Small and Medium Enterprises

1. Small and Medium Enterprises Course Instructor: QAZI M.ADNAN HYE Course: Analysis of Pakistani Industries

2. SMEs are different from large scale enterprises in three main aspects; • Uncertainty • Innovation • And evolution

3. The SME sector itself can be classified into • Micro enterprises. • Small enterprises. • And medium enterprises.

4. SMEs are the starting point of development in the economies towards industrialization. • SMEs have a propensity to employ more labor-intensive production processes than large enterprises.

5. SMEs contribute to over 55% of GDP and over 65% of total employment in high income countries. • SMEs and informal enterprises, account for over 60% of GDP and over 70% of total employment in low income countries. • while they contribute about 70% of GDP and 95% of total employment in middle income countries.

6. SMEs are the major growing force behind the fastest growing economy of China. • Contribution 40% in national GDP.

7. Experts and economists are unanimous about the role and importance of small and medium enterprises in the development of Pakistan economy. • According to the Small and Medium Enterprises Development Authority (SMEDA), "SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40%, approximately.

8. Small and Medium Enterprise (SME)means an entity, ideally not a public limited company, which does not employ more than 250 persons (if it is manufacturing / service concern) and 50 persons (if it is trading concern) and also fulfills the following criteria of either ‘a’ and ‘c’ or ‘b’ and ‘c’ as relevant: • (a) A trading / service concern with total assets at cost excluding land and building up to Rs 50 million.

9. (b) A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million. • (c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements. • An Individual, if he or she meets the above criteria, can also be categorized as an SME.

10. Purpose of Such classifications • Labor welfare laws. • Loans. • And tax purposes.

11. SMEs can make significant contribution to achieve social and economic objectives such as • Labour absorption. • Income distribution. • Rural development. • Poverty elimination. • An overall balance of rural and urban industrial activities.

12. Slow down migration of labour from rural to urban areas. • Efficient utilization of resources. • Stability of family income. • Balanced economic growth. • A large number of people rely on the small and medium enterprises directly or indirectly. • Tax revenue.

13. A cottage industry • A cottage industry is carried on in the home as a part-time occupation mainly by members of one family using human or animal power. The products are for household or local village use and have more commercial importance in these days.

14. A handicraft industry • It is usually carried on full-time in a separate shop by family members and outsiders together who have gone through an apprenticeship, and who make objects of art, formal or traditional, and decorative use.

17. Carpet Weaving • The carpet weaving centers are located all over the country. • They employ women and children for the production of fine, hand woven carpets. • It brings in a lot of foreign exchange.

18. There is much exploitation of labor in the carpet industry. • Recently, Pakistan has had to face objections from western countries about its dependence on child labor to manufacture carpets and rugs.

20. Sports Goods • The sports goods industry is located in Sialkot. • Manufactures goods worth Rs. 12 billion per year. • Produced items included cricket bats and allied equipment, hockey sticks, racquets of various types and different types of balls. • The basic raw materials required are leather, wood, glue, rubber and chemicals. Wood of various kinds and leather is easily available in Pakistan.

21. The principal importing countries are UK,USA, Germany, France, Italy, Spain, Netherlands, Sweden, Denmark, Canada and Belgium. • In the international market, sports goods are supplied by Japan, Taiwan, India, South Korea and Pakistan.

23. SURGICAL INDUSTRY • Surgical instrument manufacturing industry originated in the early 1940s in and around the city of Sialkot. The sector manufactures a wide range of medical, surgical and veterinary instruments exporting 80-90 % of its production.

24. EXPORT OF SURGICAL INSTRUMENTS

25. There are also some hidden and apparent obstacles in the path of growth of small and medium enterprises in Pakistan. The most important are; • Political instability • Law and order situation • Financial constraints • Energy crisis • Taxation problems • Labor issues • Lack of coordination

26. Energy crisis • Gas or electricity disruptions and loadsheddings hurt SMEs more as whereas the large firms can buy generators and cylinders from the market, SMEs might not have the resources to be able to do so.

27. Infrastructure provision is another major constraint. The quality of roads, the cost of transport, the efficiency of ports and airports all impose significant costs on Pakistani businesses. For the smaller provinces these problems are much more severe (Peshawar and Quetta).

28. With almost all government departments there is a side-payment burden involved as well. Since there are clear threshold effects present as well, some of the burden is more for the smaller firms than the larger ones. Most of these expenses are, of course, non-productive, and negotiating them takes up significant management time as well.

29. Businesses do not find trained employees, and there are few incentives to get trained, as the market does not pay enough for training. • Though interest rate reductions and macro stability has made macro uncertainty less and has improved SMEs access of finance.

30. Internal Causes • Improper project feasibility • Lack of managerial knowledge • Poor educational background of lack of education • Out dated technology • Financial problem • Poor marketing strategy • Lack of motivational factor • Traditional or rigid attitude

31. Improper project feasibility • Many projects were sick by birth because of inadequate feasibility reports regarding the demand of product in various markets. • Wrong choice of technology. • Improper forecasting of financial requirements. • Delayed in supply of plant and machinery or in their installation.

32. No clear vision, goals and objectives. The root of all these problems may be traced to the lack of expertise in project planning and management on behalf of entrepreneurs and promoters.

33. Some of borrowers are also make responsible to the various commercial banks for the causes of sickness because these banks were not giving the expertise especially in the stages of feasibility reports.

34. There is very essential to make the ground feasibility reports about the small industrial project. • Industrial classification • Methods of marketing • Market outlook • Plant capacity • Estimated project cost • Production process • Manpower requirements • Per Kg manufacturing cost. • Profit & loss account • Production process • List of machine

35. Lack of Managerial Knowledge: • The majority of entrepreneurs are unaware about the knowledge of managerial field. • Therefore, they were performing the non-managerial tasks. Rather the tasks of managerial functions such as planning, organizing, leading and controlling.

36. Indeed, in this dynamic world this sector needs qualified professionals to handle the every activity of business affairs more effectively and efficiently. • It is clear that, the sound knowledge of managements is a key to success.

37. Poor Educational Background or Lack of Education • The most of owners/managers are very poor in sound educational background, and the rest of un-educated.

38. Out- Dated Technology • It is a known fact that technology plays an important role in the potential of an industrial unit. • In such a global scenario, small industrial units can not survive and with stand the global competition purely on the basis of cheap labor or adoption of simple labor intensive technologies.

39. Financial Problems • The most of units are sick by the reasons of lack of working capital, wrong choice of financiers, high interests payments, corruption, lack of financial control, an absent of costing systems and delay in release of funds by banks or financiers.

40. Poor Marketing Strategy • Owners/managers of small industrial units in both estates regarding are layman, and not aware about the tools techniques of marketing strategy. • They did not know about the marketing about the mix strategy and some important elements of market segmentation, such as, • Demographics variables • Geographic and Psychographics information