Choosing appropriate SME development approach

Md. Joynal Abdin   | Published: October 08, 2018 21:50:51 | Updated: October 09, 2018 20:53:25

Small and medium enterprises (SMEs) are considered to be the mother of large industries. There are 7.81 million enterprises/economic entities in Bangladesh. Of these, 0.86 million are SMEs.

The SMEs promote broad-based equitable development and provide more opportunity for women and youth participation in the economic development of a country. More than 99 per cent of all enterprises in Europe are SMEs.

The SMEs are playing a vital role in entrepreneurship development, employment generation and increasing economic growth throughout the world. Governments, therefore, are keen to promote SMEs to facilitate growth of entrepreneurship and employment generation as well as curb unemployment.

There are several institutions to work with the entrepreneurship development/industrialisation or SME development in Bangladesh. Those include the SME Cell at the Ministry of Industries, Bangladesh Small and Cottage Industries Corporation (BSCIC), the SME Foundation, Bangladesh Council of Scientific and Industrial Research (BCSIR), Bangladesh Industrial and Technical Assistance Centre (BITAC), different sectoral associations and non-government organisations (NGOs). They are working on enterprise development/ entrepreneurship development issues. Most of them are either following sectoral or geographic location-based approaches.

The SME development institutions across the globe are considered as enterprises. They generally follow some common approaches as described below:

  1. CLASSIFICATION OF SMES AS PER THE BASIC RAW MATERIALS USED: Classifying the SMEs as per their basic raw materials used is one of the most common approaches. For example, the enterprises that use primary agricultural crops to produce their products are known as agro-processing industries; such as producers of jam, jelly or chutney, rice, flour etc. Similarly, the enterprises that use leather to produce shoes, bags, belts etc. are known as leather goods industries.
  2. CLUSTER-BASED SME CLASSIFICATION/ AS PER LOCATION: The SME development agencies often identify the SMEs based on their location at any specific pre-determined industrial clusters. This cluster-based approach to SME development could be one of the most effective tools for their development. There are many reasons like serving maximum enterprises with minimum resources, promoting inclusive and geographically-balanced development etc.
  3. CLASSIFICATION OF SMES BASED ON ENTREPRENEUR'S GENDER: SMEs often get priority of special treatment based on the gender of the entrepreneurs. For example, women entrepreneurs usually lag behind compared to their men counterparts. Therefore, the government offers special treatment for the women entrepreneur-owned enterprises to inspire the women to become entrepreneurs.
  4. CLASSIFICATION OF SMES BASED ON OWNER'S RACE AND ETHNICITY: Differentiating enterprises based on the race or ethnicity of the owners is another important approach. For example, tribal community or minority group may get special attention in a bid to take them to the mainstream or economically forward.
  5. CLASSIFICATION BASED ON OUTPUT OF THE ENTERPRISES: Primary classification of the enterprises could be determined based on the output of the enterprises i.e., the products it produce or services it perform. Manufacturing and service-oriented enterprises have different attributes than that of the others. Therefore, policymakers identify them differently under the manufacturing or service sector heads.
  6. OBJECTIVE-ORIENTED CLASSIFICATION OF ENTERPRISES: Promoters often differentiate the enterprises based on the objective of their products such as domestic enterprises versus export-oriented enterprises. Domestic enterprises produce the products for the local market, while the export-oriented enterprises are used to producing products for international market. Mixed type of enterprises can also be there, but those are not eligible to get special treatment offered by the government for exporters or others.
  7. SPECIAL PURPOSE CLASSIFICATION APPROACH: Enterprises working for rehabilitating any special group like the disabled population, autistic group etc. could be described as special purpose enterprises.

SME development agencies usually select approaches towards achieving specific goal of different government policies at a time. For example, one action plan can address employment generation, promotion of any specific sector as well as increase export earnings of the country through a single intervention. Therefore, designing development intervention by addressing multiple objectives requires appropriate selection of perfect approach towards SME/ industrial development of a country.

Different countries have different SME development approaches. A few approaches to develop SME sector in a least developed country like Bangladesh are mentioned bellow:

  1. CLUSTER-BASED DEVELOPMENT INTERVENTION: Cluster is defined in a number of ways by the experts around the world. The SME Foundation In Bangladesh has defined, "Cluster is a concentration of 50 or above enterprises producing similar products or services and is situated within an adjoining geographical location of 3-5 kilometres radius and having a common strengths, weaknesses, opportunities and threats (SWOT)". There are a large number of homogenous enterprises located at a particular geographical area in a cluster. Therefore, trained manpower, raw materials, buyers and other factors of production are available in that particular area. A development agency could easily implement interventions for promoting and developing entrepreneurs of that cluster with limited resource deployment. Therefore, it could be one of the best approaches to SME development in a least developed country - even in a developing country.
  2. OBJECTIVE-ORIENTED CLASSIFICATION APPROACH: This new approach can be suggested for better output within a limited timeframe. For example, an SME promotion agency could identify few promising sectors with export potentials. Special export-oriented intervention could be developed and implemented to make the sector capable of exporting as well as competing in the targeted international markets.
  3. SPECIAL PURPOSE PROJECTS: An SME development agency shall have special purpose projects to rescue the declining local sectors, promoting the newly-developed sectors, mainstreaming any particular race or ethnic groups etc. Thus an organisation could contribute towards achieving country's national goals.
  4. AVAILABLE SKILLS-BASED ENTERPRISE DEVELOPMENT APPROACH: The government could facilitate new sectors based on the available skills of the general people. For example, Bangladesh is currently producing a remarkable number of computer engineers every year. So, IT/ ICT-based industries like software development, outsourcing, freelancing etc. could be promoted for their self-employment or employment generation.

Finally, SME promotion agencies of a country have many roles to play. If any organisation proceeds with a set of predetermined approaches, then it may not be able to face newly-emerging challenges and needs of the sector. Such institutions should have a flexible set of targets to undertake newer approaches and interventions as and when required for promotion and development of SMEs in the country. It should be remembered that effectiveness of the output and usefulness of the result of an organisation depends upon its approaches towards designing, implementing and delivering services to the clients. Appropriate methodology selection should get highest priority before devising any strategy, undertaking interventions and implementing plans.

Md. Joynal Abdin is Executive Director (Additional Secretary), DCCI Business Institute (DBI). [DCCI or DBI is not responsible for the author's opinion here in this article].

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