This lecture will introduce the small entrepreneur in Pakistan the activities of SMEs in global and regional level. It will also reveal the role of SMEs in a developing economy.
Salient Features of Small Entrepreneurs in Pakistan
Unemployment and under employment are the prevailing economic diseases in most of the Asian countries and they are result of a fundamentally disproportionate relationship between population and the use of available land resources. Rapid and continuing increase of population, in the last half century have led to a situation in which there are far too many people engaged in agriculture this situation is further aggravated by an antiquated system of land tenures, by poor standards of health and malnutrition by the use of primitive and inefficient techniques on small un-Economical holdings and by an uncertain climate for rains, weather changes etc. among the classical remedies suggested for tackling the problem of poverty and underemployment, large scale industrialization is perhaps the most important. This has no doubt, resulted in a phenomenal increase in the production of useful goods and have brought movement in living standards as well as in lowering the rate of population growth. But in many Asian countries large-scale industrialization has been slow particularly for the shortage of supply of capital.
Under the circumstances, the problem of unemployment and underemployment can be tackled by the expansion and modernization of the existing small-scale cottage industry and the introduction of new industries capable of raising the level of production and improving the present depressed standard of living. The large-scale industry has been slow to develop and has succeeded to a very limited extent in absorbing the surplus population of the countryside. SMEs are still the most extensive tools for controlling unemployment.
In Ceylon (Sri Lanka) as early as in 1949 nearly 286,000 persons were engaged in small industries, in China in 1949 approximately 10 million workers were responsible for 80% of the total industrial output by working in SMEs. In India more than twenty five million people are engaged in cottage and small industry.
In countries like Germany, Switzerland and France there exists today a large group of industrial workshops and units side by side with the large factories. Japan furnishes the most striking example of the survival and growth of small-scale industries. This phenomenal development is due to careful planning, the integration of industries with agriculture and not the least important.
Cottage and small industries have a very important role in the national economy, offering as they do, scope for individual, village or cooperative enterprises and means for the rehabilitation of the displaced persons.
In South Africa there are about 80000 small medium sized and micro enterprises in addition to the two to three million persons carrying different self-employment activities.
Country | Index | Share |
United States | Less than 100 employees | 34% employment and 32% sales |
Japan | Less than 300 | 99% of all employees’ establishments. 71.9% of all employees. 55% of all value added. 51.8% of all shipments. |
Federal Republic of Germany | Less than 10 employees | 85%% of all companies. |
France | Less than 9 employees | 99.9% of all firms. |
Chile | Less than 9 employees | 99% of all firms. 39% value addition. |
Republic of Korea | Small industry | 38.4% value addition. |
Brazil | Small- scale sector | 43.6% employment. 29.6% production share. |
Philippines | Small scale manufacturing | 90% of all establishments. 50% of employment. About 33% value addition. |
SMEs are considered as engines of economic growth in both developed and developing countries. They provide low cost employment since the unit cost of persons employed is lower for SMEs than for large-size units.
Although no accurate data is yet available, it is estimated that there are approximately 220,000 SMEs in Pakistan, which:
LARGE FIRMS | SMALL FIRMS | |
Sales per employee | SAR 486,000 | SAR 158,000 |
Gross Margin to Sales % | 14.2 | 4.4 |
Return on Assets % | 18.7 | 5.4 |
Saudization* | 14.3 | 8.5 |
Jobs created per million SAR invested | 1.0 | 28.3 |
* Saudis as a share of total employees.
The erroneous view of SMEs all-scale industry, which is persisting in many developing countries, is that they constitute only a transitional phase in development and that small industry development is a temporary expedient or a “second best” alternative. This seems to base on the assumption that as a country moves from a traditional to a modern economy, it will have no more need or place for small-scale industries. But experience of some of the most industrially advanced countries clearly shows that while some industries start as small and grow into large establishment in terms of capital, output and employment, small scale industries as such continue to constitute a fairly large and important sector of their industrial structure. In the United States, Germany, the United Kingdom, the Netherlands and Japan industrial enterprises employing less than 100 persons account for the overwhelming majority of small- scale industrial enterprises. Employing less than 100 persons need not necessarily be small. Because in capital-intensive industries in advanced countries generally small number of workers may be evidence of automation rather than smallness in size. However, in a majority of cases, enterprises employing less than 100 persons may be taken as relatively small in the scale of operation as well. The contribution to total output in manufacturing ranges from about one quarter to one third, and to total employment in manufacturing from about one quarter to one half in some industries.
Small establishments have a predominant position, in the United States for example, they contribute more than 75% of total value added in certain branches of foodstuffs and clothing industries. Small industries can coexist successfully with large industries because of certain inherent advantage of small-scale production or of small industries which functions complementarily with large industries as producers of components and supplies for them. Experience in advanced countries has established the fact that in certain circumstances, in manufacturing certain products by small industries cannot only coexist with large industries, but also even out compete them. Similarly, experience in developed countries has proved that the subcontracting system by which a large numbers of small firms supply components and parts of large industries have not only stabilized and strengthened the small firms, but also contributed substantially to the efficiency and economies of the big industries. One of the major tasks of the small industries promotion should be to identify the industries where production on small-scale basis offers the maximum advantages and give direction and lead to potential entrepreneurs into such fields. In fact, we would consider this as the first and most important step in small industry promotion. It is true that some small industries require some more measures of protection. This incidentally is true also of many large-scale industries as well. If care is taken to promote sustained capacity, it will be possible to build up a truly balanced industry structure where small and large industries will coexist to their mutual advantage. Given adequate encouragement, this sector has greater potential of growth with spin of benefits. An investment in small enterprises is alone synonymous with investment in human resource.
Small Entrepreneurs in Developing Countries by Dr Asghar Nasir
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