MSME: The Indian Cost Advantage in Sourcing

Imagine having the convenience and quality of buying at a nearby Farmers’ Market, but at the low cost of a Costco or Walmart, even at low volumes.

Let’s stay with this thought for a little while. Say there are millions of small-scale mom-&-pop style manufacturers on the other side of the globe, capable of producing high-quality equipment. Their only problem is access to credit and international markets. If there was a way to somehow buy from these industries in bulk without the hassle of dealing with thousands of suppliers individually, while helping them grow their capacity, you can truly get the best of both worlds for your sourcing needs.

Zetwerk does exactly this for you. We work with a wide network of small industries, take care of the quality and production schedules, maintain full transparency through timely communication, and deliver the right components at the right time to your factory through our large network of warehouses both in India and in the USA. What’s more, if you have a requirement of USMCA-compliant parts, we also have fabrication units in the US and Mexico, enabling us to add value to the imported products to make them USMCA-compliant.

How Does It Work?

Let me introduce you to a class of enterprises in India called Micro, Small and Medium Enterprises (MSME) sector, which has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. It contributes significantly to the economic and social development of the country by fostering entrepreneurship and generating large employment opportunities at comparatively lower capital costs.

MSMEs are complementary to large industries as ancillary units and this sector contributes significantly to the inclusive industrial development of the country. The MSMEs are widening their domain across sectors of the economy, producing a diverse range of products and services to meet the demands of domestic as well as global markets.

They are typically classified into 3 types:

Enterprise Type	Turnover Requirement	Investment Requirement
Micro	< Rs. 5 crore (US$ 610,000)	Less than Rs. 1 crore (US$ 120,000)
Small	< Rs. 50 crore (US$ 6.1 million)	More than Rs. 1 crore (US$ 120,000) but less than Rs. 10 crore (US$ 1.2 million)
Medium	> Rs. 250 crore (US$ 30.4 million)	More than Rs. 10 crore (US$ 1.2 million), but less than Rs. 50 crore (US$ 6.1 million)

India is expected to emerge as one of the leading economies in the world over the next decade in the light of a positive political and economic scenario. The Micro, Small & Medium Enterprises (MSME) segment is contributing significantly to the expansion of entrepreneurial endeavors through business innovations.

The MSMEs are widening their domain across sectors of the economy, producing a diverse range of products and services to meet the demands of domestic as well as global markets. The MSMEs in India are playing a crucial role by providing large employment opportunities at comparatively lower capital cost than large industries as well as through industrialization of rural & backward areas, reducing regional imbalances, and assuring more equitable distribution of national income and wealth.

Let’s not forget the importance of frugal innovation. India, especially the MSME sector with its limited resources, has always relied on frugal innovation. The importance of “frugality” is best understood in a country like India. From pharmaceuticals to defense, we have shown the world our capability to innovate frugally. It is only in India that specific designs for the specific needs of the Indian people can be made, and these designs can be highly effective when combined with modern manufacturing techniques. GE Healthcare’s efforts in India to build medical equipment at more affordable prices is a classic business lore today, one that catapulted GE to a billion-dollar business.

Economic Contribution of MSMEs

The 63 million MSMEs in the country form an important chunk of India’s economy and these events aim to cater to this key segment for a continual path of progress, development, and evolution. MSME sector contributes to nearly 1/3rd of India’s GDP and nearly 50% of the country’s exports.

India is 11th in production and 8th in the consumption of machine tools in the world. Of every 1,000 units, around 25 in the large-scale sector accounts for 70% of the turnover and the rest are in the MSME sector of the industry.

• Governmental Support

India has identified electronics, engineering goods, textiles, marine & agriculture, toys, pharmaceuticals, and e-commerce as the sectors that could help achieve its $ 1 trillion goods export target by FY30. The Commerce and Industry Ministry study predicts that these sectors could generate around $670 billion of exports by 2029-30. For comparison, India’s goods exports in FY23 were $451.07 billion.

The Ministry of MSME has implemented a range of initiatives with the objective of supporting MSME enterprises in various aspects, such as finance, technology, infrastructure, upskilling, and market development. Meanwhile, in the period from January to November 2022, there was a significant credit growth of 30.5% in the MSME sector.

To address the funding gap – estimated at US$1.4 trillion – that multinational corporations (MNCs) would need to inject into MSME ancillary units, the government of India has launched credit schemes. These aim to provide institutional finance to help MSMEs grow and compete globally.

Some other initiatives to boost the MSME sector by the Government are:

1. In August 2021, MSME Ministry announced a target to boost MSME contribution to the GDP to 50% by 2025. In line with this, the government plans to strengthen the manufacturing base in the country and augment the competitiveness of MSMEs.
2. In September 2021, Union Minister for MSMEs, Mr. Narayan Rane introduced ‘India Export Initiative’ and ‘IndiaXports 2021 Portal’. This initiative will help exports reach its US$ 400 billion target by the end of FY22 and further push it to US$ 1 trillion by FY27.
3. Building Awareness on Intellectual Property Rights (IPR) has been launched to promote awareness of Intellectual Property Rights (IPR) among MSMEs by assisting them in technology upgrades and enhancing competitiveness and effective utilization of IPR tools. The scheme is executed through various activities such as awareness programs, seminar workshops, reimbursement for registration of IP, international cooperation & setting up IP facilitation centers across the country.

A favorable Cost-Benefit opportunity for North American customers

The global economy is going through an economic slowdown following a series of interconnected events like the covid pandemic, Russia’s invasion of Ukraine, high inflation, geopolitical tension and disruption of supply chains. Growth in global goods trade is seen slowing to 1.7% in 2023 from 2.7% in 2022, according to the World Trade Organization (WTO).

India seems to be doing well in this uncertain situation. It is one of the fastest growing economies in the world, predicted to expand around 6% in 2023-24, while the global economy grows around 2.8%. In 2022-23, India exported goods and services worth $766 billion. It plans to hit its export aim of $2 trillion well before its 2030 deadline.

India’s Foreign Trade Policy (FTP) 2023 announced special outreach and training activities for micro, small and medium enterprises (MSME) engaged in e-commerce exports. MSMEs accounted for almost 50% of India’s total exports in 2020-21, and are increasingly using e-commerce platforms to widen their reach locally and abroad. With online marketplaces such as Amazon and Snapdeal, MSMEs have been able to sell their products to customers across the world. Going online has helped MSMEs cater to a larger customer base, thereby increasing their revenues and profits.

The government wants their share of exports to rise to 60%, which can be achieved by onboarding them onto online platforms, and supply chain aggregators such as Zetwerk. Sellers on such platforms also receive assistance with functions such as cataloguing, marketing, branding, account management, consumer and business insights, logistics and warehousing. With access to significant customer data like orders placed, time spent browsing a particular page and purchases made over a period, businesses have been able to modify their marketing and product development strategies. The combination of e-commerce and digital penetration has made marketing and advertising affordable for local small players, thus lowering their overall cost of operations.

The positive impact of the Digital India initiative, especially the digital penetration it enabled in Tier 2 and 3 cities, will likely also be a game changer, along with the government’s focus on the digital inclusion of MSMEs. Digitalization has led to the growth of technology startups. India has become the third largest startup ecosystem in the world after the US and China.

However, in recent years MSME export growth has been impacted by the pandemic and related disruptions, escalating commodity prices, and a limited presence in industries experiencing high demand. Furthermore, recessionary pressures and a global slowdown have hindered export growth for MSMEs. To address these challenges, India’s federal government has introduced several incentives and measures to support MSMEs in promoting exports. These initiatives aim to provide MSMEs with the necessary support to enhance their export capabilities.

In FY 2021-22, the top 10 export destinations for Indian MSMEs were the United States (US$54.7 billion), the United Arab Emirates (US$13.4 billion), Hong Kong (US$9.93 billion), the United Kingdom (US$7.54 billion), Germany (US$7.19 billion), China (US$5.16 billion), Belgium (US$4.73 billion), France (US$4.20 billion), the Netherlands (US$4.24 billion), and Italy (US$3.84 billion). These countries represent significant markets where Indian MSMEs have successfully exported their goods and services.

Let us help you take advantage of this rapidly expanding yet cost-effective sourcing opportunity. Zetwerk makes it a breeze for you by navigating this fragmented, yet cost-effective source of bulk engineering materials. To be honest, we know that doing business with small suppliers, who may or may not have previous exposure to international clients, can be somewhat of a complex maze. Previously, several North American and European firms have tried and failed to navigate this system, thereby being unable to source quality materials within set deadlines.

About Zetwerk

Zetwerk works with original equipment manufacturers in North America and worldwide, fulfilling their manufacturing requirements for customized components and assemblies. We act as a second brain to the OEMs. Our team of experts not just executes the customer’s manufacturing strategy, but adds tangible value at every step of the process, right from vetting designs to finding and managing the suppliers to quality control and logistics. Our customers regard us highly for our transparent and hands-on approach to manufacturing.

Zetwerk executes these projects through its network of partner suppliers spread across USA, India, China, Vietnam, and Mexico. These world-class facilities provide practically unlimited production processes, capacities, materials, part sizes, and weights as well as secondary operations, surface finishing, assembly, and related services. Importantly, we have our teams established in all these countries with a particularly large presence in the US.

Zetwerk recently acquired Unimacts, a US-based manufacturing services company, providing further impetus to our commitment to serve North America as a primary market. We have more than 2,000 customers across North America, Asia-Pacific and the Middle East, and a network of more than 10,000 manufacturing partners worldwide. Founded in 2018, we are backed by some of the world’s leading venture capital firms including Sequoia, Kae Capital, Accel Partners, Lightspeed, and GreenOaks. As of 2023, Zetwerk was valued at US$ 2.8 Bn.