Lecturer of IBA, Jamshoro

Dec 20 - 26, 2004




















SMEs are defined by (ISO) International Organization for Standardization as companies with less than 500 employees. In Asia SMEs have played big and heroic role in the economic development of Japan, Malaysia, China, India and Thiland.

Germany happens to pioneer in perceiving the importance of the SMEs and drove its development and growth. In Asia, Japan was the first to divert its resources towards starting, building and expanding SMEs in early 1960s. Since then Japan's trade (current balance) surplus continued to grow. By the mid of 1980s. Japan had become the world`s leading creditor nation. At present, Japan is the second largest economy of the world.

The recent visit of President Pervez Musharraf to United States, United Kingdom and other developed nations marks a success. In the media Pakistan was only recognized and presented as a strong ally of Bush administration in war against terrorism. This recognition is not long lasting and has no strong foundation to become equal partner with developed nations. According to OECD report recent assessments of growth on the rate at which countries grow is their ability to integrate with global economy through trade and investment. India and China managed to strengthen their capacity to take advantage of SMEs in trade and investment. Pakistan can only have sustained long-term international relation through bolstering trade and investment by making SMEs effective and competitive domestically and internationally. Most enterprises in transition and developing countries are SMEs. In Pakistan there are approximately 220,000 SMEs operating. SMEs constitute 90 percent of businesses in Pakistan and provide employment over 80 percent of labor force. But unfortunately SMEs in Pakistan frequently fail to tackle adequately obstacles and problems that jeopardize their growth and survival. The inappropriate handling of these obstacles, is one of the main causes of SMEs failure. Lets look at them.

Firstly the employment regulations (which the World Bank finds), is generally more flexible in advanced countries than in developing economies, limits management flexibility and leads to smaller firm size and less research, less development as well as less investment in technology. According to World Bank study, legal entry barriers appear to be associated with less private investment, higher consumer prices and greater corruption. This data appears to be exact reflection of conditions in Pakistan. So legal entry barriers must be eased or escaped unless their benefits are clear.



Second crucial problem lies in financing for innovative SMEs. Access to risk capital is a major obstacle to SMEs expansion in Pakistan. It is surprising to mention that Only 14 percent of Pakistan SMEs approach the formal lending sector for financial assistance. It shows their exists a wide financing gap between the lenders and SMEs. Many successful SMEs have been bootstrapped with very little financial capital. Bootstrapping is financing the enterprise from personal resources. Bootstrap techniques include for example drawing down savings accounts, taking out second mortgages, using credit lines and loans from friends and family. In Pakistan, SMEs have always been termed as non bankable and risky since financial statements and accounts of many SMEs are non existent. SMEDA should make its role more practical to bridge existing financing gap by facilitating the close contacts between SMEs and supplier of funds such as SME bank, small business investment companies, business angles and business incubators. (who are very much there in Pakistan).

Third issue is lack of access to external sources and outside assistance to spur the growth process and effectiveness of SMEs. Particular attention must be paid to the embeddedness of SMEs in local, regional networks using a net work approach. This is to encourage geographically concentrated clusters of SMEs. Clusters are defined as localized innovation systems where increasing private and social returns on public and private investment result from physical or cultural proximity that encourages human net works and facilitates flows of tact knowledge.

In particular it will be concerned with the development of local intermediation as a strategy to help SMEs start, build and expand. According to OECD report even more than larger firms, SMEs need to access external sources of information, knowledge, know how and technology in order to build their own innovative capability to reach their markets.

Current era is highly dynamic and competitive. Current market trends indicate quick changes in consumer preference, soon we will be entering into borderless economy, so success heavily depends on innovation SMEs need to adopt and their ability to gain outside assistance. In this context, the first OECD ministerial conference on SMEs and globalization was held in June 2000 in Bologna, Italy where Italian government proposed to develop an international net work for small and medium sized enterprises (INSME). It is designed to work as a hub of networks and structures of services aimed at strengthening and enhancing the quality of information and its dissemination, the service supply and the partnership opportunities for SMEs. Government of India is now part of the INSME head quartered in Italy through launching its own small enterprise information and resources network (SENET). Pakistan needs to emulate the same.

Fourthly lack of access to global markets. SMEs in Pakistan have difficulty going international owing to lack of of awareness, international contacts, skilled manpower, technological power, will power and financial resources. Entering into the global market offers tremendous opportunities to SMEs such as increasing growth by utilizing full scale productive and technological capability, diversifying risk, reducing and sharing costs including R & D costs. Generally SMEs managers have been sceptical trading overseas. A study conducted for Asia Pacific Economic Cooperation (APEC) reveals that SMEs account for less than 30 percent of total exports in the region. The figure of Pak SMEs is further disappointing. SMEDA and Chamber of Commerce should sponsor SMEs to take part in international fares and exhibitions in order to have SMEs international exposure and should facilitate net working among SMEs from Pakistan and overseas.


It has been pragmatically and empirically proved that SMEs serve as an engine to drive nations competitiveness, economic and social development. We must bridge the gap between policy planning and policy implementation so that SMEs can emerge as a new spirit, new vision, new team, new potential, new skill, these characteristics are juice that propel the under dog to the super bowl. SMEs are the foundation of our uniqueness, the source of utilizing nations untapped resources, the glue that holds all local and regional communities together and the stuff that captures innovation.