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The Financial Express

SMEs: Learning lessons from global experience

| Updated: October 24, 2017 08:31:11


SMEs: Learning lessons from global experience

Vietnam is one of the countries which have performed well and extended policy support to the small and medium- sized enterprises (SMEs) for flourishing. According to a plan to support enterprises until 2020, signed by Prime Minister Nguyen Xuan Phuc on May 16, by 2020, all enterprises, irrespective of types and sectors, have equal right in accessing resources like funding, land and investment. There are at least one million enterprises, which are competitive and sustainable according to the plan. The country has taken a long-term target  for implementation through 2016-2020, and targeted to increase factor productivity by 5.0 per cent per year. It has a plan for innovative enterprises to increase by 30-35 per cent per year; their total factor productivity target is 30-35 per cent of the GDP. The targeted private sector contribution to the GDP is 48-49 per cent. Total social investment capital is equivalent to 49 per cent (http://e.vnexpress.net /news/business/vietnam-offers-special-policy-to-support-start-ups-and-smes-3404659.html).
Vietnam plans to halve income tax for individuals working in hi-tech information technology, application of high-tech in agriculture and food processing. Universities are also to encourage their students to become entrepreneurs through a specially-designed curriculum. Plans are in place to establish enterprise nurseries, support centres and programmes to encourage innovation and start-up under public- private partnership.
In Thailand, SMEs make up about 98.5 per cent of all businesses and account for some 70 per cent of national employment in 2016. SMEs contribute about 30 per cent of total exports from the country. These units feature prominently in the government's strategy to stimulate growth and development. The food and agricultural industry is a crucial contributor to the national economy and offers a wide diversity of agricultural commodities and processed food items. The country is blessed with an abundance of natural resources, a year-round growing season, a skilled, well-educated workforce, and relatively low labour costs, Thailand enjoys significant competitive advantages in food and agricultural arena where in SMEs are contributing most (https://www.krungsri.com/ bank/en/KrungsriGuru/entrepreneur/February-2016/SME-Business-Opportunities-in-Thailand-This-2016.html).
Like other countries, Thailand also requires 11 documentations to start up a business which  include, copy of ID card and house registration; bank statement of past six months (maximum of 3 accounts), copy of trade registration certificate; copy of Memorandum and Articles of Association and certificate of company seal (date not exceeding three months), copy of financial statements for the past three years, copy of taxpayer ID / PorPor 20, copy of collateral ownership evidence, map of place of business, photos of interior / exterior of place of business and pictures of products, copy of marriage certificate / divorce certificate / copy of changed name or surname certificate/ death certificate of spouse (If applicable) and letter of consent for credit bureau checking of borrower / co-borrower. Because of improved administration, transparent process and equal treatment, SMEs do not mind and run their businesses in parallel with large companies and complement each other.
Japan lays more importance in providing advice on issues related to start-ups through nine branch offices across the country.  It also offers incubation facilities to the start-up SMEs. The country deploys experts in various fields such as, management, technology, finance, law and intellectual property to help SMEs.
SMEs are engaged in overseas business development through various support measures such as providing advice on overseas business promotion as well as assistance for participating in overseas trade fairs. Human resource cultivation in the SME University is one of their priorities. There is  practical training in nine SME Universities targeting SME owners, managers and personnel from SME support organisations. Japan promotes dissemination of 'intellectual property' such as HR and technologies through developing IP management manuals and organising seminars.
Japan provides advice from experts on environmental issues such as environment-related laws/ systems, energy saving and recycling. It promotes smooth business succession of SMEs and  support development of manufacturing SMEs engaged in important technologies through comprehensive assistance in research and development, business matching and HR cultivation.
A mutual aid system is there to provide mutual aid funds to sole proprietors when they close their businesses or company executives retire from their positions in accordance with the premiums they have accumulated. A mutual relief system offers prompt financial support to SMEs that face emergency situations such as bankruptcies of client companies.
In Korea, young people who get a job at  a SME  after an internship will get a significant amount of funding to start a business on his own. The amount varies depending on duration of internship.  Korea manages a camp promoting positive minds about start-up businesses and a programme called BizCool targeting elementary, middle, and high school students to promote positive thinking on start-ups among children and youth. Small and Medium Business Administration (SMBA) offers lectures regarding start-up businesses and support clubs, academies and leagues at universities encouraging business start-ups to inspire college students as potential future entrepreneurs. SMBA manages 'Start-up Leading Universities' and 'Start-up Academies for Youth' in each region, to promote technology-based start-ups by discovering excellent technology-based start-up entrepreneurs and enhancing their success rates.  Also SMBA carries out the 'Infinite Imagination-based People's Start-up Project (idea audition)' to promote start-ups for commercialisation of people's ideas in tandem with the era of a creative economy, a main agenda of the current administration. SMBA also manages 'Business Centre for One Person Start-up Business' and 'Smart Creation Centre' to foster 'one-person creative enterprises' and supports servicing enterprises that create high value addition such as culture, green growth, and health. (http://www.smba.go.kr/ eng/polities/ smepolicies_01.do?mc=usr0001170).
From the experiences of the above countries, it is seen that these countries are having a number of on-going innovative programmes for nurturing SMEs to encourage them in new ventures with supporting packages.
DELAY IN GETTING A TRADE LICENSE: Trade license is number one requirement for starting a business, we have tried to look into what steps are required for getting a trade license and how many steps can be reduced.  Application forms can easily be downloaded from the website and all the required information can be sent through the  internet staying at home. Bank charges can also be deposited through mobile phone or the internet. There can be a full automatic system without human touch for getting a trade license for a commercial firm and thus ease doing business.
REGISTRATION UNDER JOINT STOCK COMPANIES: In addition to having trade license, relatively large companies need to be registered under the Registrar of Joint Stock Companies, and have to follow a lengthy process of nine specific procedures and legal steps to set up a business in Bangladesh.  Initially, the entrepreneur has to apply to the Registrar of Joint Stock Companies and Firms (RJSC) for Name Clearance Certificate. After receiving the certificate, the next step is to pay stamp duty at a designated bank and again apply to RJSC for registration. Then the company makes seal and opens a bank account and applies for trade license to respective city corporation or municipality. After completing all these procedures, the entrepreneur has to approach the National Board of Revenue  (NBR) for receiving Taxpayer Identification Number (TIN) certificate and registering with the Customs, Excise, and VAT Commissionerate. Finally, the investor requires applying to the Board of Investment (BOI) for registration. The process at very high level looks like following a chart. Details of the procedures are available at the government websites and presently at the National Trade Portal (www.nationaltradeportal.gov). For getting details of all licenses that are required for starting businesses, BUILD has a useful publication titled 'Business Start-up Licenses: A Regulatory Guide' which it updates on a regular basis.
CHALLENGES IN BANGLADESH: People in Bangladesh have strong sense of entrepreneurship. However, SME growth is constrained by inadequate access to finance and electricity, poor transportation, increasing labour costs, and lack of skilled manufacturing labour, especially in rural areas. Dedicated women's desks in financial institutions to support women entrepreneurs have been established and are trying to improve their legal literacy as well as in managing their enterprises (http://businessnews-bd.com/aitur-says-msmes-key-to-bangladeshs-upper-middle-income-transition/ ) but we cannot say that an enabling environment has been in place in the country.
Bangladesh is still not in a position to announce an integrated business start-up policy framework  so that the would-be SMEs get a shelter and confidence to move ahead with their ventures.
According to Bangladesh Bank directives, almost all banks have opened SME branches. With these there could be dedicated officials to guide start-up SMEs to lead them towards a right direction.  
Bangladesh needs to frame a comprehensive business start-up policy so that we can see at least a million SMEs  at the end of the 7th Five-year Plan period.
The writer is CEO, Business Initiative Leading Development (BUILD).
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