Growing any kind of a business involves effort, time, and dedication, and most importantly, funds. Small or medium-sized manufacturers trying to expand will need to be sure of where they’re going. If they don’t have a plan (and/or funds), continuing operations may become a challenge. In the process of adding equipment, production space, and staff to expand, they must not overspend their budget. Raw material is another aspect they likely need to spend a lot of money on. It therefore becomes necessary that they make sure to expand only at an affordable rate. They must have cash flow available at short notice. However, the strain on cash flow is only one aspect of the challenges a growing manufacturer must face. That is where ‘smart growth’ comes in. Let’s look at what smart growth is and how it can be achieved.
What Is Smart Growth?
Smart growth tends to be different for different manufacturers, and may mean staying the same size for some, or expanding in certain areas for others.
The basic idea, though, is to ensure that the growth is healthy for a business. Professor Edward Hess of the University of Virginia’s Darden School of Business has shown that it is quite difficult to create value through growth,
as most businesses lose money and take greater risks when they expand. He claims that ‘improve or die’ is truer than the generally accepted mantra of ‘grow or die’.The ‘Make in India’ campaign launched by the Modi government in India is a big step toward achieving smart growth in the country. Although it accounts for only about 16-17% of the GDP, the manufacturing sector in India holds immense potential. Add to that a huge growing market, a large and skilled workforce, a demographic dividend, English-speaking scientists and engineers, and a government focus to ease business in the country, and it’s easy to see why India is all poised to become the third-largest economy in the world by 2030.
How Can You Achieve Smart Growth?
There are certain common steps that manufacturers (and other businesses) can take toward achieving this:
1. Plan
Smart growth requires planning. It is important that manufacturers have a growth plan that defines their objectives, the methods, and strategies they can use to achieve their goals, and an idea of the potential risks. It is also necessary to review these plans regularly, especially when situations change.
2. Invest
Small manufacturers should look for potential profit generating investments. In India, investing in digital technology is a good idea. The new technology has already created a major shift in the way manufacturing is taking place in many countries across the world and are key to improving the manufacturing sector in the country.
This new digital revolution in the manufacturing industry is being called Industry 4.0 or the fourth Industrial Revolution. And India needs to incentivize the adoption of digital technology to improve its situation to match the world.
3. Funds
Manufacturers can depend on their cash flow or meet their financial requirements through business loans. Relying on your cash flow reduces risk by saving interest rates, though it may not always be possible to use only profit. In such situations, NBFCs offer business loans that businesses can use to boost their finances.
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