There have been many factors that aided the growth of Chinese SMEs, including strong cultural advantages and a sharp focus. India too can replicate a similar model to accelerate MSME growth.
Each year there are about five million SMEs more in China representing a 10% year-over-year growth rate, projects database company Statista. Contributing over 60% to the GDP and accounting for 80% of jobs in China, the number of SMEs in the country is estimated to be over 38 million.
Contrast this to the 63 million MSMEs in India which contribute 30% to the country’s GDP and are hailed as the ‘growth engines’ of the economy. Despite the scale, however, the growth and success story of the MSME sector in the country is impeded by several bottlenecks. So, what is the reason behind this gap?
Ravi Venkatesan, Founder, Global Alliance for Mass Entrepreneurship (GAME) is of the view that a lot can be learnt and imbibed from China’s development. “China has been creating 16,000-18,000 new enterprises per day for the last 5 years. When you compare that with India, it is about 1000-1100 per day. So there is clearly something very interesting going on,” he said while speaking at the TiE Global Summit 2020.
Delving further on China’s history, Venkatesan highlighted that the country began its first few steps during the years 1978-80 when early conditions for SMEs or entrepreneurship were hostile too. But certain factors worked in its favour. “China has had a longer history of entrepreneurship and small businesses than India. They have something culturally quite strong. Some of these people restarted their enterprises. It was difficult, but they persisted. As they became successful, they could successfully lobby the government to change the formal system, and their successes inspired others to follow suit,” he explained.
This shift, he added, replicated India’s success in IT services in the 90s, which inspired more people to follow a similar path. “It’s capitalism from below, driven not by government intervention and policies but led by entrepreneurs who can then organise and work collaboratively with the government. We need to see how to get more entrepreneurs in India who are successful and can be aspirational for others,” Venkatesan said.
A single point of focus
There have also been other supporting factors that aided the growth of Chinese SMEs, more notably among them being their single point focus on becoming rich. “From about 1980 till the time Xi Jinping assumed office in 2013, China’s priority was to get rich. During this time, they did not put people in jail, challenge their neighbour or rattle America. They just stayed focused on the economic agenda and on being rich,” added Venkatesan.
There was also a lot of policy stability in China during this period, as the priority was to earn the trust of their entrepreneurs and foreign investors. Such aspects, he said, stand in direct contrast with India, where many objectives conflict with each other and policy stability isn’t present. “If the most important thing is to be prosperous, we need to have more entrepreneurs and much more flourishing of SMEs than what is there currently. This idea has to become and stay the dominant priority for a long time,” he stated.
Besides this, the cultural factors also assume an all-important role in determining the road ahead. For instance, in Bangalore, the mindset is more driven towards starting a business as opposed to other parts of the country where the priority is to get a government job. “Culture makes a difference. The most important thing in Bangalore or Gurgaon is that people don’t care what you are or which caste you belong to. But you are encouraged to invent, tinker and innovate. These cultural factors are very hard to replicate, which is why we have such few cities with a thriving ecosystem. China simply has many more cities where such ecosystems exist,” Venkatesan explained.
Creating more ecosystems
In order to activate the growth cycle then for SMEs in India, it would be imperative to have more cities and towns where ecosystems exist to amp up the sector. Venkatesan hopes to see a healthy economic pyramid in the future across the length and breadth of India. “There should be mass flourishing and lots of enterprises created and youngsters’ ambition being to create their own venture. If they fail, they can find a job, eventually. I hope we can bring that change,” he said while answering a question on where we should be 10 years from now.
More SMBs on a growth trajectory who would pay taxes, borrow money from banks at attractive interest rates, enhance productivity and export competitively are some of the other aspects that he wished would take place to propel the journey forward. “Too few of our firms are competitive, and that is one of the issues. Few of them become medium-sized and some large. So if we can get this whole dynamic going, which China has managed, it will be fantastic and the $5 trillion economy that the PM talks about will happen. It will also lead to a much greater employment generation and so forth,” he explained.
According to Venkatesan, the challenge of bringing everyone together – businesses and entrepreneurs, industry associations, banks, local, state and central governments – is significant and working collaboratively would make all the difference ahead. One initiative at GAME, in fact, has been to pick cities where interventions are made which allow the entire ecosystem to come together in a better manner. Illustrating his point with the example of Bangalore, Silicon Valley and Shanghai, he said that creation of organic ecosystems in many places is the only way forward. “The challenge here is that this is very multilocal. It can happen in Silicon Valley. But if you move away, it doesn’t happen. It is difficult to copy paste Bangalore, Silicon Valley, or Shanghai. But I think we are beginning to understand what it takes and the whole idea is to work collaboratively,” he added optimistically.