Small and Medium Enterprises in Bangladesh

1.1 Meaning of Small and Medium Enterprise (SME)

1.2 Sources of Funds of money for SME

1.3 Importance of SME in Bangladesh

1.4 Common constraints to the development of SMEs in Bangladesh

1.5 Policy Strategies for Small & Medium Enterprises (SME)

Development in Bangladesh January 2005

1.6 Steps/Measures taken by Bangladesh Bank for SME Development

1.7 Problems of SME sector in Bangladesh

1.8 Suggestions

1.9 References

1.1 Meaning of Small and Medium Enterprise (SME):

It is not easy to define SME but for the Economic growth and industrialization, SME could play a vital role to enhance and development both the developed and developing countries. Today is for investment, savings, profit, employment creation, export, industrialization and development and economic stability and living standard of people SME play a vital role.

 Definition of SME in around the world

According to the European Union (2003), SMEs are defined as enterprises, which have at most 250 employees and an annual turnover not exceeding 50 million Euros. Further, there is the distinction of small enterprises — they have fewer than 50 staff members and less than 10 million Euros turnover — and micro-enterprises (less than 10 persons and 2 million Euros turnover).

According to the World Bank (2006), medium enterprises are defined as enterprises, which have at most 300 employees and an annual turnover not exceeding 15 million US dollars. Further, there is the distinction of small enterprises — they have fewer than 50 staff members and up to 3 million US dollars turnover — and micro-enterprises have up to 10 persons and $100,000 turnover.

In the UK, sections 382 and 465 of the Companies Act 2006 define a SME for the purpose of accounting requirements. According to this a small company is one that has a turnover of not more than £5.6 million, a balance sheet total of not more than £2.8 million and not more than 50 employees. A medium-sized company has a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million and not more than 250 employees. It is worth noting that even within the UK this definition is not universally applied.

In the USA, the definition of small business is set by a government department called the Small Business Administration (SBA) Size Standards Office. The SBA uses the term “size standards” to indicate the largest a concern can be in order to still be considered a small business, and therefore able to benefit from small business targeted funding. The concern cannot be dominant in its field, on a national basis. It must also be independently owned and operated. Unlike the UK and the European Union, which have simple definitions applied to all industries, the US has chosen to set size standards for each individual NAICS coded industry. This variation is intended to reflect industry differences in a better way. The most common size standards are

500 employees for most manufacturing and mining industries

100 employees for wholesale trade industries

$6 million of annual receipts for most retail and service industries

$28.5 million of annual receipts for most general & heavy construction industries

$12 million of receipts for all special trade contractors

$0.75 million of receipts for most agricultural industries

Source 2: www.about.com

In India the Small Scale Industries (SSIs) are industrial undertaking in which the investment in fixed assets in plant and machinery, whether held on ownership terms or on lease or by hire purchase does not exceed Rs. 10 million. The Small Scale Service and Business (Industry related) Enterprises (SSSBEs) are industry related service and business enterprises with investment in fixed assets, excluding land and building up to Ps. 1 million. (Ministry of trade and Industry, Government of India)

According to the SME bank of Pakistan, SME means an entity, ideally not a public limited company, which does not employ more than 205 persons (if it is manufacturing concern) and 50 persons (if it is trading/service concern) and also fulfils the following criteria of either ‘a’ and ‘c’ and ‘c’ or ‘b’ and ‘c’ as relevant; (a) A trading/service concern with total assets at cost excluding land and buildings up to Rs 50 million. (b) A manufacturing concern with total assets at excluding land and buildings 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.

Source 1: Performance Evaluation of SMEs of Bangladesh, International Journal of Business and Management Vol.4, No 7, July 2009

 Definition of SME in Bangladesh

Existing definition of SME is recommended by Better Business Forum and accepted as a uniform one by Ministry of Industry and Bangladesh Bank. Criteria of the definition of SME are given below:

 Definition of Small Enterprise:

Small Enterprise refers to the firm/business, which is not a public limited company and complies the following criteria:

Serial No. Sector Fixed Asset other thanLand and Building (Tk.) Employed Manpower (not above)
01. Service 50,000-50,00,000 25
02. Business 50,000-50,00,000 25
03. Industrial 50,000-1,50,00,000 50

 Definition of Medium Enterprise:

Medium Enterprise refers to the establishment/firm, which is not a public limited company and complies the following criteria:

Serial No.

Sector Fixed Asset other thanLand and Building (Tk.) Employed Manpower (not above)
01. Service 50,00,000-10,00,00,000 50
02. Business 50,00,000-10,00,00,000 50
03. Industrial 1,50,00,000-20,00,00,000 150

 Source 3: Small and Medium Enterprise (SME) Credit Policies & Programmes, SME & Special Programmes Department Bangladesh Bank Head Office, Dhaka (Browsing date 08-08-10)

 Different countries and organizations define SME differently. The Government of Bangladesh has categorized SME into two broad classes

1. Manufacturing enterprise

2. Non Manufacturing activities

 a. Manufacturing enterprise:

Manufacturing enterprises can be divided into two categories;

Small enterprise: an enterprise would be treated as small if, in current market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc, excluding land and building, were to up to Tk. 15 million;

Medium enterprise: an enterprise would be treated as medium if, in current market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc, excluding land and building, were to up to Tk. 100 million;

b. Non-manufacturing activities (such as trading or other services) Non-manufacturing activities can be divided into two categories;

Small enterprise: an enterprise should be treated as small if it has less than 25 workers, in full-time equivalents;

Medium enterprise: an enterprise should be treated as small if it has between 25 and 100 employees. According to Bangladesh Bureau of Statistics different enterprises are defined as;

                              No. of employees

Micro                            0-9

Small                           10-49

Medium                       50-99

Large                           Above 99

The Ministry of Industries, Government of Bangladesh has been identified following 11 booster sectors;

  • Electronics and electrical
  • Software-development
  • Light engineering and metal-working
  • Agro-processing/agro-business/plantation agriculture/ specialist farming/tissue-culture
  • Leather-making and leather goods
  • Knitwear and ready-made garments
  • Plastics and other synthetics
  • Healthcare & diagnostics
  • Educational services
  • Pharmaceuticals/cosmetics/toiletries
  • Fashion-rich personal effects, wear and consumption goods

Small and medium-sized enterprises: There are nearly 1.5 million SMEs5 in Bangladesh, 60%–65% of which are located outside the metropolitan areas of Dhaka and Chittagong. There is a very high density of SMEs in the industrial economy of Bangladesh. SMEs constitute over 99% of private industrial establishments and provide job opportunities to about 70%–80% of the nonagricultural labor force. The SME share in manufacturing value added to GDP varies at 28%–30%. The services sector is primarily composed of SMEs, which is responsible for the bulk of employment growth.6 SME contribution to national exports is significant through different industries such as ready-made garments, jute, and leather. SMEs are broadly segregated as follows:

(i) Small informal enterprises typically employ 5-9 persons and are largely family based.

Having grown from microenterprises,7 they use significant portions of their business revenues to invest in expansion. Typically, these enterprises lack access to formal credit and support services.

(ii) Small formal sector enterprises typically employ 10–50 persons and have well-established relationships with larger manufacturing and trading concerns. While significant growth potential exists, they face leadership and management challenges. Sources of finance are usually retained earnings and supplier credits.

(iii) Medium-sized enterprises typically employ 51–150 persons and serve as a link between the formal and informal economies through well-established supplier and buyer relationships with small formal and informal SMEs, as well as with large domestic and international corporate entities. Although professionally managed, there is a need to maintain competitiveness. Access to finance remains constrained even for this category of SMEs.

Source 1: Performance Evaluation of SMEs of Bangladesh, International Journal of Business and Management Vol.4, No 7, July 2009.

1.2 Sources of Funds of money for SME:

In general, the sources of funds for SME are that

  1.                                                        I.            Personal funds-saved or inherited of their own capital,
  2.                                                     II.            Loans from relatives and friends- It may be able to obtain some money at low or no interest from  relative(s) or friend(s),
  3.                                                  III.            Trade credit,
  4.                                                  IV.            Loans of credit from equipment sellers,
  5.                                                     V.            Mortgage loans,
  6.                                                  VI.            Commercial Bank loans,
  7.                                               VII.            Bangladesh Small and Cottage Industries Corporations (BSCIC) loans,
  8.                                            VIII.            Enterprises Growth and Bank Modernization program (EGBMP),
  9.                                                  IX.            Small and Medium Enterprises Development Project (SMEDP),
  10.                                                     X.            Taking partners,
  11.                                                  XI.            Selling capital stock,
  12.                                               XII.            Miscellaneous sources (Life Insurance policies, Amortized loans etc)
  13.                                            XIII.

1.3 Importance of SME in Bangladesh

Small and Medium Enterprises (SMEs) are the dominant form of business organization in all countries, typically accounting for over 95% of the business population. OECD recognized that SMEs constitute an important dynamic element in all economies as they drive innovation, especially in knowledge-based industries; and play a key role in driving sustainable economic growth, employment creation and poverty reduction, especially in developing countries. It also contributes to the social, cultural and environmental capital of nations.

In view of the rapid structural change in the world economy, especially in favor of increasingly weightless, paperless, knowledge-rich industries and services, to see structural change and remaining relevant as major imperatives for intervention by government and the civil society.

Acknowledging the importance of SMEs and entrepreneurship, the Government of Bangladesh reaffirming their commitment takes initiative to design a SME policies and strategies for its coherent growth. The Government of Bangladesh has constituted a National Taskforce on SME Development as Dr. Kamal Uddin Siddiqui, Principal Secretary to the Prime Minister as its chairman on 2003.

Role of SMEs in the National Economy of Bangladesh

According to UNESCAP, SMEs account for upwards of 90% of all firms in East and South-East Asia, as well as in Japan (Wattanapruttipaisha, 1999). It is also the biggest source of the region’s employment, including three-quarters of the region’s employment, in particular its women and young workers. The relative share of SMEs in total output and exports is typically much smaller, close to a third, or so. In Bangladesh, large enterprises account only for a small percentage of all business enterprises. The percentage is much smaller in other than manufacturing than in manufacturing per se.

The manufacturing industry essentially comprises small and medium scale enterprises: by some accounts, 60% and 25%, respectively, of the workforce in manufacturing happen to be hired by small and medium enterprises. It is hardly an overstatement to say that small and medium enterprises are pretty much synonymous with manufacturing industry.

Table 1: Growth of Small-scale Industry Sector

Year

No. of Units

Employment

Small Cottage Small Cottage
1981 24,590 321,743 322,110 855,200
1991 38,294 405,476 523,472 1,331,032
2001 (end of June) 55,916 511,621 808,959 166,724
Average Annual Growth Rate 6.4% 3.0% 7.6% 4.7%

Source 4: Ahmed, 2002

The highlight of Table-1 is in the fact that the growth rate, between 1978 and 2001, of employment is somewhat higher than for the number of establishments.

  Industry Sub-sector

No. of Units, 1978

No. of Units, 1991

Number

% of Total

Number

% of Total

Rice Mills 12,242 51.00 13,482 35.21
Bakery 2,157 90.2 2,765 7.22
Flour Mills 1,315 5.42 1,718 4.45
Light Engineering Works 1,120 4.66 2,252 5.88
Printing & Publishing 995 4.14 1,775 4.64
Readymade Garments 757 3.15 2,365 6.18
Saw Mills 713 2.97 1,023 2.67
Soaps 143 0.59 351 0.92
Plastic Products 74 0.31 725 1.89
Automobile Servicing & Repairing 296 1.23 550 1.44
Total 19,822 82.6% 27,006 70.5%

Table 2 Small-scale Industries: how other-than-farming drives their structure

Source 4: Ahmed, 2002

Table-2 shows, on the other hand, is about what drives at least the numerical structure of the SSI with regard to the composition of input and output: in other words, with regard to structural change. Accepting at face value the numbers presented in that table, the proportion of establishments with their roots in agro-processing is seen to fall sharply during the period in question: from 65% to almost 46%. This is a change worth bearing in mind.

Role of SMEs in the export economy

A sector can contribute to export receipts in two ways, namely, (a) directly; and (b) through the production of intermediates, processed and semi-processed goods. How important are Bangladesh’s SMEs in terms of their contribution to the exports receipts of the country?

No credible information was available to the Taskforce to answer this question convincingly. There is however a lot of stylized evidence for other economies that suggest that SMEs are the mainstay for employment and work opportunities within Asian countries. In India, for example, SMEs account for some 80% of all enterprises, whether registered or not: they account for some 35% of the production of exportable goods of that country. In some of the most export-oriented sectors, such as ready-to-wear apparels, the percentage of the country’s exports from SMEs could reach high figures

Corresponding data are not available for Bangladesh. Our own guesstimate is that for ready-to-wear garments and processed foods, the corresponding percentages would be close to 50-60%, and 65%, respectively. While more numerous data are not available, it will suffice for present purposes to say that SMEs in Bangladesh are also the very backbone of its economy to generate work opportunities especially for young people and females workers who want to work.

1.4 Common constraints to the development of SMEs in Bangladesh

 

1. Lack of capital Lack of adequate investment;

Lack of modern technology;

High rate of interest on bank loans;

2. Inadequacies of physical infrastructure Irregular/inadequate supply of power;

Poor physical infrastructure and high transportation cost;

Poor information about market opportunities and requirements

3. Inadequacies of markets/incomplete markets Inadequate availability of raw materials;

Lack of skilled technicians and workers;

Lack of research & development facilities;

4. Other hostile/inimical conditions Fierce competition;

Absence of effective and transparent legal system

Source 5: Bangladesh Enterprise Institute, 2004

1.5 Policy Strategies for Small & Medium Enterprises (SME) Development in Bangladesh January 2005

A. INTRODUCTION

a. Small and Medium Enterprises (SMEs) has historically been one staple of the enterprise landscape within economies globally. Especially growth with clear benefits for poverty reduction puts a premium on integrating, productively and profitably, small and medium enterprises in the very process of economic growth. The over-riding vision must be for setting up a market-based economic order with a level playing field for all enterprises, in which SMEs can aspire to opportunities of growth and wealth-creation commensurate with their own endowments and diligence, innovation and management commitment. In addition, the vision must lead to a priority in the delivery of government services so as to neutralize, on a continuing basis, the handicaps and irritants which, almost reflexively, tend to spring themselves upon SMEs in a selective manner. A historically accelerated pace of trade liberalization in Bangladesh since the early 1990s by spurring a veritable deluge of imports has quite significantly increased competitive pressures on SMEs in Bangladesh. Rapidly falling cost of communications have by unifying global markets heightened the intensity of competition. Trading is widely seen as a safer, richer, smarter and bulkier career to have than manufacturing—bad news indeed for industrialization. With this end in view, Government of Bangladesh formulated the National Industrial Policy 2005 by giving special emphasize for developing Small and Medium Enterprises (SMEs) as a thrust sector for balanced and sustainable industrial development in the country with the vision for facing the challenges of free market economy and globalization.

b. Implementation of poverty alleviation action programs and strategies is a systematic and continuous attempt in Bangladesh. For the purpose, the Poverty Reduction Strategy Paper (PRSP) of 2004 has been clearly identified some core principles and parameters both at macro and micro levels for reducing the existing poverty levels at least half fold within 2015 as targeted by the Millennium Development Goal (MDGS).

In the policy strategies, smooth and sustainable development of SMEs all over the country will be considered as one of the vehicles for accelerating national economic growth including poverty alleviation, reduction of unemployment, and generation of more employment. Most of the industrial enterprises in Bangladesh are typically SME in nature. Generally SMEs are labor intensive with relatively low capital intensity. The SME also posses a character of privilege as cost effective and comparative cost advantages in nature. In this consonant, the SME policy strategies have been formulated in line with the acknowledged principles for achieving the Millennium Development Goals (MDGs) by the Government.

B. POLICY OF THE GOVERNMENT:

The Government is committed to develop SME’s as the vehicles for quality of life improvement, economic growth and poverty alleviation of the common people. The primary role of the Government shall be that of a facilitator to aid naturally growing SME’s through removing market and policy obstacles, and secondly providing necessary promotional support.

C. OBJECTIVES OF THE POLICY STRATEGIES

The broad objectives of the policy strategies shall be to:

1) Accept SMEs as an indispensable player in growth acceleration and poverty reduction, worthy of its total commitment in the requisite overall policy formulation and execution;

2) The SME policy strategies shall essentially be linked with broad- based and integrated manner in line with the poverty reduction strategy paper of the Government of Bangladesh.

3) Encourage and induce private sector development and promote the growth of FDI, develop a code of ethics and establish good governance, ICT based knowledge management and customer supremacy in the market alliances.

4) Identify and establish the network of infrastructure and institutional delivery mechanisms that facilitate the promotion of SMEs;

5) Re-orient the existing fiscal and regulatory framework and government support institutions towards bolstering the goals of SME policy;

6) Nurture and partner civil-society institution(s) having credible management teams in terms of the delivery of needed services, leadership, initiation, counseling, mentoring and tutoring; etc.

7) Create innovative but meritocratic arrangements so that deserving and especially small enterprises with desired entrepreneurial antecedents and promise can be offered financial incentives within industries prescribed on some well-agreed bases.

8) Help implement dispute settlement procedures that proactively shield small enterprises especially from high legal costs and insidious harassment.

9) Take measures to create avenues of mobilizing debt without collaterals to match (either using debt-guarantee schemes or mapping intellectual-property capital into pseudo-venture capital) in order to assist small enterprises in dealing with their pervasive lack of access to finance.

10) Accord, systematically, precedence to small versus medium enterprises, within the limitations of government’s resources.

11) Harness information & communications technologies, Internet Protocol (IP)-based infrastructure, and electronic-governance in an effort to parlay regulatory services, all kinds of useful information and mentoring inputs, with an accent on increasing the viability of SMEs in all sectors of the economy.

D. NATIONAL TASKFORCE ON SME DEVELOPMENT

The Government has constituted a National Taskforce on SME Development to draw up a realistic strategy for promoting rapid growth and vigorous competitiveness among SMEs in Bangladesh in the interest of accelerating the growth of the economy and reduction of poverty in the country. The composition of the National Taskforce is provided in Annexure-1. The Taskforce has submitted its report with comprehensive recommendations for formulation of SME policy strategies and its implementation in three phases: short, medium and long-term. The government has accepted the recommendations.

E. SME ADVISORY PANEL:

An SME Advisory Panel shall be constituted involving experienced committed specialists and entrepreneurs of relevance to work together with the SME cell of the Ministry of Industries (MOI). In the medium term, the Advisory Panel and the SME Cell will eventually morph into SME Foundation.

F. SME FOUNDATION:

  • Over the medium term and beyond, the Government shall form an SME Foundation as a pivotal platform for the delivery of all planning, developmental, financing, awareness-raising, evaluation and advocacy services in the name of all SME development as a crucially-important element of poverty alleviation.
  • The Foundation would strive to provision one-window delivery of all administrative facilities, including some resources needed for capacity-building in appropriate industry association(s), for SMEs in Bangladesh

1.6 Steps/Measures taken by Bangladesh Bank for SME Development:

Bangladesh Bank has already introduced several schemes and programmes to flourish and expand SME Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been facilitated for the development of SME Sector. Besides, to ensure institutional financial facilities under easy conditions Bangladesh Bank has taken diverse steps; like opening of ‘Dedicated Desk’ for SME and ‘SME Service Centre’ in the banks and special facilities for the women entrepreneurs. But reality is that expected outcome has not been achieved so far in this sector.

In the backdrop of recent global recession and changed circumstances, it has become essential to include all segments of people in the growth process through facilitating credit to the sectors where less attention has been given due to present market mechanism, specially, in agriculture and SME sector. Reasonably, a new department namely ‘SME and Special Programmes Department’ has been established in Bangladesh Bank recently which will be solely responsible for policy formulation, facilitating fund, monitoring and development of entrepreneurship in the SME sector. The guidelines formulated by the newly created department for compliance of the banks and financial institutions for the development of SME sector are enumerated below:

For the first time in Bangladesh, an indicative target for SME loan disbursement has been set for 2010 by the banks and financial institutions considering SME development as one of the most important development agenda of the country. According to the target, SME loan shall be disbursed to the small, medium and women entrepreneurs.

  • Following the ‘Area Approach Method’ banks/financial institutions will try to attain their indicative targets separately by dividing it as branch wise, region wise & sector wise.

Each bank/financial institution shall follow a separate business strategy in financing SME loan with least formalities in executing documentation to ensure easy and speedy loan sanction and disbursement process.

Priority shall be given to small entrepreneurs.

  • For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand) to Tk.50, 00,000 (Fifty lac)
  • For more participation of women entrepreneurs in industrial development of the country and for conducting business activities by women entrepreneurs in large number, priority shall have to be given to potential women entrepreneurs in respect of SME credit disbursement.
  • Banks & Financial Institutions shall put highest priority in receiving loan application from small and medium women entrepreneurs and settle the loan disbursement process within very reasonable time from the date of acceptance of the application.
  • Each bank and financial institution shall establish a separate ‘Women Entrepreneurs’ Dedicated Desk’ with necessary and suitable manpower, provide them training on SME financing and suitably appoint a lady officer as chief of dedicated desk. Branch wise list of Women Entrepreneurs’ Dedicated Desk ‘should be sent to SME and Special Programmes Department of Bangladesh Bank within two months from the date of declaration of this policy and programme.

 

  • Banks and financial institutions may sanction up to Tk. 25,00,000 to women entrepreneurs against personal guarantee. In that case, group security/social security may be considered.

 

  • The success in SME loan disbursement will be considered as yardstick for further approval of new branches of the concerned bank. License for New Branches will be issued for financing the priority sectors like SME and agriculture from 2010 in the name of ‘SME/Agriculture Branch’ instead of ‘SME Service Centre; in order to involve banks in financing priority sector like SME and Agriculture’.
  • Each bank/financial institution shall fix the interest rate on SME loan sector/subsector wise. However, bank/financial institution will inform Bangladesh Bank sector/sub-sector wise rate of interest immediately and ensure disbursement of refinanced fund to the clients (women entrepreneurs) at Bank rate +5% interests.
  • Training programs shall be arranged for the entrepreneurs

Source 3: Small and Medium Enterprise (SME) Credit Policies & Programmes, SME & Special Programmes Department Bangladesh Bank Head Office, Dhaka (Browsing date 08-08-10)

 

1.7 Problems of SME sector in Bangladesh:

At present SME sector is facing many problems in Bangladesh. Some major problems are as follows;

i) Resource scarcity: In Bangladesh scarcity of raw materials hinder the ability of SME to be export oriented and limits its ability to reach more advanced stages of international business.

 

ii) High employee turnover: Due to limited growth of SME most of the skilled employees leave SMEs. Levy (2003) observed that SMEs are knowledge creators but poor at knowledge retention.

 

iii) Absence of modern technology

One of the main barriers for the development of SME in Bangladesh is inadequate technologies. Many SMEs have failed to adopt modern technology.

iv) Poor physical infrastructure

Inadequate supply of necessary utilities like electricity, water, roads and highways hinder the growth of SME sector. Moreover, unfavorable geographical conditions increase the transportation cost.

v) Financial constraints

Availability of finance hinders the growth of SMEs in Bangladesh. Bangladeshi bank considers SMEs as high risk borrowers because of their inability to comply with the bank’s collateral requirements. Only about 15-20% of the owners of SMEs own any immovable property. Bankers issue loan based on ownership of immovable property as collateral risk. As a result, it automatically excludes rest 80% SME’s from the list of privileged clients of the banks. Whatever collateral SME’s can manage gets used up in talking the term loan leaving them with no means to seek working capital loans from banks. Because of low access to institutional financing SME’s, rely on inefficient financing services from informal sources.

vi) Lack of uniform definition

In Bangladesh, the definition of SME has changed overtime in different industrial policy announced by the government in different year. Absence of uniform definition makes the formulation and implementation of SME policy difficult.

vii) Lack of information

Miah (2006) has observed that SMEs have very limited use of information technology (IT). Accounting package is used by 1-2% of the SMEs. The use of computers is revealed by say 15% of the SMEs, while the use of the Internet for business purposes applies to say 8-10% of SMEs.

viii) Lack of entrepreneurship skills

Conservative attitude towards risk, lack of vision, ability to make plan and implementing those hinder the growth of SME in Bangladesh.

ix) Participation of women entrepreneurs

Equality of opportunity is a major problem for SME. Female entrepreneurs are treated discriminately. They are not well represented in business organization. Government does not provide adequate institutional assistance for women entrepreneurs.

x) Access to Market and lack of awareness regarding the importance of marketing tool

For SME, owing a retail space is very expensive in the major cities in Bangladesh. As a result many customers are not interested to buy products and services from SMEs. Because they can’t judge the quality until they physically examined the product. Most of the cases SMEs in Bangladesh are not able to use the Integrated Marketing Communication (IMC) tools. But these tools play the role of important stimulus to motivate the customers and retain them. The country does not have enough marketing capability and resources to invest in marketing.

xi) Bureaucracy

Wang (1995) observed that the inadequate government supports are top ranking constraints for SMEs. Unnecessary layers of Bureaucracy and red-taps reduce the competitiveness of SME and raising the cost of transactions and operations.

xii) Absence of transparent legal system

The absence of an effective and transparent legal system discourages SMEs in exploring into risky ventures of business. There are a number of unnecessary formal requirements to start and run business that create high compliance costs and become barriers to SME development, growth and market entry.

xiii) Lack of commitment to innovation and customer satisfaction

Ernesto (2005) stated that to keep in pace with international competition, firms of all size are challenged to improve and innovate their products processes constantly. But in Bangladesh SMEs are still not relating the importance of satisfying and retaining customers by offering novel and desired benefits.

xiv) Lack of quality assurance

Govt. has failed to frame a national quality policy, provide adequate support systems and establish a national quality certification authority. As a consequence SME of Bangladesh has failed to ensure the quality of their products and services both in local and international market.

xv) Lack of research and development facilities

It is observed that investment in R&D is still negligible in.

 

 

xvi) Fierce competition with the cheaper foreign goods

Fierce competition with the cheaper goods of China, Taiwan, Korea, India, and Thailand also pose threat to SME in Bangladesh.

Source 1: Performance Evaluation of SMEs of Bangladesh, International Journal of Business and Management Vol.4, No 7, July 2009

 

1.8 Suggestions

In order to overcome the above-mentioned problems the following suggestions are recommended;

v  Government must have to take adequate measures to ensure the uninterrupted supply of raw materials for SME.

v  Government needs to take appropriate measures to fix the minimum salary/wages of the employees of SME. That will help to minimize the employee turnover.

v  Government and financial institution may provide adequate finance for modernization and technological advancement.

v  Development of infrastructure is essential for the optimum growth of SME. So government of Bangladesh needs to take appropriate policy strategy for the infrastructure development of Bangladesh.

v  Government, financial institutions and Non Government Organizations (NGOs) may take necessary steps to ensure uninterrupted financial support to the prospective SMEs in Bangladesh.

v  Due to the absence of uniform definition, the policy formulation and implementations are not possible. Government should take initiative to develop a uniform definition of each category of SMEs.

v  Govt. of Bangladesh should take the initiative to develop web pages exclusively for SME and an integrated SME database. It will reduce the barriers to SME access to global market.

v  In order to ensure the retention of skilled workforce the government should make the entrepreneurial career attractive by minimizing the uncertainty.

v  In order to encourage women entrepreneurship govt. may; involve women entrepreneurs in policy formulation and implementation. Arrange funds for women entrepreneurs. Provide necessary training to women entrepreneurs in rural and urban area of Bangladesh.

 SME foundation may take appropriate marketing tools to popularize their products.

v  For minimizing red tapes and accelerating the growth of SME government may provide one roof service under the SME foundation.

v  Appropriate legal framework is necessary to ensure the development of SME of Bangladesh.

v  In this era of intense competition continuous planning and quality improvement act as a prerequisite for the survival of SMEs. In order to improve the quality SMEs can follow the Just in Time (JIT) philosophy and use Total Quality Management (TQM) and can ensure the improvement of quality and productivity at a time.

v  Government should establish a credible certification authority especially for SMEs. So that this sector can obtain a technical evaluation of the quality of their products within a shortest possible time. The certification of the authority should be world wide accepted. Govt. may also provide assistance to SMEs during the certification process and promote the importance of product certification for international acceptance among the SMEs.

v  Research and Development (R&D) is must for the development and growth of SME. Therefore, government must have to invest in R&D for ensuring the intensification of SME of Bangladesh.

v  Restriction may be imposed on import of SMEs’ products, which are available in Bangladesh.

Source 1: Performance Evaluation of SMEs of Bangladesh, International Journal of Business and Management Vol.4, No 7, July 2009

1.9 References

 

ü  Source 1: Performance Evaluation of SMEs of Bangladesh, International Journal of Business and Management Vol.4, No 7, July 2009(Browsing date 08-08-10)

ü  Source 2: www.about.com (Browsing date 08-08-10)

ü  Source 3: Small and Medium Enterprise (SME) Credit Policies & Programmes, SME & Special Programmes Department Bangladesh Bank Head Office, Dhaka (Browsing date 08-08-10)

ü  Source 4: Ahmed, 2002 (Browsing date 08-08-10)

ü  Source 5: Bangladesh Enterprise Institute, 2004

ü  Ahmed, M. U. (2001), “Globalization and Competitiveness of Bangladesh’s Small scale Industries ( SSIs): An Analysis of the Prospects and Challenges,” in R. Sobhan et al. (eds.), Bangladesh Facing the Challenges of Globalization, (Dhaka: Centre for Policy Dialogue & University Press Ltd.) (Browsing date 10-08-10)

ü  ADB (Asian Development Bank) (2001), High Level Workshop on Strategic Issues and Potential Response Initiatives in the Finance, Industry and Trade Sector (Dhaka: ADB; November). (Browsing date 08-08-10)

ü  BBS (Bangladesh Bureau of Statistics) (2004), Report of the Census of Manufacturing Industries (Dhaka: BBS). (Browsing date 10-08-10)

4 Responses

  1. Yeah, yeah — but in our one-half-Scottish family, it was only after a lot of hugging and kissing. (The other half is the Daviso Italian side.)
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  2. The dogpac here is discussing our formation of a formal religion. You may think that when you bare your soul to your dog that it goes in one ear and out the other but you are wrong. If our human pal is a Catolic then we dont get clergy privilege when the opCays want to know what we know. We are thinking of calling it Ninth Day Dogtology. The basic premise of our religion is that on the 9th Day God created Dog to watch over humans. Now some of us argue that it was on the 8th Day. But 8th or 9th doesnt matter. The dog will of course be Clergy and the communications between Dog and Pal will be privileged in courts. Obama is in favor of this because all that Beaux knows. So is Midland Bush. KennyBunkport Bush is on the fence. We do not know how the Catolic Church will come out on this. They sort of quietly opposed Scientology. We have far more credibility than Scientology. My choice for a name is Dogeterians. BarkinDog wants Church of The Later Day Labradors but that is too confining to one breed. Tell us what ya tink. Inquiring dogs want to know.
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  3. The development of small and medium enterprises (SMEs) in developing countries is generally believed to be a desirable end in view of their perceived contribution to decentralized job creation and generation of output.There has been an increase in disbursement of SME loans in the last couple of years in Bangladesh and by this this country also developing in education and health sector.

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