Promoting SMEs for sustainable development in Bangladesh: Highlights on unexplored issues

SMEs have turned into buzz words around the globe, including both developed and developing countries, since early 1970s with dethronement of the "Fordist Approach" to mass production. The pervasiveness of large-scale enterprises as vehicles of modern industrialisation came to the countries seriously shaken by the economic turbulences of the 1970s.

On the contrary, the SMEs sailed through during this period of market instability and proved instrumental in creating new enterprises and generating employment opportunities. They emerged as instruments of commendable significance world-wide, challenging supremacy of giant corporations and big businesses as instruments of industrialisation and economic growth.

Economic significance of the SMEs in the emerging economies and developed countries are widely recognised and empirically documented in the burgeoning literature in the field. Ample evidence shows that the SME sector is making significant contributions to Bangladesh's industrial development and national economic growth.

Despite showing positive prospects for higher growth, the sector still confronts operational constraints which adversely affect their long-term competitiveness and development of much-needed innovative capacities. Thus, except in India, a lot more remains to be done to ensure faster SME sector growth in most of the South Asian countries, including Bangladesh, compared to the countries of East Asia and Southeast Asia. Described below are the vital areas requiring critical changes towards ensuring faster long-term SME growth and dynamism.

Lack of conceptual clarities

Conceptual clarity and complete understanding of what constitutes SMEs, and why and how they should be developed are important prerequisites for designing appropriate policies and support incentives to realise their full potential to contribute to national economic growth. Lamentably, these issues remain only casually touched and narrowly conceived.

To start with, a naive and harmful perception of many observers is that SMEs start small and grow big as part of historical inevitability. The underlying belief is that the advent of giant corporations puts unstoppable pressure on bigness. As a result, small enterprises are eventually pushed aside or perhaps even squeezed out completely.

Yet another view, which emanates from the consequence of the declining share of SMEs in economic activities overtime in the "efficiency-driven" and "innovation-driven" stages of development, is apparently considered a universal process without thinking whether this trend will continue indefinitely. The answer is no, because the trend towards bigness is not an "all-consuming one".

Empirical evidence abounds show that modernisation and technological changes also favour growth of "new generation" SMEs, such as plastics, electrical and electronic goods, scientific instruments, software, computers etc. Thus, the role of SMEs in renewing the corporate sector from the bottom through entries to diverse activities taking advantage of cutting-edge technologies may still be fulfilled, conceivably even better than before. This would also reverse the conventional views of treating the small enterprises as the seedbeds for large firms of the future and vanish thereafter.

Another school of thought looks at the SMEs from a perspective of comparative merits of the small and large enterprises in a small versus large context based on their relative economic performance and efficiencies. The research findings based on casual empiricism using inadequate information, faulty methodologies (i.e. comparing productive efficiencies of tiny small firms with large enterprises), emotional cults of size such as "bigger is better", and ignorance about the internal dynamics of small enterprises are at best mixed and not conclusive.

There is indeed some evidence exhibiting relative lower economic efficiency of SMEs in particular industry types (i.e. declining and technologically handicapped SMEs) which require policy support for modernisation and rationalisation to enhance their productivity and growth. An important caveat is that unfounded generalisations should not be made to write off SME virtues, citing truncated evidence and ignoring their internal dynamics, and striking differences in economic and social behaviour within the sector and the reasons for such differences.

Contrary to the skeptical views about the virtues of smallness per se, a wide spectrum of researchers and scholars identify the small enterprises as productive outlets for enterprising and independent/non-independent-minded people, facilitating entry to business for new entrepreneurial talents, creating jobs for millions including women and youths, and providing an important source of innovation in products, techniques and services. Additionally, in the economies where ever-larger multi-product firms are emerging SMEs provide competition, and some checks on monopoly profits including inefficiencies which monopoly breeds.  

Thus, the SMEs are expected to perform many important functions to nurture resources which are indispensable to the emerging economics like Bangladesh for sustainable growth: a continued supply of entrepreneurs, proliferation of new businesses emerging into big industrialists willing and able to take risks, and to innovate and be agents of change and modernisation besides being providers of large chunks of output and employment. Such evidence should be enough to discourage opportunities to launch smearing campaigns unfavourable to much-needed SME sector growth in Bangladesh and elsewhere in an environment of pro-SME policymaking designed to create level playing fields for firms and enterprises of all sizes.

Definitional issues

Though critically important to have a commonly acceptable definition of the SMEs to create a national database and effective policymaking for the sector, developing a precise definition is a difficult task.

SMEs are extremely heterogonous entities and operate in a wide array of economic activities ranging from an artisan shop in a village to a sophisticated engineering or software firm selling in the overseas markets. This points to the fact that within the traditional "general category of SMEs", there exists plurality of small enterprises.

Hence, looking to find a precise single definition for such entities may be pointless. Though statistical definitions (based generally on employment, capital investment, and turnover or sales) are used, all of them suffer from various drawbacks and fall short of being satisfactory indicators of enterprise size. More importantly, these quantitative measures are incapable of capturing the important economic, social, psychological, behavioural and organisational characteristics which play important roles in explaining why and how small businesses emerge, develop and sustain.

In any study of SMEs, emphasis on their dominant characteristic features such as relative privacy, owner management, family influence, flexible decision-making, innovativeness etc. needs no apology. These special characteristics of SMEs need to be meticulously highlighted not only to distinguish them from their large counterparts but also to pin-point their functional and behavioural characteristics, which are important for pro-SME policymaking and strategy development. Hence, studying pure smallness per se without looking at them in their but perspectives may be doing so, staging a true case of "Hamlet without the prince".

The implicit suggestion here is that a small enterprise/firm should be looked at in an integrated way as an economic entity along with insights derived from the study of its qualitative features linked with history, sociology, psychology and the social institutions, all of which influence their performance.

Concluding remarks

The discussion at this point wound up without throwing some light at the new SME policy 2019 (draft) announced by the Ministry of Industries and the government very recently. The ministry and the government deserve loud commendations for acknowledging the pivotal role of the SME sector in Bangladesh's industrialisation process, and faster and sustainable national economic growth. The government's pro-SME commitments are clearly reflected in the comprehensive policy support measures, promotional incentive packages, dynamic institutional framework and time-bound implementation plans contained in the new policy.

Six strategic policy support areas (i.e. finance, technology, market, education and training, information and business development services) identified for boosting sustainable SME growth in a conducive SME development environment is notable.

The business development services packages noted and aimed at implementing the strategic objectives and intervention mechanism are all-encompassing and relevant for achieving accelerated SME growth to support the government's overall national development objectives.

Finally, the time-bound implementation and monitoring plan is an innovative idea and smart move by the government in the SME policymaking process. These reflect fruition of many of my opinions, views and modest suggestions made through years of research, studies and publications devoted to SME promotion and development in Bangladesh.

However, more observations remain to be made relating to areas such as national SME database creation, financing such as setting up a separate SME bank, a separate economic zone for the SMEs, SME Act, and monitoring arrangements etc. which are expected to add to a holistic policy institutional framework.

I conclude by emphasising one more important aspect in effective public policymaking for SME promotion, and that is to encourage and motivate individuals to become entrepreneurs. They contribute to economic development by starting new business, use resources to implement innovative ideas, bring changes and dynamism in the existing markets and institutions, and create rivalry and competition etc., which help flourish a buoyant economy.

To foster entrepreneurship and spearhead development of an entrepreneurial economy and society, we need to focus on moving from a "factor-driven" to an "efficiency-driven" stage of economic growth where innovative and ambitious types of entrepreneurs are encouraged to start business to exploit their perceived opportunities. Achievement of stable and conducive institutional and macro-economic environments, fostering entrepreneurship education and training opportunities to build entrepreneurial capacities, may constitute the locus of public policy interventions for enhancing entrepreneurial activities in general and encouraging the ambitions and innovative entrepreneurial class in particular to take up challenges for modernisation and growth.  

The author is an honorary professor of economics at the University of Dhaka, and an eminent SME specialist