SME exporters enjoy higher operating margins than domestic peers

Exporters earn higher operating profit margins, compared to those who cater exclusively to the domestic market, Crisil study of 1,800 study small and medium enterprises (SMEs) in India.

The study revealed that a larger proportion of SME exporters have operating profit margins of more than 10 per cent than their counterparts selling in the domestic markets. The main reason behind the variation in margins is due to the superior pricing power enjoyed by these SMEs in international markets. 

SMEs included by Crisil belonged to four export-oriented sectors - agricultural and processed foods, engineering, leather, and textiles.

It notes SME exporters have been able to leverage on India's advantages, namely access to raw material, availability of cheap labour in abundance, deepening of expertise and skills in certain key industry clusters and identification and exploitation of niche markets available across the globe for Indian goods.

Operating profit margins vary across these sectors, depending on the extent of value addition and technological intensity, involved in the manufacturing process. Of these four sectors, SME exporters in the engineering sector have reported significantly better operating profit margins in comparison to their peers in the domestic market.

''These players have maintained specific focus on select products and markets, driven by the demand situation," says Sachin Nigam, senior director, SME Ratings. "Typically, exporters catering to developed regions, such as the US and Europe, focus on primary articles and light engineering goods. Conversely, SMEs exporting goods to developing nations in Africa, Middle East, and South East Asia concentrate on heavy engineering and turnkey projects.''