SME exporters enjoy 10% higher profits.

Small and medium enterprises (SMEs) engaged in exports earn up to 10% higher profits than their peers who sell to the local market. "A larger proportion of SME exporters have operating profit margins of more than 10% than their counterparts selling in the domestic markets," according to a study of 1800 SMEs conducted by ratings agency Crisil.

The main reason for higher margins is the superior pricing power enjoyed by these SMEs in international markets, Crisil said. "SME exporters have been able to leverage India's advantages—access to raw material, availability of cheap labour in abundance, deepening of expertise and skills in certain key industry clusters and identification and exploitation of niche markets for Indian goods."

Crisil studied SMEs in agricultural processed foods, engineering, leather and textiles sectors. Operating profit margins (OPMs) vary across sectors depending on the extent of value addition and technological intensity involved in the manufacturing process. SME exporters in the engineering sector reported significantly better OPMs in comparison to their peers in the domestic market.

"These players have maintained specific focus on select products and markets driven by the demand situation," said Sachin Nigam, Senior Director, SME Ratings - Crisil. Typically, exporters catering to developed regions such as the US and Europe focus on primary articles and light engineering goods. Conversely, SMEs exporting goods to developing regions such as Africa, Middle East, and South-East Asia concentrate on heavy engineering and turnkey projects.

The analysis of SMEs in textile sector revealed that exporters have reported marginally better OPMs than peers serving local customers. This variation could be driven by the fact that a sizeable proportion of these exporters are garment manufacturers who undertake contract manufacturing for global merchandisers and brands. As a result they face intense price competition from countries having cheaper labour such as Bangladesh, China, Sri Lanka and Vietnam.

The OPM of a large number of agricultural and processed food and leather exporters are 5% higher than local peers. Most local players in these sectors have OPMs of less than 5% as they are engaged in low value added segments such as rice milling,
cereal/ pulses processing, leather tanning and job work, Crisil said.

Source : timesofindia.indiatimes.com