Collaboration Matters: Promoting Innovation in Micro, Small & Medium Enterprises (MSMEs) in India

Shankar Kumar

Esther Simmendinger

While India has experienced substantial economic growth in the recent past, one of the country’s biggest issues is that it has seen a long period of ‘jobless growth’ (e.g. Tejani, 2018).
There is a lack of labour demand, which is partly due to a relatively weak and inefficient MSME sector, these enterprises mostly being unable to scale up. Most MSMEs suffer from a lack of modernisation and innovation and insufficient prerequisites for increasing productivity. However, with over 13 million people expected to join the workforce every year, the private sector, especially MSMEs, is expected to be the key driver in sustainable and inclusive development. It can reduce pressure on the job market and reduce ecological and social discrepancies.

MSMEs in India are organised into ‘clusters’, where entrepreneurs generally have little or no access to ‘innovation-enabling’ services. There is lack of collaboration between MSMEs, research/academic institutions and government (whatever little exists, is not institutionalised), which results in reduced efficiency, innovation capacity and sustainability of MSMEs (including social enterprises and start-ups). The framework conditions in clusters are not conducive to cooperation, with supporting institutions lacking effective methods, support programmes and the incentive structures.

The ‘Programme for Modernization and Innovation in Indian MSMEs (MSME INNO)’ is being implemented to strengthen the innovation system by systematically fostering cooperation between industry, academia and government and thereby improving the innovation capacity and sustainability of MSMEs. The project’s intended impact is the generation of jobs. MSME INNO is being implemented by GIZ.

MSME INNO works at different levels and with varied regional actors to strengthen the regional innovation ecosystem for MSMEs. The approach of the project is to strengthen the actors who impact the regional ecosystem by facilitating development of networks and platforms for engagement and collaborations.

At the macro level, the programme supports the Ministry of MSME and selected state governments on developing new methods that foster innovation in the sector. Successful approaches of promoting innovation are and will further be integrated into policy dialogue and thus, the programme’s successful methods can be expanded on a large scale - even beyond project period.

The project supports institutions at ‘meso’ level, such as industry associations, incubators and academia to institutionalise and offer a range of innovation-enabling services for MSMEs. To increase MSMEs’ innovation capacity, the programme has created supportive Systems of Innovation with key actors.
On a micro (MSME) level, MSME INNO, through supporting ‘pilot projects’, demonstrates, how MSMEs can integrate innovation into their product, process and business model and provides advice on methods and instruments that can be used to identify opportunities for improving business operations. This is done by easing their access to research and academic institutions. The project focuses to build the capacities and skills of MSME staff on innovation-related skills, so that they are equipped to cooperate at the cluster level and innovate at the firm level. The project is also making efforts to integrate big companies through their intervention into MSMEs’ supply chains.

Results and impact
Industry Associations: MSME INNO is working with nearly 50 industry associations. Innovation Facilitation Cells (IFCs) have been established in these cluster-level associations to address the challenges faced by their MSMEs. IFCs strengthen the innovation ecosystem at a regional level by fostering cooperation between industry, academia & government, offering innovation services for SMEs, training MSMEs and supporting MSMEs to leverage public support schemes. 10 IFCs have been established so far, impacting over 6000 MSMEs. Besides IFCs, MSME INNO is working intensively with another 40 industry associations, building their capacity to deliver information and knowledge services for their members with an outreach to nearly 50,000 MSMEs in the country.

Industry-Academia collaboration: To bridge the gap between academia and industry at a regional level, the project is implementing ‘pilots’, where students and mentors work closely with MSMEs to identify ‘live problems’ of MSMEs and develop solutions for them. These pilots ‘started’ with one college and 11 projects 3 years back. Now, the programme has expanded to 5 clusters (cities) covering over 20 colleges, 160 SMEs and nearly 350 projects. A digital platform has also been developed, which connects MSMEs to academia. A few projects have emerged into ‘start-ups’, where the student has used his/her solution and commercialised it into an independent business.

Start-up and incubation ecosystem: MSME INNO supports the establishment and strengthening of 7 incubators in government institutions, including 2 women universities. These incubators act as regional incubation hubs. This will strengthen the regional ecosystem for start-up promotion and will create a culture of co-incubation and co-creation. 10 start-ups supported by women universities are already in the operational phase.

The project interventions have huge potential for upscaling. Looking at the initial impact on the functioning of incubators, the ministry has requested the project to train and build capacities of over 250 government-supported incubators. The federal government has roped in other ministries and has sought project support to help develop a plan to replicate the ‘industry-academia model’ across the country, covering thousands of colleges. With the industry associations taking a lead to bridge the gap between industry and academia, the project is hopeful that the model to strengthen regional innovation ecosystems will be vibrant, sustainable and replicable.