Promoting MSMEs for Development

7/23/2019 Promoting MSMEs for Development

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Sheikh Morshed [email protected]

1copyright: Sheikh M Jahan, IBA, Univ. Dhaka



copyright: Sheikh M Jahan, IBA, Univ. Dhaka 2



Three key issues –

1) SME2) SME promotion3) SME promotion for development

Promoting SME for Development




Basics:

MSME stands for Micro, Small and Medium Enterprises

MSMEs are the smaller species of business enterprises … often

includes micro or cottage enterprises (also labeled as ‘industries’)

In most economies, MSMEs play a pivotal role in terms of Employment National output

Distribution of income (huge number of enterprises/entrepreneurs)

Case Example 1: Contribution of SME in around the world

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Characterization of SMEs: Similarities

Popular indicators/measures are ‘size-driven’– Employment size Investment/asset/equity size Sales turnover (annual revenue) size

However, other commonalities are there as well Ownership (mostly family-owned) Legal formation (mostly informal or quasi-formal) Management style (mostly owner-managed) Operation (mostly enjoy operational flexibility) Specialization (usually serves a niche market) Power (low bargaining power) Business type (depends on primarily owner’s skill, expertise and/or

convenience and local availability of inputs))




Characterization of SMEs: Dissimilarities

1. SMEs are NOT homogeneous … because, the definition varies/may vary from –

Country to country, based on the stage of economic development and the structure of theeconomy (agriculture, manufacturing, service)

▪ In Bhutan employment of 100 persons makes an enterprise ‘Large’, China considers a manufacturingenterprise employing up to 1,000 persons SME

Industry to industry – e.g. Manufacturing, Service, Trading (wholesaling/retailing), Others (e.g.mining, construction)

▪ In Japan, a manufacturing enterprise employing less than 300 persons may be considered SME, while aretailing enterprise with 50 or more employees cannot be considered so.

▪ Bangladesh uses replacement cost of assets other than land and building for manufacturing enterprises(up to BDT 15m small, 100m medium), but number of employees for non-manufacturing enterprises (upto 25 employees small, 100 employees medium).





2. SMEs are NOT a homogeneous group … because, the definition is quitebroad –

SMEs constitute enterprises that fall under three categories -▪ micro (in Bhutan, 1-4 employees+ investment size),

▪ small (in Bhutan, 5-19 employees + investment size) and

▪ medium (in Bhutan, 20-99 employees + investment size)

and, they have their internal size-driven dynamics

3. SMEs are NOT a homogeneous group … because, they operate atdifferent stages of life cycle and therefore are of different maturity

Nascent industry SME vs. matured industry SME Start-up SME vs. established SMEs





4. SMEs are NOT a homogeneous group … because, theirmissions/business goals vary –

▪ Livelihood enterprises▪ Traditional, believes in imitation and business as usual

▪ Not so eager to become Large

▪ Calculative/Low risk taker

▪ “Subsistence” is the major driving force

▪ Entrepreneurial enterprises▪ Innovative, believes in excellence in breakthrough

▪ Eager to grow big

▪ Aggressive/High risk taker

▪ “Impact” is the major driving force




Characterization of SMEs: Conclusion

1. SME dynamics, and therefore SME needs, aredifferent, depending on the -

Size of the enterprise (employment, capital, turnover) Nature of industry in which the enterprise belongs (e.g.

manufacturing, service, trading, mining, construction, etc.)

Maturity of industry and/or enterprise (nascent industry vs.matured industry, start-up vs. established firm)

Business goals of the enterprise (livelihood vs. entrepreneurial)

2. Because needs are different, so should be the purposeand design of interventions (for SME promotion)




In short, understanding SMEs involves -

1. Comprehending the context in which they operate

2. Internalizing the dynamics in terms of -▪ size variability of the enterprises▪ the nature and maturity of the industry▪ business goals that they pursue

3. Understanding the purpose of a definition … e.g.▪ offering incentives - fiscal (e.g. tax) and financial (e.g. access to

credit/capital)▪ making BEE sound




Four key questions –

What does SME promotion mean? Why is SME promotion necessary? How may SME be promoted? Who should promote SMEs?




What: SME promotion means …

Incentivizing new/budding enterprises Supporting fragile enterprises

Helping SMEs excel and grow, and become ‘large’

Helping SMEs survive and sustain, but stay ‘smaller’

Encouraging SMEs to offer ‘market solution’ to ‘private goods’

Assisting SMEs to become competitive - locally, regionally and/orglobally




Why: SME promotion is necessary – To create employment? To increase GDP/national output? To increase national revenue? To distribute economic wellbeing? To diversify economic activities? To attain flexibility in economic activities? To absorb unforeseen economic shocks? To support large enterprises? To augment export?

To create an equitable and inclusive society? To promote entrepreneurial culture? To reduce poverty? To reach unreachables? To balanced regional development? To contribute to GNH – Gross National Happiness?




How: SMEs may be promoted by creating such an environment that –

facilitates access to –▪ Finance (credit/capital)

▪ Market (local/global)▪

Technology (home-grown/transferred)▪ Information (knowledge/skills)

▪ Business development services (technical, legal, functional)

▪ Public goods (resources – natural/created)

dismantles excesses in –▪ Legal and regulatory measures

▪ Bureaucratic and procedural formalities

supports business and entrepreneurship development through –▪ Policies and programs

▪ Institutions and infrastructure (soft and physical)




Who: SMEs promotion is a task of –

Government?▪ Agencies/departments/ministries?

▪ Local governments?

SME Chambers?

Large Enterprises?

Others?▪ Market players (e.g. banks)?▪ Educational institutes (e.g. business schools)?

▪ Media

???




SME promotion for development entails a newperspective –

Poverty reduction

Social safety net

Sustainable employment

Market-led economic development

Wider, equitable distribution of income

Balanced development – regional, ethnic, challenged(economically, physically, by nature)




Case Example 2: SMEs in Japan (2006)

Number of enterprises: 4.21 million small 87%, medium 12.7%, Large 0.3%

Number of employees: 40.13 million small 23.2%, medium 46.2%, Large 30.6%

Manufacturing value addition: 101.3 trillion yen small 9.1%, medium 38.6%, Large 52.3%

Case Example 3: Marketization in Bangladesh (1972-2002) Private sector manufacturing role from 1972-73 to 2001-02

▪ Employment 35% … 94%

▪ Gross value addition: 46% … 93%

▪ Number of firms: 93.2% … 99.5%




In Bhutan, of the 21,008 industrialenterprises, excluding construction contractors(2010 stat.) – Only 114 are Large (with 100+ employees and/or Nu.

100 million+ investment)

The rest (99%+) are MSMEs/CSMIs▪ 201 … medium (with 20-99 employees and/or Nu. 10-100

million investment)▪ 2,878 … small (with 5-19 employees and/or Nu. 1-10 million

investment)

▪ 17,815 … micro (with 1-4 employees and/or less than Nu. 1million investment)

copyright: Sheikh M Jahan, IBA, Univ. Dhaka 18



1. CSMIs constitute 98%+ of total industrial enterprises

2. CSMIs are considered to - Promote pro-poor economic growth, with equity and inclusion Create employment and thus fights jobless growth Foster entrepreneurial spirit and innovation Support balanced regional development Strengthen rich cultural heritage

3. The success of CSMIs is tagged with realization of the noble goal of Gross NationalHappiness (GNH)

4. RGoB is pursuing a ‘package’ initiative in promoting CSMI: Bhutan Vision 2020 Economic Development Policy 2010 Cottage, Small and Medium Industries (CSMI) Policy 2012 CSMI Development Strategy 2012-20 CSMI Development Action Plan 2012-14 Bhutan’s Five Year Plans




Bhutan Vision 2020 and Economic Development Policy 2010 identifies CSMI as apriority sector. (RGoB CSMI Policy 2012)

The development of the CSMI sector in Bhutan is considered by both the RGoBand the wider CSMI stakeholders as a high priority activity that will help promotesustainable and inclusive growth towards reducing poverty and enhancing

employment. (RGoB CSMI Development Strategy 2012-20)

“The principal role of government (with respect to supporting CSMIDevelopment) is to provide an enabling policy, legal and regulatory environmentfor CSMI and Business Development Service (BDS) providers, as well as investingin public goods such as basic infrastructure, education and information services.”(RGoB CSMI Development Strategy 2012-20)

“Government has a role in correcting or compensating for market failures, butnot in the direct provision of private goods that can be more efficiently providedby the market” (RGoB CSMI Development Strategy 2012-20)




Quick participant survey:

What are the major constraints faced by SMEs in

Bhutan?

List top 3

Tabulate and present in percentage




0 5 10 15 20 25 30 35

Access to Finance

Hiring Foreign Workers

Transport infrastructure

Workers' low education

Rival's business practice

Custom & Trade regulations

Labor regulations

Tax Rates

Tax administration

Access to Land

Corruption

Telecom

Electricity

Political instability

Crime

Courts

Series1

Source: CSMI Dev Strategy 2012, ES 2011




0 10 20 30 40 50 60

Human resources

Access to Finance

Access to Market

Tax regime

Transport infrastructure

Access to Land

Series1

Source: Modified from CSMI Dev Strategy 2012, ES 2011




Quick participant perspective:

What should be the role of SME development agencies inBhutan?

How may these be organized systematically?




InterventionFacilitation

Policy, Institution, infras

tructure

ProvidingBDS

Networking

copyright Sheikh M Jahan IBA Univ Dhaka 25Source: Jahan, S. M.

(forthcoming)

Impact

R o l e

ProvidingLeadership

ProvidingService

Targeted Wider

KnowledgeManagement

The rid of

Mandate

for Chambers & MSMEPromotion Agencies

Promoting MSMEs for Development

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