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SMEManagement (MGT-601)

Lesson 14

Thislecture is still the continuation of the policy forming issues forSMEs. But in this sectioninstead of

short and medium term issues, we are dealing with long-termissues.

LONGTERM ISSUES

Thereare issues, which arebeyond the scope of ourcurrent interventions. Theyare partially rooted in

the multiple cultural structures of our society, frequentlyexacerbated by our geo-politicalsituation. We,

nevertheless, recognize their importance and thereforepoint them out here.However, it is not

recommended to attempt to solve these questions by ways of an SME policyInitiative.

Literacy

Theevidence reveals that SMEfind it extremely difficult to grow because of their inability to delegate to

soundly trained staff. The day the smallbusinessman feels comfortable to delegate, SME startprogressing.

Thelow literacy level alsodetermines the potential of ourlabor force. Higher literacyrates are essential to

enhance the quality of production can be enhanced by multiple factorswhich is what we need to be able to

effectivelycompete in the international economywhich is being extended to ourlocal markets by the effects

of opening up and WTOaccession.

Law and Order

Law and order situation in Pakistanhas always been regarded as worrisome. One survey reports thatone in

fiverespondents report that the business was the target of at least one crime during2002. Another

assessmentsuggests that the businesses in NWFP spend 4.5%, Sindh and Punjab 1-2% of their revenue on

security. One in four SME consider lawand order to be a severeproblem.

Law and order problems weakenproperty rights and as a resultweaken investor's decision to invest.These

problemsare clearly linked to the manner in which the law enforcement and criminal justicesystem

functions. The high time cost involved in seeking legal resource together with lack of access to both

effective informal and formal enforcement mechanisms, increase the costsassociated with contract

enforcement.

Intellectual Property Rights

IntellectualProperty Rights (IPR) is a vital issue that needs to be looked into. It hasbeen observed that

manydeveloping countries with the help of a change in their IP systems and laws areable to attractForeign

DirectInvestment (FDI) in the Researchand Development(R&D) especially in the industrial and the

scientific field. Therefore, promotion andprotection of the intellectual propertyspurs economicgrowth,

createsnew jobs and industries,enhancing the quality and enjoyment of life.

Anotherbenefit for Pakistan in properly adopting IPR culture is that it will protect the indigenous products

such as rice, kinno, traditional knowledge, pottery etc. the owners of the IPRs has the most valuableassets

whichcan be utilized in commercialtransactions, whether IP licenses, jointventures, manufacturing,

purchase or distribution agreements, or mergersand acquisitions. Licenses to use patents, trademarksand

copyrights are often combined withtransfer of know how in the form of training and areincreasingly an

important term in such transactions.

Infrastructure

Basicphysical infrastructure is a prerequisite to growth and development. Poweroutages and access to the

connectionsare considered an irritant,which significantly affects the productivity of firms in Pakistan. It is

estimatedthat a typical business in Pakistanloses 5.6% in annual salesrevenue due to just this single factor.

Differences associated with firm sizerecognize that smaller firms are relatively hard hit in comparisonwith

the larger ones because of inability to arrange alternate power source such as private power generators. High

rates of power, the poor quality of delivery and its reliability are the serious concerns for SME in Pakistan.

Similarly, access to the telecommunication facilities and transport also serve as a detriment to smooth

growthand transition of smaller firms to larger ones. The chief problem in the provision of the telephone

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SMEManagement (MGT-601)

services is the shortage of new fixedline connections, which currently stand at a mere 0.5-0.6million a year

for the whole country. Pakistan could also save up to 16.5% of the value of exports by improving itstrade

and transport logistics systems. Inefficiency in transport alone is estimated to cost the economy RS.320

Billion a year.

The concentration of power, telecommunicationsand transport services, exceptfor road transport, in the

publicsector has been regarded as a major concern. Evidence suggests thatPakistan's state-controlled and

concentratedstructure of infrastructure delivery is highlyinefficient.

References

1-Small Entrepreneurs in developing countries by Dr Asghar S. Nasir

2-Task force issues paper for newSME policy (SMEDA)

3-PakistanSmall Entrepreneurs Summary andStatistical Tables, January2001,GALLUP/BRB (A world

Bank survey)

Book Recommended

50 Years of Pakistan's' Economy(traditional topics and contemporary concerns) EDITED by Shahrukh

Rafi Khan Published by Oxfordpress Pakistan.

KeyTerms

WTO(World Trade Organization)

IPR(Right to protect an idea,piece of writing, designfrom copying)

Merger(combination of two or more organization)