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
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
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.