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MGT601 - SME Management - Lecture Handout 13

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SHORT AND MEDIUM TERM ISSUES FOR SME POLICY FORMULATION – III

This lecture is continuation of defining the issues for making a SME policy; this lecture deals with the short and medium term issues. The vital issues of gender development and environmental protection are also discussed in detail

Market and Industry Information

Access to market and industry information is one of the keys to develop successful business strategies. Frequently, business and trade associations are able to provide their members with such services. By associating with like institutions in foreign countries, they are also able to establish links and obtain information on foreign markets.

Over half of our SME belong to business and industry association. Their perceived role is limited to lobbing and negotiation with the government. Yet very few SME (12%) perceive their associations to be a source of information on new developments in their fields of business operation. How to increase the service provisions by all types of stakeholders will become a fundamental issue when SME support programs will be looking for deliver channels.

Monitoring Developments
Harmonizing Enterprise size Categories

Pakistan has no across the board legal definition of SME. This makes is extremely difficult to monitor the development of our SME economy and to establish benchmarks against other countries in order to devise areas of intervention and support.

Various government departments and public-sector agencies have adopted their own definitions. There are, of course, various reasons for them to define SME, and there may even be discussion on just how a strict and reasonable size standard could be defined. A number of current definitions are based on capital standards since this influences the pattern of fund raising in the formal and informal market by SME. Many stakeholders consider enterprises with 100 or more employees as large, and enterprises with less than 5 employees as micro. Yet our statistical system classifies enterprises with more than 10 employees as large, and the State Bank of Pakistan considers those with more than 250 employees as large.

The reference to international practice also suggests differentiation among industrial, wholesale, and retail24 and services related enterprises. This view also gets credence from various studies on the issue for Pakistan25. Again, this consideration is only visible in the SBP definition and missing in all others. There are also rationales beyond the particular organizational motivations for defining specific size classes, and it will therefore be useful for all stakeholders to review definitions on technical grounds.

For a national policy, it is extremely important to have a harmonized definition for, as it is also important for the government to focus assistance as reasonably as possible for maximum efficiency. It is also imperative to adopt a definition to foster the coherence of vision in the SME policy development and for the better implementation of related support programs across institutions.

Measuring Our Success

Public sector resources are as scarce as private sector resources, and we need to ensure that they are being used in a most efficient way so as to be able to create and maintain sustainable support structures for SME, which are able to perform in the long run. At the same time, we, of course, seek a maximum effectiveness of our support programs26.

As things stand, we have no mechanism in place for measuring our success. In fact, we do not even have a criteria established by which we are able to determine our success as a nation in fostering SME development. And we are not able to correctly state what the Government is spending on SME support annually.

Our present “system” of support is incoherent. While division of labor with diverse stakeholders is necessary condition for obtaining a maximum reach, it is also a perfect ground for the duplication of activities and wastage of resources. There is no current overview of activities, and the various stakeholders compel us to commission specific research if we seek information on the diverse contributions. What is at stake is that we forego the benefits of learning from one another in order to continuously improve our support structure to meet the needs of the target group, SME.

SME as a Medium-Term Channel for Other Objectives

It is common practice in many countries to make use of SME in order to further specific development objectives as, for example, sustainable or equitable development. After all, SME constitute the overwhelming part of the economy. Currently, we are not making use of this channel for promoting the development of our country. Two issues, which also relate to our competitiveness, are flagged in the section below.

Gender Development

Each of the two genders of any society constitutes roughly half of the population, and Pakistan is no exception. People of both genders embody not only labor force, but also knowledge and creativity, which may be mobilized, to achieve economic ends. Discarding either of the genders, therefore, implies foregoing the potential benefits, which arise from mobilizing the respective human resources for development.

Pakistani women have been engaged in the production process for ages. Their participation in the economic activities in the modern society has also progressed beyond agriculture into the local market economy. Women are increasingly migrating to urban areas for employment in a range of cottage industries, such as carpet weaving, textiles and handicrafts. In search for wage employment, women are moving into small business and self-employment ventures thereby creating many formal and informal opportunities for work.

Women entrepreneurship in the formalized sense, however, remains a new concept. Our current strategies also tend to focus on increasing women’s participation in the labor force. The business environment for women in Pakistan reflects a complex interplay of many factors made up of social, cultural, traditional and religious elements. These have taken shape over many centuries; are anchored in patriarchal system and are clearly manifested in the lower status of women. The form of constitutional structures, policy documents, regulatory arrangements and institutional mechanisms is contemporary rather than traditional, so it is cosmetically impartial.

Yet the gender bias is rigid and deep-rooted as it draws legitimacy from the perpetuation of a traditional mind-set, established rituals and a firm belief system. It has conclusively been shown that women business owners encounter more obstacles, and face more risks, financially, socially, economically, culturally and legally than male business owners face.

The Government of Pakistan is well aware of the potential of the women in our society and the contribution they can make towards economic development. Women are continuously being encouraged to enter the business stream of the country and are being provided incentives. However, there still is a strong dearth of focused initiatives that need to be taken by existing business facilitation institutions.

Environmental Issues

Environmental issues are most frequently a result of the interaction between human activities of production and the environment. Under fierce competitive pressure in the market economy and as part of the coping strategy when faced with difficulties to cover basic needs, enterprises and individuals are creating environmental issues.

While certainly one of the economic root causes for environmental damages are externalities, which require appropriate government intervention, it is frequently overlooked that there are many economic gains, which may be achieved from producing in an environmentally friendly manner. Reducing material waste can be one way of reducing cost. Saving resources such as water and energy does not only generate benefits at the national level but may translate into competitiveness and thus economic gain at the enterprise level.

There is also a direct link between the effectiveness of the technology transfer and the stabilization of the global climate change and natural resources depletion. Major constraints to effectiveness lie in the high transaction costs associated with the development of the capacities and capabilities to manage and generate technological change. Developing countries enterprises thus tend to ineffectively exploit available technology options, as well as to inefficiently utilize the transferred technologies.

Many OECD countries make use of channel of SME promotions in order to achieve improvements for the environment. For example, special credit lines may be provided in order to encourage the adoption of environmentally friendly technologies. Specific training courses are being offered to SME on waste reduction. ISO 14000 is actively being promoted in the European Union as one way of combining environmental concerns with quality and thus competitiveness. How may we best use our current and future SME support structures in order to achieve positive effects?

Reference:

  1. Gender inequalities and development in Pakistan By SHAHNAZ KAZI
  2. Environment: Some key Controversies By Shaheen Rafi Khan and Shahrukh Rafi Khan
  3. Policy issues Paper (SMEDA)

Book recommended

50 years of Pakistan’s’ Economy edited by Shahrukh Rafi Khan (Oxford Press)

Key terms

  1. Gender (classification based on male, female, neuter)
  2. Externalities (A term used in environmental studies, like a drain having polluted water from one factory may be used by some other industry and suffer the bad effects of pollution)

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