Development of SMEs: Replicating top foreign models

Md. Joynal Abdin
The Financial Express on 24 July 2014 
 

The National Industrial Policy 2010 of Bangladesh clearly defines small and medium enterprises (SMEs) with two major indicators – replacement cost and number of workers.

The Bangladesh economy has the strong support of its dependable SME sector. SMEs have been the engine of growth. There are about six million SMEs in the country. About 90 per cent of all industrial units are SMEs generating about 25 per cent of the GDP (gross domestic product), employing about 31 million people and providing 75 per cent of household incomes. Various categories of SMEs together contribute between 80 per cent and 85 per cent of industrial employment and 23 per cent of total civilian employment in Bangladesh.

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

By producing exportable surpluses of commodities together with fulfilling local demands, SMEs are making significant contribution to the economy of Bangladesh. This sector is a potential one in terms of local value additions and creation of employment opportunities.

The definition of SMEs in Bangladesh is as follows:

Category
Small
Medium
Indicators
Manufacturing
50 Lac – 10 Crore
10 Crore – 30 Crore
Replacement cost
25-99
100 – 250
No. of workers
Service
5 Lac – 1 Crore
1 Crore – 15 Crore
Replacement cost
10 – 25
50 – 100
No. of workers
 

REDUCING DISPARITIES: A study of the United Nations Industrial Development Organization (UNIDO), has found that SMEs can help reduce economic disparities between urban and rural areas. The study suggested that SMEs are important for economies in transition from an agriculture-led to an industrial economic system. The rationale is that such SMEs may provide opportunities for value-adding processing activities and in the process, generate sustainable livelihood for many.

The United Nations Conference on Trade and Development (UNCTAD) has highlighted the role of SMEs in the development of the leading Asian economies. The report suggests that the growth-oriented medium-sized enterprises has a penchant for adopting modern technology and training and to serve very specialised markets. There is a high incidence of inter-firm relationships leading to fostering of mutual exchanges of information and knowledge among themselves.

According to the Organisation for Economic Co-operation and Development (OECD) SMEs contribute between 25 and 35 per cent of the world’s manufactured exports. In terms of employment, within OECD countries, SMEs account for more than 90 per cent of firms and 60-70 per cent of employment.

Likewise, as indicated from the available data for the Asia-Pacific Economic Cooperation (APEC) economies, SMEs employ a significant proportion of labour force in both developed and developing economies.

 INDIAN SCENARIO: A large number of SME promotion agencies, including a full-fledged ministry, are working to develop and promote SMEs in India. Notable Indian SME development and promotion agencies are the Ministry of Micro, Small and Medium Enterprises, MSME Development Institute, SME Development Chamber of India, SME Export Promotion Council, Entrepreneurship Development Institute of India, SME Rating Agency of India Limited, India-Korea SME Council, Small Industries Development Bank of India, and the Federation of Indian Micro and Small and Medium Enterprises etc. Relevant agencies are conducting diversified types of research on different SME issues in India as well as abroad. Indian SME organisations have branches abroad to promote and support Indian SME entrepreneurs there.

Cluster development is a popular mode of SME development in India. Besides these SME organisations, a large number of public and private sector organisations are working with cluster development in India. Indian SME organisations are publishing both free-of-cost and for-sale publications including business plan, identified potential business sectors, business opportunities at home and abroad, business directories, directory of industrial laboratories, handbook to minimise risk in export market, and mandatory and non-mandatory standards on different industrial products in different countries. They also promote a few common activities like organising seminars, workshops, trade fairs, and linking businessmen with concern networks.

MALAYSIAN SCENARIO:  The government agency to develop and promote SMEs in Malaysia is the SME Corp. The SME Corp is one of the leading organisations in Asia for SME development in terms of activities and areas focused. Technology development is one of their major activities; they assist SMEs to adopt new technology, increase productivity, automation, select appropriate technology and machinery, update production process and production management etc. Soft SME loan, Shariah-based SME loan and emergency fund for SMEs are their unique services in the region. Other mentionable activities of the SME Corp are capacity building, advisory and technical services, SME rating, SME university linkage, SME mentoring, national brand seal on SME products, SME expert panel database, company registration, company enlistment, publications and online SME services etc.

JAPANESE SCENARIO: The Organisation for Small and Medium Enterprises and Regional Innovation, Japan serves the SMEs from four major aspects namely, support start-ups in new business development, support for SME growth and development, providing safety nets and infrastructure.

VIETNAMESE SCENARIO:  The Agency for Enterprise Development under the Ministry of Planning and Investment is responsible for SME development and promotion in Vietnam. It is implementing SME development policies and providing a series of services to the Vietnamese SME entrepreneurs including linkage with technology suppliers, regulatory consultations, establishing industry export and hi-tech zone, publishing business directory, directory of SME associations, directory of SME experts, directory of SME loan products being offered by SME banks etc.

CHINESE SCENARIO:  The Bureau of China International SME Fair is the SME promotion government agency in China. They organise yearly SME fair, technology fair, world conference, boutique fair, seminars, workshops, work with environment-friendly SME development, providing youth entrepreneurs loan, providing start-up loan etc.

BANGLADESH SCENARIO: A number of organisations are involved in SME development in Bangladesh. These are National Taskforce on SME Development, SME Cell, Ministry of Industries, SME Foundation, Bangladesh Small and Cottage Industries Corporation (BSCIC), Bangladesh Industrial Technical Assistance Centre (BITAC), Bangladesh Council of Scientific and Industrial Research (BCSIR), Business Promotion Council (BPC).

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and numerous chambers of commerce and SME-based sectoral trade associations are involved in promoting SMEs.  

BOOSTER SECTORS: Bangladesh has declared 11 SME sectors as booster sectors. These are electronics and electricals, software development, light engineering and metal-working, agro-processing/agri-business/plantation agriculture/ specialist farming/tissue-culture, leather-making and leather goods, knitwear and ready-made garments, plastics and other synthetics, healthcare and diagnostics, educational services, pharmaceuticals/cosmetics/toiletries and designing and aesthetically-challenging, personal wear and effects.  

The Bangladesh Bank provides refinancing  facilities  to  commercial  banks  and other financial institutions  against  disbursed  loans.  

Special institutional arrangement has been made to nurture SMEs by establishing SME Foundation, SME and Special Programme Department in the Bangladesh Bank and SME Cell in the Ministry of Industries.

For ensuring SME-friendly infrastructural support in a particular area, the government is establishing industrial estates through the Small and Cottage Industries Corporation (BSCIC) and the Export Promotion Zones (EPZs) through the BEPZA (Bangladesh Export Processing Zone Authority). BISIC and EPZs have developed 79 industrial estates and eight EPZs respective.

To facilitate access to information among the SME entrepreneurs, 74 SME Helpline Centres have been established throughout the country.

The government has taken initiatives to create skilled manpower in different trades through various training and development institutions.

CHALLENGES:  Bangladeshi SMEs are facing a lot of challenges including lack of modern technology, adequate investment funds, irregular/inadequate supply of power, high rate of interest on bank loans, inadequate availability of raw materials, absence of clear-cut government policies (in a few sectors), fierce competition from low cost imported products, lack of skilled technicians and workers, research and development facilities, poor physical infrastructure and high transportation costs, absence of an effective and transparent legal system, poor information about market opportunities and requirements and political unrest with unstable government policies etc.

As we have limited resources, there are limitations in R&D. Therefore, only replication could be the best mode of learning for us. The Bangladeshi SME development authorities may consider replicating best practices of the similar organisations abroad like the cluster-based SME development programme of India and Iran, broad-based inclusive financing scheme of Malaysia and South Korea, establishing common service centres, incubation centres, laboratories programmes of Japan, and promoting SME products through organising trade fairs like China. 

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Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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