Remarks
by
U.S. CONSUL GENERAL HENRY V. JARDINE
at the seminar
on
“Indo-U.S. Prospects and Problems in the SME sector”
hosted by IACC, GOWB, and BNCCI,
May 8, 2008
Bengal Club, Kolkata

May 8, 2008

KOLKATA -- Dr. Gautama, Distinguished guests, ladies and gentlemen:

A very good morning to all of you.  Thank you for the opportunity to speak on a subject close to my heart.  Small and medium enterprises (SMEs) form the backbones of both U.S. and Indian economies.  They may not be attracting as much public and media attention as large industries do, but small enterprises generate the bulk of income and employment in U.S. and India.  Having acknowledged this, it is appropriate that we look into the role SMEs play in our economies and strengthen the institutional support we can provide to SMEs. 

The SME’s are where the entrepreneur’s cut their teeth and bring ideas to the market.  This is true in India as much as in the United States.  Small businesses act as a shock absorber for fluctuations in employment caused by downsizing and globalization: 53 percent of small businesses operate out of an individual's home, from hair styling for neighbors to consulting for other businesses large and small.  Expert studies show that SMEs are more innovative than large corporations.  This is evident because SMEs in U.S. file for more patents and adapt to newer technologies than large corporations. 

Georgetown University Professor of Government Dr. Derrick Leebaert has noted the following about SME’s in the U.S:

Georgetown University Professor of Government Dr. Derrick Leebaert has noted the following about SME’s in the U.S:

• Small businesses produce 13 to 14 times more patents per employee than large firms;
• Small businesses employ 39 percent of high-tech workers such as scientists, engineers and IT workers;
  
• These businesses are able to pioneer new alliances and partnerships, in contrast to large businesses with demarcated competitive interests, as shown by biotechnology companies vis-à-vis the U.S. pharmaceutical giants.
  
• High spending on information technology enables agile responses to changing customer requirements: small and mid-sized firms account for 45 percent of U.S. technology spending;
• By deploying flexible production techniques enabled by technologies and newly efficient practices, small businesses can adapt faster to shifting economic conditions;

Since I represent the U.S. Government, let me draw on the U.S. experience first and then reflect on its relevance to this region.   Here are some numbers related to the SMEs in U.S., provided by the Small Business Administration (SBA), which is the nodal organization with administrative and policy oversight of the sector.   SBA data indicate:

• SMEs make up 99.7 percent of all U.S. employers.  In absolute terms, this means only 0.3 percent of all employers in the U.S. (or 17,000 companies) have 500 or more employees;
• SMEs generate half of U.S. economy’s non-farm output, employing about half of all Americans working in the private sector.   Small enterprises add 60 to 80 percent of net new (non-governmental) jobs annually;
• SMEs make up 97 percent of exporters, producing 29 percent of all export value in U.S. — key points when we realize that exports have accounted for about 25 percent of U.S. economic growth over the past decade, supporting nearly 12 million jobs;

While the percentage of Americans employed by Fortune 500 companies steadily dropped (from 20 percent of the workforce in 1980 to less than 9 percent today), an average of 9.36 percent of the population could be found over the last decade starting their own businesses.

If these numbers reflect the importance of entrepreneurial businesses to the U.S. economy, India has equally impressive numbers to show.  In India, the SME nomenclature changes to MSE – Micro and Small Enterprises.  Whichever name you call them, in 2004-05, MSEs accounted for 39 percent of the value of India’s manufacturing output and 35 percent of its exports, providing 29.5 million jobs in rural and urban India.  The total number of MSE units showed a steady growth of around four percent per annum, reaching a figure of 12.35 million units in 2005-06.

As India’s economic liberalization continues to take hold and expand into various sectors and regions, the importance of the entrepreneur will also increase.   It is now beyond doubt that the Indian economy is going through an irreversible transition from agriculture to non-farm economy.  A traditional occupation like agriculture is no longer able to provide income and employment opportunities to a large number of farm owners and farm workers.  These transition dynamics are causing friction and social tension in different parts of India, including West Bengal. 

SMEs or MSEs can provide an answer to this rather contentious policy debate.   As more and more farm land gets deployed in non-farm use, India’s rural economy will demand new set of skills and entrepreneurial capabilities.  I note that four of the five sectors chosen for today’s seminar (Food Processing, Agricultural Inputs, Electrical/Electronics Engineering, Textiles-Garments-Jute, and Leather and Leather Goods) draw input from agriculture or allied sector.  MSEs can emerge as the driver of rural India’s journey to urbanization.   This journey is not easy.  In the U.S., we had to go through this and we thank the SME enterprises for promoting social cohesion and for creating economic opportunities.

In the United States, SME’s help the historically disadvantaged in the following ways: 

• Small businesses serve as an entry point into the economy for new or displaced workers: women-owned small businesses, for instance, generate nearly a trillion dollars in revenues annually and employ more than 7 million workers;
• Small businesses increasingly generate entrepreneurial opportunities for minorities.  U.S. Census data show minorities owning 4.1 million firms that generate USD 695 billion annually and employ 4.8 million workers; 
• Small businesses bring economic activity to distressed areas: about 800,000 companies (90 percent of them micro enterprises) are located in the poorest areas of the 100 largest U.S. cities; 

Given the importance SMEs, the U.S. Government tries to foster an environment that assists these units.  One way to help is to ensure these start-ups get the initial capital they need.  As part of a strong free enterprise system, we don’t do this by just lending money.  The Small Business Administration, as the lead agency, extends help by guaranteeing the loans that private lenders give to SMEs.  This addresses lenders’ concerns about the risks of extending credit to risky start-ups.    To help educate prospective entrepreneurs, the SBA also has online tutorials that teach business skills and ideas to anyone with internet access at http://www.sba.gov/training/coursetake.html.   In addition, the U.S. Government tries to foster a small-business climate with a tax code that includes, tax credits, deductions or reductions that help small businesses.  Also, our government ensures that policies and laws are in place to protect intellectual property like patents, copyrights and trademarks that are critical for the small businesses to take advantage of their intellectual and brand capital.

In the U.S. system, we try to create an environment that allows failure.   If a business in the United States fails, the individual can move on with his or her life without living in shame or total poverty.  The ability to start all over again is what makes Americans willing to take risks in business.  Business failure in the U.S. is not regarded negatively.  In fact, U.S. bankruptcy laws are structured so that those who fail in business are encouraged to continue entrepreneurial pursuits.

Reflecting on the U.S. experience, may I suggest a few talking points for today’s seminar?  SMEs in India will benefit immensely if we can assure:

• Greater government support and incentive to credit/lending for start-up companies
• More stringent protection of Intellectual Property Rights as IPR is a critical asset for an SME
• Better training and exchange opportunities
• Reduction in bureaucratic delays and introduction of one-stop clearances
  foreign investment so that small companies can be service providers to foreign companies, and
• Infrastructure and connectivity.

While not an exhaustive list, these are certain areas where the Chambers of Commerce and the Government could complement each other.  In June 2007, we supported a teleconference between SBA and the Kolkata Chapter of the AMCHAM.  Following this, in January 2008, the Public Affairs Section of U.S. Consulate supported a visit and speaking engagement by SME expert Phil Holland.  On February 20-21, the U.S.-India SME Summit was held in Chicago. The Consulate will be happy to support more initiatives in this regard. 

As India connects more and more with the U.S. and global economy, newer avenues and opportunities will open up for SMEs in our countries.  I congratulate the Ministry of Micro- and Small Scale Enterprises, Government of West Bengal, the Indo-American Chamber of Commerce and the Bengal National Chamber of Commerce and Industry for hosting the event at an appropriate time.  I hope I was able to contribute some useful insights.  I am confident that today’s event will increase awareness of the critical importance of SMEs in India’s future development. 

Thank You.