I had read my first James Bond novel when I was in the eighth grade (circa 1962) while I was educated in a Marathi school in Mumbai till eleventh grade! I became an instant fan of Bond. I am Bond, James Bond- accompanied by the famous Bond tune! The dialogue with the bartender was “Shaken, not stirred!” could be said only by Sean Connery! My only regret is that I never got to see the movie “From Russia with Love” at the Regal cinema in those times!
But I never knew that there would be so many followers of James Bond in the real world! I am talking about the highly competitive business world and the Movie “Live and Let Die!” I completed my Master’s degree in engineering and joined the industry in 1973. Being in Pune, I landed up in the automobile industry, on the components side. I have worked on shop floors, done some manufacturing myself. Later I meandered towards software and consulting businesses, all in the automotive domain.
When I started my career, the buyers from Vehicle Manufacturers (VM) would visit the vendors. Many of them were in Bhosari, Pimpri-Chinchwad area. Vendors were putting their baby steps in the industry, and the VM’s gave a lot of support during those times. The relationship was like the parent and child. The baby steps became the steps of an adolescent and then that of a young adult. But as usually happens, the parents missed out that the child has grown up and become an adult.
With these changes, the tier 2 and tier 3 vendors started becoming bigger and bigger. With many new entrants in India for vehicles, the vendor’s scope went up. Nomenclatures also started changing, and the smaller companies became MSME. Others grew massive, expanded, acquired technologies, started producing world-class products, components and services. Since this was being done locally, there was a cost-benefit. VM’s started getting benefits because of these changes. The main driving force behind such companies was entrepreneurship!
But we will discuss the MSME sector and not the more significant vendors.
All large companies need to have an established cluster of companies both upstream and downstream. It is of no use if the MSME (Micro, Small, Medium Enterprises) companies keep struggling all the time. These companies are registered under various departments and come under the ambit of the taxes. COVID is a significant shock to all the economy, but before that, there was GST and demonetisation. These are visible problems that are known to all. One invisible problem that has been hitting MSME is their relationship with the VM’s; the COVID issue has prompted the government to come with some formal support for MSME. During the other two problems, they had to fend for themselves.
The hidden issue from the public eye is the pressure from VM’s on the finances of the MSME. When global competition started in India amongst VM’s, the need for cost-cutting started. MSME organisations are tiny and have no money to take pressure on costs. There are ways and means of achieving the cost-cutting targets. One is an investment in modern equipment. Second is to seek the advice of experts and so on. Both these actions add to cost rather than cost-saving for MSME; for VM’s it is cost-cutting.
By the time the results of productivity improvement are seen, something new comes, and the endless cycle of price negotiation, investments, cost-cutting continues. Some try their best which most of the times it is not good enough to achieve the targets. This type of continuous pressure from VM’s lead to shortcuts and sometimes cheating too! If steel sheets are being used for stamping, discrete changes in specifications done by MSME during buying, help them remain afloat. But it is cheating, though not justified. It is the compulsion to survive.
I was an advisor to medium size companies and some huge companies. They could withstand such pressures and simply do not accept the demand for cost-cutting at least for some time. These huge companies have the same cost structure as that of VM’s. So negotiations keep going on for a long time. But in case of MSME, many times the discussion ends with a terse “take it or leave it” approach. I know about a product which is imported from Japan. For five years, the Japanese did not ask for the price increase, nor did they offer any price reduction. It is because the large companies budget for five years of projected variations. The MSME, many times, are not even equipped to visualise things like after five years; you will be surprised to know that they are also not organised to think of issues five months from today.
Despite such issues, it is a fact of life that VM’s and MSME are joined in business. It becomes a responsibility of VM’s ensure that MSME survives in the ecosystem. An attitude of we will get someone else, throws water on lifetimes hard work put in by some people. They will strongly resist only when their backs are to the wall.
I have heard of many horror stories. Someone started manufacturing a piece of equipment which could be used by many for a particular process. When they went for discussion, the buyer said, “Forget, everything else. All this is sheet metal fabrication. Tell me the total weight of the equipment. We will apply a multiplying factor and give you that price.” What happens to design cost? What happens to the development cost, testing costs?
I am in this field for a reasonable period, and maybe I know a few things. I know all the theories of survival of the fittest. There is a glorified theory of giving price reduction every year; offering price reduction when the volume goes up! But what happens when production volumes go down drastically? Do the MSME get price increase at such times? Sometimes there are modifications in the components. MSME is pushed to absorb the development or modification cost. Why should that be? Do they really have the capacity to absorb such costs? I have already explained above why that particular the Japanese company did not ask for the price increase for five years? They had already budgeted this factor in the quote given for the first time.
What is the solution for this? Coming back to James Bond- first Roger Moore Bond movie was Live and Let Die! It was a 1973 movie. It seems that VM buyers swear by this movie- Live and let die! But is it the right thing to do? To me, it should be Live and Let Live! A dying breed of MSME is not right for any nation. They provide products and services at very competitive rates and are flexible and dynamic because of their size. The MSME ecosystem employs a large number of people. It keeps the enterprise thriving. Their requirements are always reasonable, and they do not have the wherewithal to fight back. The metaphor I used above about parent and child should be extended to at least let them survive with dignity. We should not forget that out of these small, tiny MSME a few giant companies mushroom. Some of these, though they are small, have an international presence. Given the right environment, some can become very good.
I will end with an event which took place years back. One of the towns in Maharashtra had many organisations in a specific sector of the industry. They together supplied a substantial percentage of components to a VM. They were under so much pressure on pricing, they feared that the sector will simply collapse. A few of them went to VM and asked for a meeting with the topmost boss. He was busy. They waited for a few hours. Then they told the buyers, “We have been continuously in touch with everybody. If you have no time to discuss our woes, we will go away. But within two weeks we all will stop our supplies.” The top boss came out of the meeting in fifteen minutes. Rest as they say is history.
I will not recommend such drastic steps because these can be taken only once in a lifetime, that too if you are a group of many companies making similar products. But the MSME friends need to find out their own method to do well, with dignity! Both sides should remember that it is a partnership. But this word should not be used for namesake. But desperate situations will lead to extreme actions from both sides; after all, it is business! MSME folks think, plan, grow, (do not remain too small). Continuously evolve your methods, become efficient. Do not forget that you have reached this stage because you are sharp and smart! But also do not forget that it is a war zone, all the time. Try to stay a couple steps ahead of VM’s! Last but not least, do not put all your eggs in one basket!