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

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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
Chapter No: 6 – Hard Interventions in Sampled Clustershydel power apart from viable solar energy applications can be collectively pursuedthrough hard interventions. Moreover the recycling of waste, the use of valuable byproducts, and also the treatment of toxic effluents and wastes open up many usefulcollective options for both lowering unit costs and protecting the environment. Withincreasing environmental concerns come severe regulation and restrictions that are likelyto affect small and micro enterprises in particular as they can hardly take up theseinitiatives individually. The only way out seems to be collective action through hardinterventions. The Rice Milling Cluster in Kalady, and the Rubber Cluster inChenganacherry are examples of some such hard initiatives.Spreading or Collectively Sharing, Risks- Though it may be possible for an individualunit to set up a facility that he himself can use and also hire out to others, he would haveto be sure that the others use the facility so that the capacity which is created is fullyutilized. These are however risks involved in such a venture. It is therefore preferred toundertake such a project collectively so as to share the risks by spreading them over themembers of the SPV. The solvent extraction project taken up in the Rice Milling Clusterin Kallady was viable even at the level of an individual unit, as long as there wasadequate demand for this facility by millers other than the unit setting up the facility onan individual basis. The investment involved in plant and machinery was large but thereturns were also equally attractive, however considering the long-term viability of ricemilling in the state of Kerala, and also the uncertainty regarding the demand for theservices of this facility, the risks involved were substantial. The project was thuscommissioned in 2005 entirely as a privately led collective intervention in order to spreadthe risks as well as share the benefits among the private consortia/SPV that was formedfor the purpose. No support except for soft interventions was provided for this projectunder the MSE-CDP programme, clearly demonstrating that the logic of the programmeand its impact are very robust and more importantly that hard interventions can besuccessfully carried out even without much support from the government.The CoirCluster at Alleppey is yet another example of the effective sharing of risks andresponsibilities as well as the benefits among SPV members. Yet another interestingcase is that of several SPVs belonging to the Handloom Cluster, in Kannur, Kerala joininghands to invest in a common retailing outlet for products. This outlet was located in theexpensive up market locality in the city and involved large investments as well as risksthat were shared.Availing Benefits of State Support – State and State promotional agencies makesupport conditional to the formation of a legally constituted and accountable SPV. TheState often expects the equitable and widespread participation of cluster units and attimes clearly defines the minimum number of cluster units that are required to bemembers of the SPV formed for the proper channelization of State funds. Though hardnetworks/ SPVs can be based entirely on the basis of private involvement with no statesupport, it is seen that most Cluster Development Initiatives adopt the PPP mode. TheState is the ‘hand holder’ in the earlier stages of cluster development but progressivelytakes a ‘back seat’ as the cluster matures and becomes a self sustaining collective.107
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EVALUATION STUDY OF MICRO & SMALLEN
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2.12 PROGRESS AND PRESENT STATUS OF
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INDEX OF TABLESTable No.- 1.1: CLUS
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COMMONLY USED ABBREVIATIONSBDSBusin
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31 million persons spread over 12.8
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Nevertheless, it is expected that t
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4. Role of the schemes in bringing
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Table No. - 1.1 (contd.)East/ North
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ANNEXURE - 1.1 Guidelines for Clust
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• Approval of budget and leveragi
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14. Contribution of the Ministry of
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Chapter No:2 - The General Profile
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