SMEs worked in EU and can work in India too!

Pedigreed European brands – from Rolls Royce to BMW, from Armani to Marks and Spencer – all evoke awe inspiring respect and admiration. And that’s the case with many expensive European brands glittering in the lives of the rich and famous across the world since many decades (from Rajiv Gandhi’s classic Rolex to Saudi King Abdullah’ pristine fleet of Rolls Royces). These brands, marketed globally by a horde of European MNCs, also got visible support from governments in Europe under the premise that the larger these iconoclastic brands and MNCs grew, the more would grow Europe’s employment base. But as has now been evidenced empirically, contrary to common perception, MNCs and such brands have really not turned out to be the proverbial gold mines for European economies.

Far from it, as the situation stands now, multinational enterprises employ less than 1 per cent of the European industrial workforce; greater than 99 per cent of the workforce is employed in Small and Medium Enterprises (SMEs). That is a humungous difference and shows that SMEs are the real backbone of job creation in Europe contributing to 2/3rds of all private sector rosters and more than half of business value-added in EU. Even in R&D and innovation charts, the place of SMEs in Europe is right at the top. They are mostly micro-firms providing jobs to a few more than a handful per unit; and yet, the spread of the SME segment is so wide that it has emerged as the previously unheralded citadel of the European economy. Especially now, when the chips are down, SMEs are coming out to be veritable saviours and sustainers of the employment landscape in the continent. As big venture investments are hard to come by, EU is depending to a large extent on furthering the promise of SMEs and especially the potential of startups and entrepreneurships to take the economy forward and create jobs. It’s not as if the Union did not realize this. In 2006, the Competitiveness Council (responsible for promoting SMEs in EU) set a number of goals to be achieved through SMEs (like simplifying processes of commencing a start-up, cheaper and faster start-ups, and larger volumes of start-ups); by December 2008, the targets were renewed with more ambitious benchmarking. The policy efforts also tried to reduce bankruptcy rates, and doing away with impediments faced by budding entrepreneurs – like high entry barriers and taxation. The stress is now being given on certain specific business lines, like crafts and micro-enterprises, education and training entrepreneurship, audiovisual media, social economy and women entrepreneurs.

Even when seen globally, SMEs have a major role to play. Going by an OECD report, the SME segment accounts for over 50-55 per cent of the total GDP and employs around 60 per cent of workforce in developed nations while employing 95 per cent of total workforce in developing and under-developed countries. In many developed nations, SMEs were gradually made more competitive and productive by giving them topmost priority. Unlike what happens in India, SMEs were included in their national development strategy. Such initiatives allowed SMEs to gain momentum and attract huge investments. In UK, in 2001, a unique SME development policy was pioneered titled ‘Think Small First’ and was embedded with the national policy.

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Let India follow Infosys... and Murthy shows the way!

The poster boy of Indian entrepreneurs of the 21st century, Narayana Murthy, is back in business at Infosys – the third biggest Indian tech firm – with a renewed mission to reverse the slide that had happened in his absence. Of course the economic slowdown had its own role to play, but the Infosys slide has been mainly engineered by a rising attrition rate, probably because of eroding values of employee welfare; values that were initially laid down by Murthy himself. The catchword of ‘employees first’ resonating with equal importance to ‘customers first’ was pioneered in India by Infosys, not just as a business strategy to foster higher revenues but also higher happiness levels of its workers. You can call it altruism, but trust me, despite some new-age philosophies preaching against this construct, it is better than the ‘me only’ capitalist doctrines. Even the heartland of United States that was built on the ideals of ‘survival of the fittest’ and showed little sympathy for those who couldn’t make it, has been eventually forced to acknowledge the pain, frustration and miseries of the weak as was evidenced through the Occupy Wall Street campaign and President Obama’s second term.

Barack Obama is often castigated by the Conservatives and media for being a socialist, and hence labeled as weak – a typically stereotyped capitalistic prophecy – only to find out that the overwhelming middle-class voters are behind him, despite his belonging to a racial minority. That’s leveling scores of socialism with capitalism, which many thought is indispensable. Without any doubt, capitalism forms the backbone of almost any economy; and centrally-controlled government planning or equal wage distribution based on principles of communism alone cannot take a country far and on the path of being economically prosperous. But an equitable distribution of wealth is as much important in an economy as ‘wealth creation’ per se is. And Narayana Murthy understood this perfectly, an understanding that set the standard for ESOPs in Infosys. He distributed Rs.50,000 crores among his employees and made all of them shareholders of Infosys. Even when he founded Infosys with his and his wife’s savings, in a first ever in India, he made his top employees top shareholders of Infosys, making many multi-millionaires. That’s socialism at its best – upholding dignity and ownership from the topmost to the lowermost in a flat employee structure. But that doesn’t mean he did not pursue capitalism – Murthy created wealth through capitalism and prudently distributed it to his people as an exemplar of socialism. His motto of following capitalism in his mind and socialism in his heart was thus fulfilled. Truly, this set the pattern for many others in similar businesses; and Indian entrepreneurs, at large, now follow his exemplary principles as Murthy showed that it is possible to build a business empire with socialist values.

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