Strategies of Small and Medium Enterprises in Automobile Sector in the

post WTO Era: An Empirical Study in the Indian context

* Popli, G.S.

** Rao, D.N.

1. Introduction

The Small and Medium Sector occupies an important place in the economy of a country.
Indian Small and Medium Enterprises play a key role as a growth engine for the national
economy, employment generation and greater prosperity for the nation. They represent
over 80% of Industrial Enterprises and have been instrumental in building a solid industrial
base in India. Their contribution to the economy is huge and hence they are entitled to
their rightful share of attention from financial institutions.

The SME Automobile Sector plays an important role in the economies of both industralised
as well as in developing countries. While in the advanced countries, the typology of this
sector tends to be homogeneous mainly in term of firm size and technology. In the
developing countries characterized by low industralisation, there is co-existence of both very
small enterprises in the informal economy and Small and Medium businesses in the
organized sectors. As industrialization progresses, the composition of SME Auto Sector
would undergo a change in favor of modern small enterprises. These modern small
enterprises firms are capable of adopting state of the art technology, relatively big with
larger market share, quality conscious and may also be export-oriented units.

The post war period had witnessed the widening of the economic gap between developed
and underdeveloped nations and a growing awareness on the part of the latter to bridge this
gap. Underdeveloped nations had particularly pinned their hopes on industralisation, which
had historically proved itself to be dependable means to achieve the supreme objective of
economic development, namely to elevate the living standard of the people and to promote
their social and economic well being. The developing countries had generally faired well in
the field of industrial development and have been instrumental in accelerating the pace of
industralisation of the country.

 Popli, G.S. is currently associated with Oriental Bank of Commerce, New Delhi

 Rao, D.N. is currently associated with Centre for Management Education, All India
Management Association as Professor of Finance and Director.
There are numerous reasons why developing countries had to accelerate their rate of
industrial advance. In the first place, 7% annual growth rate of manufacturing could not
meet the increasing demand for manufactured goods by these countries which as a
consequence became more dependent on net imports of manufacturers. Secondly, most
developing countries had experienced demographic rates well above 3% so that the rate of
success in manufacturing attained by a number of developing countries, when measured in
per capita terms was moderated.

2. Emergence of W.T.O. Regime & it’s impact on SME Sector

There is no activity in the world which will go unaffected by world Trade Organization and
from the influence of the agreements signed under it. It is equally important for farmer or a
trader or a banker or a sundry service provider. The big challenge is in making small
businesses aware about the effects of WTO agreements in our country and to provide
assistance in a manner that will enable them to stand against the emerging competition.

So far SMEs have survived under protected environment. With the introduction of WTO and
its conditionality many of the existing support structures would vanish and SMEs would have
to struggle on their own. SMEs would not be able to compete with MNCs due to their
inherent weaknesses such as obsolete technology, uncompetitive prices, poor quality of
goods, costly credit, weak infrastructural facilities, plethora of labor legislation, lack of
cohesion among SME units, ineffective associations, lack of up-to-date information, lack of
international exposure to its products, lack of standards conforming to international
standards etc. With the removal of quantitative restrictions, SMEs are subjected to foreign
competition by way of cheap imports from neighboring countries as well as developing
countries.

Removal of QRs will affect most of the sectors in SMEs. The sectors which are
manufacturing products keeping in mind the Indian customers are likely to be less effected
while those which cater to universal demands are likely to be more effected. The Economic
Survey 2001-02 has observed that the key rigidly inhibiting Indian industry from investing
in labour using activities that are export oriented is the continuation of SME Industry
reservations. The large foreign enterprises can produce all these products whereas large
enterprises in India are not permitted to manufacture these products. To increase
competitiveness of SME products a number of items are de-reserved. De-reservation helps
to bring in state-of art technology and capital, including foreign funds through Joint
Ventures, increased competition and induces the units to improve the quality of that
products thereby making the products more competitive in the international market.
However, de-reservation of the products is a delicate issue that hampers the growth of the
SME Sector and Governments needs to address the issue cautiously.

In the Asia Pacific Economic Cooperation forum’s meeting held in 1997, the SMEs identified
the need for trade reforms in four areas:

a) Access to Markets
b) Access to Technology
c) Access to Finance
d) Access to Skills

On the other side the implementation of WTO Agreements will have some favorable impact
on the SME Sector. The removal of QRs would imply that raw material is available cheaper
rates which will in turn, reduce cost of a product thereby making it more competitive in
terms of pricing. There is vast market potential for the products for the products of SME
Sector in the neighboring countries as well as in other developing countries as removal of
QRs is also applicable to these countries. SMEs should adopt an aggressive export policy
towards the optimum utilization of the opportunities available by removal of QRs.

There are certain areas where MNCs would not be able to supply goods. SMEs have very
good opportunity to provide such products at cheaper rates. The Government has also
established sub-contracting exchanges which maintain data about the SME Industry to
match the requirements of large scale industries. SME Industry Sector will become
increasingly knowledge intensive and offer many challenging opportunities in the coming
years. The Government should take measures to safeguard the interests of SME Sector and
to make them competitive both domestically and globally. The areas which require special
focus are: technology up gradation, infrastructure assistance, enhancement of fiscal
support, timely availability of credit, adoption of modern management facilities, use of
electronic infrastructure and other IT applications to face the emerging challenges of trade
liberalization.

3. Composition of Auto Industry

The Auto Industry can be bifurcated into two parts viz. Automotive Industry and
Auto Components Industry:
(a) Automotive Industry

The Indian Auto Industry is highly competitive with a number of global and Indian
companies present in the market now. The foreign companies are present in India
through Joint Venture, Equity participation or with technology tie-ups. The industry
has the potential to emerge as one of the largest in the world. India ranks number
two globally in the two-wheeler segment next only to China. It ranks 11th in Car
production and 13th in Commercial Vehicle production globally. With increasing
industralised production and growing spending power of the Indian middle class
households, the country is expected to make to the top five markets in the cars and
commercial vehicle segment by 2020.

Development and growth of Indian Auto Industry

(i) Pre-1983 stage

 Closed market
 Growth of market limited by supply only
 Outdated models.
 Players : Hindustan Motors, Premier, Ashok Leyland and Mohindra and
Mohindra.

(ii) 1983-1993 stage

 Joint Venture between Suzuki Motors Japan and Govt. of India to form
Maruti Udyog.
 Joint Ventures between companies in commercial vehicles and
components.
 Players : Maruti Udyog, Hindustan Motors, Premier, Telco, Ashok
Leyland and Mohindra and Mohindra.

(iii) 1993-2008 stage

 Delicencing of the sector in 1993.

 Global major OEMs start assembling in India (GM, Ford, Honda,
Hyundai etc.)
 Imports allowed from April 2001.
 Alignment of duty on components and parts to ASEAN levels.
 Implementation of VAT.

The Indian Auto Industry crossed the historic sales landmark of 10 Million Units in
2006-07. Domestic sales and exports of the auto industry had grown from 5.51
Million units in 2001-02 to 11.12 Million units in 2006-07 at an impression
enhancement, market expansionive compound annual growth rate (CAGR) of 15.5
percent. This extra ordinary growth had been driven by a buoyant economy,
increasing purchasing power of Indian middle class, new product launches and
attractive finance schemes from automobile manufacturers and financial
institutions.

But due to the economic meltdown at the global and domestic levels and the fate
that has befallen many of their international counterparts, automobile
manufacturers in India are grateful to see fiscal 2008-09 come to an end. The
domestic sales in Auto segment for March 2009 are:

Company April 08 March-09 April 07 March-08 Sales Growth

Four Wheeler segment (Units sold)

Maruti Suzuki 7,14,655 7,07,897 0.95%

Hyundai 2,44,080 2,16,405 12.79%

Tata Motors 2,00,159 2,14,758 -6.80%

Honda Siel 52,420 62,802 -16.53%

General Motors 61,645 66,543 -7.36%

Mahindra & Mahindra 13,423 25,891 -48.16%

Two Wheeler segment

Hero Honda 37,22,000 33,37,142 11.53%

Bajaj 19,17,839 19,88,002 -3.53%

TVS 12,53,445 12,37,744 1.27%

(ii) Auto Components Industry

The Auto parts industry has emerged as one of India’s fastest growing
manufacturing sector, growing at a compound annual growth rate of 28.9 percent
in value terms between 2002-03 and 2006-07. The industry has adopted a three
pronged strategy of product portfolio enhancement, market expansion and
efficiency improvements to achieve this stature. Enhanced capacity and higher
capacity utilizations have contributed significantly to this growth.

As regards the market for Automotive Components, a major portion (nearly 55 per
cent) is the Vehicle Industry for the original equipment. Replacement demand
constitutes 35 percent of the domestic production. Exports account for the
remaining 10 per cent. Exports mostly serve the replacement market abroad. Both
OEMs (Original Equipment Manufacturers) market and replacement market demand
has been growing since 1980s owing to a rapid growth in the passenger car and
two-wheeler segments and poor road conditions. The Indian automotive
components are a low volume and fragmented industry. It has nearly 400 firms in
the organized sector and more than 5000 firms in the unorganized Small-Scale
Sector.

Growth Potential of Indian Auto Industry

There are several factors that are expected to drive the growth in the automobile
industry. These are as follows:

 Increasing demand for vehicles.

 Stable economic policies adopted by successive Governments.
 Availability of low cost skilled manpower.
 High quality standards.
 Proximity to key markets of the world.
 Growth forecasts as per Automotive Mission Plan.

4. Dimensions of Financial Demand from Auto SMEs in the Post WTO

Regime

(a). Demand for Working Capital, and

(b). Demand for Investment

While the growth of working capital demand is directly related to the growth of small
industry sector, what is of more significance in the liberation period is investment demand.
Investment demand can be subdivided into several categories:

(i) Replacement of obsolete machinery or Technological Up-gradation and

Modernization.
(ii) Expansion of the Unit by adding Plant and Machinery to produce more.
(iii) Quality Improvement.
(iv) New Ventures/Diversification
(v) Labor Saving Devices.
(vi) Research and Development to constantly upgrade the competitiveness of the
unit.
(vii) Environment related investments (industry specific).

The Investment Demand for finance from Small Industry will increase enormously in the
coming decade. A substantial part of the demand will emanate from the factory sector,
particularly because of technology up-gradation and modernization, expansion and quality
improvement. But equally significant will be the transformation demand of the unorganized
sector – workshops and household industrial and their subsequent entry into the factory
sector. Though R & D is not yet significant, the competitive pressure and the urge to grow
will prompt many small factories to go for setting up their own R & D facilities. In the
process of all these, some of the Small Industry Units will grow into Medium/Large Scale
Units.

5. The Problem

Credit is undoubtedly, the jugular vein of small enterprise development in any economy.
But, a major constraint in the development of Small and Medium Industries is inadequate
credit to finance operations and expansions in our country. The difficulties in obtaining
Institutional Credit largely stem from a lack of collateral and the inability to comply with
documentation requirements. Simplification of procedures and flexibility in rules governing
small borrowers would help to increase the flow of institutional funds required for increased
investment in the post WTO regime. The possibility of interaction between formal and
informal sources to increase loan-able funds for small and medium enterprises needs to be
probed for the development of SME Sector in India.
6. Literature Review

The studies relating directly or indirectly to the present subject have been reviewed (Year-
wise) in order to determine the research gap and to establish the need for this study.

Sonthalia, A.R. (1979) emphasized in his study that a product can be produced by different
techniques. The choice of techniques depends upon the proportion in which inputs were
combined to obtain output. Attention should be given to those industries, which will create
favorable conditions for the growth of other industries.

Singhal, M.L. (1980) in his study on “Changing Pattern of Business Finance” observed that
public deposits had been an important source of business finance in the beginning financial
needs of Auto, cotton textile, sugar, engineering, chemicals, power generation and
distribution, tea gardens and other industries were generally fulfilled through public
deposits.

Wani, V.P. (1993) conducted a study on “Quality Consciousness in Small Scale Sector”.
According to him Small Scale Entrepreneurs should be quality conscious about their product.
Today productivity means goods of better quality at less cost, which has less chance of
rejection, good profitability with less alteration.

Ramaswamy, K.V. (1994) in his study on “Small Scale Manufacturing Industries” found that
the performance of Small Scale Industries was good in terms of employment, export and
value added because of the basic characteristics of the industry.

Chadha Vikram (1995) found that the use of outdated technology by SSI Units is the critical
obstacle in the way of growth and modernization of the small industries. Small Industries
can be modernized by improving productivity, enhancing quality, reducing cost and
restructuring product mix through up-gradation of technology and enlarging the skill of the
workers. The liberal fiscal and monetary incentive should be given to these units so that
they can carry out R & D particularly in technology intensive industry.

Rajput, Jyotsna (2001) in her study observed that the globalization means free market
economy. All tariff and non-tariff barriers to import and export cease under globalization.
Indian economy decided to participate in globalization because it faced a very difficult
situation during the year 1990-91 on account of domestic as well as external front.

Mukherjee, Neela (2002) evaluated the performance of Small Scale Industries in India and
World Trade Organisation. According to him small and medium enterprises occupy a crucial
position in the Indian Economy, not only because they contribute to GDP, income, exports
and employment but they also provide self employment, livelihoods and small business.
And it is important to create and ensure space and more opportunities for such a sector.

Luostarinen and Gabrielsson (2004), in their study on globalization of the SME Industry,
concluded that born global or drawn from large countries globalize mainly because of the
demand based pull forces in global markets for their products.

The study by LE Gales et. Al (2004), throws some light on the factors for internationalization
of the SME Sector. It reveals that firms that are inexperienced at internationalization may
not have the human capital or financial resources to identify potential partners and build
networks with large organizations.

Jong Wook Ha, Soon-Gwon Choi and Sungwoo Jung (2007) analysed the Korean firms “on
When, how and where do SMEs start global business”. This paper investigates whether
traditional internationalization theory, especially Uppsala Internationalization Process (UIP)
perspective, can be applicable to analyze new international phenomena of small and
medium sized enterprises, such as International New Venture (INV). They recommend the
development of a new concept to explain and analyze new internationalization phenomena,
such as INV, Born-global, as 'Condensed Internationalization.'

Dimitrios Buhalis (2008) in a study on Information Technology for sized tourism observed
that Distribution intermediation are increasingly recognised as critical factors for the
competitiveness success of the tourism industry in general and SMTEs in particular. The
paper concludes that innovative entrepreneurs who re-engineer their business processes
take advantage of the emerging opportunities will gain major benefits enhance their
profitability viability the global marketplace.

Eshetu Bekele and Zeleke Worku (2008) conducted a study on Women Entrepreneurship in
Micro, Small and Medium Enterprises in Ethiopia. This examines the factors that influence
the long-term survival and viability of micro, small and medium enterprises.

The majority of businesses that failed were operated by women.

Daiva Radzeviciene (2008) analysed the role of knowledge management in small and
medium-sized enterprises in Lithuania by looking at information and knowledge resources,
the development of information technology which supports the business process and the
main processes of KM inside companies. There appears to be a strong awareness of KM.
7. Objectives of the Study

The objectives of the study are:

(i) To find out the problems being faced by the Automobile SME Units while
obtaining finance from institutional and non-institutional sources.

(ii) To study the manner in which the available funds of the Automobile units
are deployed on various items of Fixed and Current requirements.

(iii) To examine the policies, procedures and practices being practiced by the
Central Govt. and Financial Institutions in providing long term and short
term funds to the Automobile SME Units.

(iv) To make suggestions for improving the Financial Support System for
Automobile SME Sector in India.

8. Research Methodology

A survey was conducted with a target of Automobile SME Industries enjoying some
credit facilities from Banks in India. Convenience sampling was used for survey.
The final questionnaire was administered personally to 50 Automobile SME
Industries and 25 Bankers/Officials/Policy Makers, representing the views of both
the segments. The respondents were from the National Capital Region of Delhi.
The survey was done in the month of June 2008.

Further both, Theoretical and Empirical studies have been done to gauge the
current status of Auto SMEs as well as finances available in India.

We have also covered the policy and regulatory framework under which the existing
Automobile SME Sector has been operating in India by using the exploratory study.

(a) Research Design:

(i) Population :

The primary data has been collected from the Automobile Small and Medium
Enterprises in the National Capital Region of Delhi by bifurcating the firms in the
undernoted five categories :

 Group1 : SMEs having investment of Rs.1 lac to Rs.50 lacs : 10

 Group II : SMEs having investment of Rs.50 lacs to 1Crore : 10
 GroupIII : SMEs having investment of Rs.1 Crore to 1.5 Crore : 10
 Group IV : SMEs having investment of Rs.1.5 Crore to 2 Crores : 10
 Group V : SMEs having investment of Rs.2 Crores & above : 10
In addition to above, the in-depth interviews have been taken of 25 experienced
bankers/Officials from nationalized Sector, Private Sector Banks, Reserve Bank of
India, Small Industry Development Bank of India and Ministry of Small Scale
Industry, Govt. of India.

(b) Questionnaire Design

A questionnaire consisting of 11 main questions under various sub heads was

administered. It was pilot tested in NCR Delhi and based upon the feedback
appropriate changes were made to improve the questionnaire to make it more
respondent friendly.

The questions are based on the parameters of company’s identification, general

information, manager’s profile, inputs & outputs, production process, taxation
pattern, existing technology, change in technology, market profile, financing
pattern and Govt. policy measures.

(c) Data Analysis Tools :

Statistical tools like Co-relation, Standard Deviation and Factor Analysis have been
used to find out the results.

9. Results and Discussion

Analysis of the study reveals that product market, owner-manager's perception of market
changes, technological capabilities, scale of operation, labor behavior and attitudes of the firm
and the availability of finance, information, complementary skills and materials to the firm and
the relative factor prices that the firm faces, influence the change in the technologies of
enterprises. These factors further deduced into the firm level characteristics. Using this
framework, the paper investigates the factors influencing technological change in some of the
small auto component units of India using the primary survey data.

We first place industrial enterprise in its business environment in the broad conceptual frame of
the selection mechanism of the evolutionary economics. Later, we focus on those elements of
the firm that are essential for the changes in its technology. For the purpose of analysis, we take
Auto industry that produces a given set of goods. Firms compete with many other firms that are
producing similar or substitutable products in the market. Markets (product as well as factor
markets), industry (competing firms) Government policies form the business environment of the
firm.
The business environment of the firms changes continuously as all its elements keep changing.
For instance, the product market change as incomes, tastes and preferences change causing
shifts in the demand for the specified products. The number and structure of the firms in the
industry change and affect the supply of the given products. Government policies change over
time shifting the demand and supply structures of the products further.

The kind of product market a unit is serving influences the unit-level technological changes. The
market can be international, domestic but national or regional or composed of specific
customers as for the original equipment manufacturers of components in any industry, or a
replacement market. These markets differ widely in terms of the degree of competition and
hence influence firms at differential rates to go for technological change. For instance, exporting
units are likely to face more competition and stricter quality norms that push these units to
improve their technology relative to the units serving the domestic market. Similarly, we expect
the units catering to the national market, which is wider compared to local markets, to have
more incentives as well as pressures to go in for technological up gradation due to greater
demand and more competition.

Original equipment manufacturers for specific customers usually have more pressures to go for
improvements in machinery, quality management system and other organizational methods in
comparison with the units catering to the general market or replacement market. The owner-
manager's perception of product market changes can be taken in terms of their views on the
demand for the product, market competition and the likely impact on the concerned unit. If the
owner-managers view that demand is a problem in the sense that it is stagnant or falling, they
do not have an incentive to make improvements in the technologies of their plants. On the other
hand, rising demand for the product induces units to go for technological up gradation. If the
markets are becoming increasingly competitive in the owner-manager's view, units consider up
gradation of technology to improve their competitive strength so as to maintain commercial
viability. Owners/Managers go for it only if they consider the market changes as opportunities
for growth.

Technological capabilities of the unit can be deduced from the formal education and training of
the Owner-Managers, their experience in the relevant area of production and the extent of the
use of professional labor. It is argued that the higher the education and experience of the
Owner-Managers, the greater is the unit's capabilities to undertake and manage technological
changes. The larger the proportion of professional labor, the easier it is for the units to master
the new technologies and in lesser time.

Scale of operation, if taken in terms of annual sales turnover, reflects the actual size of the
market the unit is catering to and provides an idea of the returns on its investments.
Accordingly, a higher scale of operation implies a larger size of the market that ensures returns
on new investments and increases the scope for exploiting indivisibilities associated with the
new technologies compared to the smaller ones. Hence, larger enterprises are in a better
position to go for technological change in comparison with the smaller ones. As regards the
access to information on technology, it is easier for the unit to search for and select new
technologies if it has better access to information. Access to information can be taken as better
if the unit is making use of multiple sources of information rather than relying on one or two
sources and / or does not find it a problem to get the required information. With respect to the
access to finance, the greater the access the easier it is for the firms to go for technological
change. Better access to finance also widens the unit's choice and makes the selection among
the alternative technologies easy.

Access to finance can be considered better if the unit has been obtaining credit from the
financial institutions including commercial banks rather than relying solely on personal finances
of the Owner-Manager and the unit does not consider it a problem. The behavior and attitudes
of the labor or work force not only affect the absorption of technological changes but can also
induce these changes. Attitudes of labor are taken in terms of their willingness to work and
learn, i.e., whether labor gives the best even when the owner-manager is away and is willing to
work on new machinery. If the labor attitudes are (negative) positive and hence (not) giving their
best even when the manager is away or (un) willing to work on a new machine, it is (difficult)
easier for the units to master the technologies and get maximum benefits. The behavior of labor
is considered in terms of absenteeism, turnover and unionization of the work force. While
absenteeism and unionization problems are mostly associated with the regular workers,
turnover generally presents among the casual work force. Of the three, turnover is the most
common problem for the small-scale units. If a unit has severe labor problems either in terms of
its behavior or attitudes, it is difficult for these units to manage and absorb technological
changes. Labor problems at an extreme level may even induce the growing units to go for
technological change in terms of automation.
We have considered transformation, organization and information aspects of technology we
have confined transformation technology mainly to mechanization. Here, we have considered
three levels of machinery, viz., manually operated machines, semiautomatic machines and
numerically controlled machines. We have taken the organization, as mentioned earlier, to
include plant layout, materials management, quality management, production schedules and
work allocations. Under the materials management, we covered the suppliers of materials,
methods of procuring and financing of materials, and inventories of materials. Quality
management is studied in terms of having a total quality system like ISO 9000, which is a
necessary condition to get into the supply chains. Work allocations refer to the ways of
assignment of jobs to workers. Whether jobs are fixed or rotating and whether a worker is given
a single or multiple jobs at a time. Information technology is taken in terms of the ways of
communication with the outside agents and we have considered three means of communication
viz., person/ post/ phone, fax and electronic mail.

We have also collected information about the data management, i.e., storing and processing of
data. Two types of data management that are considered in the study are: paper files and
computers. Owner-Managers' perception of product market changes are considered in terms of
their views about market demand and competitiveness and whether they take changes in the
market as opportunities of growth for their units. About the kind of product market that is being
served by the units, we have considered specific customers and market, keeping the nature of
industry in mind. Technological capabilities of the units are captured through education and
experience of owner-managers.

Education of the Owner-Managers is considered in three ordered categories such as: (1)
Education - more than schooling but non-professional (2) Schooling and Professional (3)
Professionals include Engineers, MBAs, CAs, Lawyers, etc. Experience is taken in terms of
number of years working in the relevant area of production. Information about the role of
availability of skills and materials and the existing relative factor prices in the technological
change can be obtained through direct questions relating to the reasons for the selection of
technology.

We have collected information discussed in the preceding paragraphs through a questionnaire

structured on the lines of discussion. We have found that the level of mechanization, quality
management, work allocations, communication and data management technologies as
empirically relevant for our sample auto component units in the small manufacturing sector. We
now examine the evidence for those characteristics of the units that represent the factors taken
to influence technology characteristics.

As has been discussed earlier, these determinant characteristics include product market served,
owner-manager's perception of market demand and its competitiveness, education and
experience of owner-manager, share of professional labor, scale of operation, sources of
information and finance, owner managers' opinion about the availability of information, finance,
skills and materials and the attitudes and behavior of labor.

Coefficient of
Mean St Dev Variation

Plant and
Machinery 289.66 2379.17 8.21

Annual sales 504.31 4411.62 8.75

Capital employed 416.93 634.48 1.52

Inventory 64.82 99.46 1.53

BASIC FEATURES OF THE SAMPLE UNITS

For the purpose of the study, we have surveyed 50 Small and Medium industrial units producing
automotive components. But for two, all the surveyed units are involved in the production of
metal products such as sheet metal products, spare parts. Productions operations of these
components are mostly involved pressing, forging and machining. All these operations are
possible at different levels of mechanization in the sense that they can be produced either by
manual, semi-automatic, or numerically controlled machines.

ECONOMIC CHARECTERSTICS

Of the 50 auto components units that have been surveyed, 96.55% units are registered as SSI
units or Ancillary units. 3.45% have not registered themshelves.
A total of 31% companies are located in UP and 31% in New Delhi. The percentage of Haryana
is a bit less than New Delhi and UP that is 24%. The lowest is in Rajasthan 13.79%.

Approx 38% companies are Proprietorship or Partnership and 62% companies are Limited
Companies with two or more than two Directors
About 58% owners have no professional qualifications and 41% have some professional
qualification.
Approx 82% owners have started their business and 13% have inherited the business.

As regards the investment in Plant and Machinery 11% lies between 1 to 50 lakhs, between 50-
100 lakhs 17% lies. The majority is in between 100-200 lakhs that is 31%. 10% lies between
200-300 lakhs and 31% is more than 300 lakhs.
As regards the annual sales turnover of the sample units, most of the companies have sales
turnover more tha 1000 lakhs (31%). Between 500-1000 we have no sample and between 200-
500 lakhs we have 24% units. Between 100-200 lakhs we have 10% units, 24% is between 25-
100 lakhs, 11% is less than 25 lakhs.

A majority of units (55%) have profit upto 25 lakhs, between 25-50 lakhs we have 35% units,3%
between 50-100 laks and 7 %between 300-500 lakhs.
FINANCIAL PATTERN

Most of the companies are dependent on Institutional source of finance (66%), and 34% are
taking financial help from personal sources. It has been observed that Proprietorship Business
Concerns and Partnership Business Concerns have more personal finance solutions and
Companies are dependent mainly on Institutional Finance.

A majority of them (62%) feel that the credit flows to SME’s is not sufficient for them.
A meagre 7% of companies don’t need financing from outside sources and all of them are
Proprietorship Firms. All the Limited Companies and a vast majority of Partnership Firms need
finance from outside sources.

A good sign was that 79% said they were provided funds without much hassles.
TECHNOLOGY CHARACTERSTICS

Of the 50 Auto units covered in the study, 55% of units have manually operated or semi
automatic machines, 45% units have employed numerically controlled machines in their in
addition to manually operated machines.

Out of 55% of industries 21% have not changed their machinery, 34% have changed to
semiautomatic level. Only 45 % are operating with fully automatic machines.
Work allocation is taken in terms of the assignment of fixed or rotating jobs to the workers. 55%
of the 50 Auto Industries have been surveyed rotate work assignment to the workers. The
remaining 45% units fixed job assignments for all the workers. Most of the units that rotate jobs
to the workers also assign them multiple jobs.

Quality management of the units is studied in terms of acquisition of the quality management
systems like ISO 9000 certification. Our survey results show that only 21% companies out of 50
have this certification. Remaining 79% units have not adopted any such quality system.
As far information technology is concerned, we have covered means of communication with the
outside agent. Only 24 % companies have started E- mail in addition to traditional ways of
communication.

15% units of the sample still use paper for record keeping. Out of remaining 86% some have
already shifted to computers and some are in process of computerization of their record.
GOVERNMENT POLICIES

A major finding is that majority of the firms think that Government intervention is reduced. They
think that Government is giving them enough freedom to take their own decisions. 66% think
that they have enough freedom to work on their own rules.

Also 66% think that Government is not regulating on them.

69% of them which is a good number have said that Government policies are useful. Only 31%
are not satisfied with the Government Policies.

10. Limitations of the Study

(i) This study primarily looks on the past, current and future of Auto SMEs as well
as SME finances but more views of many shareholders for the SME systems need
to be taken in consideration which exposes study’s Limitation.

(ii) The sample units cover only the NCR Delhi Region.

(iii) The present study has not covered the units having investment of less than

Rs. 1 lakh owing to a number of problems

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