Role of SMEDA in Developing SME’s in Pakistan

Submitted to:

Sir Imran Ali

Submitted by:

Ali Zahid MBE-SP08-003

Kashif Aslam MBE-SP08-028

COMSATS Institutes of Information Technology M.A.Jinnah Campus Lahore. Department of Management Sciences.

IntroductionDeveloping a group of diverse and competitive small and medium

enterprises (SMEs) is a central theme towards achieving sustainable economic growth. SMEs are crucial to the economic growth process and play an important role in the country’s overall production network. Some advanced economies have succeeded because SMEs form a fundamental part of the economy, comprising over 98% of total establishments and contributing to over 65% of employment as well as over 50% of the gross domestic product. Although the numbers might be lower in Pakistan, SMEs have the potential to contribute substantially to the economy and can provide a strong foundation for the growth of new industries as well as strengthening existing ones, for Pakistan’s future development.

Definition of SMEs

1. SMEDA DefinitionSmall & Medium Enterprises are defined as follows, as approved

in SME Policy 2007.

Enterprise Category Employment Size (a)

Paid Up Capital (b)

Annual Sales (c)

Small & Medium Enterprise (SME)

 Up to 250 Up to Rs. 25 Million Up to Rs. 250 Million

2. State Bank of PakistanAccording to State Bank of Pakistan, SMEs are organizations which

Fulfills one of the following criteria:

A trade / services concern with total assets at cost excluding land and buildings up to Rs 50 million.

A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million.

Any concern (trade, services or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements.

Importance of SMEsThe ideology behind the promotion of SMEs comes from the perceived

failure of large enterprises in creating adequate productive jobs to absorb a significant share of the rapidly growing labor force in many developing countries. This perception inspired emphasis on the development of small industries by stressing benefits such as income generation, dispersal of economic activities to small towns and rural areas, and mobilization of entrepreneurial talents.

Following are some points which will reveal the importance of SMEs.

SMEs are more labor-intensive than large enterprises. SMEs are as efficient as LEs or more efficient than large enterprises. SMEs are more equitable in distributing the income they generate than

large enterprises. SMEs are more likely to play a higher role in rural development than

large enterprises. The significance of SMEs is associated primarily with their role in

stimulating economic growth. SMEs create employment opportunities as they are labor-intensive. SMEs enhance regional development. Create more equitable income distribution. SMEs play a complementary role in relation to larger firms--as suppliers

and distributors. SMEs serve as a training ground for developing the skills of workers and

entrepreneurs. The presence of SMEs curbs the monopoly power of larger firms. A country can reduce its vulnerability to financial crises by strengthening

its SMEs.

SME’s are the backbone of a national economy, particularly in developing countries.

SME provide the platform for small & medium entrepreneurs to work as an arm taking of economic and social indicators of a country.

Objectives of SMEsFollowing are some broad objectives of SMEs.

Economic Growth Economic Development Poverty Reduction Employment Social and economic sustainability

Characteristics of SMEsFollowing are some common characteristics of SMEs.

Owner is the manager & few employees Owned & operated independently Relatively small investment, production, sales, dealings etc. Inadequate efficiency of business operations. No relationship with other firms or parties for Investment, Management,

finance, tax

Statistical facts regarding SMEs

1. ACCORDING TO THE ECONOMIC CENSUS OF PAKISTAN

Sales below Rs.0.5M 84%

Sales below Rs.1.0M 93%

SMEs less than 5 Year old 19%

Survive beyond 25 years 4%

Business enterprises nation-wide 3.2M

SMEs 2.96M

Household Units 0.18M

2. Province wise Distribution of SMEs

Name of Area SME Units

Pakistan 2.96 Million

Punjab 65%

Sindh 18%

Khyber Pakhtunkhwa 14%

Baluchistan 3%

3. Distribution of SMEs According to the No. of Employees

Total SMEs units 2.96 million (100%)

SMEs employing 1-5 Persons 2.85 million (96.6%)

SMEs employing 6-10 Persons 79,000 (2.67%)

SMEs employing 11-50 Persons 26,000(0.87%)

SMEs employing over 50 Persons 1617(0.054%)

4. Economic Contribution of SMEs

Employment 78%

GDP 40%

Value Addition 35%

Exports 25%

5. SMEs Share in Sub-Sector

Sub-sectors Percentage Share of SMEs

Cotton Weaving 13%

Other Textiles 6%

Metal Products 7%

Carpets 4%

Art Silk 5%

Grain Milling 16%

Jewelry 4%

Wood & Furniture 10%

Others 35%

Barriers to SMEs GrowthSMEs are facing various barriers in the way of their growth and

development. Following are some main barriers SMEs are facing these days.

Govt. & SME Interaction Taxation Finance Labor Legislation Human Resource Development Technology Market & Industry Information Lack of Infrastructure Environmental issues & compliance Social compliance issues Intellectual Property Rights

Small and Medium enterprise development Authority (SMEDA)

Premier institution of the Govt. of Pakistan under Ministry of Industries and Production, SMEDA was established in October 1998 to take on the challenge of developing Small & Medium Enterprises (SMEs) in Pakistan. With a futuristic approach and professional management structure it has focus on providing an enabling environment and business development services to small and medium enterprises. SMEDA is not only an SME policy-advisory body for the government of Pakistan but also facilitates other stakeholders in addressing their SME development agendas.

SMEDA VisionGrowth of globally competitive SME sector through a conducive and

facilitating environment and support services as an engine of growth and sustainability to national economy.

Mission StatementTo function as the promoter & facilitator of SME sector in Pakistan by

creating a conducive and facilitating environment as well as providing and facilitating service delivery to SMEs for enhancing their capacities and competitiveness.

SMEDA Objectives1. Formulate Policy to encourage the growth of SMEs in the country and to

advise the Government on fiscal and monetary issues related to SMEs.

2. Facilitation of Business Development Services to SMEs.

3. Facilitate the development and strengthening of SME representative body’s associations/chambers.

4. Set up and manage a service provider’s database including machinery and supplier for SMEs.

5. Conducting sector studies and analysis for sector development strategies.

6. Facilitation of SMEs in securing financing.

7. Strengthening of SMEs by conducting and facilitating seminars, workshops and training programs.

8. Donor assistances for SME development of SMEs through programs and projects.

9. Assist SMEs in getting international certifications (such as UL, CE, DIN, JIS, ASME, KS, etc.) for their products and processes.

10.Identification of service opportunities on the basis of supply/demand gap.

SMEDA ServicesSMEDA is currently offering following services to promote regulate and

enhance SMEs in Pakistan.

Consultant Services Training Services Business Plan Division Financial Services Information Resource Centre (IRC) Intellectual Property for Business Success Legal Services Policy and planning

1. Training services SMEDA organizes training programs, seminars, workshops and

conferences of short duration in major cities across the country for raising awareness and capacity building of SMEs. These need based training programs are affordable, appropriate and innovative. These programs are aimed at improving knowledge, skills and competencies in the technical, marketing, financial, compliance, policy, regulatory, legal, and commercial and other important functions. These programs help to improve major performance indicators such as productivity, quality, competitiveness and sustainability etc. The results include improvement in export potential, investment promotion, business transparency, human resource development, managerial capacity

building etc. These programs help decreasing the level of SME mortality and increasing efficiency.

2. Business Plan DivisionBusiness Plan development services is one of the key services

provided to enable existing as well as potential investors to make well researched and informed investment decisions.

3. Financial servicesFinancial Services Group (FSG) is one of the support units of

SMEDA. As the name suggests, FSG is responsible for all financial consulting and advisory services that SMEs may require. As for all the support functions, FSG caters to both internal sector teams as well as any external walk-in SMEs. In addition to such consulting services, FSG also acts as coordinator of government schemes, which involve financial institutions.

4. Information Resource Centre (IRC)SMEDA Information Resource Centre (IRC) has been established to

cater to the information needs of SMEs and stakeholders from both the public and private sectors. IRC maintains a collection of more than 3400 books and CD-ROMs/DVDs besides subscribing leading newspapers and more than 20 journals of international repute on diverse business sections and related fields. A number of full text online journals are also available for SMEs and researchers on different fields of knowledge. IRC collection consists of databases, directories, reports, yearbooks, annual reports, and loose-leaf material that are available for easy retrieval through latest library management tools. Hard format of training programs conducted by SMEDA are also available in IRC. SMEDA IRC collection is increasing by an aggregate 10 % every year.

5. Policy and planning Policy & Planning Division of SMEDA has dual focus internal &

external. It plays a key role in devising and coordinating policies, action plans and strategies for SMEDA operations. On the other hand it has a mandate to carry out research, communicate with stakeholders and advocate policies with

different tiers of the government with an ultimate objective of creating a conductive business environment for SMEs in Pakistan. P&P is the hub of policy and regulatory research that provides SME specific policy input to all tiers of government, government agencies and institutions, SME associations, industrial clusters and individual entrepreneurs.

6. Intellectual Property for Business SuccessIntellectual Properties (IPs) are intellectual assets that are

intangible such as knowledge, creativity and inventiveness. Intellectual property in its essence is that information which has economic value when put into use in the marketplace. The rationale of protection also rests on the premise that both forms of assets (tangible & intangible) have potential of wealth creation. IPs generally falls into two categories; industrial property and copyrights. The rights of inventions, industrial designs, trademarks, integrated circuits and geographical indication are protected under industrial property while the copyrights include literary work such as novels, poems, plays, films and also artistic works etc.

7. Legal services We add value to the business of Small and Medium Entrepreneurs

(SMEs) through facilitation in:

Resolving legal problems through service providers.

Creating awareness of legal rights & responsibilities by disseminating information on existing regulatory/contractual requirements through sample contract templates, business guides and seminars.

Enhancing capacities for improved compliance of laws, rules and regulations through training programs.

Legal opinions to your business queries, and

Interaction with regulatory authorities and service providers for removing legal impediments.

8. Consultant services SMEDA also provide various consultancy services.

SMEDA Business DevelopmentSMEDA is currently facilitating SMEs with the followings services.

1. Pre-feasibility Studies Pre-feasibility studies are well researched yet generic due

diligence reports that facilitate potential entrepreneurs in project identification for investment.

The main objective of the pre-feasibility studies prepared by SMEDA is to provide information about investment opportunities to the small & medium enterprises (SME’s). A typical pre-feasibility study provides:

1. Comprehensive information for investment opportunity in a business.

2. Specific information regarding different business areas like, marketing, technical, industrial information etc. for the existing entrepreneurs to improve their exiting setup.

3. Project investment information and financial projections to support viability of the business.

2. Regulatory ProceduresSMEDA Regulatory Procedures have been developed to

disseminate information and to assist Small & Medium Enterprises on existing regulatory environment, through user-friendly systems, providing detailed description of laws & regulations, including processes required for compliance while doing business in Pakistan.

3. Sector briefs One of the objectives of SMEDA is to provide fresh impetus to

Pakistan’s economy through an aggressive Sect oral Development program. Its role in this regard will be recommending policy guidelines to the government for development of small & medium businesses.

4. SMEDA PublicationsSmall & Medium Enterprise Development Authority, SMEDA, has

initiated a process of articles, books & other publications to create awareness among the general public on optimal business practices, regulatory issues, GOP schemes, new business concepts, etc.

5. Commercial Contracts Templates for Business to BusinessContracting is at the heart of business development. Any business

firm interested in outsourcing any of its functions, looks for good sources and secures its interest through commercial contracts.

Documenting the business arrangements and for consistent standard of transactions, appropriately worded contracts add security and value to the business. In line with SMEDA mandate to facilitate Small and Medium Enterprises sample contract forms for various business to business activities have been developed by 'SMEDA Legal Services'. The purpose of these Business to Business Commercial Contract templates is to provide SMEs, Service Providers, Companies and Firms with information pertaining to requisite format and content of a Business to Business Commercial Contract.

6. Guidelines for SMEs on Compliance and ISO CertificationIn post WTO era, sectors of Pakistani economy particularly

industry, agriculture and services are increasingly exposed to various challenges. One of the major challenges for low income countries towards adopting the path of sustainable development is the limited enterprise capacity to comply with the international buyers’ requirements. International buyers are increasingly demanding compliance on quality, safety, environment and social standards.

Compliance to international and national standards promotes enterprise efficiency and competitiveness through international trade, protects consumers’ rights of health and safety and in turn leads to socio economic development of economy. Non compliance to these requirements often results in loss of business.

SMEDA ProjectsFollowing are some of the finished and ongoing projects of SMEDA.

1. Women Business Incubation Center Women Business Incubation Center (WBIC) is an initiative of

SMEDA being funded by Government of Pakistan to provide ‘hands-on support’ to Women Entrepreneurs (WEs) in an exclusive female oriented environment. It is the first of its kind center in Pakistan wherein, Offices, Exhibition/Display facility and Business Development Services (including training programs) are being offered to Women Entrepreneurs (WEs) less than one roof.

The entire effort is focused at encouraging new business start-ups and support to existing businesses including the right environment for nurturing women owned and managed businesses to an extent that these become sustainable; more specifically, in start-up period (first five years) when they are most vulnerable. WBIC is a supportive entrepreneurial community designed to help grow small businesses. The center is established for providing assistance to home-based businesses or those in earlier stages of development.

2. Industry Support Program SMEDA initiated an Industry Support Program in 2003 for

technical support of different industrial sectors in Pakistan. SMEDA has collaborated with different international organizations like Japan International Cooperation Agency (JICA) and Gesellschaft für Technische Zusammenarbeit (GTZ). These organizations provide foreign experts to enhance the capabilities and operational techniques of local industry in different ways.

For the success of these development initiatives an Industry Support Cell (ISC) at SMEDA has been established. The main objective of establishing this cell is the capacity building of SMEDA staff and to ensure the continuity of different initiatives. ISC consists of professionals who work closely with foreign experts for the development and up gradation of local industry.

3. Industrial Information NetworkThe Industrial Information Network (IIN) www.iin.com.pk connects and facilitates businesses in Pakistan. IIN is the first dual purpose portal, providing Business-to-business (B2B) and information services to businesses from various industrial sectors in Pakistan.

4. Cluster DevelopmentClusters are geographical concentration of enterprises which

produce and sell a range of related or complementary products and are, thus, faced with common challenges and opportunities. Cluster development is basically supporting and strengthening the clusters by creating networking among the stakeholders to reduce the cost of doing business, bringing them on a single platform for more voice among policy makers, create new business opportunities, reducing risk of doing business and capacity building of the enterprises. Cluster development has also proved its contributing in employment generation and poverty reduction worldwide.

Sector developmentSMEDA is currently working to develop the following main sectors

which are backbone in stimulating SMEs in Pakistan.

Dairy sector Jem & Jewelry sector Agri Business services

SMEDA Business opportunitiesFollowing is glance on SMEDA’s business opportunities

development.

International Business Opportunities Service SMEDA is providing a unique service to facilitate SMEs by

promoting business-to-business relationships. SMEDA's role is that of a matchmaker and we provide a platform for SMEs to come together and explore different areas of cooperation using SMEDA's databases and web-site. Now anyone can look for joint ventures, buy running business, form equity

partnership, and look for agents or distributors franchises and other business investment opportunities through this initiative.

Business Matchmaking Service SMEDA is providing a unique service to facilitate SMEs by

promoting business-to-business relationships. SMEDA's role is that of a matchmaker and we provide a platform for SMEs to come together and explore different areas of cooperation using SMEDA's databases and web-site. Now anyone can sell their business, look for joint ventures, buy running business, form equity partnership, and look for agents or distributors through this initiative.

ConclusionIt is a fact that SME sector is really at its developing stage in Pakistan.

We need a lot of effort to develop it and make it parallel to the developing countries. SMEDA is also working very good to enhance the potential of SMEs.