT AND ITS CURRENT STATUS IN MSMEs 1.5 BACKGROUND OF THE STUDY 1.5.1 Global Impact of Entrepreneurship

2 2 4

1.3

10 10

xi CHAPTER NO. 1.5.2 1.5.3 1.5.4 1.6 1.7 1.8 2. TITLE Global Experience of Small Enterprises Performance and Growth of MSMEs in India Performance and Growth of MSMEs in Tamilnadu NEED FOR THE STUDY RESEARCH PROBLEM CHAPTERISATION SCHEME 15 17 18 21 22 23 28 32 14 12 PAGE NO. 11

REVIEW OF LITERATURE 2.1 2.2 2.3 2.4 ROLE OF MSMEs IN OVERALL ECONOMIC DEVELOPMENT MSMEs IN UTILIZATION OF RESOURCES ROLE OF MSMEs IN SOCIAL DEVELOPMENT ECONOMIC AND OTHER INCENTIVES FOR MSMEs BY STATE-CURRENT STATUS 2.5 2.6 2.7 2.8 DRIVERS OF MSMEs FINANCIAL MANAGEMENT AND ITS ROLE IN SUCCESS OF MSMEs RECEIVABLES MANAGEMENT FROM THE LITERATURE RESEARCH GAPS

34 40 46 51 54 54

3. RESEARCH METHODOLOGY 3.1 RATIONALE OF THE STUDY

xii CHAPTER NO. 3.2 3.3 3.4 TITLE OBJECTIVES OF THE STUDY HYPOTHESES OF THE STUDY DEVELOPMENT OF RESEARCH INSTRUMENT 3.4.1 3.4.2 3.4.3 3.5 3.6 3.7 3.8 3.9 3.10 Compilation of Measures Pre-Test Scaling Technique in the Questionnaire VALIDITY OF THE RECEIVABLES MANAGEMENT VARIABLES PILOT STUDY SAMPLE DESIGN MAIN STUDY VARIABLES OF THE RESEARCH STATISTICAL TOOLS FOR ANALYSIS 60 61 63 64 65 60 57 58 59 PAGE NO. 55 56 57

4.

DATA ANALYSIS AND INTERPRETATION 4.1 DESCRIPTIVE ANALYSIS 4.1.1 4.1.2 4.1.3 Gender wise classification of MSME Entrepreneurs Age wise classification of MSMEs Entrepreneurs Classification of MSME entrepreneurs based on Educational Qualification Classification of MSMEs based

68 68 69 70 71

4.1.4

72

xiii CHAPTER NO. TITLE on major influencing factors for the entrepreneur to start the business Status of MSME Entrepreneurs at the time of starting the business unit Existence of MSMEs based on Year of their establishment Business entity /Type of Ownership of MSMEs Type of Business of MSMEs Line of Activity of the Business of MSMEs MSMEs Investments in Plant & Machinery (Manufacturing sector) and Investment in Equipments (Services sector) MSMEs based on break up of Sales Revenue / Total Income for the fiscal year 2008-2009 MSMEs based on actual Sales Revenue / Total Income earned by MSMEs during the fiscal year 2008-2009 MSMEs based on Net Profit earned during the fiscal year 2008-2009 PAGE NO.

4.1.5

73

4.1.6 4.1.7 4.1.8 4.1.9 4.1.10

74 75 76 77 78

4.1.11

79

4.1.12

80

4.1.13

81

4.1.14 MSMEs based on proportion of Sales Revenue / Total Income earned through top one customer 4.1.15 MSMEs based on proportion Total Income earned through top three customers

82

83

xiv CHAPTER NO. TITLE 4.1.16 MSMEs based on Advances received before supplying the goods / providing the services 4.1.17 MSMEs based on Advances, as a percentage of Total Order value, received before supplying the goods / providing the services Advances 4.1.18 MSMEs based on received at the time of supplying the goods / providing the services 4.1.19 MSMEs based on Advances as a percentage of Total Order value received at the time of supplying the goods / providing the services 4.1.20 MSMEs based on Credit period allowed to their customers 4.1.21 MSMEs based on duration of Credit period allowed to their customers 4.1.22 MSMEs based on Receivables collected from their customers, within the credit period allowed 4.1.23 MSMEs based on additional credit period allowed to their customers 4.1.24 MSMEs based on their Doubtful Debts, as a percentage of Sales Revenue / Total Income for the fiscal year 2008-2009 ANALYSIS OF SECONDARY DATA: PERFORMANCE OF MSME UNITS IN INDIA AND TAMIL NADU 4.2.1 4.2.2 Number of MSMEs in India. Employment Potential of MSMEs in India PAGE NO. 84

85

86

87

88 89

90

91 92

4.2

93

93 94

xv CHAPTER NO. 4.2.3 TITLE Production in MSME Sector in India 4.2.4 MSME Units in Tamilnadu An Over view INFERENTIAL ANALYSIS 4.3.1 Association of Receivables Management variables and Sales Revenue / Total Revenue achieved by MSMEs Association of Receivables Management variables and Net Profit Influence of Problems of MSMEs on Receivables Management variables Association of Personal characteristics of Entrepreneurs and Business characteristics of MSMEs entrepreneurs and Receivables Management variables Association of Investments in the Machinery Plant & (Manufacturing sector)/ Equipments (Services sector) of the different types of MSMEs on the Receivables Management Variables Opinion of MSME entrepreneurs on the different types of Problems normally faced by MSMEs Factors on the Problems normally faced by MSMEs using Factor Analysis PAGE NO. 98 100 103 104

4.3

4.3.2

109

4.3.3

110

4.3.4

118

4.3.5

130

4.3.6

133

4.3.7

139

xvi CHAPTER NO. 4.3.8 TITLE Classification of MSME entrepreneurs based on the problems normally faced by them using Cluster Analysis PAGE NO. 148

4.4

DISCRIMINANT ANALYSIS TO DEVELOP AN EMPRICAL MODEL TO EVALUATE RECEIVABLES MANAGEMENT STRATEGY OF MSMEs IN TAMILNADU 4.4.1 Receivable Management Model for MSMEs

151

156

5.

FINDINGS AND SUGGESTIONS 5.1 5.2 SUMMARY OF CHAPTERS FINDINGS OF THE STUDY 5.2.1 5.2.2 Growth of MSMEs in India with specific reference to Tamilnadu Association of Receivables Management variables and Sales Revenue / Total Income of MSMEs Association of Receivables Management variables and Net Profit earned by MSMEs Association of Problems normally faced by MSMEs and Receivables Management variables Association of Personal Characteristics of MSME entrepreneurs and Business characteristics of MSMEs and Receivables Management variables

160 160 162 162 163

5.2.3

167

5.2.4

168

5.2.5

170

xvii CHAPTER NO. 5.2.6 TITLE Association of Investments in Plant & Machinery (Manufacturing Sector) / Equipments (Services Sector) of MSMEs and Receivables Management variables Empirical Model for Receivables Management for MSMEs in Tamil Nadu. SUGGESTIONS CONCLUSIONS RECOMMENDATIONS SCOPE AND LIMITATIONS OF THE STUDY SCOPE FOR FURTHER RESEARCH REFERENCES APPENDICES LIST OF PUBLICATIONS VITAE PAGE NO. 171

5.2.7

172

5.3 5.4 5.5 5.6

172 174 175 176

5.7

177

179 192

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xix

7. LIST OF TABLES
SL.NO 1 2 3 4 TABLE NO. 1.1 3.1 3.2 3.3 DESCRIPTION Micro, Small And Medium Enterprises under Services Sector and Manufacturing Sector Cronbach co-efficient and Hotellings T-square value. Sample Design District-wise MSMEs from whom data are collected Gender wise classification of MSME Entrepreneurs Age wise classification of MSME Entrepreneurs Classification of MSME entrepreneurs based on educational qualification Classification of MSMEs based on major influencing factors for the entrepreneur to start the business Status of MSME entrepreneurs at the time of starting the business unit Classification of MSMEs based on Years of their existence Classification of MSMEs based on Business entity / Type of Ownership Classification of MSMEs based on Type of Business Classification of MSMEs based on Line of Activity of the Business Classification of MSMEs based on Investments in Plant & Machinery (Manufacturing sector) / Equipments (Services sector). Source of Sales Revenue / Total Income of MSMEs for the fiscal year 2008-2009 Classification of MSMEs based on Sales Revenue / Total Income earned during the fiscal year 2008-2009 PAGE NO. 6 61 62 63 69 70 71 72

5 6 7 8

4.1 4.2 4.3 4.4

9 10 11 12 13 14

4.5 4.6 4.7 4.8 4.9 4.10

73 74 75 76 77 78

15 16

4.11 4.12

79 80

xx SL.NO 17 18 TABLE NO. 4.13 4.14 PAGE NO. 81 Classification of MSMEs based on Net Profit earned during the fiscal year 2008-2009 82 Classification of MSMEs based on proportion of Sales Revenue / Total Income earned through top one customer 83 Classification of MSMEs based on Sales Revenue / Total Income earned through top three customers 84 Classification of MSMEs based on Advances received before supplying the goods/providing the services 85 Classification of MSMEs based on Advances as a percentage of Total Order value, received before supplying the goods/providing the services 86 Classification of MSMEs based on Advances received at the time of supplying the goods/providing the services 87 Classification of MSMEs based on Advances, as a percentage of Total Order value, received at the time of supplying the goods/providing the services 88 Classification of MSMEs, based on Credit period allowed to their customers 89 Classification of MSMEs , based on duration of credit period allowed to their customers 90 Classification of MSMEs based on their ability to collect the receivables from their customers, within the credit period allowed 91 Classification of MSMEs based on Additional Credit period allowed to their customers 92 Classification of MSMEs based on their Doubtful Debts, as a percentage of Sales Revenue / Total Income for the fiscal year 2008 2009 93 Number of MSME units in India (in lakhs) DESCRIPTION Regression of MSME units in India and Years Employment potential of MSMEs in India 94 96

19

4.15

20

4.16

21

4.17

22

4.18

23

4.19

24 25 26

4.20 4.21 4.22

27 28

4.23 4.24

29 30 31

4.25 4.26 4.27

xxi SL.NO 32 33 34 35 36 37 38 39 40 41 42 TABLE NO. 4.28 4.29 4.30 4.31 4.32 4.33 4.34 4.35 4.36 4.37 4.38 PAGE NO. 97 Regression of employment potential of MSME units in India and Years 99 Production of MSME Units in India (Value in Rs. in Crores) 100 Regression of Production of MSME Units in India and Years 101 Registered MSME units in Tamilnadu DESCRIPTION Employment of MSME units in Tamilnadu Production of MSME Units in Tamilnadu Association of Receivables Management variables and Domestic Sales Association of Receivables Management variables and Export Sales Association of Receivables Management Variables and Job Work Receipts Association of Receivables Management variables and Net Profit Output of Multivariate tests to determine the influence of Problems on Receivable Management variables Tests of Between-Subjects Effects Model Summary Variables in the Equation Model Summary Variables in the Equation Model Summary Variables in the equation Model summary Variables in the equation Output of Multiple General Regression Model to determine the influence of Personal characteristics of entrepreneurs and Business characteristics of MSMEs on the Receivables Management variables 102 103 105 106 108 109 111

43 44 45 46 47 48 49 50 51 52

4.39 4.40 4.41 4.42 4.43 4.44 4.45 4.46 4.47 4.48

112 114 114 115 115 116 116 117 117 119

xxii SL.NO 53 TABLE NO. 4.49 DESCRIPTION Output to determine the association of Investments in Plant & Machinery (Manufacturing sector) / Equipments (Services sector) by MSMEs on the Receivables Management variables Summary Attitude Scale with opinion of MSME Entrepreneurs on the different types of Problems normally faced by MSMEs One-sample test: Opinion of MSME entrepreneurs on the different types of Problems normally faced by MSMEs KMO and Bartlett's Test for Factor Analysis Number of Factors of Problems normally faced by MSMEs Factors obtained through Continuous Vari-Max Rotation Lack of Trust and Hyper Competition High Entry Barriers Low Access towards Cheaper Finance Poor Logistics and Low Labour Productivity Low Venture Capital Culture Clusters based on the Factors of problems normally faced by MSMEs Nature of Clusters based on the Factors of problems normally faced by MSMEs Clusters of Entrepreneurs Eigen values Wilks' Lambda Structure Matrix Canonical Discriminant Function coefficients Definition of SMEs Asia and other countries PAGE NO. 131

54

4.50

133

55

4.51

135

56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71

4.52 4.53 4.54 4.55 4.56 4.57 4.58 4.59 4.60 4.61 4.62 4.63 4.64 4.65 4.66 A2 .67

140 141 142 143 144 145 146 147 148 149 150 152 152 153 154 200

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8. LIST OF FIGURES

SL.NO 1

FIGURE DESCRIPTION NO. Receivable Management Model 4.1

PAGE NO. 157

xxiv

9. LIST OF SYMBOLS AND ABBREVIATIONS

MSME SME SSI GDP GEM RBI QR OGL SIDBI NABARD WTO OEM SPSS ASI BUSONECUSTR BUSTHREECUSTR ADVRECDBEFORE ADVRECDSUPPLY CREDITALLOWED RECVCOLLTD DOUBTDEBTS SMERA

Micro, Small and Medium Enterprises Small and Medium Enterprises Small Scale Industries Gross Domestic Product Global Entrepreneurship Monitor Reserve Bank of India Quantitative Restrictions Open General License Small Industries Development Bank of India National Bank for Agriculture and Rural Development World Treaty Organisation Original Equipment Manufacturers Statistical Packages for Social Sciences Annual Survey of Industries Business with one customer, (ie) total revenue earned through one major customer Business with top three customers(ie) total revenue earned through three major customers Receiving advance before supply of goods Receiving advance at the time of supply of goods Credit period allowed to the customers Receivables received within the credit period The quantum of debts which are doubtful of recovery and hence to be treated as bad and doubtful debts Small Medium Enterprises Rating Agency

CHAPTER 1

INTRODUCTION

CHAPTER 1 INTRODUCTION

CHAPTER OVERVIEW The first chapter of this study explains the problems and prospects of MSMEs at all India level and Tamilnadu level in a lucid and concise manner. This chapter also covers the definitions of Entrepreneurship, Micro, Small and Medium Enterprises (MSME) and Receivables. Besides these highlights, this chapter explains the need for the study, exact research problem encountered in this research. In this chapter, the following areas are covered: context; definitions of Entrepreneurship, Micro, Small and Medium Enterprises (MSME) and Receivables Management ; background and need for the study ; research problem chapterisation Scheme and objectives of the study

1.1

CONTEXT MSMEs have emerged as an engine of growth in the New Millennium in

India and world over. The MSME sector is a nursery of entrepreneurship, often driven by individual creativity and innovation. The twenty-first century has

dawned with entrepreneurship as a major force, shaping the global economy. At the heart of this global movement are entrepreneurs who demonstrate their willingness to assume the risk associated with creating new Micro Small and Medium Enterprises (MSMEs). Those who possess the spirit of entrepreneurial leadership have led, and will continue to lead the economic revolution that has proved repeatedly to raise the standard of living for people. According to Alvarez, (1996) Entrepreneurial fervor in the 1980s, a historian of the entrepreneurial movement, writes, became a worldwide movement, spreading across countries, regardless of their level of development or even of their basic mentality or value orientation towards business activities. Presently large number of MSMEs is first generation entrepreneurs and significant number is accounted by technocrats, professionals besides skilled manpower. They change the work culture and work environment in the backdrop of Information Technology and Communication Technology. The MSME sector has emerged as a dynamic and vibrant sector of the Indian economy. According to the Handbook of Statistics on the Indian Economy, published by the Reserve Bank of India (2008-2009), there were 128.40 lakhs of MSME units in India during the fiscal year 2006-2007. These units generated employment potential of 312.50 lakhs and achieved production of value Rs 585, 11,200 lakhs. The SSI sector proved its mettle even in the changed liberalized economic environment of India. Liberalization of 1991 has opened new opportunities and challenges at the same time. The need of the hour undoubtedly was to provide substance through suitable measures to strengthen it for converting the challenges into opportunities for scaling new heights. Economic growth becomes really meaningful when the people participate extensively in the path of growth. The real challenge of growth is to provide full employment. Sukanta Kumar Sahoo, (2003), opined that the SSI sector is the symbol of that facet of our economy which reflects production by masses

rather than mass production. With decline in agricultural employment and virtual stagnation in the organized manufacturing sector, employment in SSI sector has emerged as the only ray of hope. 1.2 DEFINITION OF ENTREPRENEURSHIP The word entrepreneur is derived from the French word entreprendre, which means to undertake. Saras D Saraswathy, (2004) found that entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually; they believe in a yet- to- be made future that can substantially be shaped by human action. Entrepreneurship means the taking over and organization of some part of the economy, in which peoples needs are satisfied through exchange, for the sake of making a profit and at ones own economic risk, according to Weber (1898) 1990. The essence of entrepreneurship, for Cantillon as much as for Kirzner, consists in the personal alertness to such potential sources of gain. There is a subtle change of emphasis in Kirzners discussion of entrepreneurship from that of Schumpeters: Schumpeter always portrayed the entrepreneur-innovator as a disequilibrating force disturbing a previous equilibrium , whereas Kirzner (1973), depicts him as seizing upon a disequilibrium situation and working to restore equilibrium. Unfortunately, the new Austrian theory of entrepreneurship reduces entrepreneuship to any kind of arbitrage and in so doing wipes out most of the crucial questions that have been posted about entrepreneurship. As Demsetz has said entrepreneurship in new Austrian theory is little more than profit maximization in a context in which knowledge is costly and imitation is not instantaneous.

A more promising approach to the theory of entrepreneurship is offered in a study by Mark Casson, (1982) who syntheses and extends previous work by Knight, Schumpeter, Kirzner and many others. Casson defines an

entrepreneur as someone who specializes in taking judgemental decisions about the coordination of scarce resources. These definitions of entrepreneurship give a broad idea of multi-skills needed by an entrepreneur. In India, National Knowledge Commission has defined as under: Entrepreneurship is the professional application of

knowledge, skills and competencies and /or of monetizing a new idea, by an individual or a set of people by launching an enterprise de novo or diversifying from an existing one (distinct from seeking self-employment as in a while generating wealth,

profession or trade), thus to pursue growth employment and social good.

An entrepreneur once decided to start a business venture, it is invariably started as a small one and may grow into a medium or large one subsequently. There are many business opportunities which are broadly categorized as either manufacturing or services. In each of these categories, sub-classifications as micro, small or medium are defined. 1.3 DEFINITION OF MICRO, SMALL AND MEDIUM ENTERPRISES ( MSME) AND CHALLENGES There is no universally accepted definition to define a Micro, Small and Medium Enterprise (MSME). A study has identified more than 50 definitions in 75 countries (Prasad C S). Dr. Vasanth Desai (2004) had reported that the definition of SMEs is based on employment, gross income / sales, investment, shareholder fund etc and it varies from country to country. Within the same country, different definitions of MSME may prevalent for different purposes. Such variations make inter-country comparison very difficult, even when data are available. (Prasad C.S. 2004)

In India the Small Scale Industry (SSI) owes its definition to Industries (Development and Regulation) Act 1951. Prior to August 2006 an SSI, in India, was defined as an industrial undertaking in which the investment in productive plant and machinery, whether held on ownership terms or on lease basis or by hire-purchases, does not exceed Rs.1crore. The Government of India introduced Micro, Small and Medium Enterprises Development (MSMED) Act in August 2006. It provides the first legal framework for the concept of Enterprises (comprising both manufacturing and service) and integrating three tiers of these enterprises namely Micro, Small and Mediumsized. The definition given by the Act is as follows. TABLE 1.1 MICRO, SMALL AND MEDIUM ENTERPRISES UNDER SERVICES SECTOR AND MANUFACTURING SECTOR Particulars Services sector (Max Investments in Equipments) (Rs in lakhs) ** Micro enterprises Small enterprises Medium enterprises Source: MSME Development Act 2006. 10 200 500 Manufacturing sector (Max Investments in Plant & Machinery ) ( Rs in lakhs) ** 25 500 1000

** As per the Government of India MSME Act, investment made by an enterprise in fixed assets is reckoned for determining whether the enterprise falls under micro or small or medium. In respect of services industry, investment made in equipments is the criteria and in respect of manufacturing industry, the investment in plant & machinery is the criteria. The growth, development and futuristic prospects of MSMEs depend upon the continuous realization of receivables and business performance,

consisting of total income, net profit and investments in fixed assets of MSMEs. It has been generally observed by customers of MSMEs that production and operational issues have wider ramifications in the form of marketing, quality and finance. This observation is reinforced by inability to invest in high technology and being labour intensive. However the strength of MSMEs lies in unique combination of low technology and appropriate labour or appropriate technology and appropriate labour. The sickness of MSMEs is not confined to a particular temporal segment. In the sense sickness may occur for an MSME at any stage of its growth. Due to low bargaining power of MSMEs, supplier has a strong impact on inability to enforce repayment dues. This aspect was found to be one of the major reasons for sickness in different research studies conducted in India. This inability makes the MSME units dependent on financial institutions for working capital support. The severe competition and technological revolutions always pose a threat to MSMEs in their growth and prospects. The receivables management for the purpose of this research and generally accepted is as follows. 1.4 DEFINITION OF RECEIVABLES MANAGEMENT AND ITS CURRENT STATUS IN MSMEs Trade credit occurs when there is a delay between the delivery of goods or the provisions of services by a supplier and their payment. For the seller this represents an investment in account receivable, while for the buyer it is a source of financing that is classified under current liabilities on the balance sheet. The literature offers various theories to explain the use of trade credit based on the advantages for suppliers and for customers from the operational, commercial and financial perspective (Pedro Juan Garcia-2010) Trade credit enables firms to create operating efficiencies and cost improvements by separating the exchange of goods and their payment. This

reduces cash uncertainty in their payments and provides more flexibility to respond to variations in demand. From the commercial perspective, trade credit may stimulate sales in a number of ways. Terms of payment make it possible to modify the price of goods sold by increasing the discount for prompt payment, which is an

implicit price reduction. Moreover, trade credit can be used to maintain long term relationship with customers. Trade credit also allows sellers to offer quality guarantees to buyers so that buyers can assess product quality before. In relation to financial motives, firms with better access to credit market and with lower costs can act as financial intermediaries and grant financing to firms those find it difficult to access credit. Moreover the use of trade credit help firms to obtain bank financing, since trade credit transmits information about the borrowers creditworthiness to the credit institution Since the MSMEs possess the weakness of quality, financial strength, capacity utilization, technological superiority, they are duty bound to run their business effectively facing challenges. The predominant problem is the financial chain of MSMEs which is directly correlated with periodical and timely realization of receivables, to run the business successfully. The receivables management of MSMEs is not a unique phenomenon but it is a mixture of different types of credit operations. In fact the credit terms, opportunity cost, credit policies and credit period are vital in determining the effects of receivables. Though receivables management is a challenge, the problem in not universal. The advances to MSMEs are delivered in two different stages. They obtain the advances before supplying the goods or at the time of the supply. In these two stages the proximity between supplier and customer is narrowed down and increase the confidence limits of business venture. It has been observed a significant group of MSMEs were able to obtain advance for

supply of goods and services. The ability to extract advance for supply depend on different factors such as uniqueness of product or service, low level of competition, low pricing and proximity of MSME; the listed factors are only indicative and not exhaustive. The credit period and acceptance of advance have the same analogy on the receivables effects of MSMEs. They extend credit period from less than 60 days to above 120 days based on the regular orders and smooth relationship in business terms. The credit limits and its extension are its discrimination directly affecting the relationship between MSMEs and the suppliers. It is also important to note that credit limit and acceptance of advance are having multiple effects over the receivables management variables. The stage wise approach is found necessary for the MSMEs to avoid credit delay and interrupts in receivables management. The multi-stage receivables realization process may be discerned as follows: 1) 2) 3) Receipt of advances before supply of goods, Receipt of advances at the time of supplying the goods, Whether credit period extended or not, if extended the duration of such period, 4) Realization of debts within the stipulated credit period or not, if extended the duration of such extension 5) Debts doubtful of recovery

The ideal instance is to obtain 100% advance before supply. However this is rarely realized. The other extreme is to give the supply and wait for payment to the extent of 120 days or in certain circumstances up to 180 days. Between these extremes, these stage processes of receivables management are discerned.

10

Since the opportunity cost often changes, the MSMEs are baffled in their progress and obtain the debacles of financial aspects. Amid these changing scenarios, it is the duty of MSMEs to fix the credit period, short term or long term based on the customers convenience as well as convenience to the effective business cycle. During the discussions with Bank Managers of specialized industrial estate branches of Nationalized Bank, it was gathered that the credit period of MSMEs has been extended for the period, ranging from 30 days to 120 days. At the same time, they must be well equipped to meet the challenges of violation of credit periods. The credit period and its fluctuations depend upon the number of customers they deal. The domestic sales, export sales and job work are predominant in segmenting the influence of receivables management on MSMEs. It has deep correlation with total revenue generated and net profit derived from the various sources of customers. These definitions of MSMEs and receivables management are guiding this research in formulating a structure. 1.5 BACKGROUND OF THE STUDY In order to obtain greater insight of the Micro and Small Enterprises (MSMEs), Global Impact of Entrepreneurship, Global Experience of Small Enterprises and Performance and Growth of MSMEs in India and Tamil Nadu are discussed. 1.5.1 Global Impact of Entrepreneurship The Global Entrepreneurship Monitor (2007) observed very high incidence of entrepreneurship throughout the world, particularly in Asia, with Thailand and India leading the way. Entrepreneurial Activity (EA) was measured as a percentage of countrys GDP by Global Entrepreneurship Monitor (GEM). During 2001-

11

2009, EA is reported as:

World average 10.6%, Asia average 11.2 % and

India average 12.1%. The GEM report covered 21 countries that were divided into three levels of entrepreneurship. Highest level of entrepreneurial activity was found in five countries namely, Australia, Canada, Korea, Norway and United States. Average levels of entrepreneurial activity were found in Argentina, Belgium, Brazil, Denmark, Finland, Germany, India, Israel, Ireland, Italy, Singapore, Spain, Sweden and United Kingdom.

(www.gemconsortium.org/2000). 1.5.2 Global Experience of Small Enterprises The experience of Small Enterprises development during the last two decades all over the world has proved it so. MSMEs are a key component in economic life, because of their number, variety and also of their involvement in every aspect of the economy. Various aspects of the economy include generation of large scale employment at lower capital cost, contribution to dispersed regional development, generation of exportable surplus, the complementary role they play in support of the large sector and on the ground of innovativeness, flexibility, adaptability, labour intensity, exploitation of local factors of production, small requirement of inventory, satisfying local requirement, cost effectiveness and development of entrepreneurship. Small enterprises exist in the form of factories, workshops, trading and service organizations. The fruits of industrial development are noticed in terms of increase in per capita income, higher standard of living, increased individual saving, and revenue to the Government in the form of income tax, sales tax, import duties, and balanced regional development. Many a time, MSMEs have forced the reallocation of resources away from existing users to new and more productive users. Many innovations have transformed the society and altered the pattern of living. Many services have been introduced to alter or create new service industries.

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1.5.3 Performance and Growth of MSMEs in India The role of micro, small and medium enterprises (MSMEs) in the economic and social development of India is well established. This sector contributes 8 per cent of the countrys GDP, 45 per cent of the manufactured output and 40 per cent of its exports. The labour to capital ratio in MSMEs and the overall growth in the MSME sector is much higher than in the large industries. Thus, MSMEs are important for Indias objectives of growth with equity and inclusion. The Small Scale Industrial (SSI) sector is one of the most vital sectors of the Indian Economy in terms of employment generation, the strong entrepreneurial base it helps to create and its share in production. Effective policy formulation and implementation pertaining to the promotion and development of this sector, requires a sound database. The First Census was conducted in 1973-74 in respect of 2.58 lakh SSI units registered up to 30-11-1973. The reference year for this Census was calendar year 1972 in respect of units not maintaining accounts and the actual accounting year closing between 1-4-1972 and 31-3-1973 for those units maintaining accounts. Some information was also collected for 1970 and 1971. During that Census, only 1.4 lakh units were found working. The Second Census was conducted during 1990-91 in respect of 9.87 lakh SSI units registered up to 31-3-1988. The reference year for this Census was financial year 1987-88. During this Census, only 5.82 lakh units were found working. The Third All India Census was conducted during 2002-03 for the possible proximate reference year, i.e., 2001-02. There were 9.01 lakh numbers in the registered sector and 35.44 lakh numbers in the unregistered sector. Findings of the Third All-India Census included the following :

13

i.

Manufacturing, assembling, processing accounted for 63.45% in the registered sector (8.72 lakhs) and 36.12% in the unregistered sector (33.03 lakhs).

ii.

Services accounted for 34.45% in the registered sector (4.74 lakhs) and 45.38% in the unregistered sector (41.50 lakhs).

iii.

Proprietary type of organisation account for 88.85% in the registered sector (12.22 lakhs) and 96.90% in the unregistered sector (88.62 lakhs).

iv.

The reasons for sickness / incipient sickness as per the report were lack of demand, shortage of working capital, nonavailability of raw material, power shortage, labour problems, marketing problem, equipment problems and management problems.

As per the Quick results of Fourth All India Census of MSME 20062007, there are 261 lakhs number of units in India, with reference year 2006 2007. Out of this registered units are only 15.52 lakhs. Traditionally there had been a phenomenon of a group of units manufacturing same or similar product in close geographical proximity to each other. Such groups were called clusters. They were 1223 clusters covering 321 products in the registered SSI sector. These clusters had a 32.68% share in total number of registered units, 18.95% in total market value of Fixed Assets, 16.99% in total Gross Output and 27.66% in total value of employment of manufacturing activity of the registered SSI sector. According to the Handbook of Statistics on the Indian Economy, published by the Reserve Bank of India (2008-2009), there were 128.40 lakhs of MSME units in India as on fiscal year 2006-2007. During the fiscal year

14

2006-2007, these units generated employment potential of 312.50 lakhs and achieved production of value Rs 585, 11,200 lakhs. The MSME sector in India is highly heterogeneous in terms of the size of the enterprises, variety of products and services produced and the levels of technology employed. While one end of the MSME spectrum contains highly innovative and high growth enterprises, more than 94 per cent of MSMEs are unregistered, with a large number established in the informal or unorganized sector. The special attention received by Small Scale Industry (SSI) sector has contributed to its rapid growth. The development of SSI sector is entirely dependent on the initiatives taken by entrepreneurs. 1.5.4 Performance and Growth of MSMEs in Tamilnadu Tamilnadu is one of the well developed states in terms of industrial development. In the post-liberalization era, Tamilnadu has emerged as one of the front-runners by attracting a large number of investment proposals. MSME units in Tamilnadu has been contributing to the economy of Tamilnadu. During the 10 years period commencing from 1991-1992 till 2000-01, i. there was an increasing in number of registered SSI Units from 1.38 lakhs (1991-1992) to 3.87 lakhs (2000-01). ii. there was an increasing in investments in SSI Units from Rs.321,020 lakhs (1991-1992) to Rs.1156,722 lakhs (2000-01). iii. there was an increasing in the production of SSI Units from Rs.1674,700 lakhs (1991-1992) to Rs.7826,166 lakhs (2000-01) iv. there was an increasing in the employment generated by SSI Units from 11.76 lakhs (1991-1992) to 29.02 lakhs (2000-01).

15

As per the Quick Results of Fourth All India Census of MSMEs with reference year 2006 - 2007, they were 131 clusters in the State of Tamil Nadu. They were 34741 units in this clusters with fixed assets investment of

Rs.239844 lakhs and their manufactured gross output was generated employment of Rs.524417 lakhs. Hosiery and Readymade garments activity (89,464 units) tops the list of SSI accounting for 22.2% of the total number of units. Other manufacturing activity (58,777 units accounting for 15%) and Food products (37,152 units, accounting for 10%) followed the Hoisery and Readymade garments. The State Government of Tamilnadu introduced a separate policy during February 2008 to aid the rapid growth of MSMEs. During 2008-09, about 11 new industrial estates were established in the state. Further, Rs 30 crore would be disbursed as subsidy. 20 per cent land would be allotted to MSMEs in the schemes undertaken by State Industrial Promotion Corporation of Tamil Nadu Ltd with rebate of 50 per cent on stamp duty and registration. 1.5.5 Current Scenario of MSMEs in Tamilnadu As per the Policy Note for 2011-2012 of Government of Tamilnadu, the state accounts for the largest number of (15.07%) Micro, Small and Medium Enterprises (MSMEs) in the country with 6.89 lakhs registered MSMEs, producing over 8,000 varieties of product for a total investment of more than Rs.32,008/- crores. Tamilnadu state has obtained approval for maximum number of Common Facility Centre proposals from Government of India during the XI Plan period for the following clusters. TABLE: 1.2 DETAILS OF CLUSTERS PROPOSALS IN TAMIL NADU SANCTIONED BY GOVERNMENT OF INDIA

16

Sl.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Cluster Name Wet Grinder, Coimbatore Safety Matches, Gudiyatham Safety Matches, Virudhunagar Safety Matches, Sattur Safety Matches, Srivilliputtur Safety Matches, Kazhugumalai Safety Matches, Kovilpatti Sago & Starch, Salem Brick Tirunelveli Ceramic, Virudhachalam Coir, Sivaganga Engineering, Ranipet Printing, Sivakasi Rice Mill, Keelapavoor Auto Components Hosur

No. of Enterprises 700 525 825 1225 525 525 1025 550 50 300 7219 200 600 163 1500

Employment ( numbers) 20000 1000 1500 1500 750 1225 1100 25000 150 1200 7500 26000 12000 3720 18000

Source : Government of Tamilnadu Policy Note 2011-12 Tamilnadu is a leader in Auto parts and components, Readymade Garments and Leather and leather goods. In order to give special drive the following 13 Industries have been identified as thrust sector: 1. 2. 3. 4. 5. 6. Electrical and electronic Industry Leather and leather goods Auto parts and components Drugs and phamaceuticals Solar energy equipment Gold and Diamond Jewellery for exports

17

7. 8. 9. 10. 11. 12. 13.

Pollution Control equipments. Sports Goods and Accessories Cost effective building material Readymade Garments Food processing Plastic and Rubber

Tamilnadu Government has initiated action to establish Flatted Factory complex in 5 locations (Guindy in Kancheepuram District, Ambattur in Chennai District, Perungudi in Thiruvallur District, Madhavaram in

Thiruvallur District and Thirumazhisai in Thiruvallur District) exclusively for Micro enterprises. 1.6 NEED FOR THE STUDY The performance of SSI was focused mainly at national level, while issues like size, growth, structure and productivity were left to the States, which paid inadequate attention to these issues. Liberalization has exposed Indian MSME to unequal competition with its counterparts in the industrially advanced countries. It has been recorded in a span of five years after 1991, SME growth was blurred due to heavy competition in the global market. With the removal of Quantitative Restrictions (QRs) on import of 715 items with effect from 1 4 2001 and those done earlier, a large number of items are now under Open General License (OGL). The history of funding of the MSME for the last 50 years reveals that the sector has been mostly relying on self finance and debt finance through banking system. Jain S K (2001) observed that financial agencies have

developed a preference for investing their funds in the medium, large scale and the bigger ones among the small scale units.

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Lack of demand and shortage of working capital are the main reasons for acute and incipient sickness in both the registered and unregistered SSI sectors. Task force of Prime Minister on MSME (2010) reported that shortage of capital, particularly working capital, is the major problem faced by the enterprises in the unorganized sector, which constitutes 94 % of MSMEs in India. According to the Task Force on MSMEs, workable legal options should be developed for the securitization of trade credit receivables and for the promotion of factoring services During the discussions with bank managers, it was ascertained that MSMEs with export dealings normally, found difficulty in realization of the dues. The difficulty in realization of receivables within the due dates will result in reducing the eligible current assets for bank finance. While the MSMED Act, 2006 provides for more rigorous provisions to counter the problems of delayed payments to the MSMEs, the sense of insecurity of contract prevents them from taking legal action for recovery of dues. The research problem encountered in the present research depends upon two important aspects of receivables management. One is how the receivables are affecting the business flow and creates sickness in the MSMEs. The other aspect completely enumerates various factors influencing MSMEs receivables management. These two collusion and cooperation of receivables management effects preserve the growth and prospects of MSMEs It is found that both National and International literature failed to acknowledge the effects of receivables management in increasing the business potentiality of MSMEs. Nevertheless, the literature uniquely emphasized the dimensions of the problems on the basis of marketing, financial, human resources, operations. The conglomerated view of receivables from the

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customers is also playing the vital role in determining the risk involved in the business. There is scope for and urgent need to undertake a complete research on receivables management of MSMEs in Tamilnadu. 1.7 RESEARCH PROBLEM The MSMEs are not set for smooth business ventures and continuous profit. They are forced to face problems of finance, marketing, human resources, power problems as well as issues of government. Their prospects are also viable within the defined framework of direction of government. Considering the need for managing receivables, it is decided to find out how many MSMEs are able to adhere to efficient receivables management practices. Further the type of problems that could be caused by this inefficient management of receivables in MSMEs, need to be investigated so that appropriate corrective and preventive measures could be designed and commissioned in these MSMEs. While the entrepreneurial ability in the entrepreneur may motivate an individual to start a business, whether such entrepreneurs have the capability to manage the receivables effectively has to be examined. It is decided to determine the growth of MSMEs in India during the 10 years period from 1999-2000 to 2008-2009 in terms of number of MSME units, employment potential in MSMEs and production of MSME units. It is decided to assess the current status of MSMEs which were started in the past, for their receivables management. The research also endevours to develop an empirical model to establish the influence of receivables on the problems of MSMEs for better receivables management. Every MSME can evaluate itself with reference to the model constituents and determine the direction to strengthen the management of receivables. Rather this model could become a tool for raising the alarm, when the management of receivables is exceeding limits.

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The study is intended to explore receivables management of MSMEs in manufacturing and services sector in the geographical base of Tamilnadu. The study also categorized the effects of receivables management of MSMEs in domestic sales, export sales and job work receipts. This coverage plans to ascertain the dimensionality and contribution of receivables to the profits. 1.8 CHAPTERISATION SCHEME The first chapter of this study explains the problems and prospects of MSMEs at all India level and Tamilnadu level in a lucid and concise manner. This chapter also covers the definitions of Entrepreneurship, Micro, Small and Medium Enterprises (MSME) and Receivables. Besides these highlights, Chapter I explained the need for the study, exact research problem encountered in this research. The second chapter thoroughly analyzes both national and international literature pertaining to entrepreneurial characteristics of MSMEs, receivables management of MSMEs, problems faced by MSME entrepreneurs and their prudential existence in the form of prospects. The foreign studies and their methodology are thoroughly analyzed in this chapter to downsize the research gaps those can be ventured innovatively by the researcher. Chapter III of this study covers detailed methodology followed to reach the culmination of research. It explains the rationale of study, objectives and hypothesis of the study, development of research instrument, validity of the receivables management variables, pilot study, sample design and main study. Chapter IV of this study is dedicated to present an anatomical analysis using the statistical tools viz parametric tests, non-parametric tests. Percentage analyses, Factor analysis, non-parametric Chi-square analysis, Kearl Pearson coefficient of Correlation, and Discriminant analysis are subsequently used to analyse both primary and secondary data. An empirical model is also derived to

21

establish the factors influencing problems and receivables management variables of MSMEs at Tamilnadu level. Chapter V summarizes and gives a clear picture of the present research work. The major findings are profoundly stated and the suggestions to the MSMEs and the governments are suitably drawn out of the findings. An appropriate conclusion is traced out conspicuously to culminate the research and scope for further study and their respective sections are also given. 1.9 OBJECTIVES OF THE STUDY This research is undertaken to determine the variables of Receivables management of MSMEs and to find hidden association of receivables with other variables in managing the business. The specific objectives of the study are: 1) To analyze the growth (in terms of number of Units, Employment) and its and performance (Production) of MSMEs in India and Tamilnadu, during the years 1999-2009 2) To find the association of Receivables Management variables and Sales Revenue / Total Income (Domestic sales, Export sales and Job work receipts) achieved by MSMEs in Tamilnadu, during the fiscal year 2008 - 2009. 3) To find the association of Receivables Management variables and Net Profit earned by MSMEs in Tamilnadu, during the fiscal year 20082009. 4) To find the influence of Problems normally faced by MSMEs in Tamilnadu, on their Receivables Management variables, during the fiscal year 2008 2009.

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5)

To find the association of Personal characteristics of entrepreneurs and Business characteristics of MSMEs and the Receivables Management variables.

6)

To find the association of Investments in Plant & Machinery (Manufacturing sector) / Equipments (Services sector) of MSMEs and their Receivables Management variables

7)

To construct an Empirical Model for Receivables Management strategy of MSMEs in Tamilnadu

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CHAPTER 2

REVIEW OF LITERATURE

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CHAPTER 2 REVIEW OF LITERATURE

CHAPTER OVERVIEW The second chapter thoroughly analyzes both National and International literature pertaining to entrepreneurial characteristics of MSMEs, receivables management of MSMEs, problems faced by MSME entrepreneurs and their prudential existence in the form of prospects. The foreign studies and their methodology are thoroughly analyzed in this chapter to downsize the research gaps those can be ventured innovatively by the researcher. The following areas are covered: role of MSMEs in overall economic development; MSMEs in utilization of resources; role of MSMEs in social development; economic and other incentives for MSMEs by State - current status This chapter also covers the following; drivers of MSMEs; financial management and its role in success of MSMEs; receivables management from the literature and research gaps

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2.1

ROLE OF MSMEs IN OVERALL ECONOMIC DEVELOPMENT The Industrial Policy Resolutions of 1948 and 1956 highlighted the

importance of small scale sector in the generation of additional employment opportunities with lower capital investment. Raj (1956) revealed that the value added per employee in the large sector is no doubt around double that in the small sector. It has been around six to seven times higher than the organized sector. Staly (1962) emphasized that the economic development process implies a shift in the manpower from primary sector to some other sectors of the economy. According to Habib (1973) it is only small-scale sector through which, economic prosperity may reach remote sections of the society. He concluded that small-scale industries play an important role in the economic development by providing numerous chances of income and improving the standard of living of the masses. Singh S N (1990) found that traditional industries such as the leather group alone recorded a significant rise, in terms of employment and production. According to the study by Rana Bijoy Deb (2004), in developed nations also, the employment potential of small-scale industrial sector has gained universal recognition. The bulk (66%) of new jobs created in the United States during the last two decades was in the small-scale enterprises (SSEs). The small-scale sector in Great Britain creates more than 2.5 lakhs jobs every year. In Germany, Spain and the Netherlands the SSE sector is equally important. It is important to mention that although there is no association between the capital intensity and size of units, the small enterprises are generally more labour intensive compared to large firms. One of the reasons for higher intensity of labour in small enterprises is that most of the small entrepreneurs set up units not to maximize return on investment but to create job opportunities for themselves or their family member who otherwise would

26

remain unemployed due to lack of education.

If the capital investment

generates employment not only for the entrepreneur himself but also for one or more of his underemployed relatives, the investment is justified. Patnaik (1990) revealed that the small-scale industries sector occupies a strategic position of unique importance in the Indian economy. The superiority of small scale industrial sector in generation of employment is empirically proved by the Annual Survey of Industries 1979-80 in India, which observed that employment of one worker in large scale sector calls for more than thirteen times investment in fixed capital as compared to that of small scale sector. MSMEs role in utilization of resources is discussed below. 2.2 MSMEs IN UTILISATION OF RESOURCES Stephanak and Prien (1950) depicted to raise capital for many smallscale units than for a few large ones; because, the small scale industries may involve those, who have little savings and may satisfy their instinct of creativity. Lewis W., Arhur., (1954) concluded that development works might be done by human labour with very little capital. Surplus labour may be used to make even capital goods without using any scarce factor. According to Dhar and Lydall (1961) the small scale sector, with its labour intensive technique would not only preserve scarce capital resources for being utilized more rewardingly in the sector of basic industries but also channels the purposeful productive use of the abundant labour resources of the region. Jha L K(1980) in a country where capital is scarce and manpower is going to waste, the plea or relying much more on labour-intensive techniques of production than one those which necessitate heavy capital outlays is entirely sound. He argued that proper appreciation of the role of the technology for

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improving the productivity of labour, which he considered to be as important as the provision of new jobs. Goldar (1985), in his study, estimates a frontier production function (of Cobb-Douglas form) using firm level data from CSME for the small scale washing soap industry to obtain measures of technical efficiency. Measures of partial and total factor productivity and an analysis of technical efficiency reveal that tiny units are inefficient compared to relatively bigger units within the small scale washing soap industry. The positive relationship between unit size and efficiency, and high capital intensity of relatively larger units suggest a tradeoff between output gain and employment loss. Little et al (1987) discover very little regularity in the patterns of partial and total factor productivity and in their relationship with firm size in five SMEs when size is measured either by number of workers employed, or by the value of fixed assets. Within each of the five industries, variation in technical inefficiency (measured by the difference between actual and predicted output) is substantial and there is no systematic relationship between employment size and technical efficiency. Only in Machine Tools industry, technical efficiency is correlated with firm size. Goldar (1988) uses a total factor productivity index based on the CobbDouglas production function, to assess relative efficiency of industrial units.

The data for this study are drawn from the statistical reports of a sample survey of SME units undertaken by Reserve Bank of India (RBI), with 1976-77 as the reference year. Data on large-scale industries are drawn from census sector results of the ASI for 1976-77. It is observed that in almost all industries labour productivity in small-scale units is less than that in large-scale units. On the other hand, capital productivity in small units is higher in 22 industries when gross invested capital is used and in fifteen industries when net invested capital is used as a measure of capital input.

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Ramaswamy (1990) estimates partial productivity of labour and of capital, and relative efficiency using unit level data for four industries: Motor Vehicle Parts, Agricultural Machinery and Parts, Machine Tools and Parts, and Plastic Products. He uses the same relative efficiency index as Goldar (1985) does. His analysis indicates that capital intensity and partial productivity are sensitive to alternative measures of firm size. His analysis suggests existence of increasing returns to scale and thus rejects the assumption of constant return to scale. His result is consistent with those reports by Little et al (1987). Using firm level data drawn from CSME, Bhavani (1991) makes an attempt to measure technical efficiency of metal products industries using a transom production frontier with three inputs, viz. capital, labor and materials. It is observed that for all the four metal products industries and five size groups within each one of them, the average level of efficiency is quite high and that efficiency measures increase with the increase in size upto a size class and then decreases. The research conducted by Goldar 1985,1988; Ramaswamy1990; and Bhavani 1991 provides inputs with respect to three important indicators for MSMEs, macro variables, technical efficiency and labour employed; capital productivity. The relationship of capital, labour and technical efficiency could not be discerned. While MSMEs are assumed to be low capital intensive, their technical efficiency may not be comparable to the large scale units. However generalization across different industrial sectors may not be possible. Furthermore issues relating to receivables management appear to have commonality, according to Ponniah V. M. (2007). Goyal (1991) revealed that there have been a variety of new trends in Indian Corporate Sector, in general, and the small-scale sector in particular. Tinbergen J (1974) felt that in a country like India the strategy of industrialization should lay emphasis on labour-intensive industries, which will create maximum employment and will also maximize income.

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Sarangadharan M A (1994) indicated that competition from large-scale firms and similar type of small-scale units in the local area ranks the most important reasons for underutilization of capacity of small-scale industries of Trivandrum District. Lack of demand for the product and shortage of finance can also be considered as crucial problems faced by the small-scale industries in the district. Donde W B (2001) reported that the Small industry plays a key role in the generation of employment. Case histories of medium and large sized firms show that their expansion has brought about a sizable growth in employment. This strengthens the argument that the growth of small industry would both improve the earning opportunities for both the industrial workers as well as entrepreneurs and also promote regional development. These arguments have largely been accepted in most of the developing countries and the respective governments have initiated special programmes to support the SME. In India the emphasis on small industries emanates from their role in industrial dispersal and adoption of labour intensive technology, which has been assumed to partly compensate heavy investment on large size establishments. Melissa S Cardon and Christopher E Stevens, (2004) stated that while much of our knowledge concerning traditional HR topics (e.g., recruiting, compensation, or performance management) in large firms might also apply in small or emerging organizations, evidence suggested that new ventures were different and that management of people within them may not clearly map to management within larger, more established organizations. Their review suggested that we lacked much of the theory and data necessary to understand how small and emerging firms train their employees, manage their performance, promote or handle organizational change, or respond to potential labour relations and union organization issues.

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Susam Mayson and Rowena Barrett, (2006), looked at the science and practice of human resource management in small firms. While there is growing evidence that the practice of human resource management in small firms is characterized by informality, there is less evidence about the science, or explaining why this is the case. The researchers looked to writing on

strategic human resource management, which has at its heart the resource based view of the firm. According to Sarah Jack, Jefff Hyman and Fraser Osborne., (2006), effective management of people was increasingly recognized in the literature as a vital contributor to organizational performance and indeed survival. Nevertheless, studies of the dynamics of human resource management in small entrepreneurial ventures were relatively sparse. In their paper, the authors demonstrated that a culture of owner-influenced individualism and informality pervaded these ventures, affecting prime human resource issues such as performance related practices, training and development, worklife balance and other critical dimensions of employee welfare. Sandesera J C (1980) emphasized that there was no relationship between age of entrepreneur and the utilization of incentives scheme. George J

Avlonitis and Helen E Salavou (2007), in their research paper focused on entrepreneurial orientation (EO) profiles of SMEs to suggest variations in product innovativeness dimensions of different performance potential. Based upon a sample of 149 manufacturing companies, the study identified two opposite groups with the help of a cluster analysis, namely the active entrepreneurs and the passive entrepreneurs. Taking a step further, subsequent analysis of variance demonstrated that these groups consist of product innovators, who take equal care of reducing customers' burden (e.g. time, effort, purchase risk) in adopting new products. MSME not only contribute to economic development but also contribute to social development. From the literature, such contributions towards social

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development are found problem are listed below. 2.3

many, out of which those related to the research

ROLE OF MSMEs IN SOCIAL DEVELOPMENT The small industries have characteristics of low capital intensity, high

employment potential and use of indigenous technology having feasibility particularly in the rural areas, where there are limited infrastructure facilities. United Nation Report 1951also emphasized on the use of labour intensive technology in the developing countries. The report noted, labour saving

technology is not great value to an economy which is over- populated. It is gathered from News papers that small-scale industrial units provide employment opportunities for a large number of people and tap sources of capital to contribute to the countrys capital formation and industrial growth. Papola T S (1980) emphasized that SSI using available traditional skills and requiring little capital, are providing suitable employment to the rural households, without involving any migration. According to Subbaraman K R (1991) job generating capacity of village industries cannot be over emphasized. Unemployment breed poverty and it can be eradicated by spreading the network of village industries in every nook and corner of the country. According to Balakrishnan G (1974), during the second Five Year Plan, significance of the small-scale sector was emphasized in order to ensure that consumer goods sector does not draw up on scarce resources of the society, which were needed for fast expansion of the heavy industry sectors. Staley and Moore (1965) had recommended the implementation of dispersal programmes in phased manner which involve: (a) selection of intermediate size cities and town to be developed into industrial growth points, (b) integrated development of small, medium and large scale industries at these

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growth points and (c) promoting linkages from these growth points downward to the villages by sub-contracting certain work from factories in the towns to workshops and households in the villages while the upward linkages with the major cities would be in the form of supply of larger amounts and new variety of farm products to the growing urban areas. They suggested that the growth of industry would increase the demand for agricultural and manufactured products and hence diversify the commercial activities in the region. According to Vepa (1971), small-scale industries in India are distinct from traditional and village industries. Small-scale industries are generally modern small firms employing modern techniques to produce modern products. According to Mayur K (1971), due to vast changes in the political sphere and rapid industrial growth, there were the following three major efforts in the Indian scene (i) few entrepreneurs belonging to particularly social strata dominated the industrial centers, (ii) industrial growth was restricted in a few industrial centers, and (iii) only the industry which met the result of war grew fast and in the case of others, the growth rate was restricted. Battacharya S.K. and Akburi M M P (1975) independently observed that National Bank for Agricultural and Rural Development (NABARD) has been providing assistance not only for the development of agriculture but also for the development of rural industry. The bank has, of late, reviewed the rationale for the development of rural industry. Its coverage and scope

included planned strategies, priorities and thrust areas for development. Rele S K (1980) revealed that small-scale industries are not only a better job creator but they also promote technical innovation. Dorda and Jawaharlal (1993) stated that core areas were targeted for special support in the new industrial policy.

33

Tiwari and Sarita (1992) revealed that industrialization is a highly complex and important phenomenon. The concept has helped in making

choice of the important factors that determine the process. Pace and pattern of industrialization in evaluating various measures can be made use for assessing and analyzing inter regional pattern of industrialization. Kulkarni B K (1994) raised various issues such as ownership and control, subsidiary, control management and brand name etc., relating to smallscale industries. According to the study of Ms.Kiran Varma (2004), when structural changes are taking place at a rapid pace, the role of small scale industries (SMEs) have become more and more vital in a countries development. To face the era of change and challenge successfully, a need for change in strategy of SMEs development by evolving variety of linkages between economic cost and social benefits should be built. This is essential to ensure sustained growth of this sector and concluded that the long journey of the SMEs during the last 50 years could be classified in to three distinct phases, 1947-1977 (period of conceptualization), 1977-1990 (period of consolidation) 1991 onwards (period of confrontation). The last 50 years have seen SME sector emerging as a vibrant and dynamic sector of Indian economy. It has a vast potential yet to be tapped. Today, employment in agriculture is declining and large scale industries are showing stagnation, the only ray of hope is small scale sector. Rajendra Prasad T (2004) studied the working of the small scale industries in various divisions of Karnataka with respect to parameters like number of units working, amount of investment and employment generation, growth, quantum of capital invested and employment generation and industrial concentration in each division. He concluded that small enterprises occupy a crucial position in the Indian economy not only because they contribute to GDP, income, exports and employment but they also imply self group initiative, self-employment and small livelihoods and small business. And it is

34

important to create and ensure space and more opportunities for such a sector because in todays world, creating and ensuring space for small enterprises is not that easy, but needs to be done on a war footing given the vulnerability of small enterprises and economic pressures and uncertainties under which they are performing. According Yulo Nikaiho (2004), the focus of policy-making for SME was on protection. With the onset of liberalization in 1991, SME was

recognized as a growth engine of the economy and the government was urged to make the attendant policy changes. Section III analysed the impact of firm size and individual agglomeration on the measured technical efficiency in order to arrive at policy implications for SME sector and examined the technical efficiency of two-digit industry-groups belonging to SME and the relationship between the measured technical efficiency and firm size and location. According to the author Sukanta Kumar Sahoo (2004) small scale industries has acquired pre-eminent position in the economic structure of the country and helps the economic development and removal of disparities. It is the symbol of our economy and reflects production by masses rather than mass production. The SME sector has proved its mettle even in the changed liberalized economic environment of the country. The gradual and impending applications of WTO Regulations and removal of Quantitative Restrictions have added to its woes. With decline in agricultural employment and virtual stagnation in the organized manufacturing sector, employment in this sector has emerged as the only ray of hope and concluded that the small scale sector is the symbol of that facet of our economy which reflects production by masses rather than mass production. According to Prasad C S (2004), the objective of the policy-makers as well as small industry associations should be to enable the sector to be vibrant and competitive without a considerable reduction in its size and thereby enable it to make a sustainable contribution to national income, output and exports.

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Small industries cannot remain small forever. In the long run, the Mahalanobis P C (1963) strategy visualized a process of transformation of small and household enterprises into high efficiency and low cost mechanized units of production. MSMEs are able to contribute economic development and social development, as elaborated above in various part of the world. However these contributions are possible, mainly due to concessions being provided by the State. Various concessions being extended to MSMEs are briefed as under. 2.4 ECONOMIC AND OTHER INCENTIVES FOR MSMEs BY STATE-CURRENT STATUS Shirkov G K (1973) emphasized the need for the development of small scale, village and cottage industries, which was realized by the government from the very beginning. Verma J D (1973) concluded that the origin of the small industry movement in India was traced to the Industrial Policy resolution of the Government. Kaveri V S (1990) concluded that small industrial sector has acquired greater importance in Indian economy. In term of employment generation, this sector is next only to agriculture and accounts for about one fourth of the total exports of the country. The importance of small industry in the Indian economy was recognized at the beginning of the Plan period itself. Various policy measures were taken over the years to promote employment and investment in this sector. The various agencies set up by the government and the financial institution have been rendering consultancy services mainly technical consultancy to the small scale industry. According to the authors, Raghurama A., Hala Naik N. (2004) marketing problem is not an independent one, it is related issue and it is a complex problem of marketing finance, marketing infrastructure like forward and backward linkages, product decision, pricing decision, promotion policy,

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selection of distribution channel problems. But small scale industries are faced with marketing problems. It requires a well-devised future marketing strategy to overcome this problem. The problem of marketing of small scale units in future can be tackled if all engaged in the process realize their responsibility and put forth concerted efforts with commitment, dedication and real will to solve the problem. Bala Subrahmanya, M.H. (2004) studied the impact of globalization and domestic economic reforms on small industry. Small industry has suffered in terms of growth of units, employment, output and export. But the policy changes have also thrown open new opportunities and markets for the sector. To avail these, the focus must be turned to technology development and strengthening of financial infrastructure in order to make Indian small industry internationally competitive and contribute to national income and employment and concluded that concerted efforts are needed from the government and small industry to imbibe technological dynamism. Technological up gradation and in-house technological innovations and promotion of inter-firm linkages need to be encouraged consciously and consistently. Financial infrastructure needs to be broadened and adequate

inflow of credit to the sector be ensured taking into consideration the growing investment demand. Ole Henning Sorensen, Peter Hasle, Elsa Bach (2007) explored risk

involved in small enterprises and ascertained how the risks have been developed from the domains of operations, finance and marketing. The strategic approach and management of MSMEs minimizes the risk involved in their business venture. The liberalization of economy minimizes the risk and maximizes the scope of MSMEs.

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These researchers have pointed out the need for concessions from the State and other stakeholders to encourage MSMEs. Furthermore, there is a different view expressed by researchers, though concessions are required, such concessions should be offered selectively to achieve the real purpose. Tulsi S K (1980) concluded that the scheme of providing benefit to all small scale industrial units unequally is improper method of providing incentives, the reason being since different small scale industries were subject to different incidence of excise duty, those which bear high rate of excise duty would enjoy the larger benefits and those which carry the excise duty at quite a small rate should receive smaller benefits. According to the authors, Shaikh Muzaffar and Ahmad Umar Khan (2001) in respect of SMEs, the contribution factors go beyond markets and factors of production. The sickness of financing banks and public sector

industrial units, also contributed to sickness among small units. The lack of strategic interventions by SME management at the appropriate time on account of inadequate expertise further compounded the problems. Authors stated that non viable units should not be financed and encouraged and defaulting small units should also be punished, as per the Law, to discourage further increase in such type of units. So far the concessions available to MSMEs have been captured from the literature. Besides these concessions, some forces drives the performance of MSMEs; they are discussed in the following paragraphs. 2.5 DRIVERS OF MSMEs Despite brief concessions and handholding by State, there is a strong

impediment for MSMEs growth. To overcome these challenges, MSMEs need some driving forces.

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Jain S C (1971) observed that financial agencies have developed a preference of investing their funds in the medium and large scale and the bigger ones among the small-scale units, may be due to risk aversion. Medhora P B (1965) revealed that the mere presence of personalities having high achievement motive are not enough to initiate the industrial activity but the political system in that region must also be conclusive to economic growth. Rao (1965) stated that there is a substantial shift of the managerial function with regard to the small unit from the entrepreneur to outsiders. According to the study carried out by Rajendra Prasad T Seethamma K K (2003), and

the small scale industry has made a significant

contribution to the economy by increasing its share in exports, generation of employment opportunities, dispersal of industrial activities, reducing concentration of economic power and so on. They concluded that the working of the small-scale sector in Karnataka is progressively generating employment opportunities, and contributing positively to economic growth. In this regard government must safeguard this sector from sickness as well as from unfair competition from large-scale units. Benjamin et al (1971) emphasized that one of the main aspect of the practice of rural industrialization through group action is the development of relatively large-scale industries on a region basis. Jan Peter (2005), stated that it was widely accepted that there existed a managerial gap in many small and medium-sized enterprises (SMEs) to participate successfully in new technologies. One of the problems experienced by intermediaries to SMEs in this respect related to the poor skills of the latter. In his paper a Quick Scan was presented, that consultants and technology brokers could use, to support managers of SMEs in developing strategic selfdescriptions that highlighted the need for innovation. It was concluded that

39

managers appreciate the systematic and integral strategic perspective offered to them. Intermediaries value the potential of the Quick Scan to initiate strategic sense-making in the context of SMEs. Few researchers are of the view that linkages with abroad will act as a natural driving force for an MSME to improve their performance. According to Kochhar J S (1993) the import of capital goods, of which machinery and transport equipment are a major segment serves twin purpose; it serves the immediate need of augmenting the indigenous capacity to produce consumer goods which may otherwise face a shortfall; it also leads to technological up gradation in the long run. According to study conducted by Janina Gomes (2001), a major role clusters can play in India, is to become sub-contractor for clusters located in overseas. This is required because of phenomenon of globalization and internationalization. In order to do this, quality standards and technological up gradation are of the utmost importance. By networking with clusters overseas, these clusters will not only find ready markets abroad, but they also become leaner with capability to handle markets and competition. This is the route through which Italian clusters survived and prospered. According to the study conducted by Sridhar Krishna (2001), the governments efforts in bringing awareness about WTO have been successful. He interviewed the small units, who were aware that the WTO agreement

would lead to the lifting of import licensing. According to the author Raju S.V. (2001) one of the consequences of globalization will be opening the floodgates for better quality goods into the country. The small-scale industrial units, already weak in marketing function even in the domestic market, are incapable of withstanding onslaught of these foreign goods. It is a distant dream that the SME units will be able to expand their foreign markets, as reciprocal opportunity will be available to them by our

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economy getting integrated to the world economy. Enhancing the investment level can bring in many medium scale units within the purview of small-scale sector. This may result in, too many small units chasing too few facilities and concessions and in the race some small units may fall by the way side and become sick. According to the study by Kalyan J.Shah, (2002), integration of trade and environmental concerns in developing economics has emerged as one of the most crucial issues in moving towards an era of sustainable development. Integrating the potentially conflicting issues requires specific mechanisms and concrete initiatives from governments and global industry organizations. Government should devise proactive policies both at the National as well as the State level for attaining a harmonious balance between trade liberalization on the one hand and environmental resource management policies on the other. According to the study conducted by Bala Subramanya M H, ( 2003) the level of development of a region in terms of educational and technological infrastructure influences the internal and external factors contributing to technological innovations of enterprises. This study reports a comparative study probing the nature and dimension of technological innovations carried out by small engineering enterprises in Northeast England and in the Bangalore urban district. It was concluded that both micro and macro factors - at the enterprises as well as industry level and at the regional as well as national level are likely to be significant for successful technological innovations in small enterprises. Using a comprehensive database of European firms, Luc Lavean and Raghuram Rajan., (2006) studied the effect of market entry regulations on the creation of new limited-liability firms, the average size of entrants, and the growth of incumbent firms. The researchers found that costly regulations hampered the creation of new firms.

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Few research papers have also highlighted that strategy is also an important driving force for an MSME. SMEs should remember that strategic management is a process and not an event. Dr Sukumal Datta (2010) stated that a survey on 500 high growth firm showed that 86% followed strategic planning. Out of those 94% reported improved profit. It was revealed from a research into strategy formulation and implementation that SMEs played a key role in generating employment, economic wealth. Though considerable attention in the extant literature has been devoted to growth and performance of firms, there is a dearth of research on high growth firms. Nicholas O Regan, Abby Ghobadian and David Gallear (2006) investigated the drivers of high growth in manufacturing SMEs. Following a number of focus group interviews with six managing directors of manufacturing firms, a number of drivers of high growth were identified and investigated in a sample of 207 manufacturing SMEs. The results of this study indicated that high growth firms place a greater emphasis on external drivers such as strategic orientation, their operating environment and the use of ecommerce compared with firms having static or declining sales. Although research has implicitly assumed small- or medium-sized enterprises (SMEs) employ alliances to improve performance, few studies have directly investigated how and when current performance levels might prompt firms to cooperate. Franz T. Lohrke et al., (2006) employed a dataset of 657 SMEs from six countries and their results indicated that for firms with alliance experience, increasing managerial dissatisfaction with current performance, decreased intentions to employ future alliances. According to Dr. Nachiket M Venchalekar (2010), since Independence, the Government of India formulated industrial policies to promote industrial growth, including SME sector. Recently in the budget of 2010-2011, the outlay

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for the MSME sector has been enhanced by around Rs 600 crores to Rs 2400 crores for implementing the recommendations of Prime Ministers Task Force. Removal of protective measures for small industries, so as to promote more competitiveness had a major impact on SME sector. Mausumi Bhattacharyya (2010) stated that the policy framework attempted to address

the basic concerns of SME sector namely, technology, finance and marketing. Consequent to this, the number of items reserved for small industry manufacturing has been gradually brought down from 842 in 1991 to 239 in 2007. Mausumi Bhattacharya in her research paper highlighted the significance of rating agency for an MSME. SMERA is the first rating agency in India that focused on SME segment. It offers Data Universal Numbering System (DUNS) number, an internationally acceptable number alongwith its rating reports. It is a unique nine-digit number which is used to identify a

business in a global supply chain. This system has been developed by Dun and Bradstreet. Ponniah V M. and Dr. Prof. Chandra Mohan A (2011), while delivering their research paper on MSMEs at 98 th Indian Science Congress, SRM University, Kattankulathur, Tamilnadu, stated that an export business, whose owner was unable to recognise the opportunity would slowly lose his

capacity to take risks. It might soon get downsized to a sub-contract unit and finally, become defunct and shut down. Financial Management plays a dominant role in not only determining MSMEs growth but also in enabling their sustainability. Some of the research papers on the domain of financial management and its findings, which are found in national and international literature, are discussed below.

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2.6

FINANCIAL MANAGEMENT AND ITS ROLE IN SUCCESS OF MSMEs Ramakrishna K T (1962) pointed out the need for improving the

availability of finance for the small-scale sector. Dhar, Lydall, Hajra, Sandesara (1969) and Mehta used 14 data for their analysis. The first four studies report a positive relationship between size and output-capital ratio. This is attributed to economics of scale and better

management in the relatively bigger units. Mehtas conclusion is contrary to those of others. However, he used a different criterion for size classification of the firms: he classified the firms into different size classes according to the value of fixed assets. Earlier studies, on the other hand, use employment as the criterion for size classification. Also, Dhar - Lydall - Sandesara use total productive capital (fixed plus working capital) as a measure of capital input while Mehta uses fixed capital. However it is difficult to fully understand the reason for contradictory conclusions arrived at by these studies. It is possible that since the ratio of working capital to fixed capital is high in small scale units, efficiency comparisons based on fixed capital favour small scale units. Bhavanis study (1980) is an improvement over the previous studies in the sense that the basic data source for her study is the census of SME units (CSME), conducted by the Development Commissioner of Small Scale Industries (DCSME) in 1973-74. It revealed that the capital productivity of SME units is lower than that of large scale units, suggesting efficiency differences in line with the findings of Dhar Lydall-Sandesara. Richard W Wright, Hamid Etemad (2001), identified empirical evidences of growth of MSMEs in the globalised economic scenario; it is found that most striking manifestations of globalization increased potentiality of entrepreneurs in MSMEs. The paper investigated an approach of

internationalization of MSMEs and their correlation with drastic changes in the

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capital structure of MSMEs. It is microscopically identified that the MSMEs adopt appropriate corporate strategies for their risks as well as in the revival procedures. The economic characteristics are essential for the entrepreneurial development and recycle business environment and also useful to estimate risk situations in MSME sector. Banji Oyelaran Oyeyinka, Kaushalesh Lal( 2006) have conducted a research to establish a relationship between growing technologies in MSMEs in developing countries and their operational efficiencies. The paper also elaborated the complexity in the adoption and use of information and communication technologies to manage their risks. It is found emphatically in the paper the MSME performance in developing countries is highly associated with learning capabilities and experience of entrepreneurs to manage the risks. The analytical study also verified the MSME s importance in managing their information, communication technologies to trace out the trajectories of firm level performance without the hindrance of risks. The problems of MSMEs have different dimensions of marketing, financial, human resources, operations and general issues. The span of time of MSMEs to attain profitability depends upon the dimensions of these problems. Rao T V S (1980) made a case study of 36 firms in the large scale sector and 114 firms in the small scale sector from Uttar Pradesh and found that large scale firms are about 4 times more capital intensive than the small scale units. He found that the choice of appropriate technology offers only managerial opportunities for increasing employment and the main choice variables are the product mix and the scale of operations. Nayak P R (1993) observed that the SME sector as a whole received a level of working capital which was only 8.1 per cent of its output, and the village industries and the smaller tiny industries among them could get working capital finance to the extent of only about 2.7 per cent of their output. The Committee therefore suggested that small units with credit limits of not more

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than rupees one lakh should have the first claim on the priority sector credit to SME. The Reserve Bank, on the basis of the Committees recommendations, introduced, in its monetary policy for the first half of 1992-93, a special package for SME sector and the salient features are as follows: (i) The banks should step up the credit flow to meet the legitimate requirements of the SME sector in full during the Eighth Five Year Plan. (ii)Working capital limits up to Rs. 50 lakhs computed on the basis of a minimum of 20 per cent of their projected annual turnover would be provided for new as well as existing limits. Das Gupta M K (1994) emphasized that management of the resources available within an organization is the best and the cheapest way of arranging resources. In this regard, SME units should pursue with the suppliers for extending their terms of payment which helps. Such arrangement should be made ahead of the time when the additional credit will be needed. Similarly, customers can often be persuaded to finance a large order, ensure part payment with the order as also through progressive payment as the job proceeds. A better inventory management will lead to just in time system of management would release substantial amount of funds to the MSME units for utilization in higher yielding avenues. According to the study by Jan Brouwer (1999) an approach to small enterprises in India, and in south Asia generally, should take into account the cultural dimension of entrepreneurship and industrial management. Field

studies among small entrepreneurs in the jewellery sector of Karnataka (the visvakarmas) reveal new indigenous economic concepts. For a new model, in the concept of money the employees of small enterprises in Mysore in general do not link the salary with the work they carry out in the factory, but view the salary as a payment to cover expenditure at home. According to Dr. Chandra Mohan A, Ponniah V M (2007), a manufacturing process can also be innovative even though the final product is no different, because of the better way it was made. There is a need to

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concentrate on policies for enabling availability of risk capital to innovative SMEs, mainly in the early stages of the firm. Stewart Thornhill, Guy Gellatly (2005) elaborated the intangible assets towards entrepreneurial financial aspects. It microscopically analyses the factors influencing MSMEs support investment in intangible assets. It is also found that the entrepreneurial finance is controlled by firm size, credit operational system, tangible assets and knowledge intensity of entrepreneurs, growing and competitive market and receivables in conducive environment. The paper also highlighted that firm size is not a significant determinant of investment activity pattern, whereas it is significant over market competitive conditions as well as production of goods and services. The empirical analysis established that the growth of MSMEs is positively related to investment, intangible assets. It is also observed that both debt financed investments and growth expectations aided the MSMEs to survive in the environment of equity funded investments. The credit operational system has an empirical relationship with financial problems and growth constraints of MSMEs. The growth of MSMEs has a multifarious dependency for further augmentation of entrepreneurial potentialities. Banji Oyelaran Oyeyinka, Kaushalesh Lal (2006) have conducted a research to establish a relationship between growing technologies in MSMEs in developing countries and their operational efficiencies. The paper also elaborated the complexity in the adoption and use of information and communication technologies to manage their risks. It is found emphatically in the paper the MSME performance in developing countries is highly associated with learning capabilities and experience of entrepreneurs to manage the risks. The analytical study also verified the MSME s importance in managing their information, communication technologies to trace out the trajectories of firm level performance without the hindrance of risks. The problems of MSMEs have different dimensions of marketing, financial, human resources, operations

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and general issues. The span of time of MSMEs to attain profitability depends upon the dimensions of these problems. Few of the researchers found that sickness in small sector is causing

serious concern. There is a need to address the sickness. According to Pathak H N (1972), the problems are really traceable to the fundamental weakness stemming from limited understanding of some of the elementary concepts of costing. According to the study by author Basheer Ahmed F M (2000), sickness in general cannot be studied in isolation, as it is the outcome of a number of factors. Careful identification of causes would enable institutions associated with rehabilitation of sick units, to identify appropriate remedial measures and formulate revival strategies and nursing package. A wise entrepreneur will call the consultant to analyse the situation and recommend a course of action that will bring the company on the road to recovery. The entrepreneur who is the key input of economic growth should realize that the best teacher is his own experience to face the bitter experience for the rescue and revival of sick units. According to the study conducted by Mulla N I and Bannur B C (2002), industrial sickness was a nation-wide incidence and hence it was found essential to study the causes and consequences of this incidence. It was concluded that the industrial economy of India which was ranked one of the top ten amongst the industrialized countries in the world, was facing one of the severe problems of sickness in the large and small-scale industrial sectors since the sixties. Sickness continued to deteriorate a unit due to persistent financial deterioration of the unit over several years in the past and expectation of worsening trend in future, unless drastic measures are undertaken. According to the author, Ms.Valsamma Antony (2003), rehabilitation of a sick unit referred to taking suitable measures and steps to bring an ailing unit back to health. It relates to the process of implementation of tailor-made

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schemes and programmes in the unit and its close monitoring with a view to putting it back on its rails. It is essential to measure the gravity of sickness before designing the nursing scheme or even before selecting the unit for rehabilitation. In order to gauge the extent of sickness, a simple tool in the form of an index number may be computed based on the key elements of performance of a unit-capacity utilization, sales, gross profit and net profit. Few researchers linked the banking services to the performance of MSMEs. Vijay Chandok (2005) aimed at proving that business needed a broad range of banking services of which loans was just one of them. They have customized and bundled a range of transaction banking services, trade finance services bringing in convenience and speed for the modern globalized SME besides bringing them competitive lending products. Knowing a customers business was the first step in building relevant product offering. They had put in place a cluster specific focus to cater to SMEs across India and have classified them under various industry sectors like garments, automobile, pharmaceuticals etc. According to Rajesh Dubey (2005), the idea was to create an environment which would help banks to extend loans to small scale industries at lower rates. While SEMRA would not recommend any rate reduction, individual SMEs with better ratings could approach banks to avail loans at cheaper rates. SMERA has entered into a memorandum of understanding with few banks and has initiated talks with other banks for a similar arrangement. The findings of the study by Felipe Zambaldi et al (2006) from a

sample of 65,535 SME credit proposals submitted to a large Bazillian Bank, revealed that the bank under study faces difficulties in expanding the supply of credit to small firms mainly because of cost, collateral-dependency and constraints due to asymmetric information.

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According to Andreas A Robst

(2006), the development of a viable

securitization market for SME-related claims in a bank-based financial system was likely to require financial sector initiatives, whose scope and intensity might be enhanced by development agencies. Sara L Mc Gughey (2007) stated that portfolio entrepreneurship in international new venturing was neglected hitherto; portfolio entrepreneurship occurred when entrepreneurs found, own, manage and control more than one business at a time, with ownership of the new venture being distinct from that of the existing business ventures. The longitudinal study of a cluster of small and medium enterprises (SMEs) in Tasmania, Australia covered the ability of portfolio entrepreneurs to leverage high-discretion slack resources, positive legitimacy spill overs, and learning effects and experimentation across portfolio. The above discussions on the performance of MSMEs requires the

examining the receivables management factors which are broadly falling under personal characteristics signified by age, education, influence of

entrepreneurial decision, economic status at the time of starting up of business enterprise. Similarly the business characteristics such as age of the enterprise, ownership of business entity, type of business and line of activity are to be taken into consideration. The under or over investment in fixed assets is also likely to have an impact in the performance of MSMEs. 2.7 RECEIVABLES MANAGEMENT FROM THE LITERATURE The brief literature reviews pertaining to receivables management and entrepreneurial developments are presented in this section to identify predominant research gaps. The studies on receivables management in Tamilnadu are limited. Review of literature so far reviewed has been related to MSMEs and not on receivables management. Only in recent years, few studies

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started attracting the attention of academicians / entrepreneurs and practicing managers towards receivables management. According to the author Mathew P M (2000), existing laws often

ignore the social framework within which a small entrepreneur must operate. Delayed Payment Act was passed by the Parliament after repeated representations by small entrepreneurs and their associations. But the individual entrepreneurs are reluctant to make use of the provisions of the Act for fear that customers pressed for payment may not place fresh orders. Today, there are several laws applicable to SMEs. However, the entrepreneurs simply do not know the laws and their provisions. Pedro Juan Garcia Teruel and Pedro Martinez- Solano (2010), stated that in spite of the importance of trade credit for MSMEs, most previous studies those analyzed the determinants of trade credit granted and received, have focused on large firms. Empirical evidence about receivables management of MSMEs is scarce. These studies show the important influence of

operational, commercial and financial motives on trade credit. It is found that price discrimination was not a determinant of small firms trade credit policies in Finland. It appears that European MSMEs use less trade credit when they have opportunities to obtain external financing at a lower cost, as well as when their capacity to generate internal resources increases. According to Ira Davidson (2008), Director of the Small Business

Development Center at Pace University, New York, maintaining effective credit policies and collecting on a timely basis are fundamental to good cash management in a small business. Longenecker et al., (2008) stated that four factors related to the

entrepreneurs decision to extend credit are the type of business, credit policies of competitors, customers income levels and the availability of working capital.

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Khaled Soufani (2002), in his paper explained the choice of factoring as a financing source and the type of businesses using it in the UK. The tests focused on establishing a profile of borrowers, based on firms demographic characteristics such as age, turnover, industry, and type of legal ownership, whether there existed any association between the use of factoring and the availability of credit to firms, the collateral requirements by banks and its value, the value of the firms debt. After a conducting a survey of companies, it was found 212 were using factoring services. Leora Klapper (2006) in a descriptive research ascertained the factoring turnover, factoring as a GDP percentage, have close empirical relationship to define the futuristic and the prudential benefits of MSMEs. Factoring is linked with accounts receivables and the transformation of receivables into suitable collaterals. The research also identified factoring of receivables is not a conspicuous part of bankruptcy. The research also paved the way to exactly estimate how the factoring allows high risk supplier to transfer their credit risk to higher quality buyers. Credit provided by the lenders activity is seen as a balanced factor between the lender and supplier. Factoring process among MSMEs in many countries identified the poor credit operational system, which leads to the future of MSMEs growth. The growth of technology and GDP, due to liberalization, recuperated the scope of MSMEs through technological innovations. Nicos Michaelas, Francis Chittenden, Panikkos Poutziouris (1999) anatomically explored the financial policies and existing capital structure of MSMEs in the conservative economy of UK. The receivables management is considered as one of the predominant factors in the financial policies of MSMEs. It is found that size, profitability, growth opportunities, risk due to receivables contribute significantly in the growth of MSMEs. Microscopically the study found that the different capital structure determinants are useful to withstand the problems of receivables management and long term debts in 3805

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small firms. The policy implications also stated that MSMEs in UK are not stable against the industry giants. The long sighted notions and prudential benefits of MSMEs allow them to involve suppliers' risk involved in the business. Gary A Knight, (2001) highlighted a relationship between and credit risk

entrepreneurship and receivables management strategies of MSMEs in several countries in the globe. The author emphasized the internationalization of SMEs in a globalised and liberalized economy paved a fascinating vista to free the MSMEs from the risk of obtaining finance from domestic sources. The MSMEs are unfettered by beaurcracy and expensive operational systems. The author also found that from the liberalization and globalization of economy emerges a distinctive breed of entrepreneurial characteristics to withstand against risk involved in MSMEs. It is also found that the globalised economy minimizes the financial constraints of entrepreneurs as well as to expedite the marketing and production in international market. Thorsten Beck, Asli Demirguc Kunt (2006) empirically identified the accessibility of MSMEs towards financial problems and growth constraints. It is found an empirical link between financial problems of MSMEs and impending threat of receivables. The growth constraints are sharply estimated amid the severity of receivables and financial implications. It is also found that the MSMEs are able to overcome the financial constraints and expand their access to external finance. This is the sole and predominant way to withstand against the clutches of problems of receivables. The growth is not unique in MSME sector but it leans upon the economic scenarios and manifestations of the globalised and liberalized economic situations. Allen N Berger, Gregory F Udell (2006) in their innovative research

identified the financial problems in two different dimensions namely, problems with receivables and problems of financial rotation. The descriptive paper highlighted as to how the lending technologies basically differ from other

53

multiple dimensions. In particular it ascertains fixed asset lending and leasing process to meet the financial implications of Small and Medium Enterprises (MSMEs). In the case of receivables the MSMEs are hampered by the delay in payments, relationship lending and credit scoring. Better lending and perfect receivables management must balance each other for the long standing operations of MSMEs. The MSMEs obtained the jolts in their business environment due to the influence of financial policies of the respective governments. Kye Woo Lee (2006), the author, argued the effectiveness of government occupational skills, development strategies for MSMEs aims at improving their financial debacles. It is also identified in the paper the problems of human resources, marketing and operations are close to each other in determining the risk involved in the MSMEs. MSMEs are given financial incentives to manage the receivables for atleast minimum span of time. MSMEs are given a generously high level of reimbursement of their investment and capital. It is again microscopically found that receivables and quality play a vital role in determining the growth of MSMEs The problems aggravated the risk involved in the MSME sector and also project its vulnerability in the form of receivables. Maria Psillaki, Nikolaos Daskalakis (2009), emphasized the need for capital structure of the specific firms for the prudential withstand in any kind of economy. It is exactly identified that the economic characteristics of a country, asset structure, size, profitability, and risk in receivables have good impact on the capital structure of MSMEs. The weak capital structures are inclined to very high risks of MSMEs whereas continuous profitability, leverage and asset structure denote the strong characteristic features of MSMEs in any suitable economy. The paper also identified the MSMEs risk and the problems due to receivables lean upon profound asset structure and the continuous profitability for the span of limited years. It is found in all international literature pertaining

54

to MSMEs that the financial problems with huge dimensions directly affect the receivables as well as the operating efficiency of MSMEs. The analogous scenario of trade credit and its receivables management are within the acceptable limits of the arguments. It is indispensable to note that trade credit and credit for the supply have the same waiting time directly affecting the growth of MSMEs. 2.8 RESEARCH GAPS As per the secondary data analysed by the researcher, MSME units in Tamilnadu have recorded an annual growth rate of 10.69% in number of registered units between 1999-2000 and 2008-09. The total number of

registered MSME units is 4.75 lakhs in 2008-09. The continuous increase in the employment potential at 9.38% of SME is also noticed in the span of 10years from 1999 to 2009. The employment provided by this sector is 34.18 lakhs in 2008-09. Further, the production of MSME units in Tamilnadu is increased from Rs.22368 crores during 1999-00 to Rs.94939 crores during 2008-09. Hence there is a need to undertake a research on MSMEs in Tamilnadu. The literature survey strongly proved need for growth, development and contribution of MSMEs for economic development. However present literature relating to MSMEs in India has not related receivables management to the net profit. Receivables Management in the broadest sense consisting of personal characteristics of entrepreneur, business characteristics of the enterprise, and investments in fixed assets, has not been systematically studied. While the focus was on liability side of the balance sheet consisting of capital, debts and profit and loss, less attention has been given to the personal, business characteristics and investment in fixed assets, which is identified as a major gap. The characteristics of sales revenue in the form of domestic sales, export sales and job work receipts found to have relationship on receivables

55

management in the pilot study and as an outcome on discussion conducted with bank officials. This has been identified as a major gap and addressed in the present research. The receivables of MSMEs have different characteristics compared to that of large scale organizations. While large scale organizations have geographically distributed customers, channels and ability to get advanced payments or enforcing strict credit norms, the receivables management of MSMEs have different characteristics. Twelve variables are identified in the pilot study. There is no literature support available on the importance of these variables and their relationship with respect to net profit. This gap has been identified and addressed in the present research. Different problems of MSMEs perceived by the MSMEs and by bank officials are listed. It contained twenty five variables in different functional

areas of management. However addressing twenty five different variables will be a difficult exercise for an MSME. By appropriate choice of statistical tools, there is a need to identify latent constructs not exceeding seven to represent majority of the variables. There is no model available for MSMEs to comprehensively relate their problems of MSMEs, sales characteristics and receivables management consisting of personal characteristics, business characteristics and investment in fixed assets and their overall impact on net profit. Non- availability of a

comprehensive model for both MSMEs and banking institutions is a strongly felt need of MSME entrepreneurs and the banking institutions. This gap is addressed in the research by designing a model with appropriate interrelationships established statistically. Since there is no major credit rating facility available for MSMEs to prove the financial credentials, a model addressing above mentioned distinct entities is likely to help growth of MSMEs.

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CHAPTER 3

RESEARCH METHODOLOGY

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CHAPTER 3

RESEARCH METHODOLOGY

CHAPTER OVERVIEW This Chapter describes detailed methodology followed to reach the culmination of research and explains the data collection process and their respective analysis. The higher order statistical tools viz Cluster analysis; Discriminant analysis and Multiple Regression analysis are exploited systematically to establish the association as well as relationship among independent and dependent variables. The following areas are covered: rationale of study; hypothesis of the study; development of research instrument; validity of the receivables management variables; pilot study, sample design and main study; variables of the research and statistical tools for analysis 3.1 RATIONALE OF THE STUDY This section covers research design, data collection and questionnaire development efforts used in this study. The sampling plan used for the final study is discussed in detail along with data collection procedures and data analysis procedures used in pretest, pilot test and the main study. This research is undertaken to determine the variables of Receivables Management of MSMEs and to uncover hidden association of receivables with other variables of the business. The research also develops an empirical model

58

to establish the influence of receivables management variables on the problems of MSMEs. A conceptual model was developed to diagnose effective and behavioural factors, based on relevant theories in receivable management literatures. This is important because academics have tended to limit the study of crucial revenue management variables. Manufacturers of products undertake targeting the sales revenue / total income, without realizing the full effect of receivables management. Given this situation, this research proposes an

alternative holistic method to evaluate the receivable management strategy by effecting the following: 1) Bringing out the hidden association of receivables management variables with other variables in managing the business 2) Developing an empirical model to help MSME entrepreneurs to evaluate their receivables management strategy and to enable them to take appropriate corrective / preventive actions. 3.2 HYPOTHESES OF THE STUDY In order to achieve a sharp pinning down of the research problems and objectives, the following hypotheses are structured. 1) Ho: There is no significant change in the growth of MSMEs in India and Tamilnadu during 1999-2009 in terms of number of Units, Employment, and Production. 2) Ho: Receivables Management variables and Sales Revenue / Total Income (Domestic sales, Export sales and Job work receipts) of MSMEs in Tamilnadu, are independent. 3) Ho: Receivables Management variables and Net profit earned by MSMEs in Tamilnadu are independent.

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4)

Ho: Problems normally faced by MSMEs and Receivables Management variables are independent

5)

Ho:

Personal

characteristics

of

Entrepreneurs

and

Business

characteristics of MSMEs and Receivables Management variables are independent. 6) Ho: Investments in Plant & Machinery (manufacturing sector) / Equipments (services sector) of MSMEs and Receivables Management variables are independent 3.3 DEVELOPMENT OF RESEARCH INSTRUMENT Five different constructs are needed to test the proposed conceptual model. Multi item, five point Likerts scales are used to measure all the five constructs. Enlisting measures of receivable management are used for all its validity and are adapted to the context of the study. Measures for final study are finalized using a three step approach. (1) Measures compilation test and (3) Pilot study. 3.3.1 Compilation of Measures This step is used for all the constructs. All the possible measurement scales for the constructs are collected and are studied in detail for their appropriateness to the present study. The scales were assessed based on the following criteria. 1) Reported reliabilities and factor structures of the scales in published studies. 2) 3) 4) Validity of the questions Study contents where the scale were used Length of measurement scales the number of items in each scale. (2) Pre

60

3.3.2 Pre-test The measurements of influence of receivables management on growth, problems, and prospects are adapted to the study content and tested for their face validity, content validity and reliability in the pretest. Personal characteristics of entrepreneurs and Business characteristics of MSMEs, sales revenue, factors influencing the sales revenue management, revenue strategies, and problems of MSMEs in the proposed model are investigated extensively in the research. Mainly the problems of MSMEs are ascertained using Likerts five point scale used in the previous studies. The questionnaire is based on the research gap identified from the literature review and has been modified based on the pilot study and the discussions held with MSME entrepreneurs. Primary data are collected through questionnaire survey. A questionnaire with four sections is developed and finalised. The first part of the questionnaire comprises demographic profile of the entrepreneurs and profile of the business enterprises. This also include the category of MSMEs, as per the Government of India definition, viz, whether the business activity engaged is manufacturing or service sector and in each of this category, whether the unit is Micro or Small or Medium enterprise. The second part contains statements about ranking of total income viz domestic sales, export sales, job work receipts and all combination of these. Actual total income earned with break - up of domestic sales, export sales and job work receipts and the net profit earned are also collected. Business portfolio of the MSMEs in terms of the percentage of sales with top one customer and top three customers is also collected. The third part consists of statements relating to receivables management variables of MSMEs.

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The fourth part of the questionnaire relates to the opinion of MSMEs on problems incidental on their growth and prospects. These statements pertain to the various problems in functional domain viz marketing, finance, human resources and operations in Likerts 5 point scale. All relevant statements are included to derive responses. 3.3.3 Scaling Technique in the Questionnaire The questionnaire of the research consists of both optional type and statements in Likerts 5 point scale. The responses of these sections are

obtained from MSME entrepreneurs in Tamilnadu which range as follows: 5 Strongly Agree Disagree This allowed for the standardization of results as well as making it easier for respondents to complete the questionnaire. The author and supervisor discussed the Likerts 5 point scale and decided to assign the numerical value three for undecided or neutral. The numerical value 3 is assigned to neutral after referring the several approaches in statistics. Undecided has a connotation that, the statements in the questionnaire do not have proximity to the respondents. But neutral implies that they are well acquainted with the 4 Agree 3 Neutral 2 Disagree 1 Strongly

statements in the questionnaire but they want to remain equidistant from the two extremities of agreement and disagreement.

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3.4

VALIDITY OF THE RECEIVABLES MANAGEMENT VARIABLES Research Methodology comprises of three stages namely pre-test, pilot

study and main study. The researcher after framing the questionnaire pre-tested the same for validity of the contents. The content based validity is of utmost importance, before venturing into the research domain. Twelve receivables management variables were identified based on literature review, discussions with MSMEs and their inputs and pretest was conducted. Based on the outcome of analysis, seven variables (with standard deviation less than one) have been retained for further research. Retained variables were 1) Receipt of advances before supplying the goods / providing the services 2) Receipt of advances at the time of supplying the goods / providing the services, 3) Whether credit period allowed or not, and if allowed the duration of such period, 4) Collection of receivables within the stipulated credit period or not, and if not collected, the duration of additional credit period allowed 5) Debts doubtful of recovery 6) Business with top one customer and 7) Business with top three customers. Remaining five variables were dropped due to extraneous standard deviation, which hampers the occurrence of the probabilities of the event. Dropped variables were 1) Price consistency 2) Quality consistency 3) Delivery consistency 4) Price discount allowed 5) Competitors credit period. After the pre-test, Factor analysis is applied for the variables in the Linkers five point scale and segmentation is achieved but the variance is found to be less than 40%, which needs to be improved. 3.5 PILOT STUDY Pilot study was conducted by contacting 60 MSMEs in Guindy, Ambattur and Maraimalinagar industrial estates on a random basis. The

63

normal distribution and Hotellings t-test in Cronbach alpha method is used to identify the quality of each item of the questionnaire in 5 point scale and the following results are obtained as furnished in Table 3.1 After the pilot study, the results revealed that there is an increase in the variance from 40 % to 50%. TABLE.3.1 CRONBACH CO-EFFICIENT AND HOTELLINGS T-SQUARE VALUE. Q.No IV Statements No of Items 5 5 5 5 5 Cronbach alpha 0.929 0.771 0.762 0.765 0.736 Hotelling Sig T-square 42.867 .000 66.850 40.430 61.287 85.237 .000 .000 .000 .000

26 to 30 Marketing IIV 31-35 Finance IIV 36-40 Human Resources IIV 41-45 Operations IIV 46-50 General issues Source : Output of analysis

From the above table it is ascertained that the items in Part IV of the questionnaire are highly reliable and the samples satisfy the normal distribution rationally. So the items in the questionnaire can be used further in the study. The secondary data revealed that ten corporations and two districts adjoining to Chennai have sizable population of MSMEs. This forces the researcher to collect sample from the structured sampling frame from these 12 districts and confirmed by government sources. 3.6 SAMPLE DESIGN The features of sampling followed in the research are furnished in the Table 3.2

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TABLE 3.2 SAMPLE DESIGN Sl. No 1. 2. Elements of Sample Design Target population Parameters of interest Particulars of sampling used in this research MSME units Tamilnadu Sample statistics are used to determine the population parameters. The sample statistics are calculated from the data collected. The focus is to study the association of receivables management variables and other variables in managing the business. Municipal corporations in Tamilnadu form the sampling units. MSMEs located in municipal corporations and industrial estate near Chennai (Maraimalainagar and Ambattur) form sampling elements. Area sampling, the most important of cluster sampling is adopted to choose the sampling elements. This helps in securing homogeneity between subgroups and heterogeneity within subgroups. MSME within each municipal corporation is selected based on random sampling. Minimum requirement is 384 units **. However data are collected from 525 MSMEs, which is the sample size.

3.

Sampling frame

4.

Sampling method

5.

Sample size

**According to Rajendra Nargundkar (2010), proportion the representation of population parameter can be estimated through the formula n= pq (z/e)2 Where n = sample size, p=probability of inclusion, q=probability of exclusion, of an MSME in the sample, 0.05)2 = 384 z= random variable with 95 % confidence level, e=

tolerance limit, say 0.05 Substituting these values, n= (0.05) (0.05) (1.96 /

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As against these 384, total sample size was 525. After the main study, the factor analysis revealed, variance of, more than 60% in the sample. This profoundly concludes the sufficiency of the sample size to reflect the population parameters. 3.7 MAIN STUDY The main study was conducted during the period Oct 09 and June 2010 and questionnaires were collected from MSMEs located in 12 revenue districts (details given below), in the State of Tamilnadu. The peculiarity of these districts is that their municipal limits comprise maximum number of MSMEs (10 of them are municipal corporations) than other districts of Tamilnadu. These 12 districts have reputational influence for the MSMEs and their production of products play a vital role in the contribution of Tamilnadu GDP. The researcher visited all the 12 district headquarters and interacted with district MSME development officials to obtain list of MSMEs within the municipal area of the districts. After obtaining the list, the researcher used random selection method and contacted MSME entrepreneurs to fix up an appointment. The researcher visited MSMEs as per the appointment and explained the purpose of the study and sought their responses. Wherever needed, researcher explained in vernacular language.

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TABLE 3.3 DISTRICT-WISE MSMEs FROM WHOM DATA ARE COLLECTED Revenue districts, in the Sl. State of No. Tamilnadu 1. Chennai 2. Coimbatore 3. Erode 4. Kancheepuram 5. Madurai 6. Salem 7. Thiruvallur 8. Tirunelveli 9. Tiruchirappali 10. 11. 12. Tuticorin Tirupur Vellore Total Source: Primary data No. of No. of No. of Questionnaires Questionnaires Questionnaires used for study collected circulated 100 50 50 50 30 60 50 30 30 30 50 60 590 98 48 43 43 28 58 45 28 28 27 44 55 545 98 48 39 43 28 58 40 28 26 27 39 51 525

Totally 590 questionnaires were circulated

among MSMEs in 12

districts of Tamilnadu, out of which 545 responses were collected and subject to statistical treatment. The researcher contacted remaining 45 respondents but there is no encouraging reply. After obtaining the 545 responses, innovative analysis method revealed 20 questionnaires are not fully completed and replete with flaws. Therefore, these responses have been eliminated and the remaining 525 responses are considered for the research. This number is greater than the sampling adequacy number 384. Hence the exact sample size of the study is 525.

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3.8

VARIABLES OF THE RESEARCH The present research depends upon relationship between two types of

variables namely independent and dependent in nature. Independence and dependence are context based as well as objectives based. In general, profile of entrepreneurs and business characteristics of MSMEs are considered as independent in nature. The statements in Likerts 5 point scale covering, problems normally faced by MSMEs, as dependent variables. 1) In the context wise background, for second objective, receivables management variables (question numbers 15, 16, 17, 19, 21, 23, and 25) are treated as independent variables. Further domestic sales earned by MSME during the year ended March 2009 (question number 13a), export sales earned by MSME during the year ended March 2009(question number 13 b) and job work receipts earned by MSME during the year ended March 2009 (question number 13c) are considered as dependent variables in the case of second objective. 2) In the case of third objective receivables management variables (question numbers 15, 16, 17, 19, 21, 23, and 25) are treated as independent variables. And net profit generated by MSME during the year ended March 2009(question number 14) is considered as dependent variable. 3) In the case of fourth objective, the influence of problems in the

functional domain is identified by assuming problems (question numbers from 26 to50) as independent variables and receivables management variables (question numbers 15, 16, 17, 19, 21, 23, and 25) as dependent variables.

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4)

In verification of the fifth objective, the analysis considered personal characteristics of entrepreneurs and business characteristics of MSMEs as independent variables (question numbers from 2 to 10 and receivables management variables (question numbers from 15, 16, 17, 19, 21, 23 and 25) as dependent variables.

5)

In the analysis to achieve sixth objective, investment in plant & machinery (Manufacturing (question numbers11) is sector) / equipments (Services sector) treated as independent variables and

receivables management variables( question numbers 15,16,17,19,21,23 and 25) as dependent variables. 3.9 STATISTICAL TOOLS FOR ANALYSIS The primary data collected from the MSMEs is analyzed by using SPSS V-15 (Statistical Package for Social Sciences) to obtain the results concerning the objectives of the study. 1) 2) Factor analysis is used to identify the problems among MSMEs. Cluster analysis is found suitable to classify the respondents based on the perceptions towards problems. 3) The t-test is appropriate in ascertaining the opinion of MSME entrepreneurs pertaining to receivables management. 4) Multiple Regression and General Linear Model are subsequently exploited to identify the influence of independent variables on dependent variables. 5) Discriminant analysis is brought to bear on the problems of establishing how the dependent variables are segmented with respect to independent variables.

69

6)

Non-parametric chi-square analysis is useful in verifying the association among independent and dependent variables.

7)

Logistic Regresssion deals with the dependency of dichotomous variables to exactly ascertain the influence in two- option domain.

8)

The preliminary percentage analysis and trend analysis are used to estimate the contribution of variables in the research.

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CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

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CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

CHAPTER OVERVIEW

This chapter of this study has been completely dedicated to present an anatomical analysis using the statistical tools viz parametric tests, non-parametric tests. Percentage analyses, Factor analysis, non-parametric Chisquare analysis, Kearl Pearsons coefficient of Correlation, are subsequently used to analyse both primary and secondary data. An empirical model is also derived to establish the factors influencing problems and receivables management variables of MSMEs of Tamilnadu level. It covers the following :

descriptive analysis ;

analysis of secondary data; inferential analyses; discriminant analysis to develop an Empirical Model to evaluate Receivables Management strategy of MSMEs in Tamilnadu;

4.1

DESCRIPTIVE ANALYSIS The socio-demographic details have serious impact on the performance

and development of MSMEs. The influence of these details on the various business variables and suggested measures has been proved in the succeeding chapters through statistical analysis. Various dimensions taken for collecting

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personal characteristics are gender age, educational qualification, major influencing factors for the entrepreneur to start the business, status of the entrepreneur at the time of start up of business enterprise. Business characteristics are collected by obtaining year of establishment, business entity or form of ownership, business type, line of activity, and fixed investment in plant & machinery/ equipments. Personal characteristics of entrepreneurs and Business characteristics of MSMEs are furnished below in tabulated form by way of Percentage Analysis. 4.1.1 Gender wise classification of MSME Entrepreneurs The gender wise frequency distribution of the entrepreneurs of micro, small and medium enterprises surveyed is exhibited in the Table 4.1. TABLE 4.1 GENDER WISE CLASSIFICATION OF MSME ENTREPRENEURS Gender Male Female Total Frequency 505 20 525 Percentage 96.2 3.8 100.0

Source: Primary Data

From the Table, it can be seen that 96.2% of the entrepreneurs in micro, small and medium enterprises are male. Men predominantly take up entrepreneurship. Low percentage of women occupy entrepreneurial roles, may be due to patriarchal, societal conditions prevailing in India. Also, it is discerned that women entrepreneurs account for fewer in the sample, may be due to the fact that they are fewer in the population.

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4.1.2 Age wise classification of MSME Entrepreneurs

The frequency distribution given in Table 4.2 presents the age wise details of MSME entrepreneurs surveyed.

TABLE 4. 2 AGE WISE CLASSIFICATION OF MSME ENTREPRENEURS

Age of the MSME entrepreneur Frequency Percent Less than 25 years 26-35 36-45 46-55 Above 55 years Total Source: Primary Data 7 140 185 118 75 525 1.3 26.7 35.2 22.5 14.3 100

From the above frequency distribution it is seen that majority of MSME entrepreneurs, 61.9% fall under the middle age category, ranging from 26 years to 45 years. It is also discerned that another 22.5% fall under the age group of 46 years to 55 years. The age of a person plays an important role in motivating an individual to enter into micro, small and medium enterprises and also in the growth and expansion of the enterprise. The adoption of new methods and techniques of production, progressive outlook, innovative spirit, risk taking and so on, are closely related to the age factor of the entrepreneurs.

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4.1.3 Classification of MSME entrepreneurs based on Educational Qualification The Table 4.3 gives the details of the frequency distribution of entrepreneurs of micro, small and medium enterprises surveyed, based on their educational qualification. TABLE 4.3 CLASSIFICATION OF MSME ENTREPRENEURS BASED ON EDUCATIONAL QUALIFICATION Educational Qualification of MSME entrepreneur Upto HSC, others HSC Graduate Post Graduate Professional Total Source: Primary Data The frequency distribution table given above depicts that 31.6% of the entrepreneurs are graduates. Economic development largely depends on the literacy of the people. This is particularly important in case of entrepreneurial motivation and growth. It also helps the decision of a prospective entrepreneur of micro, small and medium enterprises in the selection of an enterprise, location and cost of the project and application of modern technology. Further, educational qualification of an entrepreneur aids in the day to day decision making as well as in effective performance of business venture. Education also helps to keep entrepreneurs of micro, small and medium enterprises aware of various facilities and incentives of the Government. It is also discerned that additional qualification acquired by an individual to become a post-graduate and professional also motivates them to start a business enterprise, which is reflected by 30.2 % from these categories. Frequency 101 100 165 75 84 525 Percentage 19.2 19.0 31.6 14.3 15.9 100.0

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4.1.4 Classification of MSMEs based on major influencing factors for the entrepreneur to start the business Table 4.4 reflects the major influencing factors for the entrepreneurs to start the business enterprise. TABLE 4.4 CLASSIFICATION OF MSMEs BASED ON MAJOR INFLUENCING FACTORS FOR THE ENTREPRENEUR TO START THE BUSINESS Influencing person Spouse Elders in the family Govt. Schemes Friends/Relatives Others Total Source: Primary Data Frequency 21 157 33 160 154 525 Percentage 4.0 29.9 6.3 30.5 29.3 100

Business enterprise is one of the motivating factors for an entrepreneur to foresee future growth and development in the industry. Entrepreneurial decision to start an micro, small and medium enterprise is generally influenced by various sources. Table 4.4 clearly shows that majority of entrepreneurs at 30.5% of micro, small and medium enterprises are influenced by friends and relatives. Further, another 29.9% of the entrepreneurs are influenced by elders in the family. It is discerned that an individual seek advice from friends, relatives and elders in the family while taking an important decision to start a business and foresee future growth. Government schemes may be an important factor, but not the motivating factor for start up.

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4.1.5 Status of MSME entrepreneurs at the time of starting the business unit Frequency distribution based on the status of the entrepreneurs at the time of starting up of the business unit is furnished below in Table 4.5. TABLE 4.5 STATUS OF MSME ENTREPRENEURS AT THE TIME OF
STARTING THE BUSINESS UNIT

Status of the Entrepreneur at the time of Starting up of MSME

Frequency 100 25 214 154 32 525

Percentage 19.0 4.8 40.8 29.3 6.1 100

Unemployed Employed in Government/PSU Employed in private sector Family business Others Total Source : Primary Data

Status of the entrepreneurs of micro, small and medium enterprises at the time of starting the business unit will help the entrepreneurs in raising the required capital, managing risks, planning for further growth, expansion and diversify. Experience gained as employees of private sector and managing family business are the major triggers for starting MSMEs. Table shows that 40.8% of the entrepreneurs of micro, small and medium enterprises were employed in private sector. The experience gained by an individual while employed in a private sector, seem to be a confident building tenure, resulting an individual starting own business unit at the appropriate opportunity. Further the experience gained by an individual in managing / taking part in the running of the family business is a fertile ground for a potential entrepreneur, which was discerned from the fact that 29.3% of the MSME entrepreneurs were in the family business, at the time of starting up the business. It is concluded that maximum number of MSME entrepreneurs were employed in private sector.

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4.1.6 Existence of MSMEs based on Year of their establishment The frequency distribution of MSMEs based on the number of their existence in years is given in Table 4.6

TABLE 4.6 CLASSIFICATION OF MSMEs BASED ON YEARS OF THEIR EXISTENCE

Years of Existence of MSME

Frequency 25 41 95 162 202 525

Percentage 4.8 7.8 18.1 30.9 38.4 100

Above 40 years Between 30 to 40 years Between 20 to 30 years Between 10 to 20 years Within 10 years Total Source : Primary Data

Every entrepreneur starts his business to be in the industry for a long period. Success of the industry also decides the entrepreneurs stay in the industry. Only when an entrepreneur stays in a particular industry for some years he can study the tactics of handling the business issues properly. The enterprise age determines the success of the business of the entrepreneur of micro, small and medium enterprises. From the Table, it is discerned that maximum of 38.4% of MSMEs are in existence for a period within 10 years. In the present environment where customers need, preference etc are changing rapidly, a business enterprise cannot be expected to be in the same line of activity for decades continuously. Only such MSMEs who are capable of adapting to changes, will sustain their business.

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4.1.7 Business entity / Type of Ownership of MSMEs Table gives the frequency distribution of ownership forms of MSME. TABLE 4.7 CLASSIFICATION OF MSMEs BASED ON BUSINESS ENTITY / TYPE OF OWNERSHIP Ownership of MSME Sole Proprietorship Partnership Private Ltd company Public limited company Total Source : Primary Data Nature and type of the business decides the scope of its growth. One of the important determining factors is the form of ownership. Table 4.7 shows that 53.9 % of MSMEs are sole proprietorship concerns and 30.3% of MSMEs are partnership firms. It is discerned that the reason for many MSMEs not scaling up their operations, or not updating their plant and machineries technologically, lie in their form of ownership. Vast majority of MSMEs 84.2 % were owned by sole propriety concerns and partnership firms and there is a limitation in their bringing in additional capital. 4.1.8 Type of Business of MSMEs Table gives the frequency distribution of MSMEs based on the type of business being conducted. Frequency 283 159 75 8 525 Percentage 53.9 30.3 14.3 1.5 100

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TABLE 4.8 CLASSIFICATION OF MSMEs BASED ON TYPE OF BUSINESS Type of Business Manufacturing Trading Assembling Services Others Total Source : Primary Data Type of the business is significant for development and growth of MSMEs. Table shows that substantial portion of MSMEs, at 72.2% was Frequency 379 58 28 47 13 525 Percentage 72.2 10.9 5.4 9.0 2.5 100

engaged in manufacturing activities. It is inferred that most of the MSMEs continued to be in engaged manufacturing activities, despite Government of India broadening the definition by including service activities also in the MSME domain. 4.1.9 Line of Activity of the Business of MSMEs The frequency distribution given in the table furnishes line of activitywise break up of MSMEs.

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TABLE 4.9 CLASSIFICATION OF MSMEs BASED ON LINE OF ACTIVITY OF THE BUSINESS

Line of Activity of the Business Mechanical Electrical Computer & Information Technology Plastic Garments Paints and chemicals Leather Rubber Others Total Source : Primary Data

Frequency 214 37 20 40 43 49 75 21 26 525

Percentage 40.8 7.0 3.8 7.6 8.2 9.3 14.3 4.0 5.0 100

FIGURE 4.1 CLASSIFICATION OF MSMEs BASED ON LINE OF ACTIVITY OF THE BUSINESS

Mechanical 4% 14% 5% Electrical 41% Computer & Information Technology Plastic Garments 9% 8% Paints and chemicals Leather 8% 4% 7% Rubber Others

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Entrepreneurial activity in which an entrepreneur is involved, will depend on the availability of adequate business opportunity. The right business opportunity depends on environment, market need and potential in the particular industry. An MSME become successful if the entrepreneur chose the activity, which matches his / her expertise and skill. From the above table, it is discerned that more MSMEs are engaged in Mechanical at 40.8%. This mechanical engineering

confirms that MSMEs continued to be engaged in

activity which is core area supporting almost all industry, right from the industrial revolution. 4.1.10 MSMEs Investments in Plant & Machinery (Manufacturing sector) and Investment in Equipments (Services sector) The details of MSMEs falling under micro, small and medium as per

the definition of Government of India, are furnished in the following table TABLE 4.10 CLASSIFICATION OF MSMEs BASED ON INVESTMENTS IN PLANT & MACHINERY (MANUFACTURING SECTOR) / EQUIPMENTS (SERVICES SECTOR)
Category of MSME No. of units ( equipments) Percentage ( equipments) No. of units ( plant & machinery) 201 60 15 276 Percentage ( plant &machinery) 38% 11% 4% 53% Total number of units ( both mfg and service sector) 331 168 26 525 Percentage ( both mfg and service sector) 62% 32% 6% 100%

Micro Small Medium Total

130 108 11 249

24% 21% 2% 47%

Source : Primary Data

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FIG. 4 .2 CLASSIFICATION MSMEs BASED ON INVEST FIGURE 4.2 CLASSIFICATION OFOF MSME UNITS BASED ON INVESTMENTS INMENTS IN PLANT AND MACHINERY / EQUIPMENTS
EQUIPMENTS, PLANT AND MACHINERY / EQUIPMENTS

11%

4% 24%

Micro (Services) Small (Services) Medium (Services) Micro (Mfg.)

38% 2%

21%

Small (Mfg.) Medium (Mfg.)

The entrepreneurs of MSME invest different amount in different enterprises based on the requirements of plant & machinery or equipments. Accordingly the MSME unit will be coming under the purview of Micro or Small or Medium enterprises. From the above table it is found that 53% of the MSMEs are engaged in manufacturing activity. (38% in micro, 11% in small and 4% in medium enterprises). Also it is discerned that maximum of 62% of MSMEs account for micro enterprises. The shift from manufacturing to service sector is in tune with growing contribution by service sector to gross domestic product of India.

4.1.11 MSMEs based on break up of Sales Revenue / Total Income for the fiscal year 2008-2009 The table furnishes the MSMEs based on the portfolio of annual turnover viz domestic sales, export sales and job work receipts

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TABLE 4.11 SOURCE OF SALES REVENUE / TOTAL INCOME OF MSMEs FOR THE FISCAL YEAR 2008-2009 Break of sales revenue/ income Domestic sales only Export sales only Job work receipts only Domestic sales and export sales only Domestic sales and job work receipts only Export sales and job work receipts only Domestic sales, export sales and job work receipts Total Source : Primary Data Frequency 255 16 90 89 31 18 26 525 Percent 48.6 3.0 17.1 16.8 5.9 3.6 5.0 100

FIG. 4.3 CLASSIFICATION OF MSMEs BASED ON SOURCE OF SALES REVENUE / TOTAL INCOME
5% 4% 6%
Domestic sales only Export sales only

17%

Job work receipts only

48%
Domestic sales and export sales only Domestic sales and job work receipts only Export sales and job work receipts only Domestic sales, export sales and job work receipts

17% 3%

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Entrepreneurs of MSMEs found entrepreneurship to be an ideal way to cope with the competing demands of career and family. Accordingly they earn their Sales Revenue/ Total Income from domestic sales, export sales, job work receipts or any combination of these, based on their ability to manage the business. It is evident from the above analysis that a maximum of 48.6% of MSMEs selected domestic sales only. Again 17.1% of the MSMEs earned their annual income through job work receipts, indicating the potential space available for an MSME to take up sub- contracting from large industrial units. 4.1.12 MSMEs based on actual Sales Revenue / Total Income earned by MSMEs during the fiscal year 2008- 2009 Annual turnover earned by MSME during the fiscal year 2008-2009 is tabulated below: TABLE 4.12 CLASSIFICATION OF MSMEs BASED ON SALES REVENUE / TOTAL INCOME EARNED DURING THE FISCAL YEAR 2008-2009

Sales Revenue / Total Income

Frequency (fiscal year 2008-2009)

Percentage (fiscal year 2008- 2009) 31.2 22.7 46.1 100

Below Rs 15 lakhs Rs.15 lakhs to Rs 45 lakhs Rs.46 lakhs and above Total Source : Primary Data

164 119 242 525

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In many occasions, financial success is considered as an external confirmation of ability of an MSME, rather than acting as a primary goal or motivation to start a business. From the above table it is discerned that

maximum of 46.1% of MSMEs achieved annual turnover consisting of sales revenue /total income exceeding Rs 46 lakhs, during the fiscal year 2008-2009. 4.1.13 MSMEs based on Net Profit earned by MSMEs during the fiscal year 2008-2009 The frequency distribution of MSMEs classification based on net profit generated during the fiscal year 2008-2009 is furnished below: TABLE 4.13 CLASSIFICATION OF MSMEs BASED ON NET PROFIT EARNED DURING THE FISCAL YEAR 2008-2009 Net Profit earned by MSMEs during the fiscal year 2008-2009 Below Rs 5 lakhs Rs.5 lakhs to 10 lakhs Rs.11 lakhs and above Total Source : Primary Data Net profit earned will reveal the overall efforts made by the MSMEs in the business during a financial year. This may be taken as a good indicator of success and growth of MSME entrepreneurs. From the above table it is inferred that maximum of 54.3 percent of MSMEs, earned net profit under category 285 129 111 525 54.3 24.6 21.1 100 Frequency Percentage

below Rs 5 lakhs only. Taking cognizant of the fact that majority (46.1%) of

86

MSMEs annual turnover was above Rs 45 lakhs as furnished in the table 4.12, it is discerned that profitability of MSME was at a lower level only. 4.1.14 MSMEs based on proportion of Sales Revenue/ Total Income earned through top one customer

The frequency distribution of MSMEs based on the proportion of Sales Revenue / Total Income earned through top one customer, during the fiscal year 2008 - 2009 is given in Table. TABLE 4.14 CLASSIFICATION OF MSMEs BASED ON PROPORTION OF SALES REVENUE / TOTAL INCOME EARNED THROUGH TOP ONE CUSTOMER Business with top one customer Frequency Percentage Below 25% 26 to 50% 51 to 75% 76% and above Total Source : Primary Data Major portion of the annual business with top one customer by an MSME is an indication of the quality of the product /service and customer loyalty. This also reflects whether MSME is an ancillary unit of a large manufacturing organisation. It is discerned from the table that majority of MSMEs at 51% earned total income through top one customer, whose portion was only 25 % and below. Further 27.8% of MSME entrepreneurs earned business proportion between 26 to 50% of total revenue from top one customer. This shows that majority of 77.8 % MSMEs business portfolio is distributed 268 145 57 55 525 51.0 27.8 10.9 10.3 100

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to more number of customers

in such a manner their proportion is not

exceeding 50 % of annual turnover of MSME. 4.1.15 MSMEs based on proportion of Sales Revenue / Total Income earned through top three customers The frequency distribution of MSME based on their Sales Revenue / Total Income earned through top three entrepreneurs in 2009 is given in Table TABLE 4.15 CLASSIFICATION OF MSMEs BASED ON SALES REVENUE / TOTAL INCOME EARNED THROUGH TOP THREE CUSTOMERS

Business with top three customers Frequency Percentage Below 25% 26 to 50% 51 to 75% 76% and above Total Source : Primary Data Major portion of the business with top three customers by an MSME is an indication of the quality of the product /service and customer loyalty. It also reflects whether MSME is having a diversified line of activity or only one core activity. Table clearly shows that 47.6% MSME entrepreneurs, earned total income through top three customers, through their business with whom portion of annual turnover was 25% and below only. Further 27% of MSME 250 142 79 54 525 47.6 27.0 15.0 10.4 100

entrepreneurs earned 26 to 50% total income from their top three customers.

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4.1.16 MSMEs based on Advances received before supplying the goods/ providing the services Table 4.16 depicts the frequency distribution of MSMEs based on whether MSMEs received any advance, before supplying the goods/providing services or not TABLE 4.16 CLASSIFICATION OF MSMEs BASED ON ADVANCES RECEIVED BEFORE SUPPLYING THE GOODS / PROVIDING THE SERVICES

Response Yes No Total

Frequency 185 340 525

Percentage 35.2 64.8 100

Source : Primary Data Working capital by an MSME is normally obtained from short term sources which included credit from suppliers of raw material, cash credit loan from banks, advance from their customers etc. Ability of an MSME to demand and receive a portion of the order value as advance is reported to have certain non-monetary advantages also. It reflects the quality of the product and enable building a long-standing relationship between the MSME and its customer. From the above frequency table it is discerned that 64.8% of MSME entrepreneurs do not receive any advances before supplying the goods / providing the services. On the other hand, only 35.2% of MSME entrepreneurs receive advances before supplying the goods / providing the services. Majority of MSMEs due to their inability to receive advance before supplying the goods / providing the services are bound to miss both monetary and nonmonetary benefits.

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4.1.17 MSMEs based on Advances, as a percentage of Total Order Value, received before supplying the goods/providing the services Following table exhibits MSMEs based on the advances, as a percentage of order value, received by MSMEs.

TABLE 4.17 CLASSIFICATION OF MSMEs BASED ON ADVANCES, AS A PERCENTAGE OF TOTAL ORDER VALUE, RECEIVED BEFORE SUPPLYING THE GOODS / PROVIDING THE SERVICES Response Below 25% 26% to 50% 51% and above Total Source : Primary Data Receipt of advances before supplying the goods / providing the services is a dependable source of working capital. Equally important is the exact quantum of such advances which MSMEs are able to receive. Such quantum of advances, i.e., percentage of total order value, which is received as advances, is an indication of the quality of the product / service. From the above frequency table it is discerned that 45% of the MSMEs receive 25% and below of total order value as advances, before supplying the goods / providing the services. Also good percentage at 42 % of MSMEs are able to receive 51% and above of, total order value, as advances before supplying the goods / providing the services. It can be inferred that these MSMEs had established a reputation in their line of business among their customers. Frequency 83 24 78 185 Percentage 45 13 42 100

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4.1.18 MSMEs based on Advances received at the time of supplying the goods / providing the services Table 4.18 depicts the frequency distribution of MSME entrepreneurs based on classification of advances received at the time of supplying the goods / providing the services. TABLE 4.18 CLASSIFICATION OF MSMEs BASED ON ADVANCES RECEIVED AT THE TIME OF SUPPLYING THE GOODS/PROVIDING THE SERVICES Response Yes No Total Frequency 172 353 525 Percentage 32.8 67.2 100

Source : Primary Data

FIGURE 4.4 CLASSIFICATION OF MSMEs BASED ON ADVANCES RECEIVED AT THE TIME OF SUPPLYING THE GOODS /PROVIDING THE SERVICES

11%

8%
No Advances Received Advance Received -Below 25% of Total Order Value Advance Received 26% to 50% of Total Order Value Advance Received 51% and above of Total Order Value

14% 67%

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MSMEs, after earning a reputation in the market continue to collect advances at the time of supplying the goods / providing the services. This advance is normally in addition to the earlier advance received before supplying the goods / providing the services. MSMEs at 32.8%, who are able to receive such advances, will be able to meet their expenses to be incurred during production of goods or providing services. From the above table it is also discerned that 67.2% of MSME entrepreneurs do not receive any advance at the time of supplying the goods / providing the services. 4.1.19 MSMEs based on Advances, as a percentage of Total Order Value, received at the time of supplying the goods / providing the services Table 4.19 depicts the frequency distribution of MSMEs based on advances received at the time of supplying the goods/providing services as a percentage of total order value. TABLE 4.19 CLASSIFICATION OF MSMEs BASED ON ADVANCES, AS A PERCENTAGE OF TOTAL ORDER VALUE, RECEIVED AT THE TIME OF SUPPLYING THE GOODS/ PROVIDING THE SERVICES Response Below 25% 26% to 50% 51% and above Total Source : Primary Data Frequency 76 57 39 172 Percentage 44.2 33.1 22.7 100.0

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MSMEs ability to receive advance at the time of supplying the goods/ providing the services helped them to manage their working capital cycle efficiently. The quantum of such advance, i.e., advances as a percentage of total order value reflects the MSME entrepreneurs reputation in the market. From the above table it is discerned that 44.2% of MSMEs are able to receive advance amounting to 25% of order value or below only. 4.1.20 MSMEs based on Credit period allowed to their customers The frequency distribution of MSMEs based on the credit period allowed to most of the customers is furnished in the Table. TABLE 4.20 CLASSIFICATION OF MSMEs BASED ON CREDIT PERIOD ALLOWED TO THEIR CUSTOMERS Response Yes No Total Frequency 453 72 525 Percentage 86.3 13.7 100

Source : Primary Data MSMEs like any other business enterprise allow credit period to most of the customers, with an intention to sell more quantity of their products / services to potential customers in this competitive world and to retain its market share. From the above table it is discerned that a huge majority of 86.3% of MSMEs allow credit period to their customers.

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4.1.21 MSMEs based on duration of Credit period allowed to their customers The frequency of MSMEs who allow credit period to their customers, is tabulated below, on the basis of duration of credit period allowed TABLE 4.21 CLASSIFICATION OF MSMEs, BASED ON DURATION OF CREDIT PERIOD ALLOWED TO THEIR CUSTOMERS Variables Below 60 days 61 to 90 days 91 to 120 days 121 and above days Total Source : Primary Data Frequency 251 136 60 6 453 Percentage 55.5 29.9 13.3 1.3 100.0

MSMEs though need to extend credit period to their customers for valid reasons, are cautious in restricting the number of days as minimum as possible. This is because longer the credit period allowed to the customers, more their working capital funds are locked. During the discussions with Bank Managers, it is discerned that longer the credit period allowed to the customers, more chances are there for delay / default in payment by them. From the above table it is found that 55.5% of MSMEs provided credit period below 60 days only, to their customers.

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4.1.22 MSMEs based on Receivables collected from their customers, within the credit period allowed.

The following table depicts the details of customers who are paying the receivables, to MSMEs, within the credit period allowed.

TABLE 4.22 CLASSIFICATION OF MSMEs BASED ON THEIR ABILITY TO COLLECT THE RECEIVABLES FROM THEIR CUSTOMERS, WITHIN THE CREDIT PERIOD ALLOWED Responses Yes No Total Frequency 299 226 525 Percentage 57.0 43.0 100

Source : Primary Data While allowing credit period to their customers selectively, MSMEs apply credit rating of their customers. This will ensure in prompt payment of receivables, by their customers, within the credit period allowed. From the above table it is discerned that 57% of MSMEs confirmed that customers pay the payments promptly within the credit period allowed by MSMEs. 4.1.23 MSMEs based on additional credit period allowed to customers The following frequency table furnishes the classification of MSMEs based on additional credit period allowed by MSMEs.

95

TABLE 4.23 CLASSIFICATION OF MSMEs BASED ON ADDITIONAL CREDIT PERIOD ALLOWED TO THEIR CUSTOMERS Variables Additional 30 days Additional 60 days Additional 90 days Additional 120 days and above Total Source : Primary Data Frequency Percentage 71 61 74 20 226 31.4 27.0 32.8 8.8 100.0

MSMEs provide credit period to their customers with an expectation that customers would pay the receivables within the credit period. However in certain cases, customers are not paying the dues within the credit period allowed. This forces the MSMEs to provide additional credit period. From the above table it is discerned that 32.8% of the customers are forced to allow

additional 90 days credit period to their customers, over and above the regular credit period allowed.

4.1.24 MSMEs based on their Doubtful Debts, as a percentage of Sales Revenue / Total Income for the fiscal year ended 2008- 2009 The following table furnishes the classification of MSMEs based on percentage of sales treated as doubtful debts.

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TABLE 4.24 CLASSIFICATION OF MSMEs BASED ON THEIR DOUBTFUL DEBTS, AS A PERCENTAGE OF SALES REVENUE / TOTAL INCOME FOR THE FISCAL YEAR 2008-2009 Responses Below 5% of yearly sales 6 to 10% of yearly sales Above 11% of yearly sales Total Source : Primary Data Frequency Percentage 335 123 67 525 63.8 23.4 12.8 100

In order to face the challenges in managing the business, MSMEs take risk during the normal course of conducting the business. One of such risk taken by MSMEs is to provide credit facilities and additional credit period also, to their customers. Yet sometimes few customers failed to pay the receivables, despite additional credit period allowed to them. In such circumstances, MSMEs are forced to treat such uncollected receivables as doubtful of recovery. From the above table it is inferred that 63.8% of MSMEs treat 5% and below of their yearly sales, as doubtful doubts. 4.2 ANALYSIS OF SECONDARY DATA: PERFORMANCE OF MSMEs IN INDIA AND TAMILNADU. 4.2.1 Number of MSMEs in India The MSME sector has emerged as a dynamic and vibrant sector of the Indian economy in the recent years. The Third Census of MSME has found the number of registered and unregistered small enterprises as high as 105 lakh in 2006-07.

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TABLE 4.25 NUMBER OF MSMEs IN INDIA (IN LAKHS)

Year 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Source:

Registered Unregistered 11.61 11.57 11.99 12.04 12.00 12.32 13.10 13.75 14.68 15.54 67.99 71.27 74.22 77.67 81.36 84.83 88.00 91.46 95.42 99.68

Total 79.60 82.84 86.21 89.71 93.36 97.15 101.10 105.21 110.10 115.22

Various publications of DCSME including Small Scale Industries in India An Engine of Growth. FIG. 4.5FIG. NUMBER MSMEs INDIA 4.5 NUMBEROF OF MSME UNITS IN IN INDIA (Nos. (Nos. in Lakhs)in Lakhs)

120

100
M S M E U nits ( N u m b ers in L akh s)

80

60

40

20

0
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Registered Unregistered

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The small-scale industry (MSME) sector continues to remain an important sector of the economy with noteworthy contribution to GDP, industrial production, employment generation and exports. The performance of the small scale sector based on the final results of the Third All India Census of MSMEs in 2009 is given in Table. As per the Census of Registered and Unregistered units for the year 2008-09, there were 115.22 lakhs MSMEs in the country, out of which 15.54 lakhs were registered units and 99.68 lakhs were unregistered units. It is estimated that during 2008-09, the number of MSMEs has increased to 115.22 lakh from 110.10 lakh in the previous year registering a growth of 4.7 percent. The linear regression by the method of least square is applied on the years and number of MSMEs and is furnished in Table 4.26
TABLE 4.26 REGRESSION OF MSMEs IN INDIA AND YEARS

Independent Dependent R-square F-value Year SME units

Sig

0.994 1367.918 0.000

Source : Output of analysis

From the above table it is found that there is an increasing trend in the number of MSMEs in the span of 10 years from 1999 to 2009. The trend line equation Y=74.471 + 3.914 X It is observed that the co-efficient of X is significant at 1% level of significance. So it is concluded that in all India level the number of MSMEs are increasing rapidly which has good impact on Indian economy. 4.2.2 Employment Potential of MSMEs in India Employment generation has always been one of the main objectives of the policies aimed at economic development and growth of the nation. A rise

99

in economic growth has always led to increased employment opportunities and similarly enhanced employment generation has always contributed

significantly towards economic growth. However, identifying and creating employment opportunities has always been a challenging task in our country, the reasons for which are plenty and well known. More disturbing in this context is the realization that there has not been commensurate growth in employment vis-a-vis economic growth as demonstrated by the GDP indicators over the past decade. The general impression that the acceleration in growth experienced during mid 1990s would create sufficient employment capable of absorbing increased labour force and reduce the backlog of employment has not proved fully correct. Improvement in quality of job is dependent on skill and entrepreneurial development. There is also a large sub-sector within the MSME sector known as Tiny Industries which consist of micro units which are comparable to rural and cottage / household industries. The Small Scale Sector currently provides employment for over 20.0 million persons, dispersed in every corner of the country and has been contributing significantly to its socio-economic development. With the initiation of wide-ranging economic and structural reforms in the early 90s, employment in public sector undertakings has experienced a decline and the expected growth in the private sector employment has not been encouraging either. The reasons for this can be traced to rapid automation, adoption of new technology to operate in the competitive markets and this has resulted in laying off excess labour force. There has been very slow growth in employment in the organized private sector during the past decade which has been experiencing jobless growth. Also, the growth rate of employment in the agriculture sector has been experiencing a negative trend. This has led to shift in the focus of employment generation to the largely unorganized sector including Small Scale Sector and growing service sector. In fact a large segment of the service sector exists as

100

small enterprises covering vast spectrum of industry related services including information technology, bio-technology, food processing etc. According to the Report of Task Force of Employment Opportunities (2006), popularly known as Ahluwalia Committee, the service sector will be the major source for employment generation in future providing about 70% of the new job opportunities in this economy. In India the employment potential in the span of 10 years is depicted in the Table 4.27 TABLE 4.27 EMPLOYMENT POTENTIAL OF MSMEs IN INDIA

Year 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Employment in lakhs 191.40 (4.8) 197.93 (3.4) 205.86 (4.0) 213.16 (3.5) 220.55 (3.5) 229.10 (3.9) 239.09 (4.4) 249.09 (4.2) 261.38 (4.9) 273.97 (4.8)

Source:

Report of National Statistics Department 2009 Entries in the bracket represent the percentage of increase

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FIG. 4.6 EMPLOYMENT POTENTIAL OF MSMEs IN INDIA

300 273.97 261.38 249.09 250
E m p lo y m e n t o f M S M E s (N o s . in L a k h s )

239.09 205.86 213.16 220.55 229.1

200

191.4

197.93

150

100

50

0 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Employment in lakhs
Year

The average rate of growth of production MSME sector is estimated at 7.7% and the average growth in employment was about 3.7% per annum during the Ninth Plan respectively. The estimates of additional employment generated in the MSME sector during Ninth Plan were that of about 32 lakhs persons. This is much higher than the target of additional employment fixed for the Ninth Five Year Plan. The employment opportunities through small scale industries increased significantly. It is observed that the increase ranges from 3.4% to 4.9%. Employment is estimated to have increased to 273.97 lakhs persons in 2008-09 from 261.38 lakhs persons in the year 2007-2008. The regression analysis is applied on the independent variable year and the dependent variable employment potential. The results are explained in the Table 4.28.

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TABLE 4.28 REGRESSION OF EMPLOYMENT POTENTIAL OF MSMEs

IN INDIA AND YEARS

Independent Year

Dependent

R-square F-value Sig. 669.278 0.000

Employment potential 0.988

Source : Output of analysis

The equation of regression is given by Y = 178.494 + 9.029 X Hence it is discerned that the employment potential of MSMEs shows a continuously increasing trend in the span of 10 years from 1999-2009. It has raised more opportunities for wide range of entrepreneurial development. The Special Group of Targeting Ten Million Opportunities per year has highlighted in the Report some of the major problems and constraints experienced by the MSME sector in India. The constraints exist in the form of: Lower productivity Increased competition due to globalization, removal of Quantitative Restrictions and cheaper imports from China. Increased capital intensity in the MSME sector. As per the Special Group Report, the major problems faced by the SME sector relate to Credit Infrastructure Technology Skill Development and Marketing

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The advantage possessed by the MSME sector exists in the form of higher labour elasticity and better efficiency in the use of capital. In spite of industrial slow down during 2006-08, the MSME had grown 3 to 4 per cent higher than overall industrial sector. The sector contributes 35% to national export, which proves its ability to compete globally. The indicators of autonomous growth in recent times have been stifled due to the impact of WTO agreements affecting India, like removal of Quantitative Restrictions (QRs), dumping of certain goods/items, power related problems and credit related drawbacks, etc. The employment generated through induced measures can serve as a supplement to the efforts not fulfilled by the autonomous measures. Direct employment should not be viewed in isolation. It has forward and backward linkages and generates large-scale employment in the service sector. In addition, the role of emerging information technology sectors, biotechnology sectors etc. are encouraging. In many ways they are catalysts to employment generation. India possesses distinct advantages in this sector. 4.2.3 Production of MSMEs in India The contribution of production by MSME sector is appreciable after the globalization of Indian economy. It has opened fascinating avenues for entrepreneurs for wide scope of innovation in technology and development. Production performance (value in crores of rupees) is furnished in the Table 4.29.

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TABLE 4.29 PRODUCTION OF MSMEs IN INDIA (VALUE IN CRORES OF RUPEES) Year Production at current prices 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 1,22,210 (23.7) 1,48,290 (21.3) 1,68,413 (13.6) 1,89,178 (12.3) 2,12,901 (12.5) 2,34,255 (10.0) 2,61,289 (11.5) 2,82,270 (8.0) 3,11,993 (10.5) 3,48,059 (11.6) Production at constant prices 1,09,116 (10.4) 1,21,649 (11.5) 1,35,380 (11.3) 1,47,824 (9.2) 1,59,407 (7.8) 1,70,709 (7.1) 1,84,428 (8.0) 1,95,613 (6.1) 2,10,636 (7.7) 2,26,392 (7.5)

Source: Various publications of DCSME including Small Scale Industries in India - An Engine of Growth. Entries in the bracket represent the percentage of increase.

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FIG. 4.7 PRODUCTION OF MSMEs IN INDIA

FIG. 4.7 PRODUCTION PERFORMANCE OF MSME UNITS IN INDIA.
400000 348059 311993 300000 261289 (R s. in C ro res) 250000 212901 200000 168413 148290 150000 122210 189178 234255 282270

350000

100000

50000

0 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Year
Production at current prices

The value of production at current prices by the MSMEs increased by 11.6%. In particular it increased to Rs.348059 crores during 2008 -2009 from Rs.311993 crores during 2007-08 and accounted for about 40 per cent of the gross value of the output in the manufacturing sector. The sector is estimated to have grown at the rate of 7.5% at constant prices over the previous year. The regression analysis is applied on the variables year and production at constant rate and is furnished in the Table 4.30.

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TABLE 4.30 REGRESSION OF PRODUCTION OF MSMEs IN INDIA AND YEARS

Independent Dependent R-square F-value Year Production 0.998

Sig

5306.992 0.000

Source : Output of analysis

The trend line equation is given by Y = 96039+12731.34 X The trend analysis revealed that the growth rate is 51.80 and the trend of production is rapidly increasing in SME units. In the span of 10 years the SME units increased their production capacity and contributed significantly to Indian economy. 4.2.4 MSMEs in Tamil Nadu An Overview The small-scale industries, made an early start in Tamil Nadu with the Government stepping in to create major industrial estates at Guindy and Ambattur in Chennai. In 1973, Tamil Nadu had the largest number of MSMEs in the country with 18,500 registered units and it has maintained this leadership, by and large. When the Second All India Census of MSMEs was carried out in 1987-88, it was still the leader in terms of units and employment, though not in the growth rate. According to SIDBI (2005), in its Report on small-scale industries sector during 1998-99 to 2008-09, the Tamil Nadu MSME sector continued to grow fast.

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A good part of the MSMEs gets registered under Factories Act and hence gets covered under Annual Survey of Industries (ASI). Within the unregistered part, a small proportion gets registered with DCSME and these get covered under NSSOs periodic surveys. The units in this MSME sector are also registered with the State Level Directorates of Industries and data for this category gets collected from time to time on a census or sample basis. The Table 4.31 depicts the registered MSMEs in Tamilnadu. TABLE 4.31 REGISTERED MSMEs IN TAMILNADU Year Registered MSMEs 1999-00 214568 2000-01 247890 2001-02 269874 2002-03 295004 2003-04 324627 2004-05 354939 2005-06 387597 2006-07 419524 2007-08 448905 2008-09 474699 Source: RBI hand book 2009 FIG. MSMEs INUNITS TAMILNADU FIG.4.8 4.4 REGISTERED REGISTERED MSME IN TAMIL

NADU
MSME Units in Numbers

500000 400000 300000 200000 100000 0

TREND NO.UNTS

19 99 20 -00 00 20 -01 01 20 -02 02 20 -03 03 20 -04 04 20 -05 05 20 -06 06 20 -07 07 20 -08 08 -0 9

Year

108

Between 1999-2000 and 2008-09, the State has recorded an annual growth rate of 10.69% in number of registered units. The State accounts for 12.6% of registered SME units in the country. The total number of registered SME units in the State has increased from 4.49 lakhs in 2007-08 to 4.75 lakhs in 2008-09 thus recording a growth of 5.7%. The Table 4.32 depicts the employment of MSMEs in Tamilnadu. TABLE 4.32 EMPLOYMENT POTENTIAL OF MSMEs IN TAMILNADU Year Employment (No) 1999-00 1745896 2000-01 1875946 2001-02 2014789 2002-03 2250900 2003-04 2451000 2004-05 2667200 2005-06 2902122 2006-07 3142335 2007-08 3142335 2008-09 3417832 Source: Publication of Tamilnadu Statistical Department 2009.
FIG. NO. 4.5 EMPLOYMENT OF MSME IN FIG. 4.9 EMPLOYMENT POTENTIAL OF UNITS MSMEs IN TAMIL NADU
Employment in Number 4000000 3500000 3000000 2500000 2000000 1500000 1000000 500000 0
19 99 20 00 00 20 01 01 20 -02 02 20 03 03 20 -04 04 20 05 05 20 06 06 20 -07 07 20 08 08 -0 9

TREND EMPLOYMENT

Year

109

The employment provided by this sector has increased from 31.42 lakhs in 2007-08 to 34.18 in 2008-09 with a growth of 8.78 %. The continuous increase in the employment potential at 9.38% of SME is also noticed in the span of 10years from 1999 to 2009. The Table 4.33 depicts the production of MSMEs in Tamilnadu. TABLE 4.33 PRODUCTION OF MSMEs IN TAMILNADU Year 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Production (in crores) 22368.00 30541.01 39688.57 48675.00 58432.00 70987.00 78261.66 83904.80 89781.00 94939.80

Source: DCSME report FIG. 4.10 PRODUCTION OF MSMEs TAMIL NADU FIG. NO. 4.6 PRODUCTION OF MSME UNITS IN
TAMIL NADU
Production (Rs. in Crores) 120000 100000 80000 60000 40000 20000 0
19 99 -0 20 0 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 20 5 05 -0 20 6 06 -0 20 7 07 -0 20 8 08 -0 9

TREND PRODN

Year

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The production of MSMEs in Tamilnadu is increased from Rs.89781 crores during 2007-08 to Rs.94939 crores during 2008-09. In the year 2003-04 a maximum increase of 16.69% in production was noticed. In general it is found that there is an increasing trend in the production of SME sector in Tamil nadu. 4. 3 INFERENTIAL ANALYSES The following inferential analyses are made, from the output generated from SPSS. 4.3.1 Association of Receivables Management variables and Sales Revenue / Total Income achieved by MSMEs. 4.3.2 Association of Receivables Management variables and Net Profit. 4.3.3 Influence of Problems of MSMEs on Receivables Management variables 4.3.4 Association of Personal characteristics of entrepreneurs and Business characteristics of MSMEs and the Receivables Management variables 4.3.5 Association of Investments in the Plant & Machinery (Manufacturing enterprises) / Equipments (Services enterprises) of MSMEs and Receivables Management variables 4.3.6 Opinion of MSME entrepreneurs on the different types of problems normally faced by MSMEs 4.3.7 Factors on the Problems normally faced by MSME entrepreneurs using Factor Analysis 4.3.8 Classification of MSME entrepreneurs based on the problems normally faced by them using Cluster Analysis. 4.3.1 Association of Receivables Management variables and Sales Revenue / Total Income achieved by MSMEs. The sales revenue / total income of MSMEs as on 31 3 09 are classified into three major categories viz domestic sales, export sales and job work

111

receipts. The major classification of Sales Revenue / Total Income in each of these categories range as follows: 1) Below Rs 15 lakhs 2) Rs 15 lakhs to Rs 45 lakhs 3) Above Rs 45 lakhs In this context, it is indispensable to obtain the association of receivables management variables and sales revenue / total income. In this situation both these categorical variables are conducive to hypothesize association among them. The sales revenue / total income leans upon number of customers having business relationship with MSMEs. Further, receivables management variables in the form of advance received before supply of goods, advance received at the time of supplying the goods / providing the services, credit allowed, and receivables collected within due date and doubtful recovery are taken with vigour to establish the association. Non-parametric chi-square analysis revealed the following associations:

4.3.1.1 Association of Receivables Management Variables and Domestic Sales Table 4.34 depicts the association of receivables management variables and domestic sales.

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TABLE 4.34 ASSOCIATION OF RECEIVABLES MANAGEMENT VARIABLES AND DOMESTIC SALES Sl Association Number 1 Domestic sales with business with top one customer 2 Domestic sales with business with top three customers. 3 Domestic sales with advances received before supplying the goods / providing the services 4 Domestic sales with advances received at the time of supplying the goods / providing the services 5 Domestic sales with credit period allowed to the customers 6 Domestic sales with receivables collected within due date 7 Domestic sales with doubtful debts.
Source : Output of analysis

Chi-square value 92.334 73.121 9.777

Significance value 0.000 0.000 0.082

23.392

0.000

61.398 20.033 37.590

0.000 0.001 0.000

From the above table it is found that chi- square values are statistically significant at 5% level. This shows that the domestic sales revenue is influenced by business through one customer, business with three customers. This also shows that the meticulous ease for holding the business with one customer or three customers affects their domestic sales revenue. Similarly advance received at the time of supply is also associated with domestic sales revenue of MSMEs. It is also found that MSMEs venturing into domestic domain also tests its potentiality to involve in a well defined credit operations (credit allowed and receivables collected within due date). Doubtful debts also are found to have significant relationship with domestic MSMEs and their capability to withstand against the presence of doubtful debts. It is therefore concluded that these all these receivables management variables are essential to ascertain the domestic sales.

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However advances received before the supply of goods is not found to be significantly related to domestic sales. 4.3.1.2 Association of Receivables Management Variables and Export Sales Table 4.35 depicts the association of receivables management variables and export sales. TABLE 4.35 ASSOCIATION OF RECEIVABLES MANAGEMENT VARIABLES AND EXPORT SALES Sl. No. 1 2 3 Association Export sales with business with top one customer Export sales with business with top three customers. Export sales with advances received before supplying the goods / providing the services Export sales with advances received at the time of supplying the goods / providing the services Export sales with credit period allowed to the customers Export sales with receivables collected within due date Export sales with doubtful debts. Chi-square value 58.084 53.163 20.204 Significance value 0.000 0.000 0.001

48.613

0.000

5 6 7

39.187 38.436 32.503

0.000 0.000 0.000

Source : Output of analysis

From the above table it is found that chi- square values are statistically significant at 5% level. This shows that the export sales revenue is influenced by business through one customer, business with three customers. This also shows that the meticulous ease for holding the business with one customer or three customers affects their export sales revenue. Similarly advance received before supply of goods, advance received at the time of supply are also

114

associated with export sales revenue of MSMEs. It is also found that MSMEs venturing into export domain also tests its potentiality to involve in a well defined credit operations (credit allowed and receivables collected within due date). Doubtful debts also are found to have significant relationship with export oriented MSMEs and their capability to withstand against the presence of doubtful debts. It is therefore concluded that all these receivables management variables are essential to ascertain the export sales. 4.3.1.3Association of Receivables Management Variables and Job Work Receipts Table 4.36 depicts the association of receivables management variables and job work receipts. TABLE 4.36 ASSOCIATION OF RECEIVABLES MANAGEMENT VARIABLES AND JOB WORK RECEIPTS Sl. No 1 2 3 4 5 6 7 Association Job work receipts with business with top one customer Job work receipts with business with top three customers. Job work receipts with advances received before supplying the goods / providing the services Job work receipts with advances received at the time of supplying the goods / providing the services Job work receipts with credit period allowed to the customers Job work receipts with receivables collected within due date from the customers Job work receipts with doubtful debts. Chi-square value 68.986 82.972 18.983 45.574 53.957 34.357 20.499 Significance value 0.000 0.000 0.002 0.000 0.000 0.000 0.025

Source : Output of analysis

115

The same way of approach for job work receipts indicated that MSMEs progress is hindered by all the receivables management variables. This shows that job work receipts of MSMEs are conducive to the conditions of business with top one customers, business with top three customers, advanced received before supplying the goods / providing the services, advanced received at the time of supplying the goods / providing the services, credit operations (credit allowed and receivables collected within the due dates) and doubtful debts. The above table gives the nature of association between Job work receipts as well as receivables management variables. From the table, it is concluded that job work receipts of an MSME is delicate and depends upon all these receivables management variables. 4.3.2 Association of Receivables Management variables and Net Profit The profitability is not a unique phenomenon but it is a conglomeration of total revenue, expenses and problems as well as the prospects of MSMEs. When profitability is studied in terms of receivables management, it is essential to establish nature of association among different categories of profitability and factors of influencing receivables management. The non-parametric chi-square analysis clearly revealed that the association exists and they are furnished in Table 4.37. TABLE 4.37 ASSOCIATION OF RECEIVABLES MANAGEMENT VARIABLES AND NET PROFIT Sl Association Chi-square Significance No. value value Net profit with business with top one customer 2 Net profit with business with top three customers. 3 Net profit with advances received before supplying the goods / providing the services 4 Net profit with advances received at the time of supplying the goods / providing the services 5 Net profit with credit period allowed to the customers 6 Net profit with receivables collected within due date from the customers 7 Net profit with doubtful debts. Source : Output of analysis 1 32.259 58.749 18.514 44.079 16.376 14.510 45.297 0.006 0.000 0.002 0.000 0.089 0.013 0.000

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From the above table, it is found that net profit of MSMEs is significantly affected by number of customers, advance received before supply, advance received at the time of supply. This shows that these variables of receivables management affect the net profit within the short span of time. The analysis further revealed that credit collected and doubtful debts are also influences the net profit. However the credit allowed to the customer is not found to be significantly related. 4.3.3 Influence of Problems of MSMEs on Receivables Management variables The receivables management variables comprise seven variables with two different categories of options. Among these seven variables, number of customers and doubtful debts possess multiple options whereas advance received before supply, advance received at the time of supply, credit allowed and receivables collected within due date are framed in a dichotomous type. In these two categories, two different approaches are found to explain the receivables management of MSMEs. In this situation, the influence of problems of MSMEs on receivables management becomes an important estimation to decide the relationship between prospects of MSMEs and their receivables management. So the researcher needs to establish the influence in two different manners namely, General Linear Multivariate Model for multiple options of receivables management variables and Logistic Regression approach for dichotomous type receivables management variables. 4.3.3.1 Influence of Problems on Receivable Management variables namely one customer, three customer and doubtful debts using General Linear Multivariate Model: The study encounters with five categories of problems under functional domains of marketing, finance, human resources, operations and general issues. The opinion of MSMEs on these five categories of problems is obtained

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through Likerts five point scale which range from strongly agree to strongly disagree. OC, TC and DD though categorical, have conceptual dependency This perceptional difference of problems (independent variables) and their influence over top one customer (OC), top three customers (TC) and doubtful debts (DD) (dependent variable) are sharply estimated through General Linear Multivariate Model and are furnished in Table 4.38. QCL-1implies the total scores of all receivable management variables namely OC,TC and DD. In these questions, each option is assigned with the value 1 to 4, 1to 4 and 1to 3 respectively. The total average scores of these three variables together form a continuous variable and create suitable appropriateness to use General Linear Multivariate Model. TABLE 4.38 OUTPUT OF MULTIVARIATE TESTS TO DETERMINE THE INFLUENCE OF PROBLEMS ON RECEIVABLE MANAGEMENT VARIABLES
Hypothesis Value F df Error df .567 227.401(a) 3.000 521.000 .433 227.401(a) 1.309 227.401(a) 1.309 227.401(a) .053 .947 .056 .056 9.639(a) 9.639(a) 9.639(a) 9.639(a) 3.000 3.000 3.000 3.000 3.000 3.000 3.000 521.000 521.000 521.000 521.000 521.000 521.000 521.000

Effect Intercept

Pillai's Trace Wilks' Lambda Hotelling's Trace Roy's Largest Root

Sig. .000 .000 .000 .000 .000 .000 .000 .000

Receivables Pillai's Trace Management Wilks' (OC, TC, Lambda DD) Hotelling's Trace Roy's Largest Root Source : Output of analysis

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a Exact statistic b Design: Intercept+QCL_1

From the above table, it is found that the statistics Pillai Trace, Wilks Lambda and Hotellings Trace and Roys Largest Route and their F values 9.639 are statistically significant to express the influence of different types of problems on receivables management variables namely business with one customer, business with three customers and doubtful debts. Detailed output is furnished in Table 4.39 TABLE 4.39 TESTS OF BETWEEN-SUBJECTS EFFECTS
Table 4.39 (contnued)

Source

Dependent Variable Business of MSME with top one customer Business of MSME with top three customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Doubtful debts of MSMEs as a percentage of annual sales

Type III Sum of Squares 13.979(a)

df 1 1 1 1 1

Mean Square 13.979 4.127 6.075 399.41 8 223.76 2

F 12.849 4.213 11.901 367.11 5 228.46 1

Sig. .000 .041 .001 .000 .000

Corrected Model

4.127(b) 6.075(c) 399.418 223.762

Intercept

119.359

119.35 233.83 9 1 13.979 4.127 12.849 4.213

.000

13.979 4.127

1 1

.000 .041

QCL_1

6.075

6.075

11.901

.001

119 Table 4.39 contd...

Table 4.39 (contnued)

Source

Dependent Variable Business of MSME with top one customer Business of MSME with top three customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer

Type III Sum of Squares 569.019

df 523

Mean Square 1.088

Sig.

Error

512.243 266.965

523 523

.979 .510

2390.000 525

Total

Business of MSME with 2387.000 525 top three customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Doubtful debts of MSMEs as a percentage of annual sales

1423.000 525

582.998 524 516.370 524 273.040 524

Corrected Total

a R Squared = .024 (Adjusted R Squared = .022)

b R Squared = .008 (Adjusted R Squared = .006) c R Squared = .022 (Adjusted R Squared = .020) Source : Output of analysis.

The individual influence is also sharply estimated through differences in variances. It is ascertained that different types of problems significantly create influence over business with one customer (F=13.979), business with three customers (F=4.127) and doubtful debts (F=6.075) significantly at 5% level. Therefore it can be concluded that the problems of MSMEs are highly influencing the receivables management on the basis of number of customers and doubtful debts.

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4.3.3.2 Influence of Problems on Receivable Management variables namely, Advance receivables and Credit operations: Influence of problems on receivable management on the basis of advance received by MSMEs before supply, advance received at the time of supply credit allowed and receivables collected, are individually estimated through logistic regression. Logistic Regression is an ingenious statistical tool to find the influence of categorical variables to dichotomous type dependent variables. Since MSMEs answered their advance receivables in a dichotomous yes or no opinion, the different perceptions of problems and their influence is estimated through Logistic Regression. 4.3.3.2.1 Advances received before supplying the goods / providing the services Table 4.40 and 4.41 furnish the output in respect of influence of Problems on Receivable Management variables namely, Advance received before supplying the goods / providing the services. TABLE 4.40 MODEL SUMMARY -2 Log Step 1 likelihood 686.982(a) Cox & Snell R Square .000 Nagelkerke R Square .001

Source: Output of analysis

a Estimation terminated at iteration number 3 because parameter estimates changed by less than .001.

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TABLE 4.41 VARIABLES IN THE EQUATION B Step 1(a) QCL_1 -.052 S.E. .105 .235 Wald .249 8.269 df 1 1 Sig. .618 .004 Exp(B) .949 1.964

.675 Constant Source : Output of analysis

a Variable(s) entered on step 1: QCL_1. From the above tables it is found that likelihood ratio 686.982 and R2 value of Cox and Snell are invariant. Besides these the Wald Coefficient 0.249 is statistically insignificant in explaining the opinion of MSMEs on advance receivables. This shows that problems of MSMEs are not influencing on the advance received before supplying the goods / providing the services. It is further concluded that advance received before supplying the goods / providing the services is an independent prerogative of MSMEs. 4.3.3.2.2 Advances received at the time of supplying the goods / providing the services Table 4.42 and 4.43 furnish the output in respect of influence of Problems on Receivable Management variables namely, Advance received at the time of supplying the goods / providing the services. TABLE 4.42 MODEL SUMMARY -2 Log Step 1 likelihood 664.088(a) Cox & Snell R Square .000 Nagelkerke R Square .000

Source: Output of analysis a Estimation terminated at iteration number 3 because parameter estimates changed by less than .001.

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TABLE 4.43 VARIABLES IN THE EQUATION B Step QCL_1 1(a) .013 .692 S.E. .107 .239 Wald .015 8.407 df 1 1 Sig. .902 .004 Exp(B) 1.013 1.997

Constant Source : Output of analysis a Variable(s) entered on step 1: QCL_1. From the above tables it is found that likelihood ratio 664.088 and R2 value of Cox and Snell are invariant. Besides these the Wald Coefficient 0.015 are statistically insignificant in explaining the opinion of MSMEs on advance received at the time of supply of goods. This shows that problems of MSMEs are not influencing on the advance received at the time of supplying the goods / providing the services. It is further concluded that advance received at the time of supplying the goods / providing the services is an independent prerogative of MSMEs. 4.3.3.2.3 Credit allowed to the customers by MSMEs Table 4.44 and 4.45 furnish the output in respect of influence of Problems on Receivable Management variables namely credit allowed to the customers by MSMEs TABLE 4.44 MODEL SUMMARY -2 Log Step 1 likelihood 451.426(a) Cox & Snell R Square .000 Nagelkerke R Square .000

Source : Output of analysis

a Estimation terminated at iteration number 4 because parameter estimates changed by less than .001.

123

TABLE 4.45 VARIABLES IN THE EQUATION B Step QCL_1 1(a) -.054 S.E. .139 .307 Wald .149 26.952 Df 1 1 Sig. .699 .000 Exp(B) .948 .204

-1.592 Constant Source : Output of analysis

a Variable(s) entered on step 1: QCL_1. From the above tables it is found that likelihood ratio 451.426 and R2 value of Cox and Snell are invariant. Besides these the Wald Coefficent 0.149 are statistically insignificant in explaining the opinion of MSMEs on credit allowed. This shows that problems of MSMEs are not influencing on the credit allowed. It is further concluded that credit allowed by an MSME is an independent prerogative of MSMEs. 4.3.3.2.4 Receivables collected within due date by an MSME Table 4.46 and 4.47 furnish the output in respect of influence of Problems on Receivable Management variables namely receivables collected within due date by an MSME. TABLE 4.46 MODEL SUMMARY -2 Log Step 1 likelihood 689.508(a) Cox & Snell R Square .000 Nagelkerke R Square .001

Source : Output of analysis Estimation terminated at iteration number 3 because parameter estimates changed by less than .001.

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TABLE 4.47 VARIABLES IN THE EQUATION B Step QCL_1 1(a) .492 -1.379 S.E. .106 .242 Wald 21.680 32.402 df 1 1 Sig. .632 .000 Exp(B) 1.635 .252

Constant Source : Output of analysis a Variable(s) entered on step 1: QCL From the above tables it is found that likelihood ratio 689.508 and R2 value of Cox and Snell are invariant. Besides these the Wald Co-efficient 21.680 are statistically insignificant in explaining the opinion of MSMEs on their ability to collect receivables within the due date. This shows that problems of MSMEs are not influencing on the collection of receivables within the due date. It is further concluded that receivables collected within the due date by an MSME is an independent capability of MSMEs 4.3.4 Association of Personal characteristics of entrepreneurs and Business characteristics of MSMEs and the Receivables

Management variables The personal and entrepreneurial characteristics of MSMEs and their influence over receivables management variables is an important innovation to microscopically analyze the essence of problems and scope for prospects of MSMEs. In this context it is important to estimate the influence of independent variables on dependent variables. The influence is measured through Multiple General Linear Model. In that gender, age, education, entrepreneurial influencing element, status at the time of starting up of the enterprise, year of establishment, business entity, and type of business and line of activity are considered as independent in nature and receivables management variables as dependent variables. The results are furnished in Table 4.48.

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All the seven receivables management variables are categorical; however conceptually they have the dependency in nature. Therefore suitable dummy variables, along with the total average scores of all these seven variables, systematically transform them into continuous variables and create conducive environment for the usage of Multiple General Regression Model TABLE.4.48 OUTPUT OF MULTIPLE GENERAL REGRESSION MODEL TO DETERMINE THE INFLUENCE OF PERSONAL CHARACTERISTICS OF ENTREPRENEURS AND BUSINESS CHARACTERISTICS OF MSMEs ON THE RECEIVABLES MANAGEMENT VARIABLES. Tests of Between-Subjects Effects
Table 4.48 (continued) Type III Sum of df Dependent Variable Squares Mean Square

Source

Sig.

Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services

80.897(a) 46.546(b)

9 9

8.989 5.172

9.220 5.669

.000 .000

17.858(c)

1.984

9.885

.000

Corrected Model

Advances received at the time of supplying the 13.938(d) goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers 2.951(e)

1.549

7.841

.000

.328

2.576

.007

5.991(f)

.666

2.826

.003

Doubtful debts of MSMEs as a percentage of annual 22.496(g) sales

2.500

5.138

.000

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Table 4.48 (continued) Type III Sum of df Dependent Variable Squares

Source

Mean Square

Sig.

Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Credit period allowed to most of the customers by MSMEs Doubtful debts of MSMEs as a percentage of annual sales Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Business of MSME with top three customers Advances received at the time of supplying the goods / providing the services

20.618 39.138

1 1

20.618 39.138

21.147 42.901

.000 .000

11.850

11.850

59.033

.000

26.885

26.885

136.126

.000

Intercept

4.876

4.876

38.304

.000

17.524

17.524

74.393

.000

19.213 .732

1 1

19.213 .732

39.492 5.749

.000 .017

2. Gender

4.560

4.560

9.372

.002

2.371

2.371

10.066

.002

3. Age

3.870

3.870

4.242

.040

4. Education Qualification

3.772

3.772

19.097

.000

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Table 4.48 (continued) Type III Sum of df Dependent Variable Squares

Source

Mean Square

Sig.

Receivables collected from the customers, within the credit period allowed by MSMEs to their customers 5. Major influencing factors for the Entrepreneur to start the business Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods / providing the services Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Doubtful debts of MSMEs as a percentage of annual sales 7. Year of Establishment Business of MSME with top three customers

1.796

1.796

7.625

.006

11.804

11.804

58.805

.000

3.013

3.013

15.257

.000

3.113

3.113

15.508

.000

6. Entreprene ur status at the time of startup of the Enterprise

4.373

4.373

22.141

.000

.959

.959

7.533

.006

3.322

3.322

6.829

.009

17.791

17.791

19.502

.000

Business of MSME with top one customer collected 8. Business Receivables from the customers, within Entity Ownership the credit period allowed by MSMEs to their customers

19.417 1.288

1 1

19.417 1.288

19.916 5.466

.000 .020

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Table 4.48 (continued) Type III Sum of df Dependent Variable Squares

Source

Mean Square

Sig.

9. Type of Business

Business of MSME with top three customers

14.048 47.170 13.153

1 1 1

14.048 47.170 13.153

15.399 48.382 27.037

.000 .000 .000

Business of MSME with 10. Line of top one customer Doubtful debts of MSMEs Activity as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods / providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Total Business of MSME with top three customers Advances received before supplying the goods / providing the services

502.101 469.823 103.380

515 515 515

.975 .912 .201

101.712

515

.197

Error

65.552

515

.127

121.315

515

.236

250.544

515

.486

2390.000 2387.000 1530.000

525 525 525

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Table 4.48 (continued) Type III Sum of df Dependent Variable Squares

Source

Mean Square

Sig.

Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/ providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers

1584.000

525

768.000

525

1176.000

525

1423.000

525

582.998 516.370 121.238

524 524 524

115.650

524

Corrected Total

68.503

524

127.307

524

130
Table 4.48 (continued) Type III Sum of df Dependent Variable Squares

Source

Mean Square

Sig.

Doubtful debts of MSMEs as a percentage of annual sales

273.040

524

a. R Squared = .139 (Adjusted R Squared = .124) b. R Squared = .090 (Adjusted R Squared = .074) c. R Squared = .147 (Adjusted R Squared = .132) d. R Squared = .121 (Adjusted R Squared = .105) e. R Squared = .043 (Adjusted R Squared = .026) f. R Squared = .047 (Adjusted R Squared = .030) g. R Squared = .082 (Adjusted R Squared = .066) Source : Output of analysis From the above table it is found that the individual influence is exactly pictured through the F test. The following inferences are made: 1) As for as gender of MSME entrepreneur is concerned, it is found that gender influences credit allowed by MSME (F=5.749) and doubtful debts (F=9.372). This indicates that the gender of MSME owners influence them to take decisions over credit period for their customers and doubtful recovery. Low percentage of women occupy

entrepreneurial roles, may be due to patriarchal, societal conditions prevailing in India. 2) Similarly the age of the entrepreneur is bound to influence the receivables management variables on the basis of ability to collect the receivables within the credit period allowed (F=10.066). This shows that the age of the entrepreneurs enable them to allow appropriate credit period to their customers.

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3)

The educational level of MSME entrepreneur is bound to influence the receivables management variables on the basis of business with top three customers (F = 4.242),ability to receive advance from the customers at the time of supplying the goods / the providing the services (F=19.097) and ability to collect the receivables within the credit period allowed ( F=7.625) This shows that the educational level of the entrepreneurs enable them to decide their business portfolio, demand advance from the customers at the time of supply and to collect the receivables within the credit period allowed.

4)

The MSME entrepreneurs ability to demand and receive advances from the customer before supplying the goods / providing the services (F= 58.805) and at the time of supplying the goods / providing the

services (F= 15.257) is based also on the person who influenced the establishment of the business enterprise initially. This shows that the major factor which influences the entrepreneurial decision of MSMEs, help them to receive advance from the customers, before supplying the goods / providing the services and also at the time of supplying the goods / providing the services. 5) The entrepreneurial status of MSME entrepreneur is bound to influence the receivables management variables on the basis of advances from the customer before supplying the goods / providing the services (F= 15.508) at the time of supplying the goods / providing the services (F= 22.141), credit allowed to the customer (F=7.533) and doubtful debts existing (F= 6.829). This shows that the entrepreneurs status at the time of starting the business enterprise influence these decisions which form part of receivables management strategy. 6) The year of establishment/existence of MSMEs is bound to influence the business with top three customers (F = 19.502). This shows that the

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year of establishment / existence of MSME help them to decide their business portfolio. 7) The business entity / form of ownership of MSME influences the ability to have business with top one customer (F=19.916) and the ability to collect the receivables within the credit period allowed (F= 5.466). This shows that business entity of MSME have an influence on the capability to have business with top one customer and capability to collect the receivables within the due date. 8) The type of business of MSME is bound to influence the business with top three customers (F =15.399). This shows that the type of business of MSME help them to decide their business portfolio. 9) The line of activity of MSME is bound to influence the business with top one customer (F=48.382) and the doubtful debts arising out of business transactions (F=27.037).This shows that the line of activity of MSME is able to influence the decision regarding business with one top customer and doubtful debts. 4.3.5 Association
[[

of

Investments

in

the

Plant

&

Machinery

(Manufacturing sector) / Equipments (Services sector) of MSMEs and their Receivables Management variables: The present study classified MSMEs into different domains namely services sector and manufacturing sector. Their investments differ based on the category namely micro, small and medium, as per the definitions given by Government of India as well as the requirement in the respective industry. Their association with receivables management variables is extracted through non- parametric chi-square analysis and is furnished in Table 4.49.

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TABLE 4.49 OUTPUT TO DETERMINE THE ASSOCIATION OF INVESTMENTS IN PLANT & MACHINERY (MANUFACTURING SECTOR) / EQUIPMENTS (SERVICE SECTOR) BY MSMEs ON THEIR RECEIVABLES MANAGEMENT VARIABLES Sl Association No. 1 Investment versus business with top one customer 2 Investment versus business with top three customers 3 Investment versus advance received from the customers, before supplying the goods / providing the services 4 Investment versus advance received from the customers, at the time of supplying the goods / providing the services 5 Investment versus credit period allowed to the customers 6 Investment versus receivables collected within due date from the customers 7 Investment versus doubtful debts Source : Output of analysis 1) Chi-square value 210.912 116.699 23.295 Significance value 0.000 0.000 0.002

24.135

0.001

47.115

0.000

53.735

0.000

59.351

0.000

From the above table, it is found that the chi-square value is 210.912 and significance value is 0.000 in respect of association of investment with business with top one customer. Therefore it can be concluded that investment in manufacturing sector and service sector influence the total revenue earned through top one customer.

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2)

From the above table, it is found that the chi-square value is 116.699 and significance value is 0.000 in respect of association of investment with business with top three customers Therefore it can be concluded that investment in manufacturing sector and service sector influence the total revenue earned through top three customers.

3)

From the above table, it is found that the chi-square value is 23.295 and significance value is 0.002 in respect of association of investment with advance received from the customers, before supplying the goods/ providing the services. Therefore it can be concluded that investment in manufacturing sector and service sector influence the advance received from the customers, before supplying the goods/ providing the services.

4)

From the above table, it is found that the chi-square value is 24.135 and significance value is 0.001 in respect of association of investment with advance received from the customers, at the time of supplying the goods/providing the services. Therefore it can be concluded that investment in manufacturing sector and service sector influence the advance received from the customers, at the time of supplying the goods/ providing the services.

5)

From the above table, it is found that the chi-square value is 47.115 and significance value is 0.000 in respect of association of investment with credit period allowed to the customers. Therefore it can be concluded that investment in manufacturing sector and service sector influence the credit period allowed to the customers.

6)

From the above table, it is found that the chi-square value is 53.735 and significance value is 0.000 in respect of association of investment with receivables collected from the customers. Therefore it can be concluded that investment in manufacturing sector and service sector influence the receivables collected from the customers.

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7)

From the above table, it is found that the chi-square value is 59.351 and significance value is 0.000 in respect of association of investment with doubtful debts. Therefore it can be concluded that investment in manufacturing sector and service sector influence the doubtful debts.

4.3.6 Opinion of MSME entrepreneurs on the different types of Problems normally faced by MSMEs Mean and standard deviations of each variable and their inferences are made through t-test. Questions are framed to collect MSME entrepreneurs perceptions towards problems normally faced by MSMEs in functional domains viz. Marketing, Finance, Human resources, Operations and general issues. There are 25 questions to obtain the opinions of MSME entrepreneurs. The One sample test with test value 3 is applied on these 25 variables and the results obtained are furnished in Table 4.50. TABLE 4.50 SUMMARY ATTITUDE SCALE WITH OPINION OF MSME ENTREPRENEURS ON THE DIFFERENT TYPES OF PROBLEMS NORMALLY FACED BY MSMEs Std. Error Mean .03991 .04995 .04361 .04777 .05247 .04770 .04421 .05108

Different types of problems faced by MSMEs 1. Heavy competition 2. High Advertisement cost 3. Fluctuating demand 4. Irregular customer base 5 Entry of corporate giants 6. Lack of finance 7. Huge Investment requirements 8. Low margins and profits

N 525 525 525 525 525 525 525 525

Mean 4.1429 2.9429 3.7543 3.3657 3.2781 3.6705 3.7676 3.5524

Std. Deviation .91456 1.14442 .99933 1.09456 1.20225 1.09300 1.01294 1.17041

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Table 4.50 (continued) Different types of problems faced by MSMEs 9. High rate of interest 10. Credit collection problems 11. Labour problems 12. Managerial problems 13. Lack of professionalism 14. Lack of values and ethics 15. Extensive legal Requirements 16. High breakdown and maintenance cost 17. Poor transport facilities 18. Poor storage facilities 19. Outdated technology 20. Frequent and sudden power cut 21. Entry of low priced Chinese / Korean Products 22. Products / services not preferred by customers 23. Non-availability of loan from non banking financial 24. Non- availability of power a cheaper rate 25. Effect of global recession Source: Output of analysis N 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 Mean 3.7714 3.4038 3.5295 2.8438 2.9562 3.0610 3.3295 3.3333 2.6362 2.4705 2.8705 4.0438 2.7371 2.5676 3.2000 3.3467 3.6190 Std. Deviation .97348 1.26942 1.24238 1.20050 1.16566 1.20277 1.10342 1.13133 1.13709 .95987 1.27303 1.00570 1.24002 1.15815 1.14084 1.24553 1.28691 Std. Error Mean .04249 .05540 .05422 .05239 .05087 .05249 .04816 .04938 .04963 .04189 .05556 .04389 .05412 .05055 .04979 .05436 .05617

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From the above table, it is observed that all the mean values in the above table are significantly greater than 3. However in few cases, it is less than 3. There are disagreements in the opinions of MSME entrepreneurs namely, High Advertisement Cost (Mean Value = 2.94), Managerial Problems (Mean Value = 2.84), Lack of Professionalism (Mean Value = 2.95), Poor Transport Facilities (Mean Value = 2.63), Poor Storage Facilities (Mean Value = 2.47) Outdated Technology (Mean Value = 2.87), Entry of low priced Chinese / Korean Products (Mean Value = 2.73) and Products / Services not preferred by Customers (Mean Value = 2.56), with respect to problems faced by them. This indicates that the MSME entrepreneurs strongly agree for the heavy competition prevailing in that domain. They moderately agree for the power problems, high rate of interest, huge investment requirements and fluctuating demand. They degree with high advertisement cost, poor transport facilities and poor storage facilities. They also disagree with outdated technology, and strongly agree for frequent and sudden power cuts. It is also found that they have moderate agreement for all times of financial problems and labour problems. They disagree with lack of professionalism and managerial problems in their entrepreneurial domain. The parametric t test is brought to ascertain the problems of MSMEs of the whole sample units. It is the inceptional indicator to ascertain the existence of predominant factors and heterogeneous clusters. It also designates the cluster classifications and its subsequent justification. The Table.4.51 explains the result of the Mean value with respect to the test value 3.

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TABLE 4.51 ONE-SAMPLE TEST : OPINION OF MSME ENTREPRENEURS ON THE DIFFERENT TYPES OF PROBLEMS NORMALLY FACED BY MSMEs Table 4.51 (continued) Test Value = 3 95% Different types of problems faced by MSMEs t Df Sig. (2Mean Confidence Difference 1. Heavy competition 2. High Advertisement cost 3. Fluctuating demand 4. Irregular customer base 5 Entry of corporate giants 6. Lack of finance 7. Huge Investment requirements 8. Low margins and profits 9. High rate of interest 10. Credit collection problems 11 Labour problems 12 Managerial problems 13 Lack of professionalism 14 Lack of values and ethics 15 Extensive legal Requirements 28.632 -1.144 17.294 7.656 5.300 14.055 17.364 10.814 18.157 7.289 9.766 -2.981 -.861 1.161 6.843 524 524 524 524 524 524 524 524 524 524 524 524 524 524 524 .000 .253 .000 .000 .000 .000 .000 .000 .000 .000 .000 .003 .390 .246 .000 1.14286 -.05714 .75429 .36571 .27810 .67048 .76762 .55238 .77143 .40381 .52952 -.15619 -.04381 .06095 .32952 1.0644 1.2213 -.1553 .6686 .2719 .1750 .5768 .6808 .4520 .6880 .2950 .4230 .0410 .8400 .4596 .3812 .7642 .8545 .6527 .8549 .5126 .6360 tailed) Difference Interval of the

-.2591 -.0533 -.1438 -.0422 .2349 .0561 .1641 .4241

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Table 4.51 (continued) Test Value = 3 95% Different types of problems faced by MSMEs t Df Sig. (2Mean Confidence Difference 16. High breakdown and maintenance cost 17. Poor transport facilities 18. Poor storage facilities 19. Outdated technology 20. Frequent and sudden 23.781 power cut 21. Entry of low priced Chinese / Korean Products 22. Products / services not preferred by customers 23. Non-availability of loan from non banking financial institutions (NBFC) 24. Non- availability of 6.377 power a cheaper rate 25. Effect of global recession Source : Output of analysis 11.022 524 .000 .61905 .5087 .7294 524 .000 .34667 .2399 .4535 4.017 524 .000 .20000 .1022 .2978 -4.857 524 .000 -.26286 -.3692 -.1565 524 .000 1.04381 .9576 1.1300 6.751 -7.331 -12.640 -2.331 524 524 524 524 .000 .000 .000 .020 .33333 -.36381 -.52952 -.12952 .2363 .4303 tailed) Difference Interval of the

-.4613 -.2663 -.6118 -.4472 -.2387 -.0204

-8.554

524

.000

-.43238

-.5317 -.3331

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The t test clearly indicates with respective the middle value 3 that MSME entrepreneurs are totally hindered by heavy competition and they are not able to decide high advertisement cost. It is also found that MSME entrepreneurs have moderate agreement towards the problem of fluctuating demand, irregular customer base and entry of corporate giants. They have a moderate agreement towards lack of finance, huge investment requirements, low margins and profits, high rate of interest and credit collection problems. They are still not able to decide the comments the lack professionalism and managerial problems. They are prone to problems of breakdown, frequent and sudden power cut. Besides these problems, MSME entrepreneurs are affected by nonavailability of loan from non-banking financial institutions, non-availability of alternate power at cheaper rate and the impact of global recession.

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4.3.7 Factors on the Problems normally faced by MSMEs using Factor Analysis Now an analytical approach is made towards finding the predominant Factors of Problems normally faced by MSME entrepreneurs through Factor Analysis.

Factor Analysis is a Multi-Variable tool to reduce enormous number of variables into predominant factors. It groups the like-minded variables into a unique factor with variable loading assigned in the form of Karl Pearson Coefficient of Correlation. The loading is done in descending order of the numerical values of the Correlation Co-efficient. In this context, Factor Analysis by Principal Component Method along with Vari-Max Rotation on 25 variables of problems normally faced by MSMEs obtained the following results. The justification of Factor Analysis on the sampling domain with adequate numbers is significant using Kaiser-Meyer-Olkin measure of Sampling Adequacy along with Bartletts Test of Sphericity and is furnished in Table 4.52.

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TABLE 4.52 KMO AND BARTLETT'S TEST FOR FACTOR ANALYSIS

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Sphericity Df Sig. Source : Output of analysis Test of Approx. Chi-square

0.874

3977.136 210 0.000

From the Table it is found that Kaiser-Meyer-Olkin Measure of Sampling Adequacy is 0.874 and Chi-square value is 3977.136 for 210 degrees of freedom. These statistical values are highly significant at 5% level. This draws the conclusion that the Factor Analysis applied on the 25 variables of problems faced by MSME entrepreneurs - 525 respondents -is perfectly justified. In fact it is ascertained that the spearhead of Normal Distribution or Gaussians Distribution is perfectly formed for the sample responses collected from the entrepreneurs of MSMEs. This indicates that the factors segregated, with the help of variable loading, perfectly fits the normal distribution and reflects the characteristic features of the population. Total Eigen Variance and its Loading The initial Eigen numerical values are verified after rotating the matrix to segment the variables that explain the predominant factors. Total Variance Table explains the formation of number of factors out of 25 variables of problems normally faced by MSMEs and is furnished in Table 4.53.

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TABLE 4.53 NUMBER OF FACTORS OF PROBLEMS NORMALLY FACED

BY MSMEs

Initial Eigen values Compo% of Cumunent Total Variance lative % 1 9.453 37.813 37.813 2 2.113 8.451 46.264 3 1.386 5.546 51.810 4 1.195 4.779 56.589 5 1.128 4.511 61.100 6 1.017 4.069 65.170 7 .861 3.444 68.614 8 .782 3.127 71.741 9 .766 3.065 74.806 10 .646 2.585 77.391 11 .632 2.530 79.920 12 .577 2.307 82.227 13 .575 2.299 84.527 14 .510 2.038 86.565 15 .471 1.884 88.449 16 .435 1.742 90.190 17 .394 1.575 91.765 18 .365 1.461 93.226 19 .345 1.381 94.607 20 .300 1.201 95.807 21 .265 1.059 96.866 22 .254 1.015 97.881 23 .217 .866 98.748 24 .187 .747 99.495 25 .126 .505 100.000 Source : Output of analysis

Rotation Sums of Squared Loadings Cumu% of lative Total Variance % 4.924 19.694 19.694 2.959 11.837 31.531 2.668 10.672 42.204 2.633 10.530 52.734 2.092 8.367 61.100

The total variance Table explains that the 25 factors exhibit 61% of total variance with 5 Eigen values i.e. 4.924, 2.959, 2.668, 2.633 and 2.092. All these values are strictly greater than one. This shows the existence of five major factors. Individually these factors possess the Variances i.e. 19.694, 11.837, 10.672, 10.530 and 8.367. Among these values the first factor possesses the highest variance and the last factor has the smallest variance. Hence it is

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concluded that factor segregation is perfect and they can be named with respect to the variables within them. Continuous Vari-Max Rotation The consequences obtained through continuous Vari-Max Rotation are furnished in Table 4.54. TABLE 4.54 FACTORS OBTAINED THROUGH CONTINUOUS VARI-MAX ROTATION Problems normally faced by MSMEs Not availability of loan from NBFC Entry of low priced Chinese /Korean products Products/ services not preferred by customers Non availability of Alternate power at cheaper rate Effect of global recession Lack of values and ethics Extensive legal requirements Lack of professionalism Credit collection problems Irregular customer base Fluctuating demand Entry of corporate giants Outdated technology High Advertisement cost Low margins and profits High rate of interest Huge investment requirements Frequent and sudden power cut Poor transport facilities Labour problems Poor storage facilities Managerial problems High breakdown and maintenance cost Lack of finance Heavy competition Source : Output of analysis 1 .834 .758 .757 .698 .674 .608 .590 .508 .507 .656 .641 .593 .571 .510 .745 .679 .564 .500 .656 .634 .571 .549 .520 .686 .617 Factors 2 3 4 5

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The results of the Vari-Max Rotation have given the following results. Table 4.55 furnishes the variables falling under Factor 1 - Lack of Trust and Hyper Competition. TABLE 4.55 LACK OF TRUST AND HYPER COMPETITION Q.No. Q48 Q46 Q47 Q49 Q50 Q39 Q40 Q38 Q35 Problems normally faced by MSMEs Not availability of loan from NBFC Entry of low priced Chinese /Korean products Products / services not preferred by customers Non availability of Alternate power at cheaper rate Effect of global recession Lack of values and ethics Extensive legal requirements Lack of professionalism Credit collection problems Value (.834) (.758) (.757) (.698) (.674) (.608) (.590) (.508) (.507)

Source : Output of analysis

The first factor is named as Lack of Trust and Hyper Competition. This represents variables associated with lack of values, professionalism, extensive legal requirement (human resources) and general issues like non availability of loan from NBFC, entry of low priced Chinese/Korean products

Table 4.56 furnishes the variables falling under Factor 2 - High Entry Barriers.

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TABLE 4.56 HIGH ENTRY BARRIERS

Q.No. Q29 Q28 Q30 Q44 Q27

Problems normally faced by MSMEs Irregular customer base Fluctuating demand Entry of corporate giants Outdated technology High Advertisement cost

Value (.656) (.641) (.593) (.571) (.510)

Source : Output of analysis

The second factor is named as High Entry Barriers. This describes most of the reasons associated with marketing problems like irregular customer base, fluctuating demand, entry of the corporate giants and high advertisement cost.

Table 4.57 furnishes the variables falling under Factor 3 - Low Access towards Cheaper Finance.

TABLE 4.57 LOW ACCESS TOWARDS CHEAPER FINANCE. The Third Factor represents Four Variables which are as follows Q. No. Q33 Q34 Q32 Q45 Problems normally faced by MSMEs Low margins and profits High rate of interest Huge investment requirements Frequent and sudden power cut Value (.745) (.679) (.564) (.500)

Source : Output of analysis

The third factor is named as Low access towards Cheaper Finance. It covers variables like low margins and profits, high rate of interest, huge investment requirements.

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Table 4.58

furnishes the variables falling under Factor 4 - Poor

Logistics and Low Labour Productivity.

TABLE 4.58 POOR LOGISTICS AND LOW LABOUR PRODUCTIVITY. Q. No. Q42 Q36 Q43 Q37 Q41 Problems normally faced by MSMEs Poor transport facilities Labour problems Poor storage facilities Managerial problems High breakdown and maintenance cost Value (.656) (.634) (.571) (.549) (.520)

Source : Output of analysis

The Fourth factor is named as Poor Logistics and Low Labour Productivity. This explains the various variables like poor transport facilities, poor storage facilities, high breakdown and maintenance cost

Table 4.59 furnishes the variables falling under Factor 5 Low Venture Capital Culture TABLE 4.59 LOW VENTURE CAPITAL CULTURE Q . No. Q31 Q26 Problems normally faced by MSMEs Lack of finance Heavy competition Value (.686) (.617)

Source : Output of analysis

The Fifth factor is named as Low Venture Capital Culture. This explains lack of demand and heavy competition.

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Factor Analysis carried out on 25 variables resulted in five factors which throw light on the problems normally faced by MSMEs. These problems in the functional domains need to be overcome or reduced to larger extent by the MSMEs to enable them to sustain the business operations. Few of the appropriate strategy include seeking expert advices by entrepreneurs, tailor made training in specific areas. In respect of problems which are beyond the capacity of MSME entrepreneurs, all stakeholders need to put in hands and try to address these issues. Government may ensure that their policies, rules and regulations are not having any adverse impact on MSMEs development and growth. 4.3.8 Classification of MSME entrepreneurs based on the problems normally faced by them using Cluster Analysis

Factor Analysis revealed the existence of five major Factors of Problems normally faced by MSME entrepreneurs namely Lack of Trust and Hyper Competition, High Entry Barriers, Low Access towards Cheaper Finance, Poor Logistics and Low Labour Productivity and Low Venture Capital Culture. In this section the perception of MSME entrepreneurs towards these predominant factors are used to classify the sample units into heterogeneous groups. To find the number of such heterogeneous groups, hierarchical clusters with agglomeration schedule is applied. The Euclidean Algorithm space is taken for the account, to determine the large scale co-efficient among the cases. (Cox and Bartletts Test). The agglomeration schedule index clearly indicates large scale difference between the co-efficient, with values from 10.786 to 0.040. This implies that three major classifications exist among MSME entrepreneurs with respect to five factors of problems normally faced by them.

This identification of three groups of entrepreneurs is used in K-Mean Cluster Analysis to obtain the results, as furnished in Table 4.60.

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TABLE 4.60 CLUSTERS BASED ON THE FACTORS OF PROBLEMS NORMALLY FACED BY MSMEs Factors Lack of Trust and Hyper Competition High Entry Barriers Low Access towards Cheaper Finance Poor Logistics and Low Labour Productivity Low Venture Capital Culture Source : Output of analysis As it has been established elsewhere in the present research, the issues faced by MSMEs after being signatory to WTO have increased multifold, exposing Indian MSMEs to non-level playing field. The conditions prevailing for MSMEs in India, engaged in manufacturing sector and services sector are different from the conditions prevailing China and other countries. Cluster 2 4.04 4.29 4.08 4.50 4.50

1 3.85 4.04 3.53 3.10 3.10

3 3.04 3.08 2.39 2.56 2.56

The cluster classification forces to derive the following conclusions based on Ranking Analysis, as furnished in Table 4.61.

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TABLE 4.61 NATURE OF CLUSTERS BASED ON THE FACTORS OF PROBLEMS NORMALLY FACED BY MSMEs Sl. No. 1. Factor Name Lack of Trust and Hyper Competition 2. 3. High Entry Barriers Low Access towards Cheaper Finance 4. Poor Logistics and Low Rank 2 Rank 1 Rank 3 Rank 2 Rank 2 Rank 1 Rank 1 Rank 3 Rank 3 Cluster 1 Rank 2 Cluster 2 Rank 1 Cluster 3 Rank 3

Labour Productivity 5. Low Venture Capital Culture. Rank 2 Rank 1 Rank 3

Source : Output of analysis

The Ranking Analysis given in Table clearly reveals that Cluster two MSME entrepreneurs are able to just meet the challenges in running the business. So this cluster can be named as Subsistence Entrepreneurs; Cluster one MSME entrepreneurs are relatively strong in almost all the factors. So they can be named as The Fighters ; Cluster three MSME entrepreneurs s are strong in all the factors and hence the cluster can be called as Agile and Robust Entrepreneurs. On the whole it is concluded that there exists three types of MSME entrepreneurs among 525 respondents surveyed in Tamilnadu namely Subsistence Entrepreneurs, The Fighters and Agile and Robust Entrepreneurs. Table 4.62 furnishes the frequency distribution loaded in each cluster.

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TABLE 4.62 CLUSTERS OF ENTREPRENEURS

Cluster 1 Cluster 2 Cluster 3

Subsistence Entrepreneurs The Fighters

184 126 215

35% 24% 41%

Agile and Robust Entrepreneurs. Source : Output of analysis

It is found that Cluster one, Subsistence Entrepreneurs (35%) are just able to face the problems. Cluster two, the Fighters (24%) are self-motivated to formulate their business ideas based on their educational skills, experience and talents. This group is motivated by the changing business environment and applies the necessary managerial skills to take advantage of the favourable situation at the appropriate time. Cluster three, Agile and Robust Entrepreneurs (41%) are found to have strong qualities in facing the problems of marketing, finance, human resource, operations and general problems of their enterprises. They possess managerial and administrative qualities in totality to embrace the changing scenario.

4.4

DISCRIMINANT ANALYSIS TO DEVELOP AN EMPRICAL MODEL TO EVALUATE RECEIVABLES MANAGEMENT STRATEGY OF MSMEs IN TAMILNADU

The predominant problems of MSMEs namely, Marketing issues, Finance issues, Human resources issues, Operations issues and General problems have been grouped into five factors namely Lack of Trust and Hyper Competition, High Entry Barriers, Low Access towards Cheaper Finance, Poor Logistics and Low Labour Productivity and Low Venture Capital Culture.

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They are found to be useful to classify the sample units into heterogeneous groups. This classification of heterogeneous groups with different characteristic features must be justified the usage of related independent variables. In this case, 1) Total revenue earned with one major customer ( BUSONECUSTR), 2) Total revenue earned with three major customers (BUSTHREECUSTR), 3) Receiving advance before supplying the goods / providing the services (ADVRECDBEFORE), 4) Receiving advance at the time of supplying the goods / providing the services (ADVRECDSUPPLY), 5) Credit period allowed to the customer (CREDITALLOWED), 6) The ability to collect the receivables within the credit period (RECVCOLLTD) and 7) The quantum of debts which are doubtful of recovery and hence to be treated as bad and doubtful (DOUBTDEBTS), are considered as independent variables in predicting the cluster formation. The justification of clusters with respect to the above seven independent variables is done through discriminant analysis. The qualification for using the discriminant analysis is to establish significant canonical correlation between independent variables and the different clusters, as furnished in Table 4.63 and Table 4.64. TABLE 4.63 EIGEN VALUES % of Function 1 2 Eigenvalue .229(a) .066(a) Variance 77.7 22.3 Cumulative % 77.7 100.0 Canonical Correlation .432 .249

Source : Output of analysis a First 2 canonical discriminant functions are used in the analysis.

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TABLE 4.64 WILKS' LAMBDA

Test of Function(s) 1 through 2 2

Wilks' Lambda .763 .938

Chisquare 140.671 33.247 Df 10 4 Sig. .000 .000

Source : Output of analysis

From the above tables it is discerned that the canonical correlation at 0.432 and 0.249 for the two functions are statistically significant at 5 % confidence level. The Wilks Lambda and Chi-square values are significant at 5 % confidence level to profoundly say that the independent variables are perfectly related to the clusters of problems. It leads to the formation of two different functions with the structure matrix, as furnished in Table 4.65 and 4.66. TABLE 4.65 STRUCTURE MATRIX Function Particulars
Advances received at the time of supplying the goods/providing the services Business of MSME with top three customers Advances received before supplying the goods / providing the services Credit period allowed to most of the customers by MSMEs Receivables received from the customers, within the credit period allowed by MSMEs Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer

1 .611(*) -.435(*) .321(*) -.236(*) -.429 -.095 .237

2 .467 .065 .186 -.082 .573(*) .561(*) -.484(*)

Source: Source : Output of analysis

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TABLE 4.66 CANONICAL DISCRIMINANT FUNCTION COEFFICIENTS Particulars 1

Business of MSME with top one customer Business of MSME with top three customers Advances received at the time of supplying the goods/providing the services Receivables collected from the customers, within the credit period allowed by MSMEs Doubtful debts of MSMEs as a percentage of annual sales

Function 2 .317 -.716 1.565 -1.059 .419 -.975 -.449 .053 1.266 .803 .710 -3.570

(Constant) Source : Output of analysis Unstandardized coefficients

This structure matrix and the formulation of two different functions and their coefficients form the New Discriminant Functions. Function 1: Y1= (-) 0.975+0.317(BUSONECUSTR) -0.716(BUSTHREECUSTR) +1.565(ADVRECDSUPPLY)-1.059(RECVCOLLTD) +0.419(DOUBTDEBTS) Function 2: Y2= (-) 3.570-0.449(BUSONECUSTR) +0.053(BUSTHREECUSTR) +1.266(ADVRECDSUPPLY) +0.803(RECVCOLLTD) +0.710(DOUBTDEBTS)

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From these two functions, the maximum and minimum values are calculated using the different options in the questionnaire. The maximum coefficient is obtained for variable ADVRECDSUPPLY for both the functions and the minimum coefficient is obtained for variable RECVCOLLTD for Function 1 and for variable BUSONECUSTR for Function 2. This shows that variable ADVRECDSUPPLY is predominant in discriminating the problems of MSMEs. In the management of receivables, ADVRECDSUPPLY (ie) advances received at the supplying the goods / providing the services is essential to determine the problems of MSMEs. These two discriminant functions sharply estimate the better receivables management among MSMEs. Out of 525 respondents, one can sharply estimate the MSMEs with best receivables management practices with minimum problems from Lack of Trust and Hyper Competition, High Entry Barriers, Low Access towards Cheaper Finance, Poor Logistics and Low Labour Productivity and Low Venture Capital Culture. The sample unit is perfectly discriminated with the help of two predominant groups namely MSMEs with BUSONECUSTR and

BUSTHREECUSTR and their proportion of total revenue with them. The function Y1 is the Discriminant Function for variable for BUSONECUSTR and Y2 is the Discriminant Function for variable BUSTHREECUSTR. Y denotes three different clusters with fewer problems, moderate problems and more problems. The corresponding values are less than 1 for CLUSTER WITH LESS PROBLEM, between 1 to 2 for CLUSTER WITH MODERATE PROBLEMS, and 2 to 3 for CLUSTER WITH MORE PROBLEMS.

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4.4.1 Receivable Management Model for MSMEs The present research identified gaps in the literature on the receivables management which leads to the formation of the research instrument (questionnaire). The responses have been obtained from MSME entrepreneurs to carry out the verification of objectives of the research. Empirically the influences of independent and dependent variables derived the following Receivables Management Model for MSMEs.

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1. 2. 3. 4. 5. Gender Age Educational Qualifications Influence of Entrepreneurial decision Status at the time of Starting up of Business 1. Domestic Sales 2. Export Sales 3. Job work Receipts

1. 2. 3. 4.

Year of Establishment of Business Form of Ownership - Business Entity Type of business Line of Activity

1. Investments in Plant & Machinery, in respect of Manufacturing Sector. (or) Investments in Equipments in respect of Services Sector.

1. Business with top one customer 2. Business with top three customers 3. Advances received before supplying the goods/providing the services. 4. Advances received at the time of supplying the goods /providing the services. 5. Credit period allowed to the customers 6. Collection of Receivables within the due date 7. Debts doubtful of recovery Net Profit earned by MSMEs

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

Heavy competition High advertisement cost Fluctuating demand Irregular customer base Entry of corporate giants Lack of finance Huge investment requirements Low margins and profits High rate of interest Credit collection problems Labour problems Managerial problems Lack of professionalism Lack of values and ethics Extensive legal requirement High breakdown and maintenance cost Poor transport facilities Poor storage facilities Outdated technology Frequent and sudden power cut Entry of low priced Chinese / Korean products. Products /services not preferred by customers 23. Non-availability of loan from Non Banking Financial Corporation/ Institution 24. Alternate power not available at cheaper rate. 25. Effect of global recession.

FIG. 4.11 Receivables Management Model

157 157

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From the above diagram, it is discerned that the Personal characteristics of entrepreneurs and Business characteristics of MSMEs, Investments in Plant & Machinery (Manufacturing sector) / Equipments (Services sector) created significant impact on Receivables Management variables. In particular the exploitation of Multiple Regression analysis and General Linear Model clearly ascertained their significant influence on Receivables Management. This receivables management is considered as independent variables and their direct influence over Sales Revenue / Total Income, and Net profit are obtained from the empirical evidences. In this picture Receivables Management variables as well as Problems mutually acted as independent and dependent variables. The subsequent usage of discriminant analysis followed by linear combination of the variables sharply estimated a mutual relationship between receivables management and problems. It also presents a Personal characteristics of entrepreneurs and Business characteristics of MSMEs, and investments in Plant & Machinery (Manufacturing sector) / Equipments (Services sector) highly influencing the receivables management to have an influence in the form of Sales Revenue / Total Income and Net Profit. The conglomeration of Receivables Management and Problems of MSMEs have been clearly proved in the Model.

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CHAPTER - 5

FINDINGS AND SUGGESTIONS

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CHAPTER 5

FINDINGS AND SUGGESTIONS

CHAPTER OVERVIEW This chapter summarizes and gives a clear picture of the present research work. The major findings are profoundly stated and the suggestions to the MSME entrepreneurs and the governments are suitably drawn out of the findings. An appropriate conclusion is traced out conspicuously to culminate the research and scope for further study is also given. In this chapter the following areas are covered : summary of chapters; findings of the study; suggestions; conclusions; scope and limitations of the study; scope for further research;

5.1

SUMMARY OF CHAPTERS Problems and prospects of MSMEs at all India level and Tamilnadu

level have been explained in the first chapter in a lucid and concise manner. Besides these highlights, need for the study, exact research problem, objectives of the study have also been explained.

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Both National and International literature pertaining to entrepreneurial characteristics of MSMEs, drivers of MSMEs, financial management and its role in success of MSMEs, receivables management are covered in the second chapter. The foreign studies and their methodology have been thoroughly analyzed in this chapter to downsize the research gaps those can be ventured innovatively by the researcher. In the third chapter detailed methodology followed to reach the culmination of research are covered. Rationale of study, hypothesis of the study, development of research instrument, validity of the receivables management variables, pilot study, sample design and main study have also been covered in this chapter. The fourth chapter of this study completely has been dedicated to present an anatomical analysis using the statistical tools viz parametric tests, non-parametric tests. Percentage analysis, Factor analysis, Cluster analysis, non-parametric Chi-square analysis, Kearl Pearson coefficient of correlation, and Discriminant analysis have been subsequently used to analyse both primary and secondary data. An empirical model has been derived to establish the factors influencing problems and receivables management variables of MSMEs at Tamilnadu level. The fifth chapter has been summarized to give a clear picture of the

present research work. The major findings have been profoundly stated and the suggestions to the MSMEs and the governments have been suitably drawn out of the findings. An appropriate conclusion has been traced out conspicuously to culminate the research and scope for further study and their respective sections have also been indicated.

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5.2 FINDINGS OF THE STUDY The findings of the study are furnished in the following sequence : 1. Secondary data analysis 2. Descriptive analysis 3. Inferential analysis In respect of inferential analysis, findings are given chronologically based on the order of Objectives of the study . 5.2.1 Secondary data analysis - Growth of MSMEs in India with specific reference to Tamilnadu: The liberalization, privatization and globalization were started at the policy level by Government of India from 1991. After being a signatory to the World Treaty Organization (WTO), a majority of the subsidies and reservations for small scale industries have been withdrawn. However the access towards global markets and business processes should have enabled growth of MSMEs albeit with tougher competition. following findings are discerned: i) From the secondary data analysis for 10 years, it is found that there is a significant increase in terms of number of units, employment, and production in India and Tamilnadu, in the span of 10 years (1999-2009). ii) Trend analysis and regression analysis are subsequently used to test this hypothesis. It is observed that number of units, employment generation, production, in India and Tamilnadu have all registered significant upward trends in India. With appropriate statistical tools, the

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iii)

The null hypothesis is rejected at 1 % level and concluded that there is a substantial increase in number of MSMEs , employment generated, and production.

iv)

An observation of growth of MSMEs in numbers, employment potential and protection indicate there is a significant growth in MSME sectors in India. This growth is achieved despite being a signatory to WTO regime. MSMEs lost major concessions such as quantitative restrictions, reservations of product categories for SSIs and other State guaranteed concessions. The trend indicates that MSMEs can withstand competition and prove to be viable despite various challenges.

v)

MSMEs in Tamilnadu appear to be not an exception to the national trend.

5.2.2 Descriptive analysis Descriptive analysis reveals the following findings, based on the responses given by the MSME entrepreneurs in the questionnaires: i) MSMEs in Tamilnadu have different percentage of revenue through one customer to multiple customers. It is found that a maximum of 51% of MSMEs obtained revenue through customers with whom the business is below 25%. ii) Maximum earnings of 75% and above are secured through three customers by 10.4 % of MSMEs in Tamilnadu. iii) The receipt of the advance is indisputable aspect in receivables management of MSMEs. MSMEs in Tamilnadu are distinguished into two broad categories based on the receipt of advance. It is

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found that 64.8% of MSMEs do not receive the advances before supplying the goods whereas 35.2% are able to receive the advance before the supply. iv) The percentage of advances fluctuates below 25% to above 50%. Among the advance received, 42% are able to receive more than 50% advances before the supply. v) It is conscipiously noticed that 32.8% of MSMEs only, are able to receive the advance at the time of supply. It is widely noticed that receivables management problems are colossal in its dimension, since 67.2% of MSMEs in Tamilnadu, are not able to receive the advance at the time of supplying goods/ providing services. iv) In the segregation process of advance receipt, the MSMEs are able to get part payment with respect to their order value. MSMEs (44.2%) are able to receive only less than 25 % of the order value at the time of supply. This plays predominant role in creating sickness in MSMEs on the basis of failure of collection of receivables. vii) In order to sustain the business, MSMEs in Tamilnadu allow credit period to their customers for a specific span of time. It is found that maximum 86.3 % MSMEs are forced to allow credit period extending upto 120 days. It is found that most of the MSMEs (55.5%) are able to withstand the credit period within 60 days. viii) Procrastination of the receivables is the major problem of MSMEs to and it affects the continuous flow of production. It is

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found that 43% of MSMEs are affected by the delayed payments which force them to extend the credit period. ix) The additional credit period directly affects the working capital management and production cycle during the course of business. Besides allowing credit period, maximum of 41.6 % of MSMEs allow additional 90 days credit period to their customers. During this period MSMEs experience problem of working capital on one side and hampered production on another side. x) MSMEs complained that all their customers are not reliable with respect to their payments recovery process. The customers do not make the complete payment but keep the residuals for long period, which creates the receivable management problems in huge dimension. It is found that MSMEs in Tamilnadu are compelled to allot 5% to 11 % as doubtful debts. In their experience, they have rarely noticed the complete payment for their supplies. In particular 12.8% of MSMEs in Tamilnadu are worst affected by the debts doubtful of recovery, above 11%. xi) It is found that the heavy competition and fluctuating demand are predominant in the marketing problems of MSMEs. xii) Huge investment and lack of finance hinder the growth of MSMEs in Tamilnadu and force them to sickness. The continuous supply chain system of advances and revenue is essential for the smooth functioning of MSMEs. xiii) In the liberalized and globalised economy, the fascinating vistas of job opportunities diminished the labours interest towards MSMEs. The skilled and professionally qualified personnel are

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not able to sustain in the MSME sector due to attractive packages offered by corporate. xiv) The problem of frequent and sudden power cut and high maintenance cost are the major problems of MSMEs and they affect the growth of MSMEs. xv) The non-availability of loan from sources other than banks, and non availability of power from other sources affect the production and profit of MSMEs. xvi) In Tamilnadu, the problem of human resources, operations management and marketing have to be overcome for successful managing of MSMEs. The globalised and liberalized economy is able to offer solutions to the financial and other problems. xviii) The dynamic revenue generating MSMEs as well as sick MSMEs are able to distinguish their progress only through their management techniques of receivables. MSMEs having business with both one customer and three customers are able to get into problems of finance and marketing subsequently. Their percentage of doubtful debts measures their problems of finance, marketing and human resources. xix) MSMEs in Tamilnadu and their problems do not affect the advance receipt made by them. This shows that MSMEs are able to realize the receivables, by adopting appropriate strategies, which help them to meet their production requirements. xx) The percentage analysis revealed that MSMEs in Tamilnadu are broadly classified into manufacturing sector (53%) and services sector (47%) and This shows that maximum number of MSMEs lean upon their approach through manufacturing sector.

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xxi)

In the three categories of micro, small and medium the contribution of 62% is noticed in the micro sector, followed by small sector (32%) and medium sector (6%)

5.2.3 Inferential analysis The findings are furnished based on the order of objectives. 5.2.3.1 Nature of Relationship between Receivables Management variables and Sales revenue / Total income (Objective 2) The application of both parametric and non-parametric analyses clearly established the nature of relationship between Receivables Management variables and Sales revenue / Total income. i) There is a deep association between domestic sales of MSMEs with business profile of MSMEs- with top one customer and with top three customers. The advances at the time of supply are essential for venturing into domestic sales. They are able to achieve domestic sales (below Rs 15 lakhs, 15- 45 lakhs and above 45 lakhs) when they regularly receive advances at the time of supply. The percentage of advances is able to decide domestic sales of MSMEs in Tamilnadu. ii) The MSMEs in Tamilnadu are accustomed to non-receipt of advances before supply of goods / services. iii) It is found that credit period is an essential component of receivables management to avoid the reduction of domestic sales. Recovery of dues and credit period are subsequent process in MSMEs receivables chain. It is found that doubtful debts (below 5% to above 11%) distinguishes the sales of MSMEs (below Rs 15 lakhs to above Rs 45 lakhs).

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iv) The export sales of MSMEs of (below Rs 15 lakhs, 15- 45 lakhs and above 45 lakhs) are well associated with number of customers, advance receipts, and credit period. It is found that the MSMEs with top one customer and top three customers are able to generate the revenue through export sales successfully. v) The advance receipt before supply is essential for MSMEs engaged in export sales in order to guarantee the business ventured with foreign customers. The MSMEs are careful in obtaining the advance before executing the orders of the customers. vi) After several business interactions, the exporting MSMEs are able to receive the advance at the time of supply from foreign customers. It is found that below 25% to above 50% receipt of advance at the time of supply generates different export sales. vii) The foreign customers of MSMEs expect the suppliers to allow credit period to have continuous business interactions. MSMEs are able to strategically manage the doubtful recovery of foreign customers. viii) The job work phenomenon of MSMEs is noticeable in the receivables management process. MSMEs who have business with one customer and three customers are able to decide their job work receipts. The advance receipt before supply and at the time of supply is vital in determining the job work receipts. The credit period culture and doubtful recovery also form the part of receivables management process.

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5.2.3.2 Association of Receivables Management variables and Net Profit earned by MSMEs: (Objective 3) The profit earning is an ultimatum of total revenue generation of MSMEs in Tamilnadu. It is found that MSMEs who have substantial business with top one customer and top three customers are able to generate net profit ranging from Rs 5 lakhs, Rs 5 lakhs to 10 lakhs and above Rs 11 lakhs. It is found that the advances received before supply and at the time of supply are able to encourage net profit of MSMEs. The credit period allowed does not have any association with net profit because MSMEs are able to decide their price by including the consequences of credit period. It is also found that doubtful recovery percentage hampers the net profit generation. 5.2.3.3Association of Problems normally faced by MSMEs and Receivables Management variables (Objective 4) It is found that statistically significant influence of the problems of MSMEs exist on few of the receivables management variables (namely and

business with top one customer, business with top three customers doubtful debts exists).

However the problems of MSMEs are not found to be influencing on the remaining variables of receivables management (namely advance received before supplying the goods / providing the services, advance received at the time of supplying the goods / providing the services, credit allowed, and collection of receivables within the due dates).

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5.2.3.4 Association of Personal characteristics of MSME entrepreneurs and Business characteristics of MSMEs and Receivables

Management variables (Objective 5) It is found that gender, age, educational level of MSME entrepreneurs influence on credit period decisions, receivables collection, number of customers and advance receipts. i) It implies that gender of the MSME ascertains the receivables management techniques and prerogative of entrepreneurs to allow credit period and doubtful debts. ii) Age of the entrepreneurs enable the MSMEs to allow appropriate credit period to their customers. iii) Educational qualification of MSME entrepreneurs enable them to decided their business portfolio, demand advance from their customers and to collect receivables within the credit period. iv) MSME entrepreneurs ability to demand and receive advances from the customers before supplying the goods/ providing the services and at the time of supplying the goods/ providing the services, is based on the person / factor who influenced the establishment of the business enterprise initially. v) Status of MSME entrepreneurs at the time of starting up of the business is bound to influence the receivables management variables on the basis of advances from the customers, credit allowed to them and doubtful debts existing. vi) Year of establishment / existence of MSME is bound to influence their business portfolio.

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vii)

Business entity/ form of ownership influences the ability to have business with top one customer and they ability two collect the receivables within the credit period allowed.

viii)

The type of business and line of activity are bound to affect the MSMEs business with one customer and three customers and their transactions.

5.2.3.5 Association of Investments in Plant & Machinery (Manufacturing sector) / Equipments (Services sector) of MSMEs and Receivables Management variables: (Objective 6) i) It is found that the profile of receivables management depends upon the investments made by manufacturing sector in the Plant & Machinery and services sector in equipments. ii) The number of customers, credit period allowed and advance received are conspicuous in influencing the investment strategies. Logically it is ascertained that receivables management make the MSMEs cautious, strategic and dynamic to earn maximum profit

5.2.3.6 Empirical Model for Receivables Management for MSMEs in Tamilnadu : (Objective 7) It is discerned that the personal characteristics of entrepreneurs, business characteristics of MSME, investments in Plant Machinery (Manufacturing Sector) / equipments (services sector) created significant association on receivables management variables. This receivables management is considered as independent variables and their direct influence over Sales Revenue / Total Income, and Net profit are obtained from the empirical evidences. Receivables Management variables, as well as problems faced by MSMEs mutually acted as

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independent and dependent variables.

The conglomeration of Receivables

Management and problems of MSMEs have been clearly proved in the Model. The two discriminant functions, derived statistically, sharply estimate the better Receivables Management practices among MSMEs. Out of 525 respondents, one can sharply estimate the MSMEs with best Receivables Management practices with minimum problems from the domain of marketing, finance, human resources, operations, general problems. 5.3 SUGGESTIONS

After conducting the research, the following suggestions are made: i) Participation of women in the entrepreneurship is not upto the expectations. Governments efforts to create awareness among potential women entrepreneurs need to be strengthened. ii) According to the survey conducted, 61.9 percentage MSME entrepreneurs fall under the middle age category, ranging from 26 years to 45 years. Since age of a person plays an important role in motivating an individual to start an own enterprise, training on areas like adoption of new methods and techniques of production, progressive outlook, innovativeness, risk taking etc may be imparted at appropriate time on a continuous basis. iii) Though 61.8 percentage of MSME entrepreneurs are qualified as graduate, post-graduate, professional, fairly large number at 38.2% stated that they are qualified upto HSC or below only. There is scope for imparting module based training, on functional domains like marketing, finance, to such needy MSME owners. iv) Though elders in the family, friends and relatives are able to influence an individual to start a business enterprise, only 4% of MSME entrepreneurs responded that spouse was the influencing

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person. In the emerging services sector involving IT and IT related areas, hospital, travel and tourism, catering etc. Young and deserving couples may be encouraged to become entrepreneurs. v) As per the study, MSMEs were started by not only unemployed persons but also by those employed in government sector; public sector undertaking ; and private sector including those from engaged in family business. These entrepreneurs bring rich expertise in technical and managerial areas. Networking of such entrepreneurs and sharing their experience with beginners will add value to the beginners them. It is not necessary that everybody should learn by their own mistakes. vi) As per the study, sole proprietary concerns constitutes majority of MSMEs at 53.9 % followed by partnership firms at 30.3%. Introduction of limited liability partnership firms in India will encourage more partnership firms, which will be more resourceful in terms of capital and synergy than sole proprietary concerns. This will enable MSMEs to compete with others. vii) Fairly reasonable portion at 17.1% of MSMEs responded that they are engaged in job work for other manufacturing concerns. Also 10.3% of MSMEs have substantial business with top one customer (at 76% and above) Furthermore 10.4 % of MSMEs have substantial business with top three customers (at 76% and above). These medium or large scale organizations should take more efforts in capacity building of such sub-contracting MSMEs. This may be implemented by inculculating quality consciousness and cost consciousness among them. viii) According to the responses given by 525 MSMEs, 43% replied that they could not realize the receivables from their customer-

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debtors within the credit period allowed. This situation forces the MSMEs to extend additional credit period ranging from 30 days (31.4%) to additional 120 days (8.8%). Delayed Payment Act should be followed by all concerned in letter and spirit. 5.4 CONCLUSIONS After carrying out the study, it is concluded that in the recent span of 10 years, there is significant increase in the growth of MSMEs in terms of their number of units, employment generated, total production in India as well as in Tamilnadu. The receivables management is determined by its associated factors of Total Revenue due to Domestic Sales, Export Sales and Job work receipts of MSMEs. The Domestic Sales, Export Sales and Job work receipts are

analogously associated with receivables management and its consequences. However, Advance received before supplying goods / providing the services is independent of domestic sales achieved by the MSMEs. It is concluded that the Credit period allowed by associated in determining the Net Profit of MSMEs. The problems of operations, human resources, marketing and finance and some general problems have significant impact over MSMEs with a unique or multiple customers. The problems elaborately distributed over receivables management of MSMEs encounter with different number of customers; the problems also have significant impact on the doubtful debts of MSMEs. Personal characteristics of entrepreneurs and Business characteristics of MSMEs are vital in determining their capabilities to withstand against the consequences of receivables management. MSMEs is not

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Investments by MSMEs in Plant and Machinery (Manufacturing sector)/ Equipments (Services sector), have their anatomical association with receivables management, within the framework of nature of investments. Advance at the time of supply of goods / providing services influences the receivables managements of MSMEs. . Receivables Management Model for MSMEs has been developed, based on the findings of the study. The present Model reveals that there is a strong relationship between Receivables Management variables and a) Sales, b) Net Profit and c) Investments in Plant & Machinery ( Manufacturing sector) / Equipments( Services sector) ; however a moderate relationship exists directly

between Receivables Management variables and the problems faced by MSMEs and only weak relationship exists between Receivables Management variables and Personal characteristics of MSME entrepreneurs and Business characteristics of MSMEs. This Receivables Management Model of MSMEs may be used as guidance for all stakeholders to identify blind spots and take appropriate measures to improve the performance of MSMEs.. 5.5 RECOMMENDATIONS Need for social implements such as educational institutions, financial

institutions, venture capitalists to build capacity for entrepreneurs to convert ideas into business propositions and in turn to actionable profits, is felt and is recommended. The focus of MSMEs as felt by different stakeholders from the nascent stage is in the area of obtaining capital or loan or managing liability of balance sheet of a business enterprise. However focus on asset side of the balance sheet consisting of different shades of assets, including management of receivables, will provide long term sustainable growth for MSMEs.

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5.6

SCOPE AND LIMITATIONS OF THE STUDY The study covers the MSMEs of all types in the state of Tamilnadu

located in the 12 districts. The MSMEs , which are heterogeneous in terms of size, technology deployed, and ownership was approached without discrimination regarding their activity, income and product produced. Though homogeneity of the type of industry is assumed, in real world business situations, commonality may not exist. The scope of the study has been limited to certain important aspects of MSMEs, more specifically to bring out latent association and impact of receivables management variables on other variables in managing their business. There may be other factors such as geographical factors in the form of remoteness from markets or source of raw materials or availability of skilled labour, which are likely to affect the performance of MSMEs, have not been considered. Cultural issues such as belonging to the same community, same caste, are not being addressed in the present research. It has been observed by the researcher, during the course of research, such practices do have an impact of the performance of MSMEs. However these cultural practices are informal and not documented and made public. Business practices followed by MSMEs and their dealings with their customers may determine the payment of trade receivables and is not reflected in this study. Foreign companies are now collaborating with Indian MSMEs and they have a built-in business model, which covers receivables management strategy.

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5.7

SCOPE FOR FURTHER RESEARCH The present study of receivables management of MSMEs in Tamilnadu

has been carried out in an exhaustive manner. It opened a fascinating vista to MSMEs throughout India. A balanced research on capital structure, financing etc of MSMEs on the liability side, together with management of assets on the asset side of a balance sheet, may be undertaken. A comparative study on

receivables management as well as the risk involved in and managing the same, by MSMEs, in different states in India or different districts within a State, can be carried out. Scope also exists to undertake research on receivables management strategy as applicable to MSMEs operated in different verticals.

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Reference to Website: http://timeof india.indiatimes.com/city/Chennai/ Need soft skills to better business, finds TN study/articleshow/7232624.oms. http://www.dcmsme.gov.in/ssiindia/census/ch1.htm http:// www.dcmsme.gov.in/ssiindia/census/ch12.htm http://www.smeworld.org/userfiles http://www.smeworld.org/search firm.php http://www.docstoc.com/docs/52015978/PERFORMANCE-BUDGETFOR-2010-2011. www.gemconsortium.org/2000.

190

APPENDICES

191

12. APPENDICES

The following appendices have been included. Appendix 1 : Questionnaire Appendix 2 : List of MSME definitions prevailing in various countries Appendix 3 : Output of Multiple General Regression Model to determine the influence of Personal Characteristics of entrepreneurs and Business characteristics of MSMEs on the receivables Management variables. Appendix 4 : The research paper presented by the researcher at 98th Indian Science Congress at SRM university, Tamilnadu on 6 January 2011 which was published in the TIMES OF INDIA, Chennai edition next day. APPENDIX 1: QUESTIONNAIRE The questionnaire used for the survey of 525 MSME units for the present research is furnished below.

REVIEW AND PROSPECTS OF Micro, Small and Medium Enterprises (MSMEs) Research Scholar : Prof. V. M. PONNIAH Faculty Member, School of Management, SRM University, Kattankulathur

192

PART I: PROFILE OF THE ENTREPRENEUR & UNIT 1. 2. Name and address (residence) of the Entrepreneur: Gender : A) Male B) Female Age A) B) C) D) E)

[1] [2]

( )

3.

Less than 25 yrs 26-35 yrs 36-45 yrs 46-55 yrs Above 55 yrs

[1] [2] [3] [4] [5]

( )

4.

Level of Education A) H.S.C B) U.G C) P.G D) Professionals E) Others Please Specify ____________

[1] [2] [3] [4] [5] ( )

5.

Who influence your entrepreneurial decision? A) Spouse [1] B) Elders in the family [2] C) Govt. Schemes [3] D) Friends/ Relatives [4] E) Others [5] Please Specify _________

( )

6.

Entrepreneurs status at the time of starting up of the business unit A) Unemployed [1] B) Employed in Government/PSU [2] C) Employed in private sector [3] D) Family business [4] E) Others [5] Please specify____________ ( )

193

7.

Year of Establishment A) Prior to 1970 B) 1971 to 1980 C) 1981 to 1990 D) 1990 to 2000 E) 2001 and above

[1] [2] [3] [4] [5]

( )

8.

Type of business entity A) Sole Proprietorship [1] B) Partnership [2] C) Private Ltd Company [3] D) Public Limited Company [4] E) Others [5] Please specify _________________ Type of Business A) Manufacturing B) Trading C) Assembling D) Servicing E) Others Please Specify ______________ Specify the line of Activity A) Mechanical B) Electrical C) Computer & IT D) Plastic E) Garments F) Paints & Chemicals G) Leather H) Rubber I) Others

( )

9.

[1] [2] [3] [4] [5] ( )

10.

[1] [2] [3] [4] [5] [6] [7] [8] [9] _________ ( )

194

11. Please tick the appropriate box Engaged in Service , trading etc Investments in Equipments (in lakhs) Micro enterprises Small enterprises Medium enterprises Upto 10 lakhs (a)

Engaged in Manufacturing Investment in Plant & Machinery ( in lakhs) Micro enterprises Upto 25 lakhs (d) Small enterprises Upto 500 lakhs (e) More than 500 Medium lakhs but not enterprises exceeding 1000 lakhs (f)

Upto 200 lakhs (b) More than 200 lakhs but not exceeding 500 lakhs (c)

II BREAK OF SALES REVENUE / INCOME 12. Please tick the most appropriate box a) Domestic sales only b) Export sales only c) Job work receipts only d) Domestic sales and export sales only e) Domestic sales and job work receipts only f) Export sales and job work receipts only

(1) (2) (3) (4) (5) (6) ( )

g) Domestic sales , export sales and job work receipts (7) 13. Sl . No. a) Total revenue during the year ended (Rs in lakhs) Description Through domestic sales Year ended 31 03 2008 a) Below Rs 10 lakhs (1) b) Rs 10 to 30lakhs (2) c) Rs 31 lakhs and above (3) ( )

Year ended 31 03 2009 a) Below Rs 15 lakhs (1) b )Rs 15 to 45 lakhs (2) c) Rs 46 lakhs and above (3) ( )

195

b)

Through export sales

a) Below Rs 10 lakhs (1) b) Rs 10 to 30 lakhs (2) c) Rs 31 lakhs and above (3) ( ) a) Below Rs 10 lakhs (1) b) Rs 10 to 30 lakhs (2) c) Rs 31 lakhs and above (3) ( )

a) Below Rs 15 lakhs (1) b) Rs 15 to 45 lakhs (2) c) Rs 46 lakhs and above (3) ( ) a) Below Rs 15 lakhs (1) b) Rs 15 to 45 lakhs (2) c) Rs 46 lakhs and above (3) ( )

c)

Through job work receipts

d)or Total income e)or f)or g)or

a) Below Rs 10 lakhs a) Below Rs 15 lakhs (1) (1) b) Rs 10 to 30 lakhs b) Rs 15 to 45 lakhs (2) (2) c) Rs 31 lakhs and c) Rs 46 lakhs and above (3) above (3) ( ) ( ) ( Rs in lakhs) Year ended 31 3 08 Year ended 31 3 2009 Below Rs 5 lakhs (1) Below Rs 5 lakhs ( 1) Rs 5 to 10 lakhs (2) Rs 5 to 10 lakhs (2) Rs 11 lakhs & Above (3) Rs 11 lakhs & Above ( ) (3) ( )

14) Net Profit earned Particulars Net Profit

15.

Out of the total revenue earned in a year normally__________% was achieved by effecting sales / business with one customer only a) Below 25% b) 26 to 50 % c) 51 to 75 % d) 76% and above % ( )

196

16.

Out of the total revenue earned in a year normally, ____% was achieved by effecting sales / business with top three customers only a) Below 25% b) 26 to 50 % c) 51 to 75 % d) 76% and above % ( ) MANAGEMENT OF SALES REVENUE (Please give your response to one option only for each question based on your experience in the management of sales in the recent years Whether advances were received before supplying the goods / providing the services? a) Yes (1) b) No (2) ( ) If yes, please, indicate the percentage of total order value, which is received before supplying the goods / providing the services. a) Below 25% (1) b) 26% to 50% c) 51% and above (3) ( ) Whether advances were received at the time of supplying the goods / providing the services? a) Yes (1) b) No (2) ( ) If yes, please, indicate the percentage of total order value, which is received at the time of supplying the goods / providing the services. a) Below 25% (1) b) 26% to 50% c) 51% and above (3) ( ) Whether credit period was allowed to the most of the customers? a) Yes (1) b) No (2) ( )

III .

17.

18.

19.

20.

21.

197

22.

If yes, please indicate the credit period allowed to the most of the customers a) Below 60 days (1) b) 61 to 90 days (2) c) 91 to 120 days (3) d) 121 and above days (4) ( ) Whether most of the customers are paying the balance dues within the credit period allowed? a) Yes (1) b) No (2) ( ) If no, please indicate the additional credit period within which the balance dues are paid by most of the customers a) Additional 30 days (1) b) Additional 60 days (2) c) Additional 90 days (3) d) Additional 120 and above days (4) ( ) The sales in a year normally doubtful of recovery and treated as bad and doubtful debts a) Below (5%) b) 6 to 10 % c) Above 11% ( )

23.

24.

25.

PART IV:PLEASE INDICATE YOUR LEVEL OF AGREEMENT ON THE FOLLOWING PROBLEMS NORMALLY FACED BY SMALL BUSINESSES : (Please tick in anyone appropriate column for each problem)
S. No Problem Strongly agree 5 Agree Neither agree Nor disagree 3 Disagree Strongly disagree 1

Marketing 26 Heavy Competition 27 High Advertisement cost 28 Fluctuating demand

198

29 Irregular customer base 30 Entry of corporate giants Finance 31 Lack of finance 32 Huge investment requirements 33 Low margins and profits 34 High rate of interest 35 Credit collection problems 36 37 38 39 40 Human Resources Labour problems Managerial problems Lack of professionalism Lack of values and ethics Extensive legal requirement Operations High breakdown and maintenance cost Poor transport facilities Poor storage facilities Outdated technology Frequent and sudden power cut General Entry of low priced Chinese/Korean products Products/services not preferred by customers

41 42 43 44 45

46 47

199

48

Not availability of loan from nonbanking financial institution(NBFI) for SMEs as per the terms with commercial bank 49 Non availability of alternate power at cheaper rate 50 Effect of global recession

Please specify any other information for overcoming the problems: -----------------------------------------------------------------------------------

THANK YOU VERY MUCH FOR SHARING YOUR VIEWS DESPITE YOUR BUSY ENGAGEMENTS. THE PARTICULARS WILL BE KEPT CONFIDENTIAL

200

APPENDIX 2
LIST OF MSME DEFINITIONS PREVAILING IN VARIOUS COUNTRIES MSMEs are defined on the basis of both quantitative and qualitative elements, such as, number of workers employed and/or annual turnover or the level of fixed investment. However, employment is an omni present criterion for determining the size of the unit in the countries. The prevailing definitions in these countries are listed below. TABLE A 2.1 DEFINITION OF MSMEs PREVAILING IN VARIOUS COUNTRIES
Country North America USA Canada Latin America Mexico Category of Industry Very Small Enterprise Small Enterprise Medium Enterprise Manufacturing Micro Criteria / Country's Official Definition Measure Employment < 20 employees 20-99 employees 100-499 employees Independent firms having <200 employees <15 employees and gross income/sales <US $175,000 15-99 employees and gross income/sales <US $175,000 100-249 employees and gross income/sales <US $3,500,000 Annual Staff average of 50 employees, annual turnover (VAT excluded) ECU-4.2 million, balance sheet total of ECU 2.1 million <500 employees, Production units with more than 5 employees 10-499 employees <500 employees <50 employees 50-500 employees <500 employees <200 employees < 10 employees 10-10 employees Employment and annual turnover Employment Employment Employment Employment Employment Employment Employment Employment Employment Employment and gross income/sales

Small

Medium Europe Belgium SME

Denmark France Germany Greece Ireland Italy Netherland

Manufacturing SME SME Small Enterprises Medium Enterprises SME Small Enterprises Small Enterprises Medium Enterprises

201
Country Portugal Category of Industry SME Criteria / Country's Official Definition <500 employees <Esc 2400 million in scale (Value for 1993) is not controlled more than 50 per cent of company (nor does it hold more than 50 per cent of any other company) <200 employees <500 employees Autonomous firms with <200 employees No fixed definition No fixed definition Depends on product group usually <100 employees; investment ceiling 30 million Yuan (US $8 million) <100 employees <300 employees or asset capitalization <100 million yen <50 employees or asset capitalization <30 million Yen <50 employees or asset capitalization <10 million <300 employees <20 employees <75 full time workers or with a shareholder fund of <RM 2.5 million (US$million) Manufacturing establishments employing between 5 and 500 employees or with a shareholder fund upto RM 500,000. Manufacturing establishments employing between 50 and 75 full time employees or with shareholders' fund between RM 500,00 to RM 2.5 million <S $ 12 million fixed assets <100 employees In manufacturing, mining and constructioninvested capital is <NT $40 million or regular employees to be <200 In manufacturing and construction sales turnover <NT $ 120 million or regular 20 Fixed assets Employment Employment or Invested capital Employment Employment` Employment & investment Measure Employment and sales value

Spain Sweden Switzerland United Kingdom Asia China Indonesia Japan

Small Enterprises Medium Enterprises SME SME SME SME

Employment Employment

SME Manufacturing Wholesale Trade

Employment Employment

Retail Trade and Services Korea Malaysia Manufacturing Services SMIs

SIS

MIS

Singapore Taiwan

Manufacturing Services SMEs

SSEs

202
Country Thailand Category of Industry SMEs Criteria / Country's Official Definition In manufacturing, mining and constructioninvested capital is <NT $ 40 million or regular employees to be <200 In manufacturing and construction sales turnover <NT $120 million or regular 20 Measure Employment on Invested capital Employment or sales turnover Employment Employment Employment

SSEs

Vietnam Brunei Hong Kong

SME SME SME

No fixed employees

definition

generally

<200

0-100 employees Manufacturing enterprises with fewer than 100 employees and non-manufacturing enterprises with fewer than 50 employees Small Enterprises <100 employees Medium enterprises <20 employees

Australia

Manufacturing Services

Employment Employment

Sources: 1. Handbook on Foreign Direct Investment by Small and Medium sized enterprises Lessons from Asia UNCTAD, Geneva, 1998. Globalization and Small and Medium Enterprises (SMEs)-Vol. I Synthesis Report OECD Industry Division, Government of Hong Kong Special Administrative Region. Small and Medium Business Administration, Government of Korea.

2.

3. 4.

203

APPENDIX - 3 OUTPUT OF MULTIPLE GENERAL REGRESSION MODEL TO DETERMINE THE INFLUENCE OF PERSONAL CHARACTERISTICS OF ENTREPRENEURS AND BUSINESS CHARACTERISTICS OF MSMEs ON THE RECEIVABLES MANAGEMENT VARIABLES. Output of Multiple General Regression Model to determine the influence of Personal characteristics of entrepreneurs and Business characteristics of MSMEs on the Receivables Management variables is furnished below.

TABLE-A3.1 OUTPUT OF MULTIPLE GENERAL REGRESSION MODEL TO DETERMINE THE INFLUENCE OF PERSONAL CHARACTERISTICS OF AND BUSINESS CHARACTERISTICS OF MSMES ON THE

RECEIVABLES MANAGEMENT VARIABLES.

Tests of Between-Subjects Effects TABLE A3.1

Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services

80.897(a) 46.546(b)

9 9

8.989 5.172

9.220 5.669

.000 .000

Corrected Model

17.858(c)

1.984

9.885

.000

Advances received at the time of supplying the goods/providing the 13.938(d) services

1.549

7.841

.000

204

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers

2.951(e)

.328

2.576

.007

5.991(f)

.666

2.826

.003

Doubtful debts of MSMEs as a percentage 22.496(g) of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales 20.618 39.138

2.500

5.138

.000

1 1

20.618 39.138

21.147 42.901

.000 .000

11.850

11.850

59.033

.000

26.885

26.885

136.126

.000

Intercept

4.876

4.876

38.304

.000

17.524

17.524

74.393

.000

19.213

19.213

39.492

.000

205

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services

2.272 1.957 .592

1 1 1

2.272 1.957 .592

2.330 2.145 2.948

.127 .144 .087

.342

.342

1.733

.189

2. Gender

.732

.732

5.749

.017

.456

.456

1.936

.165

4.560

4.560

9.372

.002

1.558 .013 .002

1 1 1

1.558 .013 .002

1.598 .014 .011

.207 .905 .916

3. Age

.037

.037

.187

.665

206

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods / providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales

.000

.000

.002

.962

2.371

2.371

10.066

.002

.525

.525

1.079

.299

.547 3.870 .517

1 1 1

.547 3.870 .517

.561 4.242 2.577

.454 .040 .109

3.772

3.772

19.097

.000

4. Education Qualification

.001

.001

.004

.949

1.796

1.796

7.625

.006

1.281

1.281

2.633

.105

207

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services 5. Major influencing factors for the Entrepreneur to start the business Advances received at the time of supplying the goods / providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services

.274 2.843 11.804

1 1 1

.274 2.843 11.804

.281 3.117 58.805

.596 .078 .000

3.013

3.013

15.257

.000

.101

.101

.796

.373

.035

.035

.147

.701

.849

.849

1.746

.187

1.957 2.185 3.113

1 1 1

1.957 2.185 3.113

2.007 2.395 15.508

.157 .122 .000

6. Entreprene ur status at the time of startup of the Enterprise

4.373

4.373

22.141

.000

208

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers

.959

.959

7.533

.006

.050

.050

.214

.644

3.322

3.322

6.829

.009

1.884 17.791 .162

1 1 1

1.884 17.791 .162

1.932 19.502 .805

.165 .000 .370

.085

.085

.429

.513

7. Year of Establishment

.462

.462

3.626

.057

.002

.002

.008

.927

.572

.572

1.175

.279

19.417 2.080

1 1

19.417 2.080

19.916 2.280

.000 .132

8. Business Entity Ownership

209

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

9. Type of Business

Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods / providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales

.101

.101

.502

.479

.034

.034

.172

.678

.010

.010

.079

.778

1.288

1.288

5.466

.020

.332

.332

.682

.409

1.472 14.048 .001

1 1 1

1.472 14.048 .001

1.510 15.399 .004

.220 .000 .947

.040

.040

.205

.651

.011

.011

.088

.767

.039

.039

.166

.684

1.232

1.232

2.532

.112

210

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

10. Line of Activity

Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods / providing the services Credit period allowed to most of the customers by MSMEs

47.170 .809 .216

1 1 1

47.170 .809 .216

48.382 .887 1.078

.000 .347 .300

.545

.545

2.760

.097

.189

.189

1.484

.224

.748

.748

3.174

.075

13.153

13.153

27.037

.000

502.101 469.823 103.380

515 515 515

.975 .912 .201

Error

101.712

515

.197

65.552

515

.127

211

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Business of MSME with top one customer Business of MSME with top three customers Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales Corrected Total Business of MSME with top one customer Business of MSME with top three customers

121.315

515

.236

250.544

515

.486

2390.000 2387.000 1530.000

525 525 525

1584.000

525

Total

768.000

525

1176.000

525

1423.000

525

582.998 516.370

524 524

212

TABLE A3.1
Source Dependent Variable Type III Sum of Squares df Mean Square F Sig.

Advances received before supplying the goods / providing the services Advances received at the time of supplying the goods/ providing the services Credit period allowed to most of the customers by MSMEs Receivables collected from the customers, within the credit period allowed by MSMEs to their customers Doubtful debts of MSMEs as a percentage of annual sales

121.238

524

115.650

524

68.503

524

127.307

524

273.040

524

a. R Squared = .139 (Adjusted R Squared = .124) b. R Squared = .090 (Adjusted R Squared = .074) c. R Squared = .147 (Adjusted R Squared = .132) d. R Squared = .121 (Adjusted R Squared = .105) e. R Squared = .043 (Adjusted R Squared = .026) f. R Squared = .047 (Adjusted R Squared = .030) g. R Squared = .082 (Adjusted R Squared = .066) Source : Output of analysis

213

APPENDIX 4 THE RESEARCH PAPER PRESENTED BY THE RESEARCHER AT 98th INDIAN SCIENCE CONGRESS AT SRM UNIVERSITY, TAMILNADU ON 6 JANUARY 2011 The research paper presented by the researcher at 98th Indian Science Congress at SRM university, Tamilnadu on 6 January 2011 was published in the TIMES OF INDIA, Chennai edition next day. The same is furnished below:

LIST OF PUBLICATIONS

1. Ponniah V.M., and Dr. Chandra Mohan A., (2011), "A study on Receivables Management Variables and Investments in Plant & Machinery: Special Reference to MSMEs in Tamilnadu, India", J. Research Journal of Social Science &Management., ISS N: 2010-457 X., 1(7)., pp 123-127

2. Ponniah V.M., and Dr. Chandra Mohan A., (2011), "Receivable Management Strategy by MSME Entrepreneurs: A study of MSME in Tamilnadu", J. International of Management. IAEME., ISSN 0976-6510 (On Line)., 2(2), pp.144-153.

3. Ponniah V.M., and Dr. Chandra Mohan A., (2011), "A study of MSMEs in Tamilnadu - Special Reference to Receivable Management variables and their Sales Revenue", pp.20-22. J. DBJC Business Research., ISSN: 2248-9711., 1(3)

4. Ponniah V.M., and Dr. Chandra Mohan A., (2011), "Association of Receivable Management variables and Net Profit: A study of MSMEs in Tamil Nadu" Proc. International Research Conference and Colloguium., Universiti Abdul Razak, Malaysia. Tun

5. Ponniah V.M., and Dr. Chandra Mohan A., (2011), "Financial Supply Chain Management", Masilamani Pathipagam, Chennai pp.131-137., Chap. 13

6. Ponniah V.M. and Dr.Chandra Mohan A.,2011, An Empirical Relationship between Entrepreneurial Behavioural Aspects and their Problems,. Proc. 98TH Indian Science Congress. at SRM University, Chennai., pp 76 - 77

7. Ponniah V.M. and Dr.Chandra Mohan A.2010., Sustainability of the business by an SME, Proc. Innovations & Organizational Changes, Chennai., pp 80-82

8. Ponniah V.M. and Dr.Chandra Mohan A.,2010, Change Management, Proc. Innovation Driven Librarianship Conference, SRM University, Chennai., pp 307-313 9. Dr.Chandra Mohan A, Vijayan and Ponniah V.M., 2010, Brand Marketing Practices in India, J. The Manager, Lucknow., 4 (2)., pp 14-16

10. Dr.Chandra Mohan A, and Ponniah V.M., 2007, Financial Ratios in HRM, J. HRD Newsletter, Hyderabad., 23 (6), pp.27.

11. Dr.Chandra Mohan A, Ponniah V.M. and Vasanthi Kumari.K., 2007, Management of Innovation, J. The Manager, Lucknow., 2(1), pp.30-34.

12. Dr.Chandra Mohan A, Ponniah V.M, and Vasanthi Kumari.K., 2007, Entrepreneurship- A Global Perspective, J. Business Management Studies, Tiruchirappalli 3(1)., pp 34 - 38

VITAE

V M Ponniah, Professor of Management Studies, SRM University, since 2004, is a Mechanical Engineer from Madurai-Kamaraj University, Tamilnadu and gained 25 years of corporate experience in Indian Railways and Indian Bank. He has acquired MBA (University of Madras), FICWAI (Institute of Cost & Works Accountants of India, Kolkata), CAIIB (Institute of Banking & Finance, Mumbai) and PGDFM (Annamalai University). He has presented 14 papers in various National

/International Conferences. He has published 7 articles in various journals. He chaired Technical Sessions at various conferences held at Annamalai University, Annamalainagar , Velammal Engineering College, Chennai,, Indian Institute of Technology, Madras, University of Madras, Chennai, and DNR College, Bhimavaram,, Andhra Pradesh. Under his guidance, SRM School of Management

got HSBC grant of USD 350 and USD 400 for the Financial Literacy Programme during 2008 and 2009. Acted as a Panelist on the Global Entrepreneurship Week celebrations held at SRM University, jointly with North Eastern University, Extending reach to Indian Entrepreneurship, in 2008. Acted as coordinator, for the International Conference on Global Entrepreneurship in 2007 at SRM School of Management. As a Faculty Advisor, he led a Team of 3 SRM Students to Boston, USA during Feb. 2012 to participate in the Harvard National Model United Nations - 2012. He has visited few East African countries viz Kenya, Rwanda, Uganda and Tanzania besides Mauritius during 2011, for promotion of various programmes being conducted in SRM University.