MGT601 SME MANAGEMENT Lesson 02 The Regional Concept of SMEs

Chapter Learning Objectives This lecture will throw light on the:  Relationship between small and big business  Concepts of SME’s in our region  Differentiating the variable factors of labor, investment and production volume  Government’s effort towards SME development

The Relationship between Small and Big Business  Small businesses powerfully effected by developments within the big business sector this relationship serves the interest of general economic disequilibria.  Small business is less affected by economic disruptions and is more or less self-adjusting.

The Relationship between Small and Big Business……… The nature of interlink age between small and medium business is;  Job subcontracting i.e. the large business provides materials and components to small units who process the same into finished goods.  Purchase subcontracting i.e. in this case the material is procured by small unit who manufactures a specific part or component needed by a particular large unit.

The Relationship between Small and Big Business………  Complementary: in this case the product manufactured by small company is purchased by a big unit as accessory like plastic dust covers for video recorders, electronic passive components, packaging etc.  Merchandising or commercial trading: in this case the small units manufacture the goods and big units on the strength of their financial power market it with their own brands like fans, washing machines, refrigerators etc.

The Relationship between Small and Big Business………  Maintenance and repair services: many large enterprises give the operation and maintenance contract to the small companies due to being more economical and helpful  Social benefits: employment generation, decentralization of industrial benefits etc.

The regional Concepts of SMEs’  The countries generally try to identify their SME sector in order to target it for special assistance.  The definition of an SME depends to a greater extent on local conditions.  An enterprise considered an SME in one country might well be bigger than many large countries in another.

The regional Concepts of SMEs’……  Countries have widely different definitions of SME’s for example, in India; the criteria for determining SME status are based on investment while  In South Africa; SME eligibility depends on the number of employees and turn over.

The regional Concepts of SMEs’…… There are three parameters that are generally accepted in defining SME’s in most countries, these are: 1. Number of workers employed which is the most widely used criteria 2. The level of capital investments or assets 3. The volume of production or business turnover.

The regional Concepts of SMEs’ from Pakistan perspective Pakistan does not have a single definition of Small and Medium Enterprises. Various Government agencies, e.g., State Bank of Pakistan (SBP), Federal Bureau of Statistics (FBS), Provincial Labour Depts., etc. use their own definition. Absence of a single SME definition makes it difficult to identify target firms, align development programs, collect data and monitor progress.

The regional Concepts of SMEs’…… GoP may adopt a single SME Definition that is accepted by all public and private agencies. SME definition is as follows: “SME: employment size should be to up to 250 and paid up capital up to Rs. 25 million and annual sales up to Rs. 250 million”.

The Government’s Effort towards SME Development  The Government of Pakistan keeping in view the importance of SME’s has adopted multi pronged approaches at the regional, sub regional and national levels.  Initiatives at the national and sub regional levels include efforts to strengthen economic integration and cooperation.

The Government’s Effort towards SME Development…….  The Government of Pakistan is taking a number of measures for private sector development including liberalization of economy, investment promotion; export facilitation, financial sector reforms, capital market reforms and creation of a conducive business environment.

The Government’s Effort towards SME Development…….  SMEs led private sector growth strategy is also in line with the lessons learned in the 60s industrialization process during which although GDP growth rates of 6.0+ were achieved but the skewed income distribution resulted in rising poverty.

SME Development – Recent Steps by the Government  In the recent past Small & Medium Enterprises Development Authority (SMEDA) stands out as a significant step towards GoP commitment to SME development.  SMEDA works under the Federal Ministry of Industries and Production and it was established in October 1998 to take on the challenge of developing Small & Medium Enterprises (SMEs) in Pakistan.Ministry of Industries and Production

SME Development – Recent Steps by the Government…… SME definition defined by SMEDA Micro: Less than 10 people employed Productive assets limit of 2 million rupees. Small: Between people employed. Productive assets limit of 20 million. Medium: Between people employed Productive assets limit of 40 million.

SME Development–other Institutions defined the definitions of SME Definitions by Provincial Level Institutions a) Punjab Small Industries Corporation (PSIC): b) Sindh Small Industry Corporation (SSIC): c) Small Industries Development Board (SIDB) d) Directorate of Industries Balochistan (DIB) These organizations defined the small industries as under: “An industrial undertaking with fixed investments up to 20 million excluding the cost of land and no limit of people employed”.

SME Development–other Institutions defined the definitions of SME…… Definition by Small Business Finance Corporation (SBFC) Small: No limit of people employed. Productive assets limit of 20 million Medium: No limit of people employed. Productive assets limit of rupees 100 million.

SME Development–other Institutions defined the definitions of SME…… According to The State Bank of Pakistan  MICRO: The State Bank’s federal credit scheme (small loan scheme) for micro and small scale enterprises, defined their target group in year 1972 –1973 as enterprise with assets of less than rupees one million (excluding the cost of land and building). This limit was redefined in the year 1992 and increased to rupees 20 million.  SMALL: Assets up to rupees 20 million (excluding the cost of land and building)

SME Development–other Institutions defined the definitions of SME…… Youth Investment Promotion Scheme (YIPS) According to the concept paper on SME’s in Pakistan, developed by YIPS, small-scale industry was defined as industrial enterprise with fixed assets of up to rupees 10 million (Excluding the cost of land and building).

Conclusion At the end of this chapter, we have learnt the SMEs concepts at the regional level and within Pakistan. Relationship between small and large business and institutional development to the growth of SMEs. Inshallah, in next chapters, we will become able to learn more and more knowledge about SMEs.

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