The development imperatives of SMEs

The development imperatives of SMEs

Md. Joynal Abdin

The Financial Express on October 06, 2012

Small and medium enterprises (SMEs) are a significant contributor to GDP (gross domestic product), employment generation and self-employment creation of any economy. Because micro or cottage enterprises are home-based and have too many limitations, SMEs are comparatively better than the micro or cottage enterprises. SMEs are defined in accordance with the economic advancement level of an economy. Generally, an SME in a developed economy has higher investment, employment and technical knowledge than that of an SME in LDC countries.

EU defines medium enterprises as ones employing less than 250 workers or which annual turnover of less than or equal to 50 million Euro. Small enterprises are those that employ less than 50 workers or the annual turnover of which is equal or less than 10 million euro.

The UK defines SME as a small company that has a turnover of not more than £5.6m, a balance sheet total not more than £2.8m and having not more than 50 employees. A medium-size enterprise has a turnover of not more than V22.8m, a balance sheet total not more than £11.4m having not more than 250 employees.

In the USA SME means an organization of up to 1,500 employees and a turnover of $0.75-29m, depending upon the type of business.

China defines SMEs differently, based on different sectors. For example, in the industrial sector, those employing between 200 and 2000 people and having sales between 30 and 300m Yuan or assets in the range of 40-400m Yuan are considered small, and those above this line are medium level enterprises. Similarly, for the construction industry, involving one of the huge employers, the employee strength ranges between 600 and 3,000 and sales and asset level of 30-300m Yuan and 40-400m Yuan respectively are considered small and those having more than that are medium.

In Cambodia, firms that employ between 11 and 50 employees and have fixed assets of $50,000 to $250,000 are categorized as small. Firms with 51-200 employees and fixed assets of $250,000 to $500,000 are medium-sized.

In Vietnam SMEs are independent production and business establishments that are duly registered according to the current legal provisions, each with registered capital not exceeding VND 10 billion or annual labor force not exceeding 300 people.

In a few countries like China, Thailand, Malaysia SMEs are defined differently based on different sectors. A few countries define SMEs with employment as indicators and others define fixed asset or annual turnover, annual replacement cost as indicators.

Bangladesh, for the first time, defined SMEs uniformly in the National Industrial Policy 2010 with numbers of employment and replacement cost indicators as follows:

SMEs are the engine of growth in Bangladesh. There are about 6.0 million SMEs in the country. About 90 per cent of all industrial units in Bangladesh are SMEs generating about 25 per cent of the GDP, employing about 31 million people and providing 75 per cent of household income. Various categories of SMEs together contribute between 80 per cent to 85 per cent of industrial employment and 23 per cent of total civilian employment in Bangladesh.

About 60 per cent 65 per cent of SMEs are located outside the metropolitan areas of Dhaka and Chittagong. SMEs are providing job opportunities to about 70 per cent-80 per cent of the non-agricultural labor force. The SME share in manufacturing value added to GDP varies at 28 per cent- 30 per cent. The services sector is primarily composed of SMEs, which is responsible for the bulk of employment growth. SME contribution to national export is significant through different industries such as ready-made garments, jute, and leather etc.

Electrical and electronics, light engineering, and plastic goods, leather goods and footwear, agro-processing, fashion designing, knitwear and readymade garments, pharmaceuticals, jute and jute goods, handicraft, frozen fish, ceramics and furniture are the most promising SME industries in Bangladesh.

Some of the sectors are earning or saving foreign currencies by producing export-oriented products or import substitute products. Knitwear and readymade garments are the largest foreign currency earning sector of Bangladesh economy. It is earning about 79 per cent of total export earnings and 12 per cent of GDP. There are more than 5,000 ready-made garment businesses, which generate 2.5 million jobs and are the largest employer for women. Any of the above mentioned sectors has the potential to be the next RMG sector for Bangladesh if proper policy, institutional and infrastructure facilities are available.

The major barriers to the growth of Bangladeshi SMEs can be listed as lack of skilled manpower and manpower migration, lack of sector-specific technical and engineering institutions, lack of sector-specific product design and development institutions, lack of international standard testing laboratories, shortage of electricity, gas, water and other sector-specific utilities supply, high rate of bank interest, absence of common facilities centre, complex regulatory and customs regime, and harassment by law enforcers and customs officials etc.

For creating and maintaining an internationally competitive business environment, the government may take the following actions either with government funding or collecting funds from development partners or from the private investors under PPP (Public-Private Partnership) modalities. Whatever the mode of financing may be, the government has to take the lead in completing feasibility study for each of the projects.

Most urgent institutional arrangements should be:

1. Establishing sector-specific engineering and technical institutions for all the SME sub-sectors like establishing Bangladesh Institute of Plastic Engineering and Technology

2. Establishing testing laboratories for all sectors like Bangladesh electrical testing lab, plastic products testing lab, pharmaceuticals testing lab etc.

3. Establishing product design and development centers for all SME sub-sectors

4. Ensuring adequate funds in an internationally competitive rate

5. Revising course curriculum of technical education board and youth development (Jubo Unnayan) training centers based on sector-wise demands

6. Organizing Bangladeshi product exhibitions abroad

7. Establishing SME product display and sales centers at all international airports and major tourist spots

8. Establishing an Entrepreneurship Development Centre

9. Ensuring electricity, gas and other utilities’ supply on time

10. Helping and financing SMEs achieve international standard certificates

11. Helping and financing SMEs adopt new technology

12. Rationalizing tariff structure on raw materials vs finished goods

13. Introducing one-stop service centre for SMEs with all regulatory certification issuing facilities

Implementing the above recommendations is not far beyond our national capacity, but these will expedite our economic growth and help achieve the Vision 2021 easily. All these recommendations are within our implementation capacity and within our reach, if sincere initiatives are taken on time.


Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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