Evaluation Study MSE Cluster Development - Ministry of Micro ...

Chapter No: 6 – Hard Interventions in Sampled Clusters6.3 The Rationale and Objectives of Hard InterventionsThere are several benefits that have accrued to SMEs who have collectively formed aconsortium in the form of a SPV, which is a legally constituted entity. These benefitshave been exploited in one or more ways and have helped in the improvement ofmargins, and thus their individual incomes as well as competitiveness, we feel it isessential to briefly describe these collective initiatives and highlight some of the casesacross clusters in India.These hard interventions have been as follow:SPVs to exploit Supplier/Market Access- The SPVs in this case directly accesssuppliers and customers without individually having to interact with their clients throughdistributors and other intermediaries. The margins that they surrender tointermediaries, who are often large, and affecting their own margins are thus effectivelycontrolled and internalized. The foundry cluster units in Hyderabad have directlyapproached the Steel Mills as against their suppliers who were basically steel distributorsand traders. The Wet Grinder Cluster in Coimbatore has been able to procure copperwire for their individual cluster units directly from manufacturers rather than dependingon local traders. The cases of many small coir units in Alleppey have similarly organizedthemselves to avoid middlemen and ‘coir depots’ to collectively access finance andmarkets. These are all real instances of collectively organizing in the form of a legalentity and accessing markets directly to improve individual incomes and margins.Individual cluster units can collectively take up harnessing Economies of Scale- commonmanufacturing processes on a large scale and of uniform quality and standards.Common components procured from outside the cluster can be manufactured in acommon facility. The cost of manufacture of these individually by the cluster unitsthough possible would be prohibitively expensive. A common process can also becollectively organized and the necessary investments (usually large) mobilized toeffectively exploit the economies of scales. The Wet Grinder Cluster in Coimbatore hasplanned a common facility to produce certain common components that were beingoutsourced from firms outside the cluster, this would not only reduce costs but also helpin controlling quality and standards. The export clusters producing home furnishings andtextiles in Kannur, Kerala, and Tirupur, Tamil Nadu respectively, have established theirown spinning mills to reduce units costs. Yet another example is of the Rubber Cluster inChenganacherry which has set up a mixing mill to reap the economies of scale, andimprove the quality and standards of the products manufactured and exported by theindividual units in the cluster.Improving Bargaining Power- Common bulk procurement of raw materials is yetanother initiative that can benefit individual units considerably and improve the collectivebargaining power as compared to the low bargaining strength that small and micro unitswould have. The Tery Towel Cluster in Sholapur, Maharashtra, has directly negotiatedwith spinning mills and traders for bulk purchases and common procurement of yarn.Harnessing of common energy options and use of by products and waste. There is anincreasing need for new and renewable energy sources that help in the progressive useof cleaner fuels and effectively supplement the energy needs of small and microenterprises. Common initiatives for harnessing wind energy, biogas, and even micro106