Future Prospects of Indian Refractory Makers
There is a good opportunity for Indian Refractory makers to urgment their export as China has stopped refund of value Added Tax(VAT) on refractory exports, which is almost 17percent. Indian Refractories are thus becoming more and more competitive. There is increasing scope for eports especially in European markets. Currently, Indi exports around 10 percent of its production. But in the existing scenario, this could double in the next three years. Indian products are sailing all across the globe, primarily to EU, Middle East, South Africa and Far East including Malaysia and Indonesia. However, Indian products are yet to enter the American markets in large volumes because high freight cost is making it uncompetitive. It is worth mentioning, that these markets are very particular about the consistency of the quality and their renewed confidence is a signal that assures the quality of Indian products. India is having superior engineering skill: high quality technology and equipment from Germany and Italy, access to superior quality refractory output.
However, overseas producers of automotive steel and other high quality steel are slow in accepting Indian refractories. Otherwise, acceptance of Indian products is high. So the growth of the Indian steel sector is extremely crucial to analyze the future status of Indian refractory makers. Therefore, the refractory makers are trying hard to make the best prediction regarding the realization of the plans.
The next five years can be clearly divided into two phases. During the divided into two phases. During the next three years, steel output is likely to grow at an annual rate of 9 to 10 percent. But there would be significant change after, that from 2011-12 onwards. Then the Indian steel industry might see a high double digit growth in the Indian steel sector. Market dynamics would surely change for the refractory makers as well.
Refractory makers are setting up new plants and are augmenting production capacities. Steel makers, on the other hand, are not being able to go ahead with their expansion plans. This might lead significant mismatch. It will create some problem for the brick (a type of refractory) makers, as orders have been placed but steel makers are not picking up the goods.(steelworld,2009)
Steelworld,2009: pp-17-21
FACILITATING SMEs ACCESS TO INTERNATIONAL MARKETS
During the past decade there have been steady technological and structural changes which have made it easier for SMEs to participate in the international economy. Advances in ICTs, and in particular, the Internet, have been a major factor in facilitating information flows and expanding the market potential of smaller firms. Governments have been making efforts to reduce barriers to international business activity, at the global and especially at the regional level (i.e. European Union, APEC- Asia-Pacific Economic Cooperation, ASEAN- The Association of Southeast Asian Nations and ASEAN+, Mercosur, and more recently in the context of the Doha Development Agenda). A major policy challenge is to reap the potential benefits of the global economy for all businesses, including for the SME sector.
However, SMEs are still relatively under represented in the global economy. SMEs only contribute between one quarter and one third of manufactured exports and account for a very small share, usually less than 10%, of foreign direct investment (FDI) (Schreyer (1996), Hall (2002), Sakai (2002)). In most national economies SMEs make up more than 95% of market participants, and contribute around 50% of direct value added or production. Why do SMEs make, proportionately, a much smaller contribution to value added in global markets and why are fewer SMEs active on global markets? The reasons for this are manifold. International activities expose SMEs to a more complex and risky business environment, for which, compared to larger firms, SMEs are relatively unprepared and less well-resourced. Some of these risks and complexities can be addressed by governments as they relate to the differing regulatory, administrative and policy environments that governments create. There are significant potential benefits which might accrue from the creation of a more business friendly, more integrated economy at international levels. Were SMEs to increase their contribution to the international economy to levels approximating their contribution to national or local economies then the gains would be very substantial.
More detailed empirical evidence relating to the globalisation of SMEs is set out in the following section. This shows that while SMEs make a useful contribution to the international economy, and while SMEs use a variety of means, or vectors, to pursue international strategies (such as direct and indirect exports, alliances, networks, FDI-Foreign direct investment, etc.), and while anecdotal evidence suggests some increases in the level of international SME activity, SMEs still remain underrepresented in the international economy. How to better capture the international potential of SMEs and entrepreneurs is an important policy issue.
For many enterprises gaining access to international markets and internationalisation is a strategic instrument for their competitiveness and their further development. Gaining access to global markets can help realise the potential for prospective high-growth firms, and is often an essential strategic move for SMEs with large investments in intellectual property. Such firms have high fixed and sunk costs which need to be recouped from as large a market as possible, as quickly as possible. Access to global markets can also offer a host of business opportunities, such as new niche markets; possibilities to exploit economies of scale, scope, volume and technological advantages; the upgrading of technological capability; ways of spreading risks; lowering and sharing costs, including R&D costs; and in many cases, affording improved access to finance. Recent research findings link high-growth firms and exports, and find that exporting is not the end of a strong growth process but rather appears instead to be its starting point and serves to accompany the growth process (OECD, 2002a).
In addition to opportunities, globalisation can also pose challenges and threats for SMEs by exposing them to heightened international competition from foreign firms and the associated adjustment and exit costs incurred; the issues of standards and international compatibility; intellectual property concerns; political risks, corruption and rule of law concerns. Globalisation can have important implications for business and organisation models, managerial and technological capability; and innovative capacity. SMEs from a resource viewpoint are less well-equipped/prepared than larger firms to face these globalisation challenges or to exploit the opportunities presented.
Evidence of the current level and trends of SME international activity
There is a shortage of accurate, timely statistics on levels and trends of international activity by firm size. Despite data shortcomings, this section seeks to sketch a broad picture of SME globalisation, showing the disproportionately low level of SME activity in international markets. The opportunities and challenges facing SMEs in global markets will be described, noting in particular the opportunities presented by global markets for a category of start-ups characterised by high-growth and export potential. Unfettered access to the global market allows such firms to develop niche markets and expand their businesses. The barriers and impediments which inhibit an entrepreneur’s access to international markets will be reviewed, along with the policy implications to which they give rise.
SMEs’ access to global markets: opportunities and challenges
The globalisation of business, including the recent wave of global industrial restructuring, has increasingly drawn SMEs, especially those in sectors subject to strong globalisation forces, into global value chains through different types of cross border activities (OECD, 1997, and in Sakai, 2002). There is evidence that a group of SMEs with high-growth potential require early access to international markets to ensure their development and growth (OECD, 2002a). The globalisation process for SMEs can be realised through any of a range of cross border activities, including trade, international investment, and participation in strategic alliances, partnerships and networking arrangements, affecting a variety of business functions ranging from research and product development to distribution.
Evidence on SME participation in international markets
Data are scarce and do not provide, except for a few countries, comprehensive and detailed information on the extent of the SME role in international markets and the pattern of its development. However, it is possible to sketch a broad picture for many OECD and some non-member economies, of SME globalisation which shows the disproportionately low level of activity by SMEs in international markets, when compared to that of larger firms.
SME exports and imports
The incidence and level of exporting activity are related to firm size, and as mentioned earlier, SMEs are in general, under-represented in world trade, although there is increasing evidence of SME globalisation for OECD and non-OECD economies. While they can comprise up to 99% of a country’s enterprises, only about one-fifth of manufacturing SMEs in OECD countries draw between 10% and 40% of their turnover from cross-border activities. Overall, SMEs are estimated to contribute between 25% and 35% of world manufactured exports, although significant variations can exist across economies and by sector (Schreyer, 1996, Sakai, 2002).
SME participation in international alliances and networks
The recent and ongoing wave of global industrial restructuring, combined with technological advances (especially in ICTs) have been the major driving force for the rapid development of cross-border strategic alliances, mergers and acquisitions and inter-firm networking. Opportunities have emerged for SMEs to become: i) partners in international strategic alliances; ii) participants or targets in cross-border mergers and acquisitions; iii) specialised suppliers to multinational enterprises; iv) members of globalised informal networks; and/or v) participants in electronic networks (Sakai, 2002). For SMEs such arrangements can confer any of a variety of benefits including access to financial resources, pooled research efforts, product development, wider distribution channels, etc. Large firms are motivated to form alliances with SMEs, as when faced with rapid changes in technologies and customer preferences, and shorter product life cycles, such alliances can help to fulfil specific needs.
During the past decade, small firms became more frequent participants and targets of cross border mergers and acquisitions, often with larger firms that were seeking specialised units, new technologies or niche products and services. A principal SME motivation may be to seek to: strengthen market presence; secure new management; ensure the survival of the business following retirement; or obtain new capital to start another venture. Becoming a specialised supplier to large multinational enterprises is another form of globalisation, as demonstrated so successfully by some SMEs in the automobile and electronics industries. Through such arrangements, SMEs can expect to upgrade their products and processes, and enjoy a bilateral partnership involving mutual learning with its partner firm.
SMEs and Foreign Direct Investment (FDI)
Foreign direct investment (FDI) can be another important vehicle for SME globalisation, although generally tending to occur down the line (after successful experience gained in exporting and perhaps forming alliances) although some young high-tech companies are an exception.
Barriers and impediments to SMEs’ access to markets and SME globalisation
Barriers and impediments that deter or inhibit SME access to global markets deny enterprises and ultimately domestic economies the significant potential gains to be reaped on global markets. For instance the issue of Alternative Dispute Resolution (ADR) is becoming an important issue for SMEs in their cross border business transactions. For this reason the SME Working Party in cooperation with other relevant bodies of the OECD is pursuing work in this area.
While a majority of SMEs have the vocation to serve only local markets, a significant share of enterprises need to access foreign markets to ensure their survival and expansion, among which is a group of high-growth, export-oriented enterprises (OECD, 2002). The unique business environment of each target “foreign” market, characterised by its own configuration of regulatory, administrative, policy and cultural dimensions, embodies a formidable challenge to the would-be SME exporter, investor, or future network partner, involving both complexity and risk dimensions, for which the exporting SME is largely ill-prepared. SMEs are less well-resourced than large firms for meeting globalisation challenges but experience the same needs as larger firms for prior research and preparations before embarking on global markets.
Many of the barriers that SMEs can face originate at the level of the national economy, institutions, and general infrastructure. Competition policy, legislative and regulatory frameworks, telecommunications infrastructure, research and education policy all contribute to SME preparedness or lack of preparedness for globalisation. Barriers can concern, inter alia, intellectual property rights; political risks; corruption and rule of law issues. They can relate to the entire range of business operations, having implications for business and organisation models, managerial and technological capability; and innovative capacity. As mentioned earlier, SMEs are less well-equipped than larger firms to address these difficulties.
That said, SMEs from more developed, knowledge-based economies are nonetheless, relatively better placed than SMEs in emerging and developing economies to meet globalisation challenges, benefiting as they do from a more business-friendly, and supportive policy environment.
The protection of intellectual property can be a serious issue for SMEs with global3. Within the SME population there is enormous potential for developing new and innovative products and services, as evidenced in certain high-technology sectors, such as semiconductors and biotechnology. Depending on the sector, patenting activity, trademarks and industrial designs, or the copyright system, can have central importance. An intellectual property system which is ineffective, inefficient, inaccessible, or unsuitable for SMEs, can constitute a major barrier and impediment for a would-be globalising SME. There is a need for monitoring the environment to decide which policy or other measures need to be taken.
Governments have a role to play in order to lower the barriers faced by entrepreneurs who wish to globalise their activities – thereby benefiting, in particular, a category of entrepreneurs whose businesses have high growth and export potential and who could develop and exploit niche markets and expand their businesses on international markets. Governments need to ensure that regulatory, administrative and policy environments do not inhibit access to global markets. Efforts by governments seeking to ease such barriers through the WTO Round and the appropriate channels would benefit SME trade and FDI involvement.
In particular, with respect to innovation networks, disincentives and obstacles to networking by SMEs translate into three types of bottlenecks/distortions in multi-layered regional, national and global research and innovation networks:
Governments have a role to play to correct such imbalances within global innovation networks by: (i) ensuring that their promotional programmes help national actors to access international networks, and (ii) developing the international dimension of public-private partnerships. They must also co-operate to avoid mismatches between the strong regional dimension of most self-organised SME networks, the national scope of many programmes to promote them, and the increasingly global nature of the knowledge infrastructure and of markets for innovative products and services. This involves interconnecting national and local hubs of technology transfer, linking national networks of SMEs with similar needs and complementary capabilities, building global networks of intermediary organisations, and coordinating national support programmes.
Implications for Policy
SMEs are under represented in the global economy. The main reason for this appears to be that there are impediments to their internationalisation. In other words, the international business environment is less conducive to the start up and growth of companies than are the domestic business environments in most countries. Although the evidence on these impediments is mostly fragmentary and anecdotal, it would seem that many of the impediments are not at the borders, but rather are NTBs (non tariff barriers), and often relate to the need for smaller firms to deal with two or more sets of regulatory requirements once they go beyond a single market. At present, the biggest contribution from SMEs to exports and FDI comes from quite large SMEs; typically those employing less than about 50 people only make a small contribution. However this is more a reflection of the high fixed (and often sunk) costs of doing business internationally. Were these costs to be reduced, by reducing the various impediments, there is no reason why smaller firms could not make a greater contribution beyond their immediate national borders. There is increasing evidence that quite small firms can now successfully operate internationally, as a result of a constellation of factors that have been evolving over the last two decades, such as: improved technology for communication and management; better awareness and education of managers; greater internationalisation of large firms and service providers; the acceptance of new and innovative corporate “vehicles” (clusters, networks, etc.); reductions in language barriers through a variety of factors (English as lingua franca in much of the world, automatic translation tools, etc.); and the increasing pervasiveness of the worldwide web. In short, there are many factors facilitating the internationalisation of smaller SMEs, but government and its national administrative rules and burdens remains one of the main factors impeding the internationalisation of smaller firms.
There are some significant potential benefits which might accrue to the world economy were we to develop a more conducive International Entrepreneurial Business Environment (IEBE). On the one hand, the potential gains from reducing trade barriers are still there and should be pursued, but the fifty years of benefits which have flowed from GATT and WTO are unlikely to be repeated in the next fifty. The main areas of potential gains from trade are now in politically sensitive areas, such as agriculture, and some national services (such as communications, airlines, and banking) where progress is possible, but likely to be slower. On the other hand, increased entrepreneurship and the growth of SMEs internationally could add significantly to the global economy. Modelling and estimating the size of the potential benefits is difficult, but can be done with some simple and robust assumptions.
These potential benefits are most likely to accrue from growth oriented firms, managed by entrepreneurs with a higher than normal propensity for risk and uncertainty. These firms are a major source of job creation and wealth creation. They also often provide a means for large firm expansion, as large firms target them for takeover. Although many of these high growth SMEs will be relatively large (and of course, some dynamic SMEs in this category “disappear” by becoming large), there is no real reason (apart from government impediments) why quite small, and even micro firms, cannot be active in taking advantage of the opportunities offered by a more international business environment. The business environment which is conducive to these entrepreneurs is likely to be one which:
At the same time, globalisation also imposes costs. The main costs are likely to be felt by small lifestyle and micro businesses that are unable or unwilling to cope with increased competition and pressures of change. These small firms are usually operating only at a local level, but are nonetheless affected by the broader international environment, without them being able to leverage much advantage from internationalisation. In addition, there will always be gains accruing to some regions or countries which have a more attractive entrepreneurial business environment. This attractiveness is relative to that prevailing in other locations and countries, and relative to the different types of entrepreneur.
A main factor impeding the development of a more conducive International Entrepreneurial Business Environment could be governments themselves. These impediments are difficult to monitor at present, because they are relative, not absolute, and because most are non border impediments. There need to be better ways of identifying what government regulations and practices are impeding the start up, growth and internationalisation of fast growth firms. Because many of these firms are small, and because they are “pushing the envelope” in new industries and new technologies they do not show up as significant “blips” on trade negotiation “radar screens” Governments need to collaborate more to set up monitoring systems to identify these impediments, understand their longer term impact, and establish mechanisms for addressing them, at bilateral and multilateral levels.
The success and growth of international SMEs will be enhanced by a more internationalised infrastructure geared to the smooth growth of firms across borders. This applies to the infrastructure for financial markets, advisory services, information access, telecommunications, intellectual property rights markets and regulation, dispute resolution processes, etc. all of which need to be internationalised. All of this requires active collaboration between governments, international agencies and the private sector to address these issues with the view to reaping the significant potential benefits that should accrue from the creation of a simpler, more business friendly, more integrated economy at international levels.
Sources