Big challenges that await SMEs in 2023 and the strategies to overcome them

A worker uses a gas cutter at a metal workshop in an industrial area in Mumbai. (Representative image)

The challenges Small and Medium Enterprises (SMEs) will face in 2023 are many given the forecast of a global slowdown and persisting inflation.

Economic uncertainty, increasing competition on a global scale, the rise of new technologies, entry of new players, access to easy finance, digital transformation, skilled workforce, regulation and tariff issues, and cyber security are some of the major challenges faced by the SME sector globally.

The Indian SME sector will have specifically the following challenges this year:

Poor access to finance: One of the biggest challenges for SMEs in India is access to finance. Many SMEs struggle to secure bank loans and other forms of financing due to lack of collateral and a good credit history. The government has implemented various schemes and initiatives to provide financial support to SMEs, but the process of accessing these funds can still be challenging and time-consuming.

Increasing competition: With the increasing number of SMEs and global competition, it is becoming increasingly difficult for SMEs to stand out and retain customers. To compete with larger companies, SMEs need to offer unique and differentiated products and services, and invest in marketing and advertising. Pressure on steep discounts in price is another related hassle.

Short supply of skilled talent: Finding and retaining skilled employees can be a challenge for SMEs in India, especially in the absence of proper training and development initiatives. SMEs need to invest in training and development programmes for their employees to ensure that they have the skills and knowledge required to succeed in a highly competitive business environment.

Complicated compliance with government regulations: SMEs face difficulties in complying with various government regulations such as tax laws, labour laws and environmental regulations. This can be time-consuming and costly, and can divert resources away from the core business activities. The increasing corruption at all levels is taxing even the toughest SME owners. They need to stay informed about the latest government regulations and seek professional advice where necessary. Also, it is time to take a stance on no bribe for anything.

Technological advancements: SMEs may find it difficult to keep up with technological advancements and digital transformation, which can impact their competitiveness and profitability. They need to invest in technology and digital solutions to improve their operations, reach new customers and stay ahead of the competition.

Poor infrastructure: Lack of reliable power connectivity, transportation, and high-speed Internet connectivity can pose challenges for SMEs in India. These challenges can impact the efficiency of their operations and limit their ability to reach new customers. The government is investing in improving infrastructure in India, but SMEs may still face challenges in accessing these resources.

Policy discrimination: Many SMEs will continue to face the onslaught of oligarchies that are lobbying policymakers to aid their interests at the expense of SMEs. This was evident in the last two years in retail, trading, export-import, and so on. This will severely impact SME growth across more sectors if lobbying by the SME associations is not strong enough.

It is difficult to estimate whether all Indian SMEs will overcome the above big challenges of 2023, as it depends on various factors such as the size and type of the business, the industry they operate in, and the specific challenges they face. However, it may be possible for many to overcome these challenges through effective management strategies, investment in technology and innovation, and by seeking support from the government and industry bodies.

SMEs that are proactive, adaptable, and innovative are likely to be better equipped to overcome the challenges and succeed in the long term. It is also important for SMEs to continuously assess their operations and identify opportunities for improvement, as the business environment is constantly changing and evolving.

Here are a few strategic suggestions for SMEs to overcome the big challenges of this year:

Access to finance: SMEs can overcome the challenge of access to finance by seeking alternative sources of funding such as venture capital, angel investment, and crowd funding. They can also improve their creditworthiness by maintaining accurate financial records and building a strong credit history. Additionally, SMEs can participate in Micro, Small and Medium Enterprise Ministry schemes and initiatives that provide financial support to the SME sector.

Competition: Strategically, the challenge of competition must be addressed by differentiating themselves through their products, services, and customer experience. Invest in marketing and advertising to reach new customers and build brand awareness. Use the social media smartly and plan lots of content marketing. SMEs can also collaborate with other SMEs to offer bundled products and services, increasing their competitiveness.

Skilled talent: The challenge of skilled manpower may be addressed by investing in training and development programmes for employees. Also, offer competitive salaries and benefits as well as opportunities for career growth to attract and retain talented employees.

Compliance with government regulations: Such challenges can be addressed by staying informed about the latest regulations and seeking professional advisors to work on these issues. Invest in technology and digital solutions to streamline the compliance process.

Technological advancements: Invest in technology and digital solutions to improve  operations, reach new customers, and stay ahead of the competition. Collaborate with technology companies and startups to gain access to cutting-edge technologies.

Digitalisation: Embrace digitalisation by adopting new technologies, such as cloud computing and e-commerce to improve their operations and reach a wider customer base.