Diversification gives MSMEs edge over peers

CRISIL has studied the growth performance of 493 micro, small, and medium enterprises (MSMEs) rated by it in 2013-14 (financial year April 1 to March 31). The study indicates that MSMEs with a diversified customer base, differentiated product/service profile, and a widespread geographic outreach have a higher compound annual growth rate (CAGR) of 23 per cent, with average sales growing to Rs 2,172.78 lakh in 2013-14, from Rs 1,443.61 lakh in 2011-12. In comparison, enterprises with customer, product or geographic concentration had a lower CAGR of 19 per cent, with average sales growing to Rs 1,595.94 lakh in 2013-14, from Rs 1,134.00 lakh in 2011-12.

This trend appears to be more common in private limited companies, with 80 per cent showing one or the other form of diversification, as compared to proprietorship and partnership firms, of which 70 per cent showed diversification. The study thus indicates an inverse relationship between MSME growth and concentration - enterprises with a wide range of customers, a widespread geographic reach, and diversified product/service offerings have an edge over their peers with concentrated profiles.

Note: CRISIL has rated over 50,000 MSMEs in India. This fortnightly tracker presents to our readers insights on MSMEs, a key element of the Indian economy.