Many pundits have passed judgement on the inevitability of ‘organised retail’. Yet, around the world, independents continue to thrive.

One may think that at least in difficult economic phases – such as the one facing economies around the world right now – large retailers are better equipped to survive. Yet, often it is the flexibility of the owner-driven small business that rides out the trough. Service levels and personalisation – that are increasingly critical in an impersonal world – are often far better delivered by a small retailer. [See “Playing with the Big Boys”]

And when it comes to business across borders, I can’t think of any retailer that is truly global. Most retailers that have successfully run international businesses in multiple countries (Carrefour, increasingly Tesco and others) have had to localise significantly – often sacrificing scale to achieve localisation.

A well-written article by Paul Chapman in Mint (February 18, 2007) raises some of these points using India as an illustration. Worth a read: The Rocky Route to Modern Retail.

In several conversations recently, there has been reference to how much contribution comes from small-medium enterprises, the need to protect the small-scale industry (SSI) to provide diversity etc.

After all the conversations, one thought keeps coming to mind. While small businesses need to be enabled, and an ecosystem and environment created for them to thrive, there is no reason to keep them from growing.

Entrepreneurship is organic, a business is a living thing. Basic high-school biology teaches us that living things (as opposed to non-living things) grow. Preventing a living thing from growing is going against its very nature.

But that is exactly what reservation of certain manufacturing sectors for small scale does – it creates a government-regulated ceiling beyond which the business cannot invest (and, therefore, cannot grow).

The apparent objective of the policy is to “protect” the industry sector from competition from large companies. The underlying assumption is that large companies compete unfairly, and that small companies in the reserved sectors effectively cannot compete against larger players.

However, many industries and sectors in India are paying the price for that policy. For instance, even after the clothing sector was allowed a higher cap of investment in plant & machinery, and then finally removed from the list of SSI-reserved list, it struggles with its fragmented structure, against larger-scale and more efficient competitors based in China , neighbouring Bangladesh and other countries.

Obviously, in global trade, restricting the growth of domestic industry does nothing to make the country competitive. It only protects it from itself, and makes it inefficient.

So every time the list of industries reserved for small scale is reduced, in my opinion it improves the potential competitiveness of Indian industry. In that light, the government’s announcement this week of removing some more industries from the list is an occasion to cheer.

The government has identified mechanical equipment, electrical goods and stationery as the categories to be opened to larger scale manufacturing.

Consumers, retailers and consumer products brands have something to look forward to, considering that this may include products such as steel cupboards, doors, windows and ventilators, steel furniture, locks, steel and aluminium utensils, builders’ hardware, sewing machines, kitchen gadgets, and pens.

We await the final list with bated breath. And look forward to other consumer goods also being removed from the SSI-reserved list and being opened to higher investments.

For those who are familiar with Kutchh, and its people, there is no doubt that it is one of the most active hotbeds of entrepreneurship. A lot of the business in India’s financial capital, Mumbai, is in the hands of the ‘kutchhis’ (those from Kutchh). Many of India’s largest companies and financial heavyweights are from this region, while Surat has been a force to reckon with in the global diamond trade. Amidst all this, one of the most interesting group that I have come across are the craftspeople and artisans working with traditional methods of craft – textiles, metal, wood, leather etc.

Beyond the timeless creative wealth that traditional craft creates, a conversation with one such craftsman – a handloom weaver – highlighted to me the value of crafts as a force of entrepreneurship. While talking about the world in general, his choices in life etc., he said that the strongest reason for him to stick to his family’s handloom tradition was the fact that he was an entrepreneur. He was his own boss, not reporting to anyone else, and his fortunes not subject to the whims and fancies of some better-educated higher-up in “a company”. To him, the sense of dignity from creating his own products and running his own trade was far more important than ‘earning more in a safe job’. An important learning to keep in mind during these times of hectic corporatization of Indian business.

The other aspect that is specifically important to the fashion / lifestyle products sector is the diversity of product base and the product development edge it provides the industry. The product development, design and merchandising capability is a backbone for the lifestyle / fashion / soft goods industry in India, that keeps it in the global competitive arena despite wheezing infrastructure, rising costs and other competitive inefficiencies.

An article by Shailesh Dobhal and Bhanu Pande in The Economic Times today refers to a growing inequality of income in India. (“India Rising, Bharat awaits for the trickle to turn flood”)

The change for all of urban India is reported to be 15%, which is quite visible, especially in the larger cities where the change is possibly greater. What is worrying is that even in rural India the change is 13%.

And these figures are for 2004-05, from a report authored by NCAER’s Dr. Rajesh Shukla. My guess is that the difference would be even higher now, 3 years later.

Obviously at a personal level this should concern all. Each person is part of the ecosystem – there is only so long one can hide in ivory towers behind tall walls and locked gates. We are most secure and content when our neighbour is secure and content. Stark disparities that grow even more stark are not a way to develop security.

However, one might ask, why should business managers in consumer goods and retail sectors concern themselves with this phenomenon from a business perspective?

The answer should be self-evident – as shared in a presentation at the Confederation of Indian Industry (CII) National Retail Summit in 2006 – a retailer can grow its market by encouraging the development of smaller enterprises, especially those in lower income areas. As these enterprises grow, so does prosperity and available income.

“Grow your wealth by growing someone else’s.” That may seem like an odd notion. But think – is it so odd?

In May 2007 Arun Maira, Chairman of the Boston Consulting Group’s business in India, presented scenarios that were developed in an exercise a few years ago, about the possible developmental trajectories of India. These include:

• “Atakta Bharat (India Stuck)” described as ‘Buffalos Wallowing’,

• “Bollyworld” (the crazy mix of glamour and tragedy) described in two parts as ‘Peacocks Strutting, Birds Scrambling’ and ‘Tigers Growling, Wolves Prowling’ and

• “Pahale India” (India First), subtitled Fireflies Arising.

Here’s his very thought-provoking article (India: Many Million Fireflies Now) that is well worth a read.

Creating an entrepreneurial ecosystem is absolutely critical to a healthy and vigorous society and economy.

Creating a “democratic” entrepreneurial ecosystem is even more critical to sustaining that health. A democratic entrepreneurial system is like all other democracies – inclusive and widespread – and vital to improving the baseline quality of life.

As we’ve pointed out elsewhere, retailing is not just a fundamentally entrepreneurial business, it also offers up a platform for the birth and growth of other entrepreneurial businesses.

Obviously, big retailers offer a change for companies to scale up faster, once they meet the performance criteria set by the retailers.

The interesting thing is that small retailers offer an even more interesting growth opportunity since, as their own business grows, they grow their supply partners as well.

Countless companies and brands have been launched on the back of the likes of Wal-Mart, Carrefour, Tesco, Marks & Spencer, and in India retailers such as Pantaloon’s and Spencer’s (and even some of the early modern retailers in India that don’t exist anymore).

In view of this, it is wonderful to see 2-9 February 2008 being celebrated as Entrepreneurship Week (on the National Entrepreneurship Network’s website) and also its powerfully worded pledge.