HRD in Small and medium industries Indian context

applied HRD course, paper subject is HRD in small and medium enterprises

1. Paper 6: APPLIED HUMAN RESOURCE DEVELOPMENT (H.R.D.) Unit 4 : HRD in Small & Medium Enterprises (SMEs)

2. Session: 1 What are MSMEs? Difference between micro, small and medium enterprises Role of MSMEs Proposed changes to MSME classification

3. Introduction Small & medium Enterprises are the back bone of Industrial Development. Ministry of Micro Small & Medium Enterprises Contributes Nearly 8% in GDP, 40% in Manufacturing output & 45% in Exports. They provides the largest share of employment after agriculture They have emerged as a dynamic and vibrant sector of economy. State governments given responsibility of encouraging small scale industries pre liberalization (1991). Further encouragement provided by MSME Development Act 2006 and formation of Ministry of MSME

4. What are MSMEs? M - Micro S - Small M - Medium E - Enterprises They are small sized entities defined in terms of their investment, as guided by Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

5. Differences Definition as per Ministry of MSME and MSMED Act 2006 – Manufacturing Enterprises - The enterprises engaged in the manufacture or production of goods pertaining to any industry or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery. Enterprises Investment in plant & machinery Micro Enterprises Does not exceed 25 lakh rupees Small Enterprises More than 25 lakh rupees but does not exceed 5 crore rupees Medium Enterprises More than 5 crore rupees but does not exceed 10 crore rupees

6. Differences Definition as per Ministry of MSME and MSMED Act 2006 – Service Enterprises - The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment Enterprises Investment in equipment Micro Enterprises Does not exceed 10 lakh rupees: Small Enterprises More than 10 lakh rupees but does not exceed 2 crore rupees Medium Enterprises More than 2 crore rupees but does not exceed 5 crore rupees

7. Role of MSMEs Employment Generation Production Export Contribution Increases country’s GDP

8. Break-up of MSMEs in India

9. Employment in MSMEs

10. Examples of MSMEs

11. Examples of MSMEs

12. Benefits to MSMEs Benefits from State Governments:  Most states offer those who’ve registered under the MSMED Act subsidies on power, taxes and entry to state-run industrial estates. In particular, there is a sales tax exemption in most states and purchase preference on goods produced. Tax Benefits:  Depending on your business, you may enjoy an excise exemption scheme as well as exemption from certain direct taxes in the initial years of your business. Benefits from Banks:  All banks and other financial institutions recognize MSMEs and have created special schemes for them. This usually includes priority sector lending, which means that the likelihood of your business being sanctioned a loan is high, and lower bank interest rates. There may also be preferential treatment in case of delay in repayment. Services provided by government to  MSME   include : Provision of training facilities Hire-purchase of machineries for use in MSME Assistance in marketing, both within the country and outside (exports) Extended credit facilities Industrial extension support and services Availability of developed sites for warehouse construction

13. Challenges faced by MSMEs First definition was determined in 2006. After many years, with continued erosion of value of Rupee, the thresholds have become impractical. Adjusting for inflation would have required to enhance the limit by 2-3 times. The investment based definition creates an uneven field for older enterprises vis a vis new enterprises. Setting up a unit to produce a product today would require several times more investment than the one set-up ten or twenty years ago to produce the same product with similar quantity. What could be a micro unit because of historical investment figures, would become medium or large if set up today. It becomes a barrier for new entrants. To prove that a unit fell in a specific category, the MSMEs ran around CAs to certify the value of plant and machinery. It is alleged that many large enterprises also under-reported the investment, got CA certificate and partook in the Public Procurement ear-marked for MSEs.

14. Change to MSME classification since 2020 Classification of the MSME New Classification since 2020 (Investment and annual turnover) Same for manufacturing & service industry Previous classification – Ceiling on Investment in Plant and Machinery (in Rs) Micro Investment not more than Rs. 1 crore Turnover not exceeding Rs 5 crores Below 25 lakhs Small Investment not more than Rs. 10 crores Turnover not more than Rs 50 crores 25 lakhs to 5 crores Medium Investment not more than Rs. 50 crores Turnover not more than Rs 250 crores 5 crores to 10 crores

15. Session: 1 - recap What are MSMEs? Difference between micro, small and medium enterprises Role of MSMEs MSME Development Act Proposed changes to MSME classification

16. Assignment Write a 2 page report on the MSME Development act.

17. Session: 2 Role of HR in MSME Challenges for HR in MSME

18. Role of HR in MSME

19. Role of HR in MSME Administration: Management of house-keeping, security and other such personnel Secretarial responsibilities to reporting officer Event management Compliances: Salary processing, PF/ESIC/TDS management Factory compliance management

20. Role of HR in MSME Recruitment & Payroll: Recruitment – local contract labourers, part-time workers Attendance management, payroll on excel Conflict resolution: Act as an intermediary between manager and employee Fire-fighting Glorified ‘baby-sitter’ at some instances

21. Role of HR in MSME Performance Improvement: Involvement in designing and allocating jobs Training & development Performance monitoring and reporting Strategy: Seat on the management table Involvement in all business decisions Linking business needs to people processes

22. Case Discussion Transformer manufacturing company Expectations from HR vs. responsibilities given to HR

23. Challenges for HR in MSMEs Absence or lack of HR departments: According to a survey conducted by Confederation of Indian Industries, 20% of medium and 80% of small-sized businesses have no HR departments Possible reasons – Budget constraints Founders feel that their team size is too small Advisable to build a n HR system right from the start so that various people related practices like talent management, engagement, policies related to compensation and benefits can be laid out.

24. Challenges for HR in MSMEs Managing Talent Recruitment : Fierce competition, limited pool of qualified candidates and at times inability to offer a competitive salary are some of the top recruitment constraints. Apart from this, inadequate branding and risk associated make these enterprises less attractive vis-a-vis more established, big organizations. HR managers still struggle to create a strong layer of middle managers, especially in the urban set up where competition is fierce Training : To succeed in current scenario, organizations need to have a pool of skilled labour . Big organizations are making concerted efforts to assess and upskill their talent by roping in expert external vendors to assess and deliver various training programs. However, for SMEs, relying on external vendors is not always feasible mainly owing to budget constraints. Therefore, they are mostly conducting on-the-job or in-house training programs which might or might not be that effective. So despite realizing the need to roll-out specific skill based programs, HR at times, feels constrained to take that up

25. Challenges for HR in MSMEs Managing Talent Performance Appraisals : Performance appraisals are often not very structured or documented in SMEs mainly because other structures like competency framework, values, job description for different roles are not that well defined. Furthermore, managers are mostly occupied and are not trained to handle difficult ‘performance conversations’. Since SMEs are mostly focused towards growth and scale, the process of appraisal somehow gets sidelined. This comes as a big challenge and frustration for HR managers who are considered as the process owners of such systems yet don’t have requisite resources and means to roll that out. Retention : In SMEs, retaining employees at the junior level is a challenge. The junior levels mostly comprise of employees with functional skills such as electricians, or field sales people. This class is highly mobile and change jobs frequently and may even quit without a prior notice. It becomes a big challenge for the HR to fill vacant positions at a short notice. On the other hand, at senior and middle levels, where attrition is relatively low, HR needs to mainly focus on keeping employees engaged. Unclear role definitions, lack of career path or any perceived unfairness in the system can trigger thoughts of attrition among these employees. As an HR manager, one has to be really aware of employees’ engagement levels and their retention drivers.

26. Challenges for HR in MSMEs Entrepreneurial Culture Management : SMEs in their initial days usually carry a culture which is fun, energetic, fast-moving and ‘entrepreneurial’ in nature. It is mostly comprised of young team members who work very closely with each other and interact with seniors and founders more frequently. However, once the business starts growing and becomes mature, it tends to lose its original entrepreneurial spirit –teams become big and frequent interactions with seniors/founders turn into monthly meetings. Such scenarios present the possibilities of people feeling less valued and less entrenched in the system, paving way for disenchantment and eventual attrition. Value Alignment: Another important challenge which HR managers face in SMEs is to ensure that the values of the founders are aligned with that of larger employee group. Misalignment often happens when people from outside bring different set of values which stand in direct conflict with that of founders and both the parties are rigid enough to unlearn and embrace what is best for the enterprise. In such challenging situation, HR needs to play a critical role by creating awareness amongst decision makers about the need for change. Two-way and transparent communication between both the parties can bridge the gap.

27. Session: 3 MSME and HR Outsourcing Use of technology & the future of HR in MSMEs

28. What is HR outsourcing? HR Outsourcing  is a process in which the human resource activities of an organization are outsourced so as to focus on the organization`s core competencies. Often HR functions are complex and time consuming that it will create difficulty in managing other important thrust areas. By HR outsourcing, this problem can be avoided which will enhance effectiveness by focussing on what the organization is best at. It will also improve the flexibility of the organization to the rapidly changing business needs. Usually businesses that outsource HR are typically small to midsize firms with number of employees ranging from 25 to 1500.

29. What is HR outsourcing? There are HR outsourcing firms present so as to meet an organization`s HR requirements. Some HR outsourcing firms are generalists, offering a wide variety of services, while others are specialists, focusing on specific areas such as recruitment, payroll etc. Depending on the degree of outsourcing required, we can either outsource the entire HR functions or contract for specific HR functions.  HR outsourcing has become a popular solution for organizations to remain competitive and cut costs. It also provides skilled professionals who are focused specifically on HR.

30. Types of HR Outsourcing Business process HR outsourcing (also known as BPO), where an external supplier manages discrete HR activities, such as payroll administration or recruitment, or perhaps the whole human resources function. Shared service HR outsourcing, where only the transaction or administrative elements of HR’s activities are subcontracted to an external supplier. This may include the personal interface with employees. Application service HR outsourcing , where external providers look after the technological (and physical) infrastructure to support human resources activities.

31. Outsourcing HR