A judgmental view of birth, sickness and death of small business in selected Arab countries A judgmental view of birth, sickness and death of small business in selected Arab countries dr m s s el namaki

The basic foundations of SME development An Entrepreneur is the end of a long road. An Entrepreneur is the end of a long road. Entrepreneurs are heroes! Entrepreneurs are heroes! Entrepreneurship requires a friendly culture! Entrepreneurship requires a friendly culture! SME’s need support institutions.. Many institutions! SME’s need support institutions.. Many institutions! SME survival is symbol of wise economic policies. SME survival is symbol of wise economic policies. Job creation is a political necessity. Job creation is a political necessity. Government has a major responsibility ! Government has a major responsibility ! The future is for the SME’s The future is for the SME’s

Do we have enough practicing entrepreneurs in Arab countries? Answer is difficult but generally No Look at the figures Self employment Self employment Propensity to enterprise Propensity to enterprise Job creation Job creation And compare those to, for example, Thailand or Singapore!

Self employment in Arab countries Arab countriesYear Employers (millions) Own Account workers (millions) Total Egypt Morocco Palestine Yemen Comparative countries Malaysia Thailand

Propensity to enterprise (PTE) in Arab countries Arab countries Year Employers+ own account workers/ millions Economically active population (millions) Per Capita employment PTE % Egypt Morocco Yemen Comparative case countries Thailand Singapore

Death of small business Stage Time frame An estimation of rates of failure (as percentage of the starting numbers) Entry First year Up to 70% Survival Up to ten years A maximum of 20% Growth Up to ten years from inception Less than 10%

Types of small business sickness Permanently recoverable Core competence is intact. Damage to basic operating conditions is limited Nearly recoverable Core competence is challenged Basis operating conditions could be restored. Non-recoverable or ‘End game’ Core competence is lost Basic operating conditions are unfeasible

States of sickness

Internal vs. external sources of sickness Source of sicknessPercentage of enterprises likely to be failing because of this sickness in some Arab countries % Percentage of enterprises failing because of this sickness in the USA % Internal, management- related 5085 External, environment- related 5015

Sources of sickness : entry barriers Motivation Regulation Minority status Lack of identity Non guided venture choice Biased business choice Non guided entry Finance Conditions of exit Understanding and choosing technology

Sources of sickness : survival barriers Administrative and regulatory requirements No time to think of tomorrow Where is the market information? Finances, again. Unfair competition Technology shifts Regulation

Sources of sickness : exit barriers Process of exit Lack of alternatives The social stigma Cost of exit Potential for restart

And the remedy! Pre entry interventions Post entry and pre-infection intervention Post sickness interventions End game strategies

Pre entry interventions What should the entrepreneur do? Learn from others experience Learn from others experience Seek market commitment Seek market commitment Learn how to manage Learn how to manage Learn how to source Learn how to source Learn how to control Learn how to control

Pre entry cont’d What should others do Create proper institutions Create proper institutions Motivate Motivate Promote Promote Rationalize the choice Rationalize the choice Create testing space Create testing space Train and learn Train and learn Create supporting financial structure Create supporting financial structure Micro finance please Young industry 1990’s ! Estimated clients in demand 5 million Only 5% of Arab countries market is covered. Visionary program leaders with little management support Government intervention is massive

Pre-infection interventions What should the entrepreneur do? What should the entrepreneur do? Have clear goals Have clear goals Create competitive difference Create competitive difference Has a clear marketing strategy Has a clear marketing strategy Control cash flow Control cash flow Motivate employees Motivate employees Continually innovate Continually innovate Ask for help Ask for help

Pre infection cont’d What should others do? Organize links with large industries Organize links with large industries Protect the small business against abuse Protect the small business against abuse Support upgrading Support upgrading

Post infection interventions What should the entrepreneur do? Cut costs Cut costs Tighten cash flow controls Tighten cash flow controls Upgrade or even shift Upgrade or even shift

Post infection cont’d What should others do? Organize collective action Organize collective action

End game interventions What should the entrepreneur do? Guard against giving up too early Guard against giving up too early

Cont’d What should others do What should others do Protect against chain bankruptcy Protect against chain bankruptcy Create safety nets Create safety nets Restructure small business presence in an area or industry Restructure small business presence in an area or industry

Good cases Thailand SME SMESector Japan Japan Small Business Sector

Thailand’s strong base The corner stones : Policies and strategies Policies and strategies Training programs and institutions Training programs and institutions Investment funds, macro and micro Investment funds, macro and micro Finance funds and institutions Finance funds and institutions Marketing channels Marketing channels Research Research Industrial Estate program Industrial Estate program Science and technology development and links Science and technology development and links

Thailand’s strategies  Develop entrepreneurs  Upgrade technology & management capabilities  Enhance access to markets  Strengthen financial support system  Provide conductive business environment  Focus on micro and community enterprises

The upgrading Establish an enterprise diagnosis system Establish an enterprise diagnosis system Develop consultancy system for business improvement & problem solving. Develop consultancy system for business improvement & problem solving. Support modernization of facilities & international – standard management systems ( e.g. ISO & TQM ) Support modernization of facilities & international – standard management systems ( e.g. ISO & TQM ) Support improvement of product quality towards international standard. Support improvement of product quality towards international standard. Develop networking and improve efficiency of R & D institutes Develop networking and improve efficiency of R & D institutes Pre-infection interventions

Access to markets Improve access to government procurement. Improve access to government procurement. Promote sub-contracting & linkage with large enterprises. Promote sub-contracting & linkage with large enterprises. Expand & strengthen export promotion activities Expand & strengthen export promotion activities Promote cross-border trade. Promote cross-border trade.

Finances Expand & develop credit guarantee system. Expand & develop credit guarantee system. Develop existing specialized financial Institution into an SME bank. Develop existing specialized financial Institution into an SME bank. Establish Venture Capital Fund. Establish Venture Capital Fund. Establish SME Promotion Fund. Establish SME Promotion Fund. Strengthen financial advisory services to SMEs. Strengthen financial advisory services to SMEs.

The environment Establish and strengthen local information centers for SMEs. Establish and strengthen local information centers for SMEs. Develop mechanism for review & revision of laws, regulations & administrative procedures to redress disadvantages of SME. Develop mechanism for review & revision of laws, regulations & administrative procedures to redress disadvantages of SME. Support SME for the IT age. Support SME for the IT age. Promote establishment of SME parks. Promote establishment of SME parks. Pre-entry interventions

The new Japanese approach The Japanese government has initiated several measures to restructure the small business sector. Those include, since 1998, the following : Technology Licensing Organization (TLO) established to encourage the patenting and distribution of university research to the industrial sector. Technology Licensing Organization (TLO) established to encourage the patenting and distribution of university research to the industrial sector.

Cont’d Citizen’s Finance Corporation provides finance to unemployed corporate managers who want to start businesses of their own ($45,000). Citizen’s Finance Corporation provides finance to unemployed corporate managers who want to start businesses of their own ($45,000). the Japan Small Business Corporation provides finance to entrepreneurs creating new businesses or for prototype development that can serve as the basis for venture firms. the Japan Small Business Corporation provides finance to entrepreneurs creating new businesses or for prototype development that can serve as the basis for venture firms.

People who wish to start a business have been able to access a special insurance system offered by credit associations, which provides credit assistance in amounts up to US$83,000. People who wish to start a business have been able to access a special insurance system offered by credit associations, which provides credit assistance in amounts up to US$83,000. The Citizen’s Finance Corporation established a financing system to provide unsecured loans without collateral to help individuals start businesses in fields in which they have prior experience The Citizen’s Finance Corporation established a financing system to provide unsecured loans without collateral to help individuals start businesses in fields in which they have prior experience

Cont’d The Small Business Finance Corp + the Citizen’s Finance Corp initiate a system providing low- interest financing to women and elderly people starting a businesses. The Small Business Finance Corp + the Citizen’s Finance Corp initiate a system providing low- interest financing to women and elderly people starting a businesses. Japanese Government approved a comprehensive Program for Industrial Revitalization. Measures promoted new business development allowing access to a broad range of incentives without government approval. Japanese Government approved a comprehensive Program for Industrial Revitalization. Measures promoted new business development allowing access to a broad range of incentives without government approval.

It is a long road but there is light at the end of the tunnel thank you.. Home