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MGT601 - SME Management - Lecture Handout 37

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EXPORT POTENTIAL OF SME IN DEVELOPING COUNTRIES – I

Definition and Role in Economy

The small and medium-sized sector is a varied one and plays a predominant role in the economies of most developing countries. It comprises factories, workshops, traders and other service facilities. It ranges from the most modern and up-to-date to the simple and traditional, from independent enterprises to ancillaries and subcontractors, and from units mainly catering to the domestic market to exporters.

Small and medium-sized enterprises (SMEs) are a key component in economic life, not only because of their number and variety but because of their involvement in every aspect of the economy, their contribution to regional development, the complementary role they play in support of the large sector, and their role as proving ground for innovations and adaptations. They can be seen as a kind of industrial breeding ground, a source of constant renewal of industry and commerce, and a wellspring of competition and dynamism.

There is no universally accepted definition of an SME. One study has identified more than 50 definitions in 75 countries. Frequently, criteria defining as SME in a country may be based on the purpose for which the identification is required.

Again it is possible notionally to group manufacturing SMEs in three broad categories:

  • Cottage or Artisan Units.( less than 10 employees)
  • Small Scale Units.( up to 50 employees)
  • Medium Sized Industries.( Between 50 and 200)

These would not be watertight compartments and such a grouping would be arbitrary. SMEs play a significant role in the economies of most countries, industrialized as well as developing. Organized small and medium-scale industries in many African countries are relatively smaller in number and their contribution to GNP more limited.

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MGT601 - SME Management - Lecture Handout 17

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FINANCIAL FEASIBILITY OF SMES

This lecture deals with the financial feasibility, flow sheets, short term and long term loans, cash flow analysis and financial cost.

Financial Feasibility

It covers the following:

Determination of total financial requirements

It can be done by preparing a financial statement in the following way:

Financial Requirement Statement:

Initial Expense Period 1 Period 2
Expense in product development ------- -------
Legal expense ------- -------
Product testing expenditure ------- -------
Marketing and technical feasibility Expenditure ------- -------
Miscellaneous expense ------- -------
Sub Total(1) ------- -------
Fixed investments ------- -------
Building ------- -------
Equipment and machinery ------- -------
Patents ------- -------
Other equipments ------- -------
Sub Total(2) ------- -------
Operational expenditure ------- -------
Material ------- -------
Wages ------- -------
Sales promotion, distribution ------- -------
Rent, interest, insurance, taxes ------- -------
Contingency ------- -------
Sub Total(3)    
Total 1+2+3 1+2+3

In making the above estimation, provision must be made for cost escalation that is inevitable due to price changes. Besides, appropriate sales forecasts should also be made to have a clear picture of expenditure. The projection could be weekly or monthly.

Read more: MGT601 - SME Management - Lecture Handout 17

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