SME cluster development key to speedy industrial growth

SME cluster development key to speedy industrial growth

 Md. Joynal Abdin

The Financial Express on March 5, 2015

The small and medium enterprises (SMEs) are the prime movers of any economy around the globe. These enterprises are considered as engines of growth. All countries are trying hard to develop entrepreneurs, promote SMEs and facilitating their graduation into large industries for rapid industrialisation.

 Economists, development workers and innovators have prescribed different tools, techniques, methods and approaches for SME development around the world based on size, capacity and features of the economies. For example, Japanese ‘One Village One Product’ and Chinese ‘One Region One Industry’ and Michel Porter’s Global Village are widely-known approaches of SME development.

 Currently, cluster-based SME development is a popular approach for entrepreneurship development, SME promotion and industrialisation with a view to facilitating employment generation and poverty alleviation around the world. It could be the most effective, economically viable and maximum output-oriented SME development approach for Bangladesh.

 Why should we go for cluster-based approach? How many entrepreneurs are there in all the SME clusters in Bangladesh? The answer is that it is cost-effective to support hundreds of entrepreneurs at a particular location than that of hundred different areas. Ensuring infrastructure development, industrial utilities supply and maintaining law and order situation in a particular place are comparatively easy, economically viable and less time-consuming. There are a large number of SMEs located in the BSCIC Industrial Estates. There are also many clusters where the BSCIC estates are somehow part of those clusters. For example, the Coconut Oil Manufacturing Cluster is located at Bagerhat Sadar. There are some factories of coconut oil located at Bagerhat BSCIC Industrial Estate. Thus, majority of Bangladeshi SMEs (manufacturing units) are located in clusters.

 How is cluster-based development the best approach to develop SMEs in Bangladesh? Any entrepreneur (as a citizen of Bangladesh) could expect the government to ensure electricity, gas and water supply to his factory premises located at a remote destination of his/her native village. He or she can expect it. But the ground reality is that as Bangladesh has resource constraints, the government has to prioritise the needs and go for maximum number of beneficiaries with comparatively minimum investment. Therefore, 50 plus entrepreneurs at a particular location should be eligible to get priority over one or few scattered entrepreneurs.

 What is a cluster? Experts in many countries and development agencies have defined cluster-based on respective reality of economy and industrialisation. In Bangladesh, the SME Foundation has for the first time defined cluster in Bangladesh as a geographical location (five square km) having 50 or more manufacturing or service-providing units producing similar goods or services along with its backward and forward linkage industries. All the units share common strengths, weaknesses, opportunities and threats. Internationally, Professor Michael E Porter of Harvard Business School has defined a cluster as a ‘geographically proximate group of interconnected companies, suppliers, service-providers and associated institutions in a particular field, linked by externalities of various types’. The United Nations Industrial Development Organisation (UNIDO) has defined industrial cluster as ‘geographic and economic concentration of manufacturing activities which produce and sell a domain of interrelated and complementary products and have common problems and opportunities’. Currently, a few experts consider that a cluster shall be a concentration of similar manufacturing units located at a particular place at the same time. They shall be horizontally or vertically linked to each other. Networking, agglomeration, and geographic proximity are considered to define a cluster.

What are the potential benefits of SME Cluster Development in a country like Bangladesh? Cluster development could offer multiple benefits for a least developed country (LDC) like ours. In Bangladesh, about 30 per cent population are living below the poverty line; there are 1.8 million unemployed but workable people with a growth of another 2 million per year. The government has limited resources to ensure education, healthcare and employment for this huge number of population. Therefore, it would be a wise decision to involve private sector in employment-generating activities as a prime actor through entrepreneurship development and SME promotion. From Bangladesh’s perspective, we would say that development of SME Clusters could offer the following benefits immediately:

  1. Employment generation: There are 69,902 enterprises operating at existing 177 SME clusters. These enterprises are employing about 1.94 million and professionals with a male-female ratio 74:26 respectively. This means existing SME clusters are employing 1.43 million male and 5, 03,830 female workers. A few specific interventions could lead this number to double within the next five years.
  1. Balanced development: Presently, Dhaka and Chittagong divisions are more industrialised than other divisions of the country. Landlocked districts, especially northern part of the country, are lagging behind in this regard. Therefore, poverty in those districts is comparatively higher than others. On the other hand, among identified 177 SME clusters, 38 per cent is located in Dhaka division, 18 per cent in Rajshahi, 15 per cent in Chittagong, 12 per cent in Khulna, 7.0 per cent in Rangpur, 6.0 per cent in Barisal and 4 per cent in Sylhet divisions. Clusters are located in 51 districts of Bangladesh. Only 13 districts namely Netrokona, Rajbari, Narail, Meherpur, Lalmonirhat, Sunamganj, Barguna, Bhola, Patuakhali, Noakhali, Bandarban, Rangamati and Khagrachhari do not have any cluster. If we could develop existing 177 SME clusters without going for any single new location we could easily facilitate employment generation in 51 districts of Bangladesh. Cluster development thus could offer balanced development of every region of the country.
  1. Inclusive and sustainable economic growth: All major sectors of the economy have representatives in SME clusters. Handicraft and miscellaneous sector has 38 SME clusters, agro-processing/agri-business/ plantation sector 34 clusters, light engineering and metal working sector 31, knitwear and readymade garment sector 22, fashion-rich wears, personal effects and consumption goods sector 16, leather goods sector 13, handloom and specialised textiles 10, healthcare and diagnostic sector 5, Plastic and other synthetic products sector 3, electronics and electrical sector 3 and educational service sector 2. A single uniform cluster development initiative, therefore, could ensure inclusive growth of every sector of the Bangladesh economy.
  1. Poverty alleviation: We have already observed that SME clusters play a great role in employment generation, balanced distribution of wealth and it is inclusive for every sector. Cluster development could be one of the most effective tools for poverty alleviation as well.
  1. Optimum output against investment: Establishing a single new EPZ or SEZ like any existing cluster could require capital of developing 50 existing clusters. Therefore, developing existing clusters could offer optimum output against invested capital.

How is to develop a SME cluster? There are many methods, models and approaches of cluster development practices by different countries and organisations around the world. Following steps could be followed for developing SME clusters in Bangladesh:

  1. Identification of a cluster,
  2. Needs assessment for cluster development,
  3. Justifying the identified needs for cluster development,
  4. Identifying replicable best practices abroad,
  5. Preparing map of a cluster with backward, forward and support institutional requirements,
  6. Benchmarking a similar cluster as a model,
  7. Designing time-bound action plan,
  8. Piloting a cluster, implementing action plan and adjustment (if required),
  9. Implementing action plan at mass level,
  10. Monitoring and evaluation in terms of implementation process and expected output,
  11. Networking with location and international value chain and
  12. Adjustment and implementation.

Who will develop SME clusters in Bangladesh? Cluster development is a complex task involving active role of different ministries, departments, boards, banks, NBFIs (non-bank financial institutions) and support services from both government and private sectors. Not a particular ministry or agency can solve all problems of SME cluster development in Bangladesh. A coordinated combined effort can lead us to inclusive and balanced SME Cluster development. A list of stakeholders of SME cluster development could include the National Committee for Industrial Development (NCID), the Ministries of Industries, Commerce, and Finance, Planning, Home Affairs and Local Government etc. Among the agencies, the SME Foundation, BSCIC, EPB, CCI&E, BFTI, BPC, NBR, BITAC, BCSIR, Bangladesh Bank, BAB, BSTI, Bangladesh Tariff Commission, respective City Corporations, etc. could be involved from the government side. From the private sector, respective trade associations, chamber of commerce and NGOs could play a vital role. Now the question is who will coordinate. The SME Foundation already played a pivotal role by identifying SME Clusters throughout the country. It is assessing development needs of each of the clusters. But it has limitations in fiscal and other non-fiscal abilities.

 The government could think of strengthening the SME Foundation with budgetary and other required supports to coordinate the whole process and implement cluster development activities throughout the country.

When should SME cluster development process be started? Currently, the economy is going through a transformation process with its base shifting more towards industry. Contribution of agriculture to GDP is decreasing whereas contribution of industries and service sectors is rising day by day. It is the right time to speed up industrialisation process through cluster development.

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Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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