15-09!08!11!36!39_080912 policy brief entrepreneurship in bangladesh

8/3/2019 15-09!08!11!36!39_080912 Policy Brief Entrepreneurship in Bangladesh

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Policy Brief

Strategies for Entrepreneurship Development in Bangladesh:

Unleashing the Potentials of SMEs

Prepared by:

Khondaker Golam Moazzem

Senior Research Fellow, CPD

28 July 2008

B A N G L A D E S

CENTRE FOR POLICY DIALOGUE (CPD)

a c i v i l s o c i e t y t h i n k - t a n k

House 40/C, Road 11, Dhanmondi R/A, Dhaka 1209

Tel: 9141734, 9141703, 9145090; Fax: 8130951E-mail: [email protected]; Website: www.cpd-bangladesh.org


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Contents

1. Introduction 2

2. Literature Review 3

3. SMEs in Bangladesh: Composition, Trends, Policies and Institutions 6

Composition

Trends

Gross Output, Value Added and Profitability

Policies for the Development of SMEs in Bangladesh

Institutional Set Up for SME Development

4. Major Challenges Confronting SMEs 16

5. Entrepreneurship Development in Bangladesh 21

6. Actions to be Taken for Entrepreneurship Development 26

Actions to be Taken at Domestic Level

Actions to be Taken at Regional Level

Actions to be Taken at International Level

7. Conclusion 32


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1. Introduction

The economic development of Bangladesh in the last three decades is the resultant effect

of structural change in the economy leading towards considerable growth of the

manufacturing and service sectors, various reforms of domestic economic policies,

changes in international policies, and in this process the emergence of a group of

entrepreneurs. During this period, GDP growth doubled from a mere 3.7% in the 1980s to

more than 6% after 2000, with Bangladesh now ranked 33rd out of 191 countries (in terms

of GDP). However, because of its huge population (150,448,340), Bangladesh is ranked

8th out of 191 countries (in terms of population), and is consequently regarded as one of

the poorer countries (150th out of 191 countries in terms of per capita GDP). On its path

towards economic reform, the economy has gradually been liberalized over the last three

decades, and it has been integrated into the global economy - in 2007, the degree of

openness (international trade as % of GDP) reached 43.3% compared to 16.8% in 1991

and 13.5% in 1981. The degree of global integration, as measured through the external

sector including FDI and debt accounts in relation to GDP, was 55.6% in 2007 compared

to 21.2% in 1981. Global market forces therefore affect most economic activity, which

needs to be taken into consideration when formulating policies and action plans.

Against the backdrop of a huge population, an abundance of low and semi-skilled

workers, and large-scale unemployment, the governments major development objective

is to create more employment in order to secure incomes and thereby reduce poverty.

Because of the structure of small and medium enterprises (SMEs) in Bangladesh, which

are mainly labor-intensive and low-skill, the development of SMEs is considered to be

the most effective contribution to the eradication of poverty. 1 According to BBS, there

were about 78,300 SMEs operating in Bangladesh in 2003, in which roughly 3.5 million

workers were employed. However, despite their broad dissemination, SMEs in

1 According to SME Policy 2005, an enterprise with capital (replacement of plant, machineries etc. andassociated technical services excluding land and building) up to Tk.15 million (about US$215,000) isregarded as a small enterprise, and with capital up to Tk.100 million (US$1,433,000) as a mediumenterprise. In the case of non-manufacturing units, enterprises with less than 25 workers are considered tobe small, while those employing between 25-100 workers are considered to be medium sized enterprises. Inview of reducing the variations in operational definitions applied by other organizations including banks,the government has recently announced a new definition for all operational purposes.


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Bangladesh could not fulfill the critical role of entrepreneurship development and thereby

contribute to the faster industrialization of the country. The objectives of this policy brief

are to identify the major challenges confronted by SMEs; to explore possible

explanations for entrepreneurship development in the case of successful SMEs; and

suggest an action plan for unleashing the potential of SMEs.

2. Literature review

Small and Medium-sized Enterprises (SMEs) play a pivotal role in terms of economic

growth, employment generation, and industrialization (e.g. through entrepreneurship

development). Although the role of SMEs varies at different stages of economic

development, their role is particularly important in developing countries and LDCs. Beck,

Kunt, and Levine (2005) have found a strong correlation between SME development and

GDP per capita, but the relationship between growth and the overall business

environment for SMEs overshadows the former relationship.

SMEs need low capital investment per unit of output and give rise to greater

opportunities for direct or indirect employment. In a positive environment, SMEs offer

sustainable business solutions that simultaneously fight poverty and accelerate economic

growth (Agbeibor, 2006). In developing countries, SMEs traditionally play an important

role with respect to poverty alleviation, while at the same time contributing significantly

to economic growth as the development initiatives targeted at them create jobs and

increase productivity (Agbeibor, 2006).2 For developing countries or LDCs, the problem

of rural unemployment, which results in an unhealthy rural-urban migration, can be

solved through SME development in rural areas.3 Rural SMEs generate significantly

more jobs than urban SMEs. This indicates a different relationship between SME growth

and employment generation in different geographical environments (North and

Smallbone, 1996).

2 SMEs are also considered as the backbone of the European economy and are the best potential source ofjob creation and economic growth (Verheugen, 2006). In Japan, some 70 per cent of Japanese workers areemployed by SMEs and half the total value added in Japan is generated by SMEs (Lichiro, 2006).3 Carl Liedholm, Michael McPherson and Anyinna Chuta (1994) showed that the percentage of job growthcoming from enterprise expansion in rural areas is significantly higher than that of urban areas in Africa.


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Small and Medium-sized Enterprises are the seeds for a vital entrepreneurial economy. In

many economies, SMEs nurture large-scale industrialization through entrepreneurship

development. One of the hypotheses on the role of SMEs in the course of economic

development is their vertical and horizontal expansion over time in large-scale

industrialization by fostering entrepreneurship (Juneja, 2000).

Global experiences show that an efficient SME sector is conducive to fast industrial

growth (Hill, 2001). Llyod (2002) analyzed the South African SME sector over the 1980

to 2000 period and found that expanded small businesses were playing an increasinglyimportant role in the manufacturing, construction and trade sectors in South Africa, but

their role was declining in the agriculture, transport and storage sectors.

However, the poor performance of SMEs in terms of growth, product diversity, and

expansion of markets, indicates that SMEs could not reach the expected level. More

importantly, unlike in many economies, SMEs in the current environment lack the

capacity to nurture the process of large-scale industrialization through vertical and

horizontal expansion by fostering entrepreneurship (Hal Hill, 2001). It is extremely

important to analyze the possible reasons for this lack of entrepreneurship development

through SMEs and investigate successful entrepreneurs and the possible causes of their

success in order to provide policy suggestions for the development of the sector.

Although SMEs play a vital role in any economy, they are very vulnerable to the effects

of globalization in the absence of some economic criteria. For example, under the

avalanche of low priced Chinese products imported in Japanese, Korean and Taiwanese

markets, the SMEs of these countries adopted different strategies: some firms relocated

plants to the Chinese mainland, some exited the market, others protected their market by

switching to more capital intensive technology so as to produce more differentiated high-

tech products (Croix, 2006). These countries have the capacity to overcome their

vulnerabilities by adopting different strategies while developing and least developed

countries often lack the capabilities to facilitate such transformations.


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The degree of vulnerability is very high in most developing countries and LDCs in the

absence of sound business environments and the existence of weak business strategies.

Moreover, SMEs in developing countries are vulnerable to international trade due to their

comparatively low productivity and lack of competitiveness (Deshaies and Julien, 1994).

The countries that are better prepared in terms of solid business environments and

strategies can reap the benefits of globalization by scaling up their SMEs to large-scale

industries.

One of the positive implications of globalization on SME expansion in developing

countries and LDCs is the possibility of FDI inflows and soaring export opportunities:there is a powerful relationship between internationalization and SMEs. In investigating

the linkage between internationalization and SME growth, Lu and Beamish (2002)

examined the impact of exporting products and FDI on SME growth. They came to the

conclusion that FDI is more effective for SME growth. In India, a very big economy with

a large number of consumers, trade liberalization and investment liberalization gave an

impetus to the development of SMEs, which in turn led the Indian economy towards

large-scale industrialization. Juneja (2000) further demonstrates that small industry

growth rates have increased rapidly compared to the growth rate of the total industrial

sector of India since 1991. Juneja also shows how MarutiSuzukis capacity building in

Indias automobile industry attracted FDI from Japan, South Korea, Germany, UK, and

USA.


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3. SMEs in Bangladesh: Composition, Trends, Policies and Institutions

3.1 Composition: According to BBS Census of Enterprises, 2001/2003, there were some

78,440 SMEs in Bangladesh, which comprises 93% of all industrial units, and these

enterprises employed about 3.5 million workers (i.e. 44% of all industrial workers).

Among these enterprises, 60% of the units were in urban areas and 40% in rural areas.4

However, urban enterprises employ relatively more workers compared to rural

enterprises (Figure 1). Liedholm, Mcpherson and Chuta (1994) showed that the

percentage of job growth coming from enterprise expansion in rural areas of Africa is

significantly higher than that of urban areas. Because of low levels of job growth in rural

enterprises in Bangladesh, rural SMEs have a lesser impact on the reduction of rural-

urban migration.

According to SEDF (2006), food, textile and clothing units accounted for over 60% of

registered SMEs (Figure 2). In rural areas, textile manufacturing, food, tobacco, and

banking (especially by NGOs) covered the major share of small enterprises, while in

urban areas the major share of small enterprises were found in transport and banking

(Figure 3). Within the medium enterprise category, non-metallic mineral products and

textile constituted the major share of rural enterprises, whereas textile, banking, and food

and beverage that of urban enterprises. However, SMEs have undergone significant

structural changes overtime in terms of product composition, degree of capitalization and

market penetration in order to adjust to changes in technology, market demand and

market access brought about by globalization and market liberalization (Ahmed, 2001,

ADB 2001). Industries such as light engineering, readymade garments, printing and

publishing, wood and wood products, plastic products, electrical goods, electronics,

artificial jewellery, wooden and steel furniture, television and radio assembling, and

soaps and detergents have emerged as major industries in recent years.

4 Average employment per establishment for small enterprises was 17-20 workers, while for mediumenterprises the range was 65-69 workers.


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A total of 103,858 micro-, small-, medium-, and large enterprises were headed by female

entrepreneurs, of which 71 per cent were located in rural areas. Most of these are micro

enterprises where less than 10 workers are employed. It appears that most of the rural

based female-headed enterprises operated at small scale. In proportionate terms, these

enterprises constituted 3 per cent of total enterprises in the country. Women

entrepreneurs are found in self-employment, enterprise ownership, manufacturing, family

trade, agricultural activities, subcontracting, partners in businesses, traders, contractors,

and large and medium industry owners. Despite many barriers, women entrepreneurs

were found to take on work and entrepreneurial challenges in a male-dominated,

competitive and complex economic and business environment.

Figure: Share of Different Types of Units and Employment under Different Categories

0

20

40

60

80

100

Small

Medium

Large

Total

Small

Medium

Large

Total

Small

Medium

Large

Urban Rural Total

Percenta

ge

% of total number of units

% of total employment

Source: BBS Census of Enterprises, 2001/2003

Figure 1


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0

10

20

30

40

50

60

70

8090

%

Small M edium Large

Figure: Share of Units and Employme nt in Differ ent Types of Enterprise s

Education/Healthcare

Various personal services

Mining & Manufacture

Fabricated goods, electrical and

means of transportNon-metallic mineral products

Chemicals & Plastics

Wood, leather & Paper printing

Ready-to-w ear apparels

Textile Manufacturing

Food and Tobacco

0

1020

30

40

50

60

70

80

90

%

Small Medium Large

Figure: Share of Units and Employment in Diffe rent Types of Enterpr ises

Education/Healthcare

Various personal services

Mining & Manufacture

Fabricated goods, electrical and

means of transportNon-metallic mineral products

Chemicals & Plastics

Wood, leather & Paper printing

Ready-to-w ear apparels

Textile Manufacturing

Food and Tobacco


Figure 2

Figure 3


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0

20

40

60

80

100

120

%

Proportion of

small

enterprises

in the total

Proportion of

medium

enterprises

in the total

Proportion of

small

enterprises

in the total

Proportion of

medium

enterprises

in the total

Rural enterprise Urban enterprise

Figure: Proportionate share of SME Units Located in Rural and Urban Areas Real Estate

Finance & Banking

Transport & Comm..

Eateries

Trade

Construction

Utility services

Mfg. transport equipment

Electrical equipments

Fabricated products

Non-metallic mineralproductsChemicals & plastics

Paper & printing

Tanning, etc

Wood products


3.2 Trends: The comparative dynamics of growth of establishments between 1986 and

2003 for different enterprise categories in urban and rural areas reveal that small andmedium enterprises grew at a relatively slower pace than large enterprises. However

employment growth for small enterprises evolved at a relatively higher rate (Table 1 and

2). Interestingly, medium enterprises were being marginalized both in terms of

employment and the number of establishments. The number of small enterprise

establishments and employment increased simultaneously while medium and large

enterprise growth rates for these two indicators did not evolve at the same pace, to the

extent that in large enterprises employment growth in rural areas was negative. This

indicates that there is an agglomeration in the number of establishments and employment

in urban areas.

A huge number of enterprises established during and after the 1990s were mainly in

wholesale and retail trade, manufacturing, hotels and restaurants, health and social work.

This implies that a large number of enterprises established during this period emerged in

Figure 4


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the period of faster trade liberalization as well as in the regime of quota phase out under

the Agreement of Textile and Clothing (ATC).

Table 1: Changes in the number of establishments between 1986 and 2003

1986 2001 and 2003 Growth Rate

Total Urban Rural Total Urban Rural Total Urban Rural

Small (10-49 persons) 46909 25361 21548 72935 39127 33808 2.7 2.9 2.7

Medium (50-99 persons) 2409 1520 889 3266 2193 1073 1.9 2.5 1.1

Large (100+ persons) 2299 1648 651 3689 2930 759 2.9 3.9 0.9

Total 51617 28529 23088 79890 44250 35640 2.7 3.0 2.6

Source: BBS, Economic Census 2001 and 2003, National Report

Table 2: Changes in the number of permanent employment between 1986 and 2003

1986 2001 and 2003 Growth Rate

Total Urban Rural Total Urban Rural Total Urban Rural

Small (10-49 persons) 778761 430956 347805 1304935 725378 579557 3.2 3.5 3.0

Medium (50-99 persons) 163900 103147 60753 221123 150350 70773 1.9 2.5 0.9

Large (100+ persons) 949114 698387 250727 1314428 1082979 231449 2.0 3.0 -0.5

Total 1891775 1232490 659285 2840486 1958707 881779 2.5 3.1 1.7

Source: BBS, Economic Census 2001 and 2003, National Report

It has to be underlined that enterprise growth differs according to sectors. Between 2002

and 2006, although the total number of enterprises and total employment increased

irrespective of enterprise size, their performance varied widely from sector to sector

(Table 3). The increase in the number of small-scale enterprises was substantially higher

than that of medium and large-scale enterprises due to growth in specific economic

activities such as education. In contrast, growth in the number of establishments of small-scale enterprises was negative in sectors like trade, transport and manufacturing, while

medium size enterprises performed well only in the manufacturing sector. It can therefore

be deduced that different factors are responsible for the growth of different types of

enterprises under different categories.


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Table 3: Change between 2002 and 2006 in number of establishments and Total Person Employed

No. of establishments in 2005/2006 Total persons employed in 2005/2006Sectors

Small

(10-49

workers)

Medium Large

(100+

workers)

Total

(10+

workers)

Small

(10-49

workers)

Medium

(50-99

workers)

Large

(100+

workers)

Total

(10+

workers)

Mining 6 -9 -9 -12 269 -529 -1279 -1539

Manufacturing -248 481 615 848 -5172 32592 281660 309080

Electricity 25 41 17 83 615 3293 3918 7826

Construction -172 -18 -57 -247 -3922 -1331 -15230 -20483

Trade -2436 -54 5 -2485 -39568 -3696 -4047 -47311

Eateries -306 -10 -14 -330 -7207 -715 -2104 -10026

Transports -428 -17 -2 -447 -6967 -1326 -16834 -25127

Bank, Insurance 752 5 3 760 9931 38 -15782 -5813

Real estate -19 -17 3 -33 -628 -1177 -3684 -5489

Education 6809 198 36 7043 121009 12409 -3386 130032

Health -17 98 37 118 -2572 8409 -2908 2929

Personal service -720 -75 -34 -829 -14313 -4703 -20172 -39188

All BSIC groups 3246 623 600 4469 51475 43264 200152 294891

Source: Bangladesh Bureau of Statistics, 2004; BBS Business Registry, 2006

3.3 Gross Output, Value Added and Profitability: Comparison of gross output, value

added, and profitability between small, medium and large enterprises points to different

scenarios (Table 4). Large enterprises - because of the capital-intensive nature of

production - ensure higher value added in the percentage of gross output compared to that

of medium and small enterprises. However, value added per worker in small enterprises

is much higher than in medium and large enterprises. The same is true when looking at

gross profit per worker and gross profit as a percentage of gross output. Small size

enterprises are found to perform better than medium size ones. This could be one of the

reasons behind the higher growth of small enterprises compared to medium enterprises.

However, the overall performance of SMEs in Bangladesh in terms of productivity and

efficiency is much lower compared to countries like India and China. According to

Rahman, Debapriya and Moazzem (2007), the productivity of readymade garment units

(US$1563 in 2005) was found to be lower than that of China (US$5000 in 2001) and


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India (US$2600 in 1998). Under the dynamics of increased global market competition, it

is challenging for small firms in Bangladesh to remain competitive.

Table 4: Gross output, value added, and average profitability, SMEs vs. large firms, 2005

(Tk. millions)

Indicator variables Small firms Medium firms SMEs Large firms All firms

Gross output (GO) 23801

(55.1)

34034

(83.8)

26892

(63.7)

183541

(73.3)

135067

(61.0)

Value added (VA) 3642

(46.7)

5337

(84.5)

4185

(56.8)

36080

(51.5)

26112

(43.5)

VA as % of GO 15.3 15.7 15.5 19.6 19.3

VA per worker

(Tk. 000s)

106.3

(54.7)

76.4

(91.1)

96.7

(57.9)

94.65

(57.3)

96.3

(57.6)

Gross profit (GP) 2430

(33.4)

2497.5

(46.1)

2452

(36.6)

16058

(2954)

11806

(25.88)

GP per worker

(Tk. 000s)

66.6

(35.9)

33.2

(44.0)

55.9

(35.2)

43.7

(28.8)

47.5

(30.9)

GP as % of GO 10.2 7.33 9.08 8.74 8.74

Source: Bangladesh Enterprise Institutes Enterprise Survey, data from 6th

round

3.4 Policies for the Development of SMEs in Bangladesh

SME Policy 2005: The major objectives of the SME policy are to embed the strategies of

this policy into those of the Poverty Reduction Strategy Paper (PRSP); encourage FDI in

SMEs; establish physical and ICT networks of infrastructure and institutional delivery

mechanisms; re-orient the existing fiscal, regulatory and governmental support

institutions; take measures for creating avenues to mobilize debt without collaterals;

harness information and communication technologies; internet protocol (IP)-based

infrastructure and electronic governance.

This policy provides directions for SME development in the short, medium and long-

term. On top of the establishment of a government sponsored SME Foundation that will

cater to the needs of SMEs over the medium term and beyond (see 3.5 below), it will act

as a pivotal platform for the delivery of all planning, developmental activities, financing,


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awareness-raising, evaluation and advocacy services. The SME policy has identified

eleven booster sectors with a list to be reviewed every three years: electronics and

electrical, software development, light engineering and metal-working, agro-

processing/agro-business/plantation-agriculture/specialist-farming/tissue-culture and

related businesses, leather making and leather goods, knitwear and RMGs, plastics and

other synthetics, healthcare and diagnostics, educational services,

pharmaceuticals/cosmetics/toiletries, fashion-rich personal effects, wear and consumption

goods.

In its tactical plan of action, the SME policy provides direction on strategic skillupgrading, the establishment of an enabling business environment, fostering supply chain

for technopreneurship, developing an SME webportal, establishing a virtual SME front-

office, access to information on export-oriented SMEs, development of a high-

performance communications backbone, and international technology-exchange

programs.

Industrial Policy 2005: Under the industrial policy, fiscal incentives are offered to all

categories of enterprises irrespective of the size of the manufacturing/service units.

Industries will enjoy tax holiday facilities for a period of 5 to 8 years depending on the

locations. As an alternative to tax holidays, industrial enterprises receive depreciation at

the rate of 100 per cent in the first year. If these facilities cannot be provided, then a

reduced rate of taxation will be considered. Export oriented industries will have import

facilities without any duty. Imported machinery and spare parts are exempted from

payment of VAT. Duty structures of imported raw materials, intermediate goods and

finished goods are set at gradually escalating rates. The activities of the Equity and

Entrepreneurship Fund (EEF) will be intensified to give priority to entrepreneurs of

under-developed areas and entrepreneurs of the BSCIC industrial units in receiving loans

from this fund. Special facilities will be provided to 31 industries marked as thrust

sectors. Industrial enterprises registered with the Board of Investment need not pay any

transfer fee or tax to purchase land for setting up new industries or to transform an


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industry into a limited company provided that no changes can be made in the ownership

structure after that transfer.

It is frequently argued that the incentives and facilities for different enterprises as

mentioned in these policies are often inadequately provided to the enterprises. The scope

of these facilities, especially financial facilities, needs to increase to cover as many

enterprises as possible.

3.5 Institutional Set Up for SME Development

SME Foundation: The SME Foundation is acting as a pivotal platform for the deliveryof all planning, developmental activities, financing, awareness-raising, evaluation and

advocacy services. It is a limited company licensed by the Ministry of Industry as a non-

profit organization. In its action plan for 2007-08 the following activities are listed:

research, policy advocacy, gender equality, database and ICT Development, credit whole

selling program, business support services, technology development, extension and

diffusion, as well as public- private partnership initiatives.

Bangladesh Small & Cottage Industries Corporation (BSCIC): BSCIC is also acting as

a state-run policy coordinator, service developer and distributor of facilities in the SME

sector. A major responsibility of the Corporation is to mobilize policy support for an

improvement in the economic environment, particularly to the benefit of SMEs. Its

services include inputs in the areas of land development (estate building), technology

transfer, credit rationing, training, and design development. Unfortunately, the BSCIC

could not perform as expected although its achievement in physical terms, particularly in

estate building over the past 40 years, is impressive. Eighty-one percent of the developed

plots (7069 out of 8763) had been allotted to entrepreneurs as of October 2003. But only

2495 i.e. 30% of the plots have been used for actual industry building. There has been a

substantial waste of public money in idle investments in BSCIC.

Bangladesh Industrial Technical Assistance Center (BITAC): BITAC was set up by the

government as an autonomous body under the Ministry of Industries. Its mandate is to:


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(a) train industrial personnel to upgrade their skills; (b) render technical advice to

industries; (c) disseminate modern know-how and improved techniques among industrial

personnel; (d) manufacture and supply spare parts, tools and machines; and (e) develop

equipments tools and processes. Since its birth BITAC has played an important but

limited role by facilitating the transfer of technology to the countrys industrial sector and

developing human resources through its skill development training programs. However, it

has suffered from a chronic paucity of funds necessary for conducting training and

modernization.

Bangladesh Council for Scientific & Industrial Research (BCSIR): BCSIR has alsoremained an underutilized organization in spite of its potential. Its regional

establishments in Chittagong and Rajshahi should have been fully used to undertake

research in locally available materials, which can be used as inputs by SMEs.

Other Institutions: Over the years a number of semi governmental and private sector

institutions have become active in the SME area. Bodies such as the NASCIB, BASIC

Bank, MIDAS, CARITAS, WEAB, and BWCCI, to name a few, are some of the

organizations that have emerged in the private sector and are contributing to the

promotion and development of the SMEs.


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4. Major Challenges Confronting SMEs

The countrys SMEs confront various types of structural, managerial, financial,

infrastructural, marketing, and social problems (Table 5). The extent of the problems

faced by SMEs differs according to their size, location, and market linkage. Some of the

problems such as financial, infrastructural, and political unrest are considered to be acute

as they have a substantial impact on business activity and hinder their competitivety.

Table 5: Different types of problems faced by SMEs

Nature of problems Frequency Percentage

Poor transportation facilities 50 83

Lack of entrepreneurship education and training 40 66

Financial assistance 35 58

Hartal (strikes) 60 100

Law and order situation 50 83

Bureaucracy 45 75

Lack of control of corruption 50 83

Lack of adequate investment 50 83

Lack of government support and assistance 35 58

Lack of research and development 50 83

Inadequate information 50 83

Inability to forecast demand 40 66

Frequent power failure 60 100

Inadequate telecommunication services 50 83

Fear of failure 50 83

Lack of technology 45 75

Source: Chowdhury, 2007

a) Lack of Sufficient Financial Support: Small entrepreneurs require various types of

financial support to cover their expenses, such as initial capital to cover preliminary

expenses, working capital to cover running expenses, reserve capital to meet

expenses not only for unexpected contingencies but also for personal and family

maintenance. In most cases, these enterprises receive working capital from the financial

institutions, but start up capital, which is crucial to cover preliminary expenses, is often


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not supported by financial institutions. Various policies such as the SME policy or

Industrial Policy do not give any guidelines regarding the financial coverage required to

meet the initial expenses and unexpected requirements.

Although the government has tried to enhance support for SMEs by providing credit

through different banks and other institutions including the recently established SME

Foundation, the coverage of these support programs is found to be inadequate. In the

budget of FY2008, the government has allocated an endowment fund of Tk.100 crore for

the SME Foundation to provide credit to SMEs through private commercial banks under

the Foundations credit wholesaling program. The government has continued allocatingresources in the fiscal year FY2009 (Tk.100 crore) to support SMEs. The SME

Refinancing Scheme of Bangladesh Bank has been allocated Tk.500 crore, up from

Tk.300 crore the previous year. The allocation of EEF in the FY2009 has been targeted at

IT related industries; in FY2008 the EEF allocation was targeted at agro-based industries.

A total of Tk.469.6 crore has been disbursed as of April 2008 in 215 agro-based projects

and 34 IT related projects (Bangladesh Bank, 2008). Major projects included fish

hatchery (93), shrimp hatchery (50), software development (32) and poultry and fish feed

projects (18). However, the EEF covered only about 38.1 per cent of the total cost of the

projects. This needs to be increased to provide adequate support to the eligible business

activities. Thus far, 82 projects have received full financial support, while another 145

projects received partial support costs of projects. 22 projects did not claim for support.

Poor legal and regulatory framework: Although various policies in support of SMEs are

currently in operation, there is a problem of ambiguity, non-transparency, and

inconsistency in these policies, which ultimately reduces entrepreneurs confidence in the

legal and regulatory framework of the country. For example, there is a lot of disparity in

the definition of SMEs between the different operational agencies: SMEs as defined in

the SME policy emanating from the government differs from the one disclosed by the

commercial banks in their guidelines to provide credit, and the World Bank has its own

definition. For the sake of clarification, the government has announced a new definition

and revised the existing one. According to the new definition, an enterprise with either


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capital (replacement of plant, machineries etc. and associated technical services

excluding land and building) within the range of Tk.50,000 to Tk.15 million (about

US$215,000) or total employment of 50 is regarded as a small enterprise. On the other

hand, enterprises with either capital of up to Tk.200 million (US$2,866,000) or

employment of 150 are regarded as medium enterprises. In the case of non-

manufacturing units, enterprises with fewer workers than 25 or with capital of Tk.50,000

to Tk.5,000,000 are considered to be small, while those with employment between 25-50

workers or with capital of Tk.5,000,000 to Tk.100,000,000 are considered to be medium

sized enterprises. Besides, inconsistencies in enforcing laws, bureaucratic interpretation

of rules, lack of firm political commitment, lack of accountability, hooliganism andpolitical brinkmanship, lack of rule of law, and lack of control over corruption, offers an

eloquent list revealing how poor the legal and regulatory framework is, and how badly

the development of SMEs is hindered in the country.

Poor infrastructure: Poor physical infrastructure increases the cost of production and

reduces the competitiveness of SME products. Major problems related to infrastructure

include frequent power failures and poor transport facilities, which seriously hamper the

smooth production and delivery of products. Small enterprises suffer more from frequent

power failures because of lesser captive power generation facilities in their production

units. According to Rahman, Bhattacharya and Moazzem (2007), the profitability of

readymade garments declines (although not significantly), due to poor power supply

conditions.

Lack of skilled workers: In order to enhance productivity and manufacture high end

products, entrepreneurs often demand an adequate supply of skilled workers. An upgrade

of technologies, important for manufacturing better products, always requires skilled

workers. Huge public investment is necessary to develop human resources. A number of

public and private initiatives were undertaken in order to upgrade workers skill. The

government allocated Tk.50 crore in the 2007 national budget for skilled development

training of garment workers. The Bangladesh Garment Manufacturers and Exporters


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Association (BGMEA) also took the initiative of training workers and supplying them to

various factories.

Political unrest: Political structures remain confrontational in the country. Personal and

political enmity between rivals, frequent hartal (strikes), and the lack of respect for

elementary principles of democratic governance have become the principal

characteristics of the countrys political system. A series of prolonged hartal affect the

socio-economic and political conditions of the country. The average cost of hartal during

the 1990s to the Bangladesh economy was 3-4 percent of GDP (UNDP, 2005). These

syndromes have given birth to a culture of corruption, bribery, hooliganism, andbrinkmanship, and discourage the development of entrepreneurial talent and initiative in

the country through the non-adherence of any rule of law. Under the present caretaker

regime, such political practice is largely inexistent.

Absence of a favorable social/cultural environment: The concept of entrepreneurship is

not native to every culture or society. Starting a business requires courage: the courage to

assume the risks of putting money into ideas and the courage to take a leap into an

unknown future. Throughout the world millions of entrepreneurs display such courage.

But the fear of failure produced by the highly volatile socio-politico-economic conditions

of Bangladesh has deepened into the minds of potential entrepreneurs. Consequently,

new and energetic entrepreneurs are not emerging in the market. The traditional and

cultural values of the country tend to keep women inside family homes while women

shoulder the burden of the poverty (Chowdhury, 2007). The SME policy of the country

needs to work on building awareness at the socio-cultural level to develop a favourable

environment for creating new entrepreneurs.

Poor quality and standards: Bangladesh has limited capacity to ensure the quality of

products and services to consumers not only in the domestic market but also in

international markets. There is no national quality policy or adequate support system that

provide assistance to all enterprises to understand the principles of quality and to develop

quality consciousness in business behavior. Currently, the Bangladesh Standards and


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Testing Institution (BSTI) formulates national standards for industrial, food, and

chemical products. However, BSTI lacks credibility and importers from North America

and Europe do not accept the certificates it issues (Haque, 2003).

Inefficient marketing practices: SMEs in Bangladesh, especially the small enterprises,

do not have enough marketing capabilities or networks. An overwhelming majority of

small firms do not have resources to invest in marketing. Export-oriented SMEs have

very little marketing activities and most of them try to survive by linking up with

multinational buyers or setting up subcontracting relationships with them. In the domestic

market, SMEs are confronted with cheap imports and are hard pressed to hold on to theirmarket share. On top of this, a lack of resources and skills make it difficult for SMEs to

take advantage of market promotional activities.

Lack of entrepreneurship and management skills: Many owner-managers and

entrepreneurs often lack wider managerial skills, which hinders their long-term success.

Strategic planning, medium to long-term vision, marketing, commitment to quality,

knowledge of quality systems, communicating in foreign languages, cash-flow

management, and information technology are a few critical elements of management

required to meet the challenges of the market economy, especially in the global market

environment.

Challenges faced by women entrepreneurs: Women are handicapped in the current

centralized wholesale market set-up controlled by men. Home-based women

entrepreneurs suffer from a lack of access to inputs and services like credit, input

supplies, markets and new technology that could increase their productivity. Women

often lack the legal knowledge to protect their industries and often fall victim to illegal

threats or criminal offences. Due to the lack of market facilities, women do not get the

proper prices for their products, which are under priced by the customers or wholesalers

who order their products. Bank loan procedures are not that easy because of bureaucratic

obstacles. Commitment based problems are yet further challenges that women


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entrepreneurs face. The absence of advisory help and a lack of patience are also a

hindrance to woman entrepreneurship.

5. Entrepreneurship Development in Bangladesh

Despite all the constraints and challenges mentioned in the previous section, there are

SMEs in all sectors that manage to overcome these problems successfully and operate

efficiently. The reasons for their success are manifold: the successful exploration of

markets at the bottom of the pyramid, access to financial support on favorable terms and

conditions, the use of marketing techniques to tap into domestic and international

markets, and the extensive application of modern technology. The factors contributing

towards the success of very small enterprises are different to those of relatively bigger

enterprises. Beyond the reasons mentioned above, a major factor for the successful

operation of any enterprise is entrepreneurship.

A significantly high rate of growth attained in sectors like readymade garments, agro-

based & agro-processing industry, pharmaceuticals, telecommunication (mobile

telephony), computer, software & ICT goods, poultry industry, leather goods, ceramics

and tourism, indicate that there are enterprises which can provide exemplary evidence of

successful entrepreneurship. A short list of these enterprises include: Pran Group, Nestle,

BRAC, Grameen Danone Foods Ltd in agro processing; Dohatec, Cell Bazaar in ICT;

Bengal Travels and Tours in tourism; Grameen Phone in telecommunications; Map Agro

and Waste Concern in waste management. On top of these examples, there are many

enterprises that operate successfully in urban and rural areas and can provide guidance to

other enterprises with respect to entrepreneurship and operational aspects.

In this context, social entrepreneurship is emerging as an innovative approach for dealing

with complex social needs (Johnson, 2000). The term social entrepreneurship is used to

refer to the rapidly growing number of organizations that have created models for

efficiently catering to basic human needs that existing markets and institutions have

failed to satisfy (Seelos and Mair, 2005). Researches like Seelos and Mair (2005) and


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Alvord, Brown and Letts (2002) have mentioned Grameen Bank and BRAC of

Bangladesh as renowned examples of social entrepreneurship. Grameen Bank was

established in 1983 on principles of faith, hope and togetherness. Starting with only 5

people, Grameen bank had 7.24 million borrowers (97 percent of whom are women) as of

July 2007. Grameen Bank provides services in 79,152 villages, covering more than 94

percent of the total villages in Bangladesh with its 2452 branches. Its loan recovery rate is

98%. The Grameen Bank model is now applied in projects in 58 countries (including the

US, Canada, France, The Netherlands and Norway). Grameen phone, established by Dr.

Mohammad Yunus, is the largest phone company in Bangladesh.

BRAC today protects and provides for the livelihoods of 100 million of the 141 million

people living in Bangladesh. The BRAC Non Formal Primary Schools were established

in 1985 to take education to poor, rural students, especially girls who have either dropped

out or are left out of the formal educational system. It has several initiatives such as

BRAC Industries Ltd. (Cold Storage), BRAC BDMail Network Ltd. (Internet Service

Provider), BRAC Services Ltd. (Hospitality), BRAC Concord Lands Ltd. (Land and

Housing), Delta BRAC Housing Finance Corp. (Housing Finance), BRAC University

(Tertiary Education), BRAC Bank (Small & Medium Enterprise, Finance & Banking),

BRAC Tea Companies (Tea Plantation & Production), Documenta TM Ltd. (Software

Development). It has commercial enterprises such as Aarong Shops, Printing Press, and

Dairy & Food Project. It also has different programs supporting enterprises: Poultry

Farms & Hatcheries, Feed Mills, Prawn Hatcheries, Fish Hatcheries Seed Processing

Centres, Seed Production Farms, Sericulture, Silk Reeling Centres, Grainages, Nurseries,

Bull Station, Iodized Salt Industry, all of which generate job opportunities and lift

individuals out of poverty.

In contrast to the usual assumptions on entrepreneur perceptions regarding the BOP such

as a low level of profitability, the low level of affordability of poor consumers, the lack of

capacity to utilize new technologies, less viability, the lack of scope for

commercialization, or the minor interest of management personnel to work with these

ventures, successful entrepreneurs rate these markets with high businesses potential


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rather than simply humanitarian activities. These firms, unlike other firms, endeavor to

break the negative assumptions surrounding the BOP and to solve major structural,

financial and management challenges while embarking on initiatives to develop their

markets.

CPD has conducted a rapid assessment of a number of successful enterprises, which was

reported at different times in the national Daily Prothom Alo as Saturdays Special

Feature (Table 6). Most of the enterprises reported in the national daily, are small-scale

operations and are located in rural and peri-urban areas. These enterprises have

established their businesses with small amounts of capital and a number of these SMEsare still facing shortages of capital. The majority of these enterprises are targeting the

BOP market, which indicates the availability of the market at the domestic level. Most of

these enterprises have plans to expand their operations through the development of new

technologies and new markets. Some of the major reasons behind the success of these

enterprises, as reported by the entrepreneurs, are hard work and devotion, new designs,

customer focused work, good quality, technical skill, and reasonable prices.

When looking at enterprises that operate at larger scale, the success originates from a

different set of factors. Firstly, the management of these firms is highly professional as

they are managed and operated by a set of skilled professionals. They are either locally or

internationally appointed and they have experience in market operations at the BOP level:

the optimization of profits, the management of risks originating at that level, and the

creation of branding at the local level. Secondly, the ownership of these firms is of

different types depending on the nature of participation and allocation of resources.

Thirdly, these firms set their strategic objectives by keeping in mind the social needs

which help to create a good reputation with financiers, suppliers and customers. For

example, one of the strategic objectives set by these firms is to ensure the generation of

more employment to reduce national poverty, which helps them garner the confidence of

financiers who like to focus on social issues. These types of strategies also help firms to

gain the confidence of customers, who are attracted to the social commitment of

businesses. By taking this approach, firms get access to various tangible and intangible


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resources that help them operate businesses at low cost. For example, these firms get

access to low cost funds from local and international financial organizations with the aim

of using this business development for employment generation and poverty alleviation.


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Table 6: Sample Case Studies on Successful SMEs

Case

No

Name of

owner

Male/Female

Entrepreneur

Type of

business

Products

produced

Major

Market

Source of

capital to

initiate business

Major problems

at the time of

initiation

Major problems fac

present

1AbdurRahim

Male Electronics I.P.S Domestic Taking loanTk 10,000

Capital, familyassistance

Lack of capital

2

Abdul Kader

Golap

Male Foundry Threshing

Machine

Domestic 1.Lack of high tech

2.Increased price of

3.No assistance from

3

Amir

Hossain

Male Foundry Threshing

Machine

Domestic Fathers

workshop

1.Lack of high techn

2.Increased price of

3. No assistance fro4. Lack of electricit

4

Shaheda

Begum

Female Sewing Cap Internation

al

Only a niddle as

own capital

5

Manjulika Female Weaving Clothings &

household items

Domestic Own savings

Tk. 500

Capital & raw

material

Exporting

6Aesha Hanif Female Designing &

making clothsCloths,handicrafts,home made food,

home accessories

Domestic

7

Ms. Sayeda

AnowaraBegum

Female Designing &

makingreadymade

garments

Sarees, Salwar,

Kameez, Panjabi,Fotua, Children

wear, Bed sheets

Domestic A sewing

machine

Capital &

familyassistance

She does not have d

system.

Source:Daily Prothom Alo, Different Issues.


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Fourthly, successful SMEs usually try to develop new business ideas, which differ from

traditional ideas. New ideas can be developed in manufacturing, business operations, the

marketing of products, and management techniques. Entrepreneurs can be cautious about

the selection of agents to whom they rely upon for various kinds of services. They are

careful about providing additional services or products for the customers in order to get

their confidence and satisfaction. It is also important to have good networks with

different stakeholders, including government, as this helps entrepreneurs gather various

types of tangible and intangible resources at low cost, which favors the development of

an enterprise.

It appears that foreign firms are more and more interested in the BOP of developing

countries, mainly to find a way out of fierce competition in the markets of developed

countries under liberalized trade regimes. Various joint venture initiatives, which

combine the resources and management of foreign firms with the market information and

reputation of local firms, could create successful ventures for the BOP market. A number

of examples already exist, such as Grameen Phone - a joint venture between Grameen

Telecom, Bangladesh, and Telenor, Norway; Waste Concern - a foreign led initiative

with support from Map Agro. These ventures can be looked at from the angle of social

entrepreneurship. The success of these enterprises resides in their capacity to overcome

significant hurdles in order to serve the poor and build resources and capabilities to

achieve social objectives.


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6. Actions to be taken for Entrepreneurship Development

6.1 Actions to be taken at the domestic level

a) Special SME Development Fund: Access to resources, especially financial resources,

is one of the major requirements to develop successful SMEs in the country. Improved

access would help develop better products/services, disseminate new technical

skills/knowledge and improve management techniques. Financial resources should be

offered at a reduced price, which would help small entrepreneurs invest in the

development of new products and ideas. Without these resources it is difficult to pursue

such innovations. Financial resources are required not only for the financing of working

capital requirements, but also for start up capital. There is an absence in the market of

financial instruments such as venture capital, which could favorably provide resources

to innovative products and new ideas. The funding of SMEs by Bangladesh Bank under

EEF seems inadequate and requires wider coverage at a higher scale. Commercial bank

lending operations at the SME level need to be widened. The initiative of the SME

Foundation through credit wholesaling should focus on these issues while financing

commercial banks in order to provide credit to enterprises. Women-led SMEs need more

attention as women entrepreneurs face various types of hurdles in securing loans from

banks. A number of commercial banks have opened windows for women entrepreneurs,

mainly in their urban branches. These are commendable initiatives but they need to be

extended to sub-urban and rural areas.

b) Develop New Ideas, New Products, and New Services: There is always a demand

for new products/services if those products meet the demand of the customer. This means

that entrepreneurs should focus on customer satisfaction when developing new

products. Investment in R&D is of great importance when looking at product

development, process improvement, or technology upgrading. Resources should be

allocated on preferential terms and conditions to enterprises for investment in R&D.

However, for the many enterprises that are not yet ready to take on large-scale investment

in R&D (especially SMEs), public and private sector institutions such as BCSIR,

BSCIC, or BITAC could assume the initiative to develop new products and processes that

could be sold commercially. Various private sector based associations could embark on


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initiatives with private and public universities/research organizations for product

development or process improvement.

c) Encourage FDI in the SME sector: Foreign investment needs to be encouraged,

especially in areas such as new product and process developments, new management

techniques, and new services. FDI should be encouraged in developing diversified

products and services with better management and marketing techniques. In view of the

increased competition in developed country markets, foreign firms are interested in

investing and exploring the BOP markets of developing countries. Bangladesh could be

considered a potential option for them.

d) Setting strategic goals: Successful SMEs usually set strategic goals in view of getting

support from the government and other organizations. These goals usually target the

social needs of the country in which the firm operates its businesses. One of the countrys

major social needs is to create new jobs in order to ensure income for more citizens.

These strategic objectives help firms convince organizations under their network of their

commitment to society and encourage the latter to take positive decisions in favour of

small enterprises.

e) Develop networks with important market agents: Successful firms working in

value chains usually maintain a good network, which in many cases reduces transaction

costs and market risks while ensuring financial and other tangible and intangible

resources if required. These networks are not limited to production agents. They extend

to various business-related agents such as government agencies. Through these networks

firms may get access to various types of critically important resources.

f) Develop local product standards: In order to improve the standards of local products,

a strict application of standards needs to be ensured. Without this local products cannot

be accepted in international markets. Local testing laboratories, with their existing

facilities, can hardly ensure a proper level of product standards. The improvement of

local testing laboratories is therefore required. Bangladesh should work jointly with


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South Asian countries in order to develop a harmonized standard system for their

products. To this end, the mutual recognition of standards is required. In cases where the

improvement of standardization is required, the government should allocate sufficient

funds to improve the testing system at the Bangladesh Standard & Testing Institute

(BSTI).

g) Improve banking rules and regulations: Banking regulations are not always

considered to be favourable to entrepreneurs, especially those who operate small-scale

businesses. Firstly, small-scale businesses face relatively higher interest burdens against

their loan, although banks argue that there are higher risks involved in the financing ofSMEs. Secondly, small businesses, in most instances, do not follow formal accounting

practices, which makes it difficult for banks to assess the financial condition of these

businesses. Hence bank officials are often reluctant to make the extra effort to formalize

the accounting practices of these business units for the provision of credit. Thirdly, it is

more difficult for women entrepreneurs to get credit from banks. Fourthly, entrepreneurs

often cannot obtain credit from the international market due to some restraints in banking

rules and regulations. In order to ease the problems and constraints confronted by SMEs,

adequate attention and support is required from financial institutions.

h) Disseminate the Information of Successful Enterprises: New and potential

entrepreneurs are often constrained by a lack of access to adequate information on

successful enterprises, possible means for overcoming various challenges, or factors

contributing to the success of these enterprises. Such information should be disseminated

through different channels including print and electronic media, information services, and

NGOs. This information could encourage potential entrepreneurs to understand markets,

value chains, production techniques, and marketing mechanisms, thereby preparing them

to take on new challenges.

6.2 Actions to be taken at the regional level

i) Improve the custom services: The government has undertaken various initiatives to

reduce different types of hassles faced by entrepreneurs in the export and import of


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goods. The number of forms required for export and import has been substantially

reduced, which has brought down the overall time for processing customs related

activities. Under the policy of trade liberalization, the government has substantially

reduced tariff rates from as high as 350% in 1991 to 25% in 2008. The number of tax

slabs has declined from 15 in 1993 to 4 in 2008. These initiatives have substantially

improved the customs system in the country. Yet despite these improvements, additional

charges have been collected on the import of goods in the form of supplementary duty or

regulatory duty. The automated customs system, which was initiated a few years earlier,

has yet to be fully operational. In this context, Bangladesh can learn lessons from Ghana,

which has developed its customs system within a shorter time period (two years) byembarking on effective customs reform measures.

j) Enhance Regional Trading Arrangements: Although South Asian countries signed

the SAFTA accord in 2006 there is no noticeable improvement in intra-regional trade and

investment within the region. It is argued that long negative lists that include member

countries major exportable products hamper the basic drive towards enhanced intra-

regional trade. South Asian countries should immediately reduce the number of products

from these negative lists in order to sustain the momentum towards increased trade. There

are a number of potential export areas in which Bangladesh has a comparative advantage

over other South Asian countries. In certain products Bangladesh enjoys unique

potentiality, while other Bangladesh products have complementarity with neighboring

countries. The government has to make the effort to attract more FDI from South Asian

countries by offering them the comparative advantage of the country. Trade facilitating

measures, especially in border customs points, need to be improved. Shade facilities to

load goods, truck parking facilities, laboratory testing facilities (especially for perishable

items) need to be provided and ensured at the border points.

Under the SAFTA accord Bangladesh is currently enjoying duty free market access for a

number of products, but most of these products are not major exportable items. India has

provided a tariff rate quota (TRQ) facility to Bangladesh for clothing products under the

S&D treatment facility. Under the TRQ arrangement 8 million pieces of readymade


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garments will be exported to India every year. In spite of these arrangements, Bangladesh

is facing various types of non-tariff barriers in the export of products to the Indian

market. These are mostly technical barriers that are related to standards, quality, and

sanitary and phyto-sanitary requirements. The mutual recognition of standards could

reduce the barriers to trade. India is currently in a situation of integration with ASEAN

and partial integration with China, where Bangladesh is perceived as a regional hub for

trade and investment.

k) Energy cooperation between South Asian Countries: In view of the growing

demand for energy in the country, Bangladesh should put a strong emphasis on thedevelopment of domestic energy resources, especially gas and electricity. However, in

consideration of the countrys long-term energy security, the government should lay

stress on regional cooperation in energy resources; essentially the development of

resources and supply through a regional grid. A regional power grid could be established

in which additional amounts of electricity could be generated by and for member

countries. Energy generation in Nepal and Bhutan, for example, could be transferred onto

a regional grid for consumption in other countries like Bangladesh.

6.3Actions to be taken at the international level

l) Get SMEs voice heard at the international level: There should be one-voice for

SMEs, which should be heard at international forums in order to get support from the

international community. The responsibility of raising the voice of SMEs is not only that

of government, but also that of major stakeholders including various associations and

institutions. The expectations of SMEs should be properly articulated and their demands

and challenges should be accumulated. National trade policy debates should ensure that

entrepreneur representatives are heard as inclusively as possible. It is important to create

mechanisms that ensure SME participation in national and international policy-making

processes so that the local and international communities hear their voices.


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m) Improve the image of the country: In order to help increase the inward flow of

investments,5 international efforts could be taken to raise the image of the country by

highlighting the countrys potential, its achievements in human development, GINI

index, stable growth, and the development of the readymade garment sector for example.

Run a promotional campaign (like Incredible India & Malaysia truly Asia),

underlying the dynamism, reliability, resilience of the Bangladeshi people, which could

include testimonies of managers (both locals and expatriates) praising their Bangladeshi

employees, and interviews of enlightened Bangladeshi individuals.

n) Harness foreign aid towards SME promotion: In order to promote development andassociated business opportunities larger aid project should focus on supporting the

economic reforms, laws and policies that will stimulate development from the bottom up.

It is therefore in the interest of entrepreneurs that aid organizations themselves take a

more entrepreneurial approach to development . (Global Entrepreneurship Monitor,

2007 Executive Report, p. 49)

o) Encourage policy coherence: One effective tool towards fostering an enabling

environment is to highlight the issue of trade facilitation in the WTO negotiations. With

the gradual liberalization of the trade regime, the development of trade facilitation could

be the most important mechanism for countries to enhance their trade. The outcome of

trade negotiations at the WTO has to be coherent with other international policies,

especially foreign aid. It is important to ensure a unified donor approach for initiatives in

specific sectors.

5 Anecdote of a billionaire from HK approached by a Bangladeshi Diplomat to invest in the country whopublicly declared that a lot should be done to improve the national image of Bangladesh which is onlylinked to poverty, corruption and natural disasters.


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7. Conclusion

The development of SMEs is to be considered a major policy objective of the

government. Unfortunately, the goals and targets related to SME development as

mentioned in the policy document (the first Poverty Reduction Strategy Paper) were not

achieved because of various limitations and constraints including financial,

administrative, monitoring, and the commitment of donors. The challenges confronted by

SMEs are not new. They are well known by all stakeholders including the government

and international development partners. Because of various limitations, the growth of

SMEs has been relatively slow compared to that of large-scale enterprises. However,

there are successful enterprises that have achieved commendable progress in different

sectors over the years by overcoming all the challenges and limitations. The reasons for

their success according to entrepreneurs who operate small businesses are hard work,

product development, marketing, and customer based operations. During the period of

initial establishment entrepreneurs were constrained by small amounts of capital. The

scarcity of capital was also found to be a problem for these enterprises when they

embarked on expanding or upgrading their ventures. In the case of relatively large

enterprises, success depends on the positive outcome of a complex web of relationships

between different factors. The factors include: the pattern of ownership based on a

strategic partnership in terms of sharing resources; know-how on the one hand and

sharing market information and the reputation of the local firm on the other; access to

tangible and intangible resources including financial support; setting strategic objectives

in relation to the social commitment of the firm; special skills in accessing and working

with the poor, mainly those working in management positions; providing complementary

services beyond major services; the identification of new products and processes in order

to mark a differentiation with the products and processes available in the market; good

networks with government and other agencies in order to garner the support of tangible

and intangible resources. It seems that enterprises need to clearly assess their

shortcomings in the case of network development, taking joint initiatives to reap the

benefits of strategic components or the development of new products and processes.


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At the regional level, the government should work on developing customs services,

especially the simplification of customs documents and a reduction in the number of

forms. Trade facilitation measures at the border point needs to be improved in order to

speed up the process of bilateral trade between Bangladesh and India. There are a number

of potential export areas where Bangladesh has comparative advantage over other South

Asian countries. In some products Bangladesh enjoys unique potentiality, while in other

products Bangladesh has complementarity with other countries. The government has to

take the initiative to attract more FDI from South Asian countries by exploiting the

comparative advantage of the country. In order to secure the long-term sustainability of

the energy sector, the government should take the initiative, along with other regionalpartners, to develop a regional grid that will ensure electricity supply for the industrial

sectors growing demand. Entrepreneurs should express their concerns and expectations

in one voice, which should be heard at the international level in order to ensure a better

commitment of the international community towards the development of the countrys

SMEs. There needs to be a harmonization of national and international policies on trade

and investment in developing countries, as well as development initiatives in order to

guarantee more effective results.


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