Why Has Every Sweet Shop Not Become Haldiram’s? A Tale of Micro-Entrepreneurs of India

This time I would like to draw your attention to shopkeepers in your locality. A typical residential area has a dairy, a newspaper vendor, a flower vendor, more than one fruit and vegetable vendors, a laundry, more than one general stores (Kirana shop), a floor mill, an electrician, a tea stall and a paan wallah (betel leaves and tobacco products seller). They cater our basic needs and are found in every locality in our country. A five-year span is enough for any business to break-even and expand. But these shops have done the same business for last decade without any business expansion. These are micro-entrepreneurs of India.

Tale of Haldiram’s

Haldiram’s was established in 1937 as small Sweets and Namkeen shop in Bikaner. Shri Shivkisan Agrawal, the founder of Haldiram’s always cherished the dream of building an empire. He shifted his base to Nagpur and set up a plant to manufacture sweets and Namkeen. This was the first-time people heard of the factory of Sweets and Namkeen. Slowly, it became a brand and today it has a chain of retail outlets, diversified product basket, state-of-the-art technology and global presence.

Many big companies around the world started their operations from very small places without aiming at the milestones which they have achieved today. Haldiram’s is one such example. But not all businesses become tycoons. Some stagnate while others perish. What restricts them? Why? Let us consider their case.

Purpose and Attitude Determines the Business Success

Most of such businesses are led by people who had no other option than to start some venture. Some might have migrated to the city in search of job but ended up doing small business due to less or absence of any skill or education. Some might have joined the family business as a custom. We can see that the purpose of starting a business was not the entrepreneurial spirit but survival. It affects the approach and restricts their risk appetite, innovation and avenues of growth.

indian-street-vendor

Barring above, even if they are determined to grow the business, finance remains the major concern for them. Banks do not lend them because they are poor (lack of trust with respect to repayment) and as banks refuse to lend them, they remain poor. Thus, they get trapped in poverty. It also affects the attitude of shopkeepers. They know that any additional contribution towards business would not suffice expansion which makes them lethargic and myopic. This attitude culminates and confines business boundaries.

Milestone Matters

I would like to mention some key points from the book Poor Economics written by Abhijit Banerjee and Esther Duflo.

“Xu Aihua, the Chinese woman who started her business with one sewing machine and built a garment empire. Her big break came once she got an export order. Without that, she would have soon hit the limits of the local market. However, in order to be considered for the export order, she needed to have a modern factory with automatic sewing machines. This required her to invest more than 100 times the initial capital in the firm.”

poor economics.png

Let us analyse this graph from the book. The X axis is the capital invested in the business while the Y axis is the output or production. The OP curve is slow in producing output on the current investment made in the business (say only one sewing machine) and hence there are low returns. The business would stagnate at this level even if she invests more capital. The second case requires some minimum investment to generate income. This is QR curve. We can say that if the business invested in modern factory with automatic sewing machines, it would be on the QR curve. Xu Aihua did the same. She started saving for the order and after a point switched her graph from OP to QR. She managed to have a modern factory with automatic machines.

Business needs a milestone opportunity which can change their lives forever. High-value orders, government policies, a fruitful investment or raising capital; anything could become a milestone for business. As mentioned in the above excerpt, point M is the milestone that changed Xu Aihua’s life. She had the urge to get that order and took necessary actions to get it. Similarly, a factory at Nagpur was that milestone for Haldiram’s. Today, all such small businesses need to identify and grab such milestones otherwise such businesses are doomed to perish.

Changing Paradigm

There was always a fear among small traders about big malls eating up their business. But we could see across the metros that ‘mall economics’ is not successful everywhere. Another major hit for these traders is the spurt in online shopping. However, the marketplace mechanism does not allow websites like Flipkart or Amazon to sell directly to customers. It involves middlemen. Shopkeepers need to sign up for such arrangements with such companies to complete the transaction. Such regulation keeps small traders relevant in the market. Indian MSME (Micro, Small and Medium Enterprises) sector faced a major challenge during demonetization phase from November 2016. However, many traders and shopkeepers in metros turned this challenge into the strength by allowing digital payments. Currently, the nation underwent another wave of controversy during Goods and Services Tax implementation. Though it remains a challenge for traders to transform into technology enabled invoicing and accounting process, it would have a positive effect on their businesses in the long-term. For that, shopkeepers must strive hard to adapt themselves in this transitional phase by innovating and keeping up the customer confidence. They should now inculcate professionalism in their business. The day calls for such change in attitude. If they didn’t they will struggle to survive.

As discussed, most of such businesses hunt for finance to expand their operations. Micro Financial Institutions (MFIs) have penetrated to grass root level and transformed various lives. They also train their borrowers to understand business dynamics and aid them in increasing their revenue. MFIs must continue these programmes. Nowadays, even banks have started lending to such groups under Mudra Scheme. Institutions must strengthen themselves and continue this lending program.

Muhammad Yunus, a Nobel laureate and father of microfinance once said, “In my experience, poor people are the world’s greatest entrepreneurs. Every day, they must innovate in order to survive. They remain poor because they do not have the opportunities to turn their creativity into sustainable income.”

Earlier in the text, I mentioned banks hesitate to lend small borrowers due to default risk. But today, country’s bad loan problem is due to big borrowers. We had seen how big borrowers become bad and dupe banks. As against, Mudra Scheme had no NPAs as on 31/03/2017. Therefore, banks should trust these micro-entrepreneurs and give them an opportunity. They should change not only their approach, but also risk models and laws (like Income Recognition and Asset Classification provisions). They must believe in and give an opportunity to such businesses. For poor, giving an opportunity is as important as a venture capitalist investing in a start-up. Who knows, she/he might be the next Haldiram’s!

–       Swapnil Karkare

Idea Courtesy: Book – Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty written by Abhijit Banerjee and Esther Duflo. Get more information about the research and the book on http://www.pooreconomics.com/ and you can buy it on Amazon.

Image Courtesy:

  1. Street vendor – https://pixabay.com/en/indian-street-vendor-selling-sweets-837344/
  2. Graph – Book – Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty written by Abhijit Banerjee and Esther Duflo

 

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