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Free Global Trade and Small Medium Entrepreneurs
  By: Hamid Sultan Dawoodi
   
 
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The liberalization of economic policies in the last two decades and intensifying market competition tend to be a cause of policy concern for the survival of SMEs in emerging economies like Pakistan as these firms accounts for the largest chunk of industrial units and employment. Given their limited financial and intangible resources, the promotion of R&D among SMEs has become a very important policy parameter. Existing scenario shows that SMEs have lowest incidence of doing in-house R&D and their R&D intensities have fallen in the last decade. A number of factors that play important role in determining SME R&D have been identified based on the ground aspects.

In the ongoing globalization process of national markets, the role of technological Capabilities become critical for firms’ survival and growth. The disappearance of inward FDI and import barriers that once protected national markets and the introduction of product patent regime recently have vastly expanded the strategic role of technology in the evolving competitive environment of national markets.

   
 

While the large firms are well positioned to face these globalizing competitive challenges with their better strategic asset bundle, the resource-starved small and medium enterprises (SMEs) are expected to be at greater risks. It is no longer feasible for SMEs in emerging economies like Pakistan to use the competitive strategy of reverse engineering and innovative cost-effective processes to survive under the new technology policy regime.

SMEs cannot take refuge in policy protection as current economic openness policies saw the removal of special treatment to SMEs in industrial policies like exemption from price controls, product reservation, preference in government procurement, etc. Therefore SMEs are required to develop or acquire necessary competitive resources like new technologies to compete with large national firms, foreign firms and cheap imports. Rapidly changing consumer preferences, shorter product life cycle and growing quality consciousness clearly call for SMEs to upgrade their technological assets. Finding and retaining qualified workers is the most significant challenge to the growth and survival of a business. Using people without the right skill sets is not only waste time, but also waste of resources.

   

Many people we hire turn out to be unreliable or incompetent or both.  Many entrepreneurs have a lot of knowledge of his product or business, but do not how to promote his products or services. A good product is not enough if nobody knows about it. The entrepreneur must also learn creative marketing, and targeting public relations to spread awareness of his product and services.

I t is hard to start a business when the economy is in bad. When there is high unemployment, business and consumers may have tight budget and are unlikely to take risk to try a new product or service. Furthermore, it is harder to get a loan.  Technology moves really fast. There are always new software or devices out in the market that can help in your business. Even though some of these may be essential, being able to afford them and choosing the right tools and using new technology to help your business grow can be very tough. Some businesses require large amounts of capital to function. Undercapitalization may inhibit the growth and sometimes even be cause a company to fail. Entrepreneurs who are not well connected or do not have a track record may find it very difficult to find capital.  

Some businesses need very specific talents which are hard to find or expensive. If specific talents to the business are important, research should be done to see if they are available before starting the business. The founders are usually the ones that do everything. They come out with the ideas, the capital and everything else necessary to start. As a result, some of these companies cannot function without their founders, and it poses a great threat to scalability and growth. Once the company is stable, the employees should play a bigger role in the company. Many businesses are family owned businesses as it is easy to find family members and start a company. For many family owned business, here are the common challenged faced:

Most family business are informal and do not have much structure or policies. Communications may be informal and may be influenced by political divisions or other relationship problems.  As the family business usually hires family members, there may be lack of outside opinions and this restricts on the diversity of ideas required to expand the business. Hiring family members for high positions may prevent really good talents from joining the company as there is a "glass ceiling" Some family members may even lack the skills required for the job, and firing a family member is hard. When employees feel that the family will always promote over outsiders and when employees realize that management is incompetent they will leave.

A s most family owned businesses are run by older family members, there is a resistance to changes and new ideas proposed by younger family members and tradition will prevail over best practices. Family businesses usually run till they fail. At no point of the business do they call for a valuation or plan to increase or decrease its value.  Family members may be placed into positions which are not good fit for them, and it is done so due to relationship in the family. There is often no formal training, documentation or business continuity plan if a family member has to retire or leaves the company.  Due to lack of capital, talents, new investments or resistance to reinvest in the business, family businesses often face challenges in growing or expanding regionally or internationally. These are the common challenges faced by businesses. If you plan to start one, perhaps you can think of overcoming some of these as you write your business plan.

Credit is the lifeline of business. Small businesses lack access to capital and money markets. Investors are unwilling to invest in proprietorships, partnerships or unlisted companies. As risk perception about small businesses is high. So is the cost of capital, institutional credit, when available, requires collateral which in turn makes the owner of the unit even more vulnerable to foreclosure. Credit guarantee funds which assist lending institution in advancing loans or mutual guarantee systems involving common guarantees from a group of people have not emerged in a significant manner.

Unit finances come under severe stress whenever an occasional event such as a large order, rejection of consignment, and inordinate delay in payment occurs. The common stereotype about a banker lending an umbrella in sunshine and wanting it back as soon as it rains, gets reinforced in their dealing with small enterprises. It is, therefore, not surprising, that small enterprises prefer to first tap own resources or loans from friends and relatives and there’s look for external finance. Many of small manufacturing enterprises do not access bank finance and only about 16% of total bank credit finds its way to the sector. Despite being a priority sector for lending, small manufacturing enterprises get just about 8% of their annual turnover as working capital requirements, as against normative requirements of 20%. Even for this, cost of credit is high. The problem is recognized and is sought to be addressed through various ways:


In today’s world, small enterprises can hardly match the advertising support or distribution reach of a large corporation. In India, small units sell best in limited or neighborhood markets or when they are meeting a low volume specialized demand which no large player can effectively cater to. Increasingly, now the Endeavour is to build the marketing activity of small units around their competitive advantage i.e., products which are labor intensive, items which cater to niche markets, low volume high margin products, sub assembly tasks, outsourcing jobs. Sub-contracting exchanges are being established through Government and Industry associations to promote such interface.

Small units have traditionally operated from homes or a neighborhood work shed. Slowly, they began moving out and clustering together wherever electricity, water, raw materials, markets or labour was easier to access. Policy makers in India had anticipated the need for suitable infrastructure five decades ago and began a programme for setting up industrial estates. Non-assessment of economic viability, tardy implementation and poor maintenance due to drying up of funds affected these adversely. Later in the post reform period, the problem was sought to be addressed by setting up of such estates exclusively for small business. Almost 50 such estates have been set up. Because of their better infrastructure such as roads, telecommunication, power, effluent treatment plants, power, banks, watch & ward, and reasonable cost, they have proved to be popular with small manufacturing for factory accommodation, allotment of sheds on hire purchase as well as outright sale etc. A concerted move has also now been initiated for upgrading existing estates.

The globalization of trade & commerce has been given a push by agreements in the WTO and changed the business environment. It has therefore become necessary to sensitize SMEs about these changes and prepare them for the future. In India, a number of steps have been taken in this regard. Apart from setting up a WTO cell in the nodal ministry, 28 sensitization workshops were conducted across the country. Workshops have also been held on intellectual property rights and bar coding. Monitoring of imports in specific sectors where SMEs hae a significant presence and initiation of anti-dumping action where dumping was noticed, are the other steps taken in this respect Government and bank procedures coupled with inspections remain a major hurdle in growth of small units.

There are so many laws which regulate small businesses in the areas of labor, factory maintenance environment, municipal bye laws, taxation, power etc. These require the maintenance of as many as 116 registers and forms. To enforce these, there is an chain of inspector who visit units leading to harassment, delay, obstruction and increase in cost of production. Many small units are one man shows and cannot satisfy the letter of the law. The streamlining of such rules and regulations has become necessary if the creative genius entrepreneurs is to be fully unleashed. Some state governments have exhibited initiative in this regard. The Central Government has initiated a study to enact a single law for small businesses. This enactment should ease the situation considerably.


 
 
 
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