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EXPORT POTENTIAL OF SME IN DEVELOPING COUNTRIES I:Commonly Seen Assistance Programme

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SME Management (MGT-601)
VU
Lesson 37
EXPORT POTENTIAL OF SME IN DEVELOPING COUNTRIES I
Definition and Role in Economy
The small and medium-sized 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. 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.
Small and medium-sized enterprises (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. 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.
There is no universally accepted definition of an SME. One study has identified more than 50 definitions in
75 countries. Frequently, criteria defining as SME in a country may be based on the purpose for which the
identification is required.
Again it is possible notionally to group manufacturing SMEs in three broad categories:
·
Cottage or Artisan Units.( less than 10 employees)
·
Small Scale Units.( up to 50 employees)
·
Medium Sized Industries.( Between 50 and 200)
These would not be watertight compartments and such a grouping would be arbitrary.
SMEs play a significant role in the economies of most countries, industrialized as well as developing.
Organized small and medium-scale industries in many African countries are relatively smaller in number and
their contribution to GNP more limited.
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. and 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, pre-investment feasibility
surveys, finance arrangements, facilities for raw materials and other inputs, infrastructural facilities, product
and design advice, domestic marketing assistance, etc. However, few SME development programmes have
incorporated and export dimension into the assistance package until recently.
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 and 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. 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 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.
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SME Management (MGT-601)
VU
Commonly Seen Assistance Programme
Some commonly seen assistance programs, implemented with widely varying degrees of efficiency and
success, relate to establishment of;
·
Institutional Support Infrastructure (Like Small Industry Boards or Small Industry Corporation).
·
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.
However, In 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.
New market creation is generally not in the hands of the individual SME or groups of SMEs.
A Favorable Climate is Required, Which Depends on.
·  a variety of Macro-Economic Factors.
·  International Factors.
·  Government Policy.
Conscious government policy approaches are required to assist SMEs to create markets. For this, SME
groups have to organize into powerful lobbies to be in a position to create the ground swell required to
influence national public policy. if new markets do not exist or cannot created nationally, encouraging the
establishment of SMEs may be counterproductive.
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.
A series of workshops conducted recently by the International trade centre UNCTAD/GATT (ITC) in
seven developing countries concluded.
·
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 is given
for a sample of 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.
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SME Management (MGT-601)
VU
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.
On the above information some general observations can be made:
·
Statistical data on the role of SMEs in the economics of developing countries are generally available in
many cases, and relate to numbers, production, employment etc.
·
Available information suggests that only a small percentage of SMEs engage in export, but their
contribution to total exports is considerable.
·
Appreciation of the inpo9rtance of domestic marketing mechanisms in channeling SME production to
export markets is generally inadequate.
·
It would appear that there is a correlation between the successful exporting by developing countries/
areas and the role played by SMEs in their economies.
·
There appears to be a need for systematic research to establish the role played by SMEs in exports from
developing countries and to facilitate formulation of public policy.
As a general conclusion, it can be stated that the contribution of the SME sector to the export trade in
developing countries is substantial, despite the fact that only a small minority of SME units participate in
export activities. The experience of successful SMEs in some developing countries demonstrates that there
is considerable untapped potential for greater participation of SMEs in export activities.
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Table of Contents:
  1. THE HISTORY:Cottage Industry, CONCEPT OF SMALL BUSINESS
  2. THE RELATIONSHIP BETWEEN SMALL AND BIG BUSINESS:The SME’S in Pakistan
  3. THE ROLE OF ENTREPRENEURSHIPS IN SMEs:Focus and Perseverance Guide the Entrepreneur
  4. THE ROLE OF ENTREPRENEURSHIPS IN SMEs:Kinds of Entrepreneurs
  5. SMALL ENTREPRENEURS IN PAKISTAN:National Approaches
  6. THE DEVELOPMENT OF SMES IN PAKISTAN:The Industrial History of Pakistan
  7. GOVERNMENT’S EFFORT TOWARDS SME DEVELOPMENT:Financing Programs
  8. THIS LECTURE DEFINES THE ROLE OF NGOS AND SMEDA:Mission Statement
  9. ISSUES AND POLICY DEVELOPMENT FOR SME:Monitoring Developments
  10. ISSUES IN SME DEVELOPMENT:Business Environment, Taxation Issues
  11. LABOR ISSUES:Delivery of Assistance and Access to Resources, Finance
  12. HUMAN RESOURCE DEVELOPMENT:Market and Industry Information, Monitoring Developments
  13. MARKET AND INDUSTRY INFORMATION:Measuring Our Success, Gender Development
  14. LONG TERM ISSUES:Law and Order, Intellectual Property Rights, Infrastructure
  15. THE START UP PROCESS OF A SMALL ENTERPRISE:Steps in Innovative Process
  16. TECHNICAL FEASIBILITY:Market Feasibility, Market Testing
  17. FINANCIAL FEASIBILITY:Financial resources and other costs, Cash Flow Analysis
  18. ASSESSMENT OF PERSONAL REQUIREMENTS AND ORGANIZATIONAL CAPABILITIES:Analysis of Competition
  19. Post Operative Problems of a New Enterprise:Environmental Causes
  20. HOW TO APPROACH LENDERS:Bank’s Lending Criteria, Specific Purpose, Be Well Prepared
  21. WHAT A BANK NEEDS TO KNOW ABOUT YOU:General Credentials, Financial Situation
  22. COMMERCIAL INFORMATION:Checklist for Feasibility Study, The Market
  23. GUARANTEES OR COLLATERAL YOU CAN OFFER:Typical Collateral
  24. Aspects of Financial Management:WINNING THE CASH FLOW WAR, The Realization Concept
  25. MEANING OF WORKING CAPITAL:Gross Working Capital, Net Working Capital
  26. RECRUITMENT, SELECTION AND TRAINING:Job Description, Job Specification
  27. SELECTION AND HIRING THE RIGHT CANDIDATE:Application Blank, Orientation
  28. TRAINGING AND DEVELOPMENT:Knowledge, Methods of Training
  29. CONDITIONS THAT STIMULATE LEARNING:Limitations of Performance Appraisal, Discipline
  30. QUALITY CONTROL:Two Aspects of Quality, Manufactured Quality
  31. QUALITY CONTROL:International Quality Standards, MARKETING
  32. MARKETING:Marketing Function, MARKETING PROCESS - STEPS
  33. MARKETING:Controllable Variable, Marketing Uncontrollable, Marketing Mix
  34. MARKETING:Demerits of Product Mix, Development of new product, SMEDA
  35. ROLE OF TECHNOLOGY:Training programmes, Publications
  36. ROLE OF TECHNOLOGY:Measure to Undertake for Promoting Framework.
  37. EXPORT POTENTIAL OF SME IN DEVELOPING COUNTRIES I:Commonly Seen Assistance Programme
  38. EXPORT POTENTIAL OF SME IN DEVELOPING Countries. II:At the national level
  39. WORLD TRADE ORGANIZATION (WTO):WTO Agreements: Salient Features
  40. WTO MINISTERIAL CONFERENCES:PAKISTAN AND WTO
  41. WORLD TRADE ORGANIZATION (WTO) PAKISTAN & WTO. II:International Treaties
  42. WORLD TRADE ORGANIZATION (WTO) PAKISTAN & WTO. III:Agriculture
  43. WORLD TRADE ORGANIZATION (WTO):PAKISTAN & WTO. III
  44. WORLD TRADE ORGANIZATION (WTO):CONCLUSIONS AND RECOMMENDATIONS
  45. SUMMARY & CONCLUSIONS:Financing Tool, Financing Tool