We are always the cheapest

Myth: our inputs are so much cheaper, thus so are our products…It is common thinking amongst SMEs in our country that they manufacture and offer all their products at the cheapest price. The major reason behind such conviction is the myth that most of our inputs like labor, power, fuel is amongst the cheapest in the world. Whilst it may be true to a certain extent, we stand no where in terms of productivity of labor and efficiencies of our machines. This adds to our cost of production. Even the cost of capital in our country is very high as compared to other nations from developing countries.

Blatant cues at the SME’s site:Let us look at the approach to be used by SMEs to make their price competitiveness visible to their valued buyers also. Try to see what the following cues at the SME’s site indicate:

1. Large pile of scrap at the backyard and near most of the tooling and packaging machines.
2. Staff and labour moving /sitting around and that too away from their duty position.
3. Several machines standing idle.
4. Several motors lying idle due to maintenance problems.
5. Large quantities of inventories lying in the store due to obsolescence.
6. A lot of packaging material getting wasted due to incapability of the operator to adjust it properly.
7. 
8. Utilities like steam, water, air etc getting wasted/leaking at many different locations in the plant.
9. Odorous environment in a food factory.
10. Unclean, untidy and dusty environment within the processing and packaging area particularly in a food processing facility.
11. Heavy advertising by the company even in provinces that won’t be supplied.
12. Extensive tour and travel by the company’s owners/senior managers in international markets for fetching business in trade fairs and market place without much of preparation.
13. High cost glossy catalogues and brochures with poor quality photographs, spelling mistakes or errors in some vital technical details etc.
14. SME incurring high cost hospitality expenses to all prospective buyers from abroad at both domestic and foreign locations.

There may be many more visible cues at the manufacturing site or otherwise wherein the poor productivity and inefficiencies are self evident. Still the SMEs continue to turn a blind eye to them and assume that their manufacturing costs are the least and their product is the cheapest.

Foreign buyers does not keep their eyes closed…The buyer understands that least cost is a function of high efficiencies, high productivity and maximum capacity utilization with least of wastage. It is also to be kept in mind that not all foreign buyers are very price sensitive. Quality, timely delivery, performance, after sales service, training and development, pre-order consulting and support, availability of spares, up-gradation support, cost-effective packaging, looks, design etc. are a some other issues which a foreign customer may give higher weightage to over price. It becomes thus imperative for the SME not to focus on price alone but to have a holistic approach towards delivering a high quality product at a reasonably competitive price.