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MGT601 - SME Management - Lecture Handout 14

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LONG TERM ISSUES FOR SME POLICY

This lecture is still the continuation of the policy forming issues for SMEs. But in this section instead of short and medium term issues, we are dealing with long-term issues.

Long Term Issues

There are issues, which are beyond the scope of our current interventions. They are partially rooted in the multiple cultural structures of our society, frequently exacerbated by our geo-political situation. We, nevertheless, recognize their importance and therefore point them out here. However, it is not recommended to attempt to solve these questions by ways of an SME policy Initiative.

Literacy

The evidence reveals that SME find it extremely difficult to grow because of their inability to delegate to soundly trained staff. The day the small businessman feels comfortable to delegate, SME start progressing. The low literacy level also determines the potential of our labor force. Higher literacy rates are essential to enhance the quality of production can be enhanced by multiple factors which is what we need to be able to effectively compete in the international economy which is being extended to our local markets by the effects of opening up and WTO accession.

Law and Order

Law and order situation in Pakistan has always been regarded as worrisome. One survey reports that one in five respondents report that the business was the target of at least one crime during 2002. Another assessment suggests that the businesses in NWFP spend 4.5%, Sindh and Punjab 1-2% of their revenue on security. One in four SME consider law and order to be a severe problem.
Law and order problems weaken property rights and as a result weaken investor’s decision to invest. These problems are clearly linked to the manner in which the law enforcement and criminal justice system functions. The high time cost involved in seeking legal resource together with lack of access to both effective informal and formal enforcement mechanisms, increase the costs associated with contract enforcement.

Intellectual Property Rights

Intellectual Property Rights (IPR) is a vital issue that needs to be looked into. It has been observed that many developing countries with the help of a change in their IP systems and laws are able to attract Foreign Direct Investment (FDI) in the Research and Development(R&D) especially in the industrial and the scientific field. Therefore, promotion and protection of the intellectual property spurs economic growth, creates new jobs and industries, enhancing the quality and enjoyment of life.

Another benefit for Pakistan in properly adopting IPR culture is that it will protect the indigenous products such as rice, Kinno, traditional knowledge, pottery etc. the owners of the IPRs has the most valuable assets which can be utilized in commercial transactions, whether IP licenses, joint ventures, manufacturing, purchase or distribution agreements, or mergers and acquisitions. Licenses to use patents, trademarks and copyrights are often combined with transfer of know how in the form of training and are increasingly an important term in such transactions.

Infrastructure

Basic physical infrastructure is a prerequisite to growth and development. Power outages and access to the connections are considered an irritant, which significantly affects the productivity of firms in Pakistan. It is estimated that a typical business in Pakistan loses 5.6% in annual sales revenue due to just this single factor. Differences associated with firm size recognize that smaller firms are relatively hard hit in comparison with the larger ones because of inability to arrange alternate power source such as private power generators. High rates of power, the poor quality of delivery and its reliability are the serious concerns for SME in Pakistan.

Similarly, access to the telecommunication facilities and transport also serve as a detriment to smooth growth and transition of smaller firms to larger ones. The chief problem in the provision of the telephone services is the shortage of new fixed line connections, which currently stand at a mere 0.5-0.6 million a year for the whole country. Pakistan could also save up to 16.5% of the value of exports by improving its trade and transport logistics systems. Inefficiency in transport alone is estimated to cost the economy RS.320 Billion a year. The concentration of power, telecommunications and transport services, except for road transport, in the public sector has been regarded as a major concern. Evidence suggests that Pakistan’s state-controlled and concentrated structure of infrastructure delivery is highly inefficient.

References

  1. Small Entrepreneurs in developing countries by Dr Asghar S. Nasir
  2. Task force issues paper for new SME policy (SMEDA)
  3. Pakistan Small Entrepreneurs Summary and Statistical Tables, January 2001,GALLUP/BRB (A world Bank survey)

Book Recommended

50 Years of Pakistan’s’ Economy (traditional topics and contemporary concerns) EDITED by Shahrukh Rafi Khan Published by Oxford press Pakistan.

Key Terms

  1. WTO (World Trade Organization)
  2. IPR (Right to protect an idea, piece of writing, design from copying)
  3. Merger (combination of two or more organization)

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