Advantages or Merits of Small Scale Industries

Advantages or Merits of Small Scale Industries

Small Scale Industries have always played an important role in the economic development of the country. The following are the merits of Small Scale Industries:

1. Potential for large employment

Small Scale Industries have potential to create employment opportunities on a massive scale. They are labor intensive in character. They use more labor than other factors of production. They can be set up in short time and can provide employment opportunities to more number of people. This is important for a labor abundant country like India.

2. Requirement of less capital

Small Scale Industries require less capital when compared to large scale industries. India is a capital scarce country and therefore Small Scale Industries are more suitable in the Indian context. They can be started and run by small entrepreneurs who have limited capital resources

3. Contribution to industrial output

Products manufactured by Small Scale Industries form a significant portion of the industrial output of the country. They produce a number of consumer goods as well as industrial components in large quantities and satisfy the needs of consumers. The consumer goods produced by Small Scale Industries are cheaper and satisfy the requirements of the poorer sections.

4. Contribution to exports

Small Scale Industries contribute nearly 40 per cent to the industrial exports of the country. Products such as hosiery, knitwear, hand loom, gems and jewellery, handicrafts, coir products, textiles, sports goods, finished leather, leather products, woolen garments, processed food, chemicals and allied products and a large number of engineering goods produced by the SSI sector contribute substantially to India’s exports. Further products produced by Small Scale Industries are used in the manufacture of products manufactured and exported by large scale industries. Therefore they contribute both directly and indirectly to exports and earn valuable foreign exchange.

5. Earning foreign exchange

Small Scale Industries earn valuable foreign exchange for the country by exporting products to different countries of the world. At the same time, their imports are very little and so there is less foreign exchange outgo. Therefore Small Scale Industries are net foreign exchange earners. For e.g. Small Scale Industries in Tiruppur contribute to a substantial portion of India’s textile exports and earn valuable foreign exchange for the country.

6. Equitable distribution

Large scale industries lead to inequalities in income distribution and concentration of economic power. But small scale industries distribute resources and wealth more equitably. It is because income is distributed among more number of workers since it is labor intensive. This results in both economic and social welfare.

7. Use of domestic resources

Small Scale Industries use locally available resources in a productive manner which would have otherwise gone waste. Small amounts of savings which would have remained idle is channelized into setting up of small enterprises. This increases capital formation and investment in the economy.

8. Opportunities for entrepreneurship

Small Scale Industries provide opportunities for entrepreneurs with limited capital. Setting up of an SSI requires less capital and lower investment in technology and machines when compared to large scale enterprises. Therefore small entrepreneurs car start Small Scale Industries easily and succeed. Japan which was devastated by the Second World War became a major economic power because of many small entrepreneurs, who contributed greatly to the nation’s development.

9. Cost efficiency

Small scale units can adopt lean production method. which offer better quality and more variety at a lower cost. They can bi more cost efficient when compared to large scale units because their expenses are lower.

10. Reducing migration

Migration happens when people living in rural areas are not able to find employment and therefore migrate to urban areas seeking employment. Large scale migration puts tremendous pressure on land, water and other resources in urban areas leading to poor quality of life. Small Scale Industries use the skills and talents of rural craftsmen, artisans etc. They provide gainful employment to those with inherited skills resulting in their economic upliftment. Thus Small Scale Industries help in reducing migration.

11. Suitable for non-standardized products

Large scale enterprises are suitable for manufacturing standardized products on a large scale whereas Small Scale Industries are more suitable for manufacturing non-standardized products.

12. Flexibility in operation

Small scale enterprises are more flexible. They can adapt themselves to changing market requirements very fast and benefit from new opportunities.

13. Quick decisions

Since the enterprise is small and there is not much hierarchy, quick decisions.can be taken. Quick decisions are helpful in solving problems in the initial stages and also to exploit market opportunities.

14. Adaptability to change

Small Scale Industries can understand the changing requirements of the customers and adapt themselves much quickly. They can change their procedures, methods and techniques faster and cater to new requirements of their customers.

15. Small market size

In case the market size is small, producing products on a large scale would not be feasible. In such cases, Small Scale Industries are more suitable since they produce limited quantities.

16. Customization

Today customers prefer products tailored to their specific needs. They demand unique products. In such cases where products have to be customized to individual customer needs large scale production would not be suitable. Small Scale Industries are better suited in case products have to be customized.

17. Low social costs

In the case of large scale enterprises, society has to incur high social costs in terms of air and water pollution and environmental degradation. But in the case of small enterprises, such social costs are less.

18. Opportunity for talent

Small Scale Industries provide opportunity for talented individuals who do not have huge funds, to start enterprises on a small scale. Dhirubhai Ambani of Reliance, Karsanbhai Patel of Nirma, Brij Mohan Munjal of Hero Honda, Venugopal Dhoot of Videocon, Sunil Mittal of Bharti Enterprises (Airtel), Narayanamurthy and his co-promoters of Infosys, Ramalinga Raju of Satyam are all examples of entrepreneurs who started their business on a small,scale, and through intelligence, determination and commitment have transformed their small companies into large world class players.

19. Lesser industrial disputes

In large scale enterprises workers are more organized and in many large scale enterprises there are strong trade unions. The trade unions fight for the workers rights. If the management fails to accept the demands of the trade unions, the trade unions gherao the management, adopt go slow tactics and strike work. But in small scale enterprises, workers are not well organized and union activity is less. So there is very little possibility of industrial disputes to occur.

20. Personal contact with employees

Businesses engaged in small scale production have less number of employees. It is easy to maintain personal contact with employees. Grievances and problems would be known immediately and solved. Therefore there is very little possibility of any industrial dispute.

21. Personal contact with customers

The number of customers is limited and the small scale entrepreneur would be directly involved in the business. Personal contact can be maintained with customers. Their needs and requirements can be understood and satisfied. This results in satisfied customers leading to stable demand.

22. Self interest

Small business is generally run by the sole proprietor of the business. He earns all and risks all. Self interest act as a strong motivator. Therefore he would put in his best efforts to make the business a success.

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