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Effective risk management is crucial for small businesses: Mritunjay Kapur

Interview with Country MD, Protiviti Consulting

Pravda Godbole 

Mritunjay Kapur

Protiviti Consulting, established in 2006, is the Indian arm of Protiviti Inc, a risk and business consulting firm specialising in internal audit. Protiviti helps both established and emerging companies to identify and manage risk. Mritunjay Kapur, a chartered accountant, has extensive experience in corporate governance advisory, enterprise risk management, business operations improvement, internal audits and transaction support services. He talks to Pravda Godbole about how can mitigate their business risks, the technological challenges they face, and what the government can do to support them. Edited excerpts:

In what ways can mitigate risk in their businesses?
Beyond calculated risks which every organisation takes, financial risk, market risk, operational risk, strategic risk, environmental risk, etc. are impossible for to avoid. As a result of their size and access to capital, small businesses face more acute challenges than ordinary businesses. In order to mitigate risks at every step, they can conduct an effective and efficient internal audit in their firms. An internal audit exercise can help SMEs implement strong internal controls which will help to reduce the risk of fraud and also provide various other benefits, right from raising funds and ensuring regulatory compliance, to supply chain integrity, business continuity and expenditure control.

A governance framework can be put in place as well — governance practices like effective risk and crisis management and good safety policies are crucial in this context. A smartly crafted and voluntary governance framework that is light but focused for the cause of SMEs is the need of the hour. For SMEs that are eyeing export business or planning to expand global reach, creditworthiness tools such as a Letter of Credit to protect their business transactions overseas and facilitate business growth is crucial.

What technological challenges do SMEs face once they go international?
SMEs constitute over 90 per cent of total enterprises in most economies. They are credited with generating the highest rates of employment growth and account for a major share of industrial production and exports. A key technological challenge faced by SMEs going global is the ability to conduct business through e-commerce in a new market. E-commerce has become a popular way for conducting business in countries around the world, especially in developed economies. SMEs face financial and management difficulties in an e-commerce model. They also lack the capabilities to advertise and market their products over various electronic mediums, including the social medium.

They also face other technological challenges. One is limited internal IT expertise and managerial knowledge, since very few employees of a typical gain relevant expertise in IT during their education (largely vocational training). Another relates to ICT budget and affordable solutions — most firms do not have a formal IT budgeting process and hence don't plan for ICT investments. Also, while hardware prices have been declining recently, software and IT service costs have not shown any downward bias.

Next, reliability and affordability are key network infrastructure concerns for majority of SMEs. Then there are data protection and privacy costs. Finally, the lack of qualified ICT service providers — the large technology service providers who possess a national coverage capability typically do not service the smaller market segment directly, as it increases their cost of sales.

What should the government do for the growth of SMEs that has not already been done so far?
There is definitely more scope for government action for the growth of small and medium businesses. The primary challenge that most SMEs face is adequate and timely funding. The government can take further steps to ensure easy availability of credit. The SME sector still struggles with market credibility while raising funds.

The government can ensure transparency in its operations and take effective steps to remove any hurdles faced by SMEs. It can try and ensure facilitation of information among and to SMEs through various forums. The government can also look to provide focused support programmes in order to assist SMEs in competing with multinational companies and create a business-friendly environment.

First Published: Tue, January 17 2012. 00:48 IST