MGT601SME MANAGEMENT

Lesson 37

Export Potential of SME in Developing Countries – I

Chapter Learning Objectives

Definition Role in Economy Public Policy Approaches to the SME

Sector

Definition

The SME sector is a varied one and plays a predominant role in the economies of most developing countries. It comprises factories, workshops, traders and other service facilities.

Continued….

It ranges from the most modern and up-to-date to the simple and traditional, from independent enterprises to ancillaries and subcontractors, and from units mainly catering to the domestic market to exporters.

Role in Economy

SMEs are a key component in economic life, not only because of their number and variety but because of their involvement in every aspect of the economy, their contribution to regional development, the complementary role they play in support of the large sector, and their role as proving ground for innovations and adaptations.

Role in Economy…..

They can be seen as a kind of industrial breeding ground, a source of constant renewal of industry and commerce, and a wellspring of competition and dynamism.

Public Policy Approaches to the SME Sector

Small and medium-sized enterprises play a predominant role in the economies of most developing countries.

For valid socio-economic reasons relating to employment creation, income distribution, dispersion of industries etc. many govt.

Public Policy Approaches to the SME Sector…..

Specialized SME development agencies have long been engaged in providing assistance for the establishment of SMEs and for their growth and development.

The range of assistance has included training and entrepreneurial development activities.

Public Policy Approaches to the SME Sector…..

SME support programs have been in place in many developing countries for a number of years. Framework legislation and articulated government policies also exist in many countries.

Observers have generally concluded that even when there is no policy bias in favor of large units, the operational systems

Public Policy Approaches to the SME Sector…..

The well-known difficulties of SMEs in gaining access to support institutions for their inputs-finance, raw materials, approvals, etc. render the policy framework biased in favor of large units.

Public Policy Approaches to the SME Sector…..

SMEs have an inherent handicap in dealing with institutions because of their smallness. thus, even in industrialized countries the need for special intervention in favor of SMEs has been acknowledged. Even proponents of laissez-faire policies concede these needs

Public Policy Approaches to the SME Sector…..

Public policy in developing economies typically includes recognition of the importance of the sector and measures to stimulate the establishment and to encourage the growth of this sector.

Commonly Seen Assistance Programme

Some commonly seen assistance programs, implemented with widely varying degrees of efficiency and success, relate to establishment of;

1. Institutional Support Infrastructure (Like Small Industry Boards or Small Industry Corporation).

Commonly Seen Assistance Programme……

Physical Infrastructure Facilities( Like Industrial Estates, Common facility centers)

Initiative in Field of Financing (Creation of Small Industry Finance Programme, Credit guarantee Scheme, Preferential financing Rates).

Entrepreneurship development Programme and so on.

Commonly Seen Assistance Programme……

SME promotion programme of most of the countries potential markets are assumed to exist and thus a marketing dimension is not taken into consideration.

However, growth of SME sector is possible only when the SMEs are assisted in entering existing markets or in new market creation.

In certain situations an individual SME or a production sector can create new markets.

A Favorable Climate

A Favorable Climate is Required, Which Depends on.

A variety of Macro-Economic Factors International Factors Government Policy

Levels of Exports from SMEs in Developing Countries

The products of SMEs find their way to export markets through three different channels:

Direct Export Indirect Export through agencies acting as

middlemen such as merchant export and trading houses.

Physical Incorporation of SME produced components/ subassemblies in exports by larger manufacturers.

Workshops conducted by the International Trade Centre

Only a very small proportion of their manufacturing SMEs participate in the export trade.

It was estimated that in India not more than 5% of all registered small units participate in export trade directly or indirectly regularly or sporadically.

Information compiled by ITC on the shares of SMEs in exports of some developing countries

In Pakistan over 30% exports of manufacturers are by small manufacturing units (World Bank Studies, 1982) (Figure does not include contribution of medium scale units).

In Thailand, Sri Lanka small locally-owned traders and manufacturers account for approximately 35% of total national exports.

Continued……

In India number of registered small units 526,035 (1981) (only a very small proportion of these is participating in exports). and 46% of total national exports were accounted for by organized small-scale units and by the cottage industry sector.

In Republic of Korea the share of small units in total exports is39% in 1983.

In Singapore between 1973 and 1981, the average annual increase of direct exports from small firms was 48.5% as against 25% for large firms during the same period.

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