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Information Technology - A Critical Ingredient for SMEs Success

Dec 05 - 11, 2005

Information technology (IT) has assumed the role of a solution provider at all levels of the economic spheres around the world, naturally Pakistan was not an exception too. Since the struggle for an economic upturn is in the middle of its way as things are still taking shape in our country the proper application of the cutting edge technology as a solution provider becomes imperative in our economic scenario.
In order to discuss the current situation as to how the latest technology is helping shape the Small and Medium Enterprises (SMEs) in Pakistan to rise to the occasion, Intel Pakistan Corporation in collaboration with Pakistan & Gulf Economist (PAGE) organized a panel discussion titled "Small Businesses, Big Picture". Leading professionals from the important tiers of the economy participated in the discussion. They were from SMEs, banking system and of course the leading IT players.
Following is the detail of the discussion for the benefit of the readers.
Amanullah Bashar

The Small & Medium Enterprises have played a key role in development of economies the world over and Pakistan is no exception. Pakistan is in the midst of an economic upturn and the role the SME sector can play in Pakistan's economic reform is mission critical. Currently, this segment contributes a little over 30% to the country's GDP.

Today, the SME sector is inundated with managing multiple priorities in the face of resource constraints and increasing customer demands. Whether a new start-up or an established concern, businesses need to re-look at their operational model in order to stay ahead of competition both at a local level as well as internationally.

One of the key ingredients needed to make SMEs competitive is enhanced technical skills and organizational capability. The pressures on small businesses today are more intense than ever. Fortunately, the advancements in technology are playing a pivotal role to help small businesses meet new demands for speed and productivity and enable them to stay ahead of competition.

To discuss how latest technology is helping shape the SMEs in Pakistan to meet the global standards Intel Pakistan Corporation in collaboration with Pakistan & Gulf Economist (PAGE) recently organized a high level panel discussion titled "Small Businesses, Big Picture".

The august panel comprised industry chieftains and opinion leaders such as; Arooj Alam Khan, General Secretary, PASHA; M. Mir Nasir, Chief Operating Officer, Inbox Business Solutions; I. A. Siddiqui, Senior Consultant, International Office Products; Muslim Raza, Manager Sindh, SMEDA; Humayun Akhlaq, Channel Operations Manager (Pakistan & Bangladesh), Intel Corporation. Asif Ali Khan, Provincial Manager, SME Bank; Saleem Baig, Head Commercial Banking, Habib Bank Limited; Zafar Iqbal, President, SAMEA; Ahmed Afzal, Director Domestic Business of PSEB. Ms Rabia Gharib, the Editor-in Chief, Net Express Magazine, who also serves as a Media Consultant to Pakistan Software Export Board (PSEB) and Ministry of IT & Telecom (MoITT) was the moderator and led the discussion.

The panel discussion commenced with an intensive debate on the definition of Small & Medium Business. Varied opinions were brought to light as to how exactly a business entity is classified and clubbed in the 'S' of Small and the 'M' of Medium.

Although the definition, of what exactly in terms of resources, define the SME segment may differ from country to country and entity to entity, SMEDA's definition for the SME in Pakistan seemed most appropriate. SMEDA tends to look at this segment from primarily two angles: a) number of employees and b) investments. An entity employing 9-35 people or an organization with a productive investment (which may include land and building) of Rs. 2 to 20 million is categorized as small. Medium entity is usually categorized as having an employee base of 36-99 and with a productive investment of Rs. 20 to 40 million.

Muslim Raza of SMEDA added that apart from just looking at these definitions per se, one should also look at it from a sector by sector basis stand point and that might just be the perfect way as the nature of companies within an industry varies. Different sectors define the 'S' & 'M' differently. What is an 'M' in a dairy industry might not be an 'M' if looked at it from a macro level.

Zafar Iqbal, President, SAMEA highlighted that four sectors were identified by the present government, when it came to power - reduction of poverty, development of human resources and strengthening of the industrial base. The SME sector was identified as one of the main drivers of economy. He stressed upon the fact that this segment has great potential for rapid growth in the shortest time provided; the necessary measures are taken.

The discussion took a turn towards financing, emphasizing on the fact that SMEs in Pakistan are in dire need of financing to enter the next level of growth. They might not have enough funds in hand to invest in technology, machinery or even human resources; they may also not have the necessary collateral that most banks require disbursing a credit line. After multiple rounds of debate amongst the panelists, it seemed that increase in lending to this segment is really a catch 22 situation. The banks, world over, require adequate assurance to extend credit. Once that is provided companies do usually get the desired level of credit while those who cannot convince lending institutions, be it for lack of a solid business plan or the required paperwork or collateral which usually is a requirement to ensure minimization of default rate, do not get the advantage of financing and hence may not be able to grow or compete.

Saleem Baig, Head Commercial Banking, Habib Bank Limited further elaborated on the topic and said that as per State Bank of Pakistan the definition of SME falls under three tangible parameters which banks can follow in deciding which entity falls into which category and accordingly disburse finances to them. Those three tangible parameters are assets, sales, and the number of people employed. He added that the SME sector need to become sophisticated, acquire more skills and maintain proper financial documents, as the banks have their minimum requirements which need to be met. If these requirements of documentation are met, then loan disbursement to this segment will increase automatically.

The financing scenario in Pakistan is slowly and steadily changing with forward looking institutions such as the SME Bank with a core charter to support and develop the SME sector by providing necessary financial and technical assistance on a sustainable basis. Asif Ali Khan, Provincial Manager, SME Bank said that the SME Bank has already disbursed a billion rupees. While addressing a mark-up question, he said that the bank's mark-up rate varies from case to case. He said that the bank's average portfolio pricing is not in excess of 14% and that most SME financing institutions across the world are in the vicinity of 20%.


The discussion took a deep dive into what the essential building blocks are for the SME segment. Readily available financing was already described as of the key building blocks along with having the right business acumen. The other critical aspect that was identified, despite lack of awareness by many SMEs, is deployment of the right technology solutions for growth of businesses. The panelists agreed that the right technology deployment would vary from business to business. For a small business having just a couple of PC's connected would serve the purpose. However, it was agreed that both the hardware and the software sectors must play an active role of advisors and provide customized solutions to this segment.

Ahmed Afzal, Director Domestic Business, PSEB, said that using the right technology is crucial and directly propionate to the growth of the SME sector. This can only be achieved if the businesses follow a certain process. Once that process is in place then software applications can be created coupled with the right hardware solutions. This would give the SME a solid platform to leap ahead and enable the desired level of growth

Arooj Alam Khan, General Secretary, PASHA, during the discussion commented on the phenomenal talent that Pakistan has in terms of human resources. He said that within PASHA there are SMEs who can easily compete on an international level, provided they are given the requisite focus. He appreciated the effort, which was taken to get industry leaders on the same platform to deliberate upon the issues impacting the growth of SME and the necessary steps, which need to be taken.

I.A Siddiqui, Senior Consultant at International Office Products (IOP), made a very valid point on this subject. According to him, majority of the SME segment is not aware of what exactly their requirements are and small businesses do not have the finances to pay high consultation fees. He said "Most of the time we, as consultants, have to determine and extract what the requirements are for any given business and that has to be translated into what IT solutions may be provided. That kind of consultancy is a time consuming exercise involving requirement analyses and then presenting a customized solution that complements the present business plan while also planning for future enhancements". He said that IT solution providers need to realize that many SMEs cannot afford the consultancy fee. The IT solution provider needs to invest time and provide a viable solution to this important sector. Most SMEs can pay for the solution, but they might not be able to pay for the consultancy and the providers need to understand this factor, invest their time and provide the much needed assistance to the 'S' of this segment.

Humayun Akhlaq, Channel Operations Manager for Pakistan and Bangladesh, represented Intel, the co-organizer of the panel discussion. Humayun stressed on creating awareness within the SME segment on how technology can help their businesses to grow exponentially. He posed several questions to the panelists on what can be done as a collaborated effort to fuel that growth whether in terms of financing or playing the role of advisors as to what IT solutions maybe deployed. He stressed on the issue of wrong investment, by some of the SMEs, in purchasing obsolete technology in the shape of second hand systems available in the market. He said "the business entity needs to look at tomorrow's needs and requirements and question their decision as to how they would grow and address the needs of tomorrow with the technology of yesterday".

Chief Operating Officer, Inbox Business Solutions, a local hardware solution company, served both as a panelist and an ideal case study. He stated his company's example, which was a small business enterprise a few years ago and in a short span of six years has reached the medium stage or perhaps even a large enterprise level business. He said that 30% of Inbox's business comes from the SME sector. He cautioned that there might be risk factors that exist within this segment, but argued that these are no different or no higher than the risks that one faces while providing credit to large corporate entities. Again quoting his company's example, he said that Inbox gives credit to both SME segment and the large corporations through similar evaluation analyses and then support and at times even take certain calculated risks. Inbox's example resonated very well with both the panelists and the audience as here was an example of a once small business which has risen to where they are today.

Finding the right IT adviser is a not like finding a reliable, trustworthy auto mechanic. The search can be challenging. You not only have to find someone who is qualified, established, but also someone who will be honest, thorough, and attentive to your specific business challenges.

The panelist and the companies they represented have taken the key steps to fuel the growth within the segment. SMEDA for instance apart from their core charter of providing the necessary services to help SMEs overcome the weaknesses that are endogenous to their very nature, contributes towards the growth and development of SMEs in Pakistan. They have posted a free of cost basic accounting software on their web site ( pk) which will help enable SMEs to be more organized and track their finances. Institutions like SME Bank provide the much needed financing along with business support services. Commercial banks like Habib Bank have also identified the SME segment as an important segment that they should support.

Associations such as PSEB and PASHA are promoting the local software industries in Pakistan and helping them to be more competitive in the international arena. A company like Inbox Business Technologies is a case in point for having the right business acumen and a solid business plan, there is no reason why an entity cannot evolve from the 'S' to the 'M' and finally to a large corporate entity. This segment has the potential to contribute exponentially to the GDP of Pakistan. The transition can only happen if the right building blocks such as finances, sound business acumen and deployment of right technological solutions are in place.


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