MGT601 SME MANAGEMENT

Lesson 06 The Development of SMEs in Pakistan

Chapter Learning Objectives This lecture is about: The history of industrial growth in Pakistan and its related factors, The factors for adopting an SME based industrial system, The institutional support of government in the shape of long term and short-term policies.

The Industrial History of Pakistan Pakistan’s industrial history has been dominated by a single-minded emphasis on industry and that too of large-scale enterprises. The fall out of that development strategy was formally adopted in the 60’s as conscious policy step in the start of second policy plan period (1960-1965) has been large scale industrial holdings, accounting for much of the country’s assets and capital.

Continued…… The feeling among the masses is that a few families control 70 to 80 percent of the country’s assets, led to political rebellion. That rebellion also culminated in the dismemberment of the eastern part of the country. The primary causes for that tragedy, were basically economic in nature.

Continued…… The fall out of policy development strategy was formally adopted in the 1960. The strategy was two pronged: Inefficient labor Shaken Business Confidence

Continued…… The reaction to that policy mix in the early 1980’s was reverting to the Ayubian model of economic development. The model was characterized by: Promotion of large-scale units. Expansion of large-scale enterprises. Banking sector turned to cater to large loans.

Continued…… The IMF conditions and poor recovery rate of huge borrowings played a major role in creating a negative point for the progress curve. These constraints further pushed the economy towards recession, industry towards sickness and individual units towards default.

The development of SMEs in Pakistan The development of SMEs suits the current situation on account of the following factors. 1. Low overhead cost, low level of financing 2. Lesser pressure on the banking system

The development of SMEs in Pakistan…. 3. Employment generation 4. Entrepreneurial development 5. Vendor based development 6. Development of large-scale industry on firm basis 7. A more just distribution of resources and profits

Continued…… The pre-requisites for the development of SME sector rest heavily on an infrastructure tuned to support such development that includes: A banking system customized for SME development One window operation

Continued…… Currently, our banking system continues to be the large sector banker. Despite talk of SME development under the auspices of SMEDA and development of SME Bank and Khushali Bank, the financial sector’s general response has been influenced by the security issue, i.e. against which asset the bank would be advancing loans to the small and medium scale business entity.

Continued…. The development of SME hold within its mechanics of expansion the growth of economy coupled with a more just distribution of wealth. The social justice aspect of it ensures that the development will not compromise the distribution of wealth issues.

Continued…. The recipe of SME development infects does two things. On one hand the processes are developed at a grass root level. Vendors are identified and the production process takes off. As small-scale vendors characterize most of the development, the profits are naturally divided according to the contribution to the process.

Continued…… There are no new big families appearing in the process, rather, it is the matter of fact stages of production line, which are identified. The Japanese and Italian economies are increasingly modeled on the basis of SME development. These societies are characterized by the dignity of work, not for the huge amount of sweat, the worker sheds, but for the rewards, which are ensured in this setup.

Continued……. The vendor knows the respect he earns and the rewards he is insured. For that very cause, peace and almost no records of militant trends have characterized the developed societies like Japan.

The Institutional Support of Government The Government of Pakistan thus constituted an SME Task Force, by Notification No.1(68)/2003-Inv-III of 29 January 2004 of the Ministry of Industries and Production. SME Task Force included both public & private sector members.

Continued……. In order to enable the SME Task Force to work effectively, four Working Committees were setup to carry out technical analyses, deliberate findings and address following core issues: Business Environment Access to Finance Access to Resources & Services SME Definition, feedback, Monitoring & Evaluation Mechanism

Conclusion The debate in the support of the SME can be unending. The recommendations for the societies and economies like Pakistan in the context of the best possible economic solution are simple. There is a need to retune the priorities of the state, if the results are to be realized, in the absence of which our efforts would remain devoid of any tangible results.

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