Table of contents:

Page #
1.

Introduction 2
1.1

Background 2 State of SME in Pakistan 5

1.2.1

1.2

Share of key SMEs sub-sector in Pakistan 6 Distribution of SME in GDP by sector 6

1.2.2

1.3

Cause of failure of SMEs in Pakistan 6 Cause of failure of SMEs in Bahawalpur 8 Reasons of failure of SMEs 8 Problem statement 9 Research objective 9 Significance of research 9 Budgets 9 Researchers 9

1.4

1.5

1.6

1.7

1.8

1.9

1.10

2.

Literature review 10
1

2.1

What is SME? 11 Definition of SME 12 Background of SME in Pakistan 12 Role of SME in Pakistan 13 Types of SME 15 The importance of SME in the economy 15 Causes of failure of SMEs in Bahawalpur 17

2.2

2.3

2.4

2.5

2.6

2.7

3.

Research methodology 18
3.1

Research type 18 Population 18 Sample size 18 Sampling technique 18 Data collection method 18 Questionnaire design 18

3.2

3.3

3.4

3.5

3.6

3.7

Data analysis 18

4.

Reference 19

1. Introduction
Any company which is not a public limited company contains employees less than 250 persons if it is manufacturing concern and not more than 50 persons if it is trading or service concern. Service concern with total assets up to 50 million in which land and building not including. Total assets without land and building will hundred million if it is manufacturing concern. If we take the banking sectors with total assets up to the 20 million. SMEs is becoming multiple benefits in the economy of Pakistan. According to
Schapper theory (2006), in developing countries up to 90% of the firms fall under the category of SME and he also above than 90% of these companies are microenterprises. Pakistan is also one of the countries focusing on the progress of SMEs. 13 years ago Pakistan Govt. established an institution named SMEDA; small and medium enterprise authority, responsible for the guidance and the promotion of SMEs.

Pakistani economy is a developing economy. Its huge resources are either unutilized or less utilized. A major section of labor force is lying idle. The per capita income is very low. Capital is low and scarce and investment is lean. Production is traditional and the technology is outdated. The production is not sufficient and the basic needs of the people remain unfulfilled.

1.1 Background
Small and medium enterprises play a dominant role in the developing countries. It solves the problems of unemployment and poverty which is faced by the Pakistan. In 1947, there were very few manufacturing establishments in Pakistan. Pakistan was totally an agriculture-based economy. In 1949-50 the contribution of industrial sector in GDP was around 8% with large contributing 2.2% and the small 5.8% comprising of cotton ginning, oil seeds, rice factory, wheat milling. The meaningful feature is that over the years the contribution of the small factories has remained in the range of 5% to GDP of Pakistan. The condition of Small Enterprises is one of a rather loose integration within the mainstream of the country economy.

Many previous studies show the potential for expansion, many hurdles thwart them. In Pakistan as in other countries the recognition is growing those small-scale industries which are beneficial for the progress of the social and economic fields. However in spite of the growth of this awareness not much attention was paid to this field. Research has showed that nothing participate more to the flourishing of small company that favorable policy context (Thomason $ Thomas 1992). This is totally laying in Pakistan and reflects apathy to one of the potential field of the economy. Pakistans comparative advantage was the skill its labor had in many sectors of small industry. Its people were well known for hand crafted goods whether in metal or woolen or cotton or wood. But this comparative benefit over time fritted away and was not exploited. There was no tradition of institution development. No guilds and associations that would foster the skill & abilities and pass it on to the next generation. There were no laws requiring the skill or recognition of skill, hence national industrial development suffered. The first five year plan didnt meet with success. The actual development that did take place was during the second 5 year plan. After bifurcation of subcontinent, India enjoyed a lion contribution in industrial sector. Whereas, Pakistan left with few industries which insufficient to coup with the demand. Besides, influx of refugees country faced too much problems. The private sector was shy and did not come forward at all. In 1952 establishment of Pakistan Industrial Development Corporation (PIDC) by the Government played an important role. Approximately 1041 industrial units were established in the country including former East Pakistan. This included fertilizer, chemical, medicine, textile/woolen, jute, cement, sugar, paper, wood, electrical engineering, steel mills, mineral development, gas and Small Industrial Estates in whole country. During this era the manufacturing sector registered a growth rate of 8% . During 1970 the experience of Nationalization failed because of multiple problems and privatization also failed except like nationalization, privatization also took place without adequate home work. After privatization maximum number of industrial units is lying closed. The industrial development has been marred by low productivity and import substitution method. The trend had been towards capital intensive and low on employment generation companies. The lessons of nationalization force investors to away from labor intensive projects and the rate of unemployment increased and the economic environment worsened. Pakistans economic development strategies favored capital-intensive technology choices, ignoring the fact it would generate unemployment. Even the subsidized credits for small industries stimulated more capitalintensive technologies. This situation is more complex by the fact that Pakistan ranks relatively low among other Asian countries in such areas as per capital number of science and technology personnel and low on R & D. This therefore does not create the small industry development environment. F or rural and urban production, appropriate technologies are required which are labor intensive, which use regional resources it is in the history of such environment that Small Enterprises, can develop. Hence the need for SE Development policy was imperative but completely missing from a Thomas (1992). Considerable work was undertaken on Small Enterprises in the 1990s by

UNDP , which allocated research projects on enterprises to UNIDO and ILO.

Small Enterprises and micro

Similarly the sector of Social studies Advisory Services under the World Bank financing research for Bankers Equity. The donors cooperative Group on promotion of the Small Enterprises establish on 1993 organized a series of activities for Small Enterprises promotion. A series of measures were undertake under the 8th five year plan (1993-98) to motivate the growth of the Small Enterprise sector focusing on improving their productivity and enhancing product quality and standards by training in vocational and technical skills and advancement of technology and modernization. The impetus to the Small Enterprise sector came from this new focus, which culminated in the Governments decision to formed another small industries development organization (SIDO ) in October 1998 called SMEDA- small and medium enterprises development Authority. Yet the bottom line is that there has been no rules and regulation initiative to support the growth of Small Enterprises. No regulatory intervention to remove the retardants of Small Enterprises growth. No law defining SMEs. And for 3 years the Government did not allow official recognition to SMEDA nor has SBP issued a license to the SME bank sector (December 2003). Regarding to banking council report (June 1995-96) 3785 Small Scale Industries were shutdown in Pakistan, out of these 1296 Small Scale Industries were shutdown in Sindh. The owners of all these closed units became the defaulters of many banks and financial institutions total amounting Rs. 240.29 Billion. According to another report of Development Statistics of Sindh 1998 . During the year 1990 - 91, the total formed units of Small Scale Industries were 1751. Pakistan National Human Development Report 2003, UNDP has highlighted hurdles to the fast growth of Small-Scale enterprises in Small towns of Pakistan. Following are major hurdles, 1 Lack of managerial knowledge, skill and inability to achieve quality control. 2 Lack of capital for investment and insufficient of credit facilities. 3 A well-organized strategy to develop exports of SIs does not exist. The objectives are often not well defined and available policy instruments for company and trade are mostly not aimed at developing the SI sector and its exports. 4 Where help for SSIs is a stated objective, there is no implementation mechanism. 5 The situation is often not conducive to the creation and growth of marketing channels for SSIs export development companies, joint-marketing arrangements, export consortia etc. 6 There is an inappropriate focus on issues of concern and relevance to SIs and a lack of appreciation of the special features and difficulties of SSIs in their reports. 7 Various service institutions do not have well defined programs with clear objectives for associations are inapt and incapable of advice and counseling to SEs in export development. 8 Training Facilities in Management, Marketing and Export Management are often unavailable to the entrepreneurs.

1.2 State of SME in Pakistan

Pakistans comparative advantage was the skill its people had in various fields of small and medium industry. Its people were famous for hand crafted goods whether in metal or woolen or cotton or wood. But this comparative advantage over time fritted away and was not exploited or developed. There was no tradition of institution development. No guilds and associations that would foster the skill and pass it on to the next generation. There were no rules and laws requiring the skill or recognition of skill, hence national industrial development suffered. The actual development that did take place was in the 1960 but owing to the nationalization phase in the 1970s it died away. In this period the manufacturing growth rate recorded was about 8% but then again there was no diversification from textile to food processing. The industrial development has been marred by low productivity and import substitution techniques. The trend had been towards capital intensive and low on employment generation industry the lessons of nationalization force investors to away from large manpower thereby the rate of unemployment increased and the economic situation worsened. Pakistans economic development policies favored capital-intensive technology choices, ignoring the fact it would create unemployment. Even the subsidized credits for small enterprises stimulated more capital-intensive technologies and techniques. This situation is more complex by the fact that Pakistan ranks relatively low among other Asian countries in such areas as per capital number of science and technology personnel and low on R&D. This therefore does not create the small enterprise development environment. For rural and urban production, appropriate technologies are needed which are labor intensive, which use local resources it is in the background of such environment that Small Enterprise, can develop. Hence the need for small enterprise Development policy was imperative but completely missing from a Thomas, small for development 1992, published Tilburg University) Ironically Pakistan continued receiving funding from donors to develop Small Enterprises. But not even the planning commission was willing to notice the Small Enterprises. Considerable work was undertaken on Small Enterprises in the 1990s by UNDP, which allocated research projects on SEs and micro enterprises to UNIDO and ILO. Similarly the sector of Social studies Advisory Services undertook World Bank funded research for Bankers Equity. The donors cooperation Group on promotion of the Small Enterprises formed on 1993 organized a series of activities for Small Enterprises promotion. A

series of measures were undertaken under the 8th five year plan (1993-98) to stimulate the growth of the Small Enterprise sector focusing on improving their productivity and enhancing product quality and standards by training in vocational and technical skills and up advancement of technology and modernization. The impetus to the Small Enterprise sector came from this new focus, which culminated in the Governments decision to formed another small industries development organization (SIDO) in October 1998 called SMEDA- small and medium enterprises development Authority. Yet the bottom line is that there has been no policy initiative to support the growth of Small Enterprises. No regulatory intervention to remove the retardants of Small Enterprises growth. No law defining SE. And for 3 years the Government did not give official recognition to SMEDA nor has SBP issued a license to the SME bank (December 2003).

SME sector in Pakistan 3.2million business units in Pakistan over 99% business units employ less than 99 persons i.e. million SMEs generate 78% of non agri sector employment direct share to GDP over 30% Generate 25% 0f manufacturing export earnings contribute 35% in manufacturing value addition. SMEs will be the main source of poverty reduction in Pakistan that will create the value and innovation the country in the days to come. The thing that really needs serious attention is to remove the unnecessary bureaucrats procedures. It is essential to make it possible that the opportunities for SE should not wasted through excess processing of finance applications or other official terms.

1.2.1 Share of key SMEs sub-sectors in Pakistan

Percentage share in exports Grain milling 16% Cotton waiving 13% Wood and furniture 10% Metal products 7% Other textile 6% Art silk 5% Carpet 4% Jewelry 4% Others 35%

Source: economic survey of Pakistan

1.2.2 Distribution of SME in GDP by sector

1. Service sector 2. Manufacturing 3. Trade and hotels Source: SMEDA 1.3 17% 30% 53%

Cause of failure of SMEs in Pakistan

Choosing a business that is not very profitable. Even though you generate various activity, the profits never materialize to the extent necessary to sustain an on-going company.

Inadequate cash reserves. If you do not have sufficient cash to carry you through the first six months or so before the business starts making money, your prospects for Success are not better. Consider business and personal living expenses when determining how much cash you will require. Failure to clearly define and understand your market, your customers, and your customers' buying habits. You should be able to clearly identify them in one or two sentences. How are you going to access them? Is your goods or service seasonal? What will you do in the off-season? How loyal are your potential customers to their present supplier? Do customers keep coming back or do they just buy from you one time? Does it take a long time to close a sale or are your customers more driven through impulse purchasing? Failure to price your goods or service correctly. You must clearly define your pricing plan. You can be the cheapest or you can be the best, but if you try to do both, you'll fail. Failure to adequately anticipate cash flow. When you are just starting out, suppliers need urgent payment for inventory (sometimes even COD). If you sell your products on Credit, the time between making the sale and getting cash can be months. This two-way tug at your cash can pull you down if you fail to plan for it. Failure to anticipate or react to competition, technology, or other changes in the marketplace. It is dangerous to suppose that what you have done in the past will always work. Challenge the factors that led to your Success. Do you still do things the same way despite latest market demands and changing times? What is your competition doing differently? What new technology is available? Be open to creative ideas and experiment. Those who fail to do this end up becoming pawns to those who do. Overgeneralization. Trying to do everything for everybody is a sure road to ruin. Spreading yourself too thin diminishes quality. The market pays best rewards for better results, average rewards for average results, and below average rewards for below average results. Overdependence on a single customer. At first, it looks best. But then you realize you are at their mercy. Whenever you have one customer so that losing them would mean closing up shop, look out. a huge base of small customers is much preferred. Uncontrolled growth. Slow and steady wins every time. Dependable, predictable development is vastly superior to spurts and jumps in volume. It is difficult to believe that too much business can destroy you, but the books are full of case studies. Going after all the business you can obtain drains your cash and really reduces overall profitability. You may incur significant up-front costs to finance huge inventories to meet new customer demand. Do not leverage yourself so far that if the economy stumbles, you will not be able to pay back your loans. When you go after it all, you usually become less selective about customers and goods, both of which drain profits from your industry. Believing you can do everything yourself. One of the largest challenges for entrepreneurs is to let go. Let go of the attitude that you must have hands-on control of 8

every aspects of your business. Let go of the belief that only you can make decisions. Focus on the very important problems or issues facing your industry. Let others help you out. Give your people responsibility and authority. Putting up with inadequate management. A same problem faced by Successful companies is growing beyond management resources or skills. As the industry grows, you may surpass certain individuals' ability to manage and plan. If a change becomes compulsory, do not lower your standards only to fill vacant positions or to accommodate someone within your company. Decide on the skills necessary for the position and insist the individual has them. So, the founder's attitude, ability to be objective, willingness to bring in needed help, and share power are all crucial to success. "Most startups make the mistake of falling in love with their goods or service," says Shukla. "Ultimately, it is this lack of self-criticism that causes various companies, startups and their more mature counterparts, to fail. Startups suffer this fate more often because there are many dreamers than doers." I think that fact speaks for itself," says Jonathan Goldhill, a small-business consultant and former director of an economic development center in California's San Fernando Valley. "I would say that the primary reason for failure of startups within three years is usually...management's failure to act, or management's failure to react, or management's failure to plan." Other reasons why businesses fail in their starting years include: poor business location, poor customer service, unqualified/untrained employees, lack of a appropriate business plan, and failure to seek outside professional advice. While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you are starting a business or expanding one, enough ready capital is necessary. It is not, however, enough to simply have enough financing; knowledge and planning are need to manage it well. These qualities ensure that entrepreneurs avoid common mistakes like securing the wrong kind of financing, miscalculating the amount needed, or underestimating the cost of borrowing money.

1.4 Causes of failure of SMEs in Bahawalpur

Low financial capital Corruption Lack of managerial skills Lack of educational background Outdated technology Complex taxation Poor skills and training Energy crises Inflation High cost of credit and lease finance Political instability Labor unions damaging activities Deficit in balance of payment Economic slums

1.5 Reasons of failure of SMEs

Undefined goals and plans and strategies Lack of management skills No proper market for the product Low sales and marketing advertisement Lack of technical infrastructure Lack of Real and Effective Structure Ego/Self-Esteem, Arrogance and Vanity Fear Ignorance (Lack of Business Savvy/Knowledge) Incompetence (Lack of Leadership and Relationship Skills) Distraction (Lack of Concentration/Focus) Casualness (Lack of Professionalism)

1.6 Problem statement

When the SMEs sectors in Pakistan are analyze, this sector face many problems in practical implications. Search the solutions of these problems which create barriers in success of SMEs.

1.7 Research objectives

1. To identify the problems 2. To analyzes the SME practices in implications 3. Problem faced by the SMEs in Pakistan 4. Problem faced by the SMEs in Bahawalpur 5. To find a possible solutions

1.8 Significance of Research

Main purpose of our research is to determine the problems which are big hurdles in the path of success in SMEs in Pakistan . We want search causes of failures of SMEs and give remedies and solutions.

1.9 Budgets
Questionnaires and interviews will be the includes in our research and 10 small industries will be used as sample. Some other costs are will includes such as researchers.

1.10 Researchers
Four researchers are participating in our research; 1. waqas Anwar 2. Tanveer Ahmed 3. Fahad Shahzad 4. Hamid Haqqani

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2. Literature review 2.1 What is SME?

SME is abbreviated for small and medium enterprises. These are small level of enterprises-incorporating the informal firms-is expected to solve the problems, including unemployment, poverty and economic development. Small Medium Enterprises are backbones of developing countries like Pakistan. SMEs help to the development economy in many ways; providing services and gathering employment. Government of Pakistan, Planning Commission, and the committee on stressed that the setting up of small scale industries will provide employment to the people in the rural areas the Villages and Small Scale Industries in its report has stressed that the establish of small scale industries will provide employment to the people in the rural areas.
Pakistan develops a institution for the development of Small Medium Enterprises called SMEDA. It has so for undertaken significant advocacy wok, make the plans for the sector, publications and feasibility studies for enterprises. It is responsible for the rules and regulation and make strategy for SMEs. SMEs are the backbones of any country. It has following significance:

1. 2.

It significantly share the export income due to low labor cost Small Medium Enterprises use indigenous raw materials, so having a positive effect on the trade balance. 3. Due to regional dispersion of economic activities, air and distribution of wealth

Small and Medium Enterprises Development Authority (SMEDA) Premier institution of the Government of Pakistan under the Federal Ministry of Industries and Production, SMEDA was formed 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 situation and business development services to SMEs. SMEDA is not only an Small 11

Medium Enterprise policy-advisory body for the Government of Pakistan but also facilitates other shareholders in addressing their Small Medium Enterprise development agendas.

2.2 Definition of SME

There is no single uniform and generally accepted definition of SMEs applicable across the Pakistan. Different organizations and sectors define it according to their functional ease rather than market situation. Many institutional definitions of SMEs in Pakistan are:

Small and medium enterprises development authority (SMEDA)

Any entity that has 36-99 employees or productive assets of Rs.2040 millions SME Bank

An entity having total assets of Rs. 20 million

Federal bureau of statistics An entity which holds less than 10 employees and total assets of Rs.100 million Punjab industries department An entity with the fixed assets of Rs. 10 million excluding cost of land

Punjab small industries corporation An entity having fixed investment up to Rs. 20 million excluding land and building After analyzing these definitions we interpret that all the departments and entity define SME on the basis of assets, land, total turnover.

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SSI
SSI means small scale industries, which is an industrial undertaking with the investment not exceeding Rs. 100 laces in plant and machinery.

Tiny Industry
Tiny industry is an industrial undertaking with an investment limit in plant and machinery of Rs.25 laces irrespective of the location of the unit. In cases of auxiliary industries the investment ceiling on plant and machinery is also Rs. 100 laces

2.3 Background of SME

Phases of Industrial Development: Pakistans comparative advantage was the skill its people had in many sectors of small and cottage industry. Its people were famous for hand crafted goods whether in metal or woolen or cotton or wood. But this comparative advantage over time fritted away and was not exploited or developed. There was no tradition of institution building. No guilds and associations that would foster the skill and pass it on to the next generation. There were no laws requiring the skill or recognition of skill, hence national industrial development suffered. The actual development that did take place was in the 1960 but owing to the nationalization phase in the 1970s it died away. During this period the manufacturing growth rate recorded was about 8% but then again there was no diversification from textile to food processing. The industrial development has been marred by low productivity and import substitution strategy. The trend had been towards capital intensive and low on employment generation industry the lessons of nationalization force investors to avoid large labor force thereby the rate of unemployment increased and the economic situation worse. Small Industries Estate Bahawalpur This estate was established for the purpose of socio-economic uplift of this area in the context of maximizing the growth of small and cottage industries and providing the jobs opportunities to the local people. In this estate area, infrastructure facilities also have been provided such as malted road, telephone, electricity, water and drainage. The authorities of small industries have been allotted different categories of the plots for following Cottage and Small Industries: 1 .Rice Mills 2. Specialized Textile 3. Engineering Workshops 4. Agricultural Implements 5. Wood Work 6. Poultry Farming

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7. Oil Grain Milling 8. Cold Storage 9. Flour mills 10. Cotton ginning

2.4 Role of SMEs in Pakistan

Pakistan has emerged as the second fastest growing economy in Asia after China in 2004 2005, as claimed by government and well accepted by international raters and financial institutions. According to Economic Survey 2004-05 this increase in real GDP is the courtesy of robust performance of large scale manufacturing and services sector. Even though the large scale manufacturing registered 15.4% growth but small and medium enterprises (SMEs) is the major issue in the countrys progress and especially for the prosperity of masses that are surviving with low scale income due to which Pakistan ranks 135th out of 174 countries on Human Development Index. When we think about Small Medium Enterprises, we consider it as one person manufacturing enterprise but according to SMEDA Small Enterprises should possess ten to thirty five employees with two to twenty million rupees capital intact in equity. Medium Enterprises should have posses thirty six to ninety nine employees with twenty to forty million capital intact in equity. Here we have to see the role Small Medium Enterprises have in the progress and well being of masses in Pakistan. The assessment of the role of Small Medium Enterprises in Pakistan is of great importance. Sometimes we have shinny figures and data according economy like GDP growth or per capita income but these can be misleading because the earners of these massive growth are not masses but the capitalists in the nation. Small Medium Enterprise produces the income stream for masses situated in the countryside and the capitalists associated with this activity that is usually medium or small as the name suggests. In Pakistan Small Medium Enterprise sector is not only the minor sharer till yet, reality is that Pakistans whole economy is mostly dependable on the pace and productivity of SMEs. Out of Pakistans 3.2 million enterprises 95% are those who possess 99 employees in private industrial sector and employ about 78% of non agriculture labor force. SME contributes 25% export of manufacturing goods and 30% of GDP is the outcome of business efforts of Small Medium Enterprises. The important question is not what SMEs have produced? But, what they are capable to produce? The simple answer is if they produce on their full potential and capacity 14

Pakistan would be way ahead on economic racetrack of the world. They can produce billion of dollars worth items that is why SMEDA is quite right in stating its mission as Turning potential into profits. Turning potential into benefits provide us a truer and fair picture of the role of Small Medium Enterprises in Pakistan. Now we will see what potential we have and the threats associated with it and how we can turn potential into profits by overcoming existing hurdles. Firstly we have to talk about the main potential we have to boost the progress and efficiency of Small Medium Enterprises. The real potential of Small Medium Enterprise growth in the country is the deprived people of this country who are quite keen to raise their quality of living. It simply means the future of SMEs is associated with the temptations of highly talented but deprived masses of Pakistan and their will to turn their bad days in to glittering ones. But the actual problem associated with their will and dreams is finance and technical assistance. Financing concerns have two issues; first is availability of finance and 2nd is the rate plus the terms on which the finance is available. Financing SMEs in high liquidity period for banks is not a burden but an opportunity because bank can utilize their liquidity by advancing finances to Small Medium Enterprises. Through advancing to SMEs they can have two benefits. First when they advance to various small and medium enterprises as compare to huge ones, their lending amount will be distributed to a number of clients that will increase the probability of recovery. Secondly, the contribution in national economic growth via utilizing their liquidity that is excess due to big activity in economy in the period after 1999 and especially after 2001 that will further expand the activity in banking sector in near future. Exploring a specific niche product is another way to boost SMEs sector. Niche is a unique product that we can produce at low cost with an absolute advantage. In Pakistan we are producing Niche from Wazirabad by producing the international quality surgical instruments and Sialkot is there for sport goods. SMEDA and other concerns like EPB have to come up to explore more niches that are sure available in this country of highly skillful labor force. In this regard Prime Ministers program of ONE VILLAGE ONE PRODUCT is of great importance. Even we could not achieve economy of scale through this niche but available glittering demand in international market can offset the cost burden and causes the inflow of foreign exchange. The movement of masses from rural to urban areas is another hot slot of the time. While developing a well integrated Small Medium Enterprise sector in the country, it is the clear cut benefit that we can stop this mobilization that certainly is creating the urban difficulties and increasing the urban development overheads and cost of maintaining big cities like Karachi. Even it will be a factual probability that through Small Medium Enterprises we can convert our villages into new towns and sources of revenue and progress. Stock markets in the country are in deprivation of number of newly listed companies; I think it is for the sake of well being of stock markets and Small Medium Enterprises that Small Medium Enterprises should be authorized to obtain listed in shape of a 15

venture of 3 to 5 SMEs on stocks on relatively smaller amount of capital that is how the Small Medium Enterprises could muster the very capital and while becoming a part of corporate culture that can give way for them to have good management. In early stages the board of SME industries (as they would not be able to pay handsome amount to experts) should consist of experts of Federal, Provincial governments and specialized financial institutions and the SMEs. Small and medium entrepreneurs should possess the majority shares and the shares of these shareholders have to be to the extent of their support and inline to compensate nominal through the profitability of the companies.

Small Medium Enterprises will be the main source of poverty reduction in Pakistan that will create the value and innovation for the country in the days to come. The thing that actually needs serious attention is to remove the unnecessary bureaucratic procedures. It is necessary to make it possible that the opportunities for small entrepreneurs should not be wasted through excess processing of finance applications or other official terms. Assistance to Small Medium Enterprises is not enough; the government and specialized financial and technical institutions should stand as partners of small and medium entrepreneurs, this is the only way that the financial institution can recover their funds with yield. Government could achieve its objective for poverty reduction, economic progress and above all the value creation process by promoting the culture of Small Medium Enterprises. This is the only way that can make sure the poor masses of Pakistan shall not live poor anymore.

2.5 Types of SMEs

1. Finance and professional services 2. Legal services 3. High-tech/software companies. 4. Consultancies 5. Construction 6. Marketing, advertising and public relations 7. Arts, music, media and publishing 8. All kinds of manufacturing

2.6 The Importance of SMEs in the Economy

1. Introduction. SMEs are important to almost all economies in the world, but especially to those in developing countries and, within that broad classification, especially to those with major employment and income distribution challenges. On what we may call the static front, SMEs share to output and to the creation of decent jobs; on the dynamic front they are a nursery for the big firms of the future, are the next step up for expanding micro enterprises, they share directly and often significantly to aggregate savings and investment, and they are involved in the development of technology. In asking ourselves how important the SME sector is we must of course go beyond simply looking at its share of output, employment or 16

any other aggregate variable to the key question, how much difference does it make to overall economic performance whether the SME sector is large or small, or whether it grows rapidly or slowly? A sector might have considerable weight in GDP, say, but be easily substituted by other sectors, in which case its contribution of GDP could greatly overstate its real importance; in other cases the opposite might be true. It is a fact of life, at any level of a countrys development, that some required activities involve some or no economies of scale while others involve considerable economies of that sort. The size distribution of firms within a country, and the associated combination of technologies--from the very labor intensive to the very capital intensive is of course influenced by these givens. That distribution can also be influenced by international trade. An great challenge in many countries is to assure that a significant contribution of output takes place outside the overly capital intensive large scale sector. Achievement of this goal is very difficult if Small Medium Enterprise activity in general is discouraged by policy or setting. It can be facilitated when big firms subcontract other parts of that process to smaller more labour intensive firms. It can also be facilitated by the phenomenon referred to as "clusters" in which cottage industries collaborate together to handle those aspects of the business that are indeed characterized by economies of scale. The ideal setting within which Small Medium Enterprises can play their positive share to the maximum thus includes these structures and their benefits. In developing countries with large informal or micro enterprise sectors, Small Medium Enterprises constitute the middle of the size range, a fact that describes much of their strategic importance. In terms of organizational structure, Small Medium Enterprises are, on average, considerably too much complicated. 2. Summarizing the Strong Points of the SME Sector The importance and potential share of the SME sector are supported by theoretical and empirical arguments and evidence. We turn first to the former. Part of the share of the Small Medium Enterprise sector both to the overall total factor productivity (efficiency, as usually defined) of an economy and to employment generation and distributional equality comes by virtue of its pattern of technology choice. Small Medium Enterprise technology tends to be intermediate between the highly labor intensive technologies of micro enterprise, which as a result achieve only low average labor productivity, and the highly capital intensive technologies of big firms which thereby achieve high labor productivity, but use more capital per worker than is available for the economy as a whole. Given this correlation between size & capital intensity, it becomes a foregone summary that an economy that applies a big contribution of its capital to a small group of workers must essentially have, as the other side of the coin, a large informal or microenterprise sector that uses very short capital (the bit not used by the large-scale sector) with the large amount of labor not employed by the big firms. 3. Conditions for the Maximization of the SME Contribution: Policy Considerations The ultimately interesting question for economists is Under what conditions (including those affected by policy) can Small Medium Enterprises make their biggest potential share to a healthy economy? One ideal condition is wellfunctioning markets. Small Medium Enterprises are often disadvantaged vis a vis big firms by market imperfections, especially in the capital and product markets. In contrast, labor market imperfections, including labor legislation, tend to favor them. 17

Public policies in other areas more often favor big firms. Since most market imperfections cannot be fully, often not even partially, removed, policy analysis must be carried out in the context of the economics of the 2nd best. It is interesting to consider the participation of tax policy in this light. A background observation is that the microenterprise sector is usually thought of and sometimes even defined as the sector to which rules and regulations do not apply. This is a matter of degree, but it does capture the important point than many policies are not likely to have much if any direct effect on this sector. At the other extreme, big industries have to respond to virtually all laws and regulations, even if they are able to avoid those regulations in part. The Small Medium Enterprise sector, intermediate in so many other respects, is also intermediate in that many regulations and aspects of public policy, including many taxes and much labor legalization are partially applied here. Should they be fully applied or not? Should policy and regulations be designed differently for this sector than for others? One vantage point to ask the question what should policy including tax policy, towards the Small Medium Enterprise sector be? is to identify and to the extent possible quantify the effects of the market imperfections impinging on the sectors capacity to fulfill its potential role. Four aspect are labor legislation, the capital market, which is almost by definition very imperfect, anti-trust, which normally fails to rein in the depredations of big firms with market power, and tax policy, which introduces a wedge between gross and net profit of the industry, a wedge that can have negative incentive impacts on each of Small Medium Enterprise creation, output, and labor intensity. To some extent, the cross-size group biases of these policy areas offset each other. On the other hand the tax burden and labor costs normal rise by firm size; on the other access to low cost capital and ability to exercise market power also rise.

1.7 Causes failure of SMEs in Bahawalpur

Low financial capital Corruption Lack of managerial skills Lack of educational background Outdated technology Complex taxation Poor skills and training Energy crises Inflation High cost of credit and lease finance Political instability Labor unions damaging activities Deficit in balance of payment Economic slums

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3. Research Methodology 3.1 Research Type

Our research type is falls in exploratory research category. Qualitative techniques are used in this research along with some quantitative techniques.

3.2 Population
We take small industries in our research. All small industries located in Bahawalpur or in the region of Bahawalpur are included in our population. We focus only the small and medium enterprises in our research.

3.3 Sample Size

We have chosen the following industries in our sampling. 1. Khalid Modern Industries 2. Asia ghee mills 3. Lucky floor mill 4. Toor cotton factory 5. Qutub din OIL mills 6. Sheikh cotton factory 7. Modern ginning factory 8. Phool oil seeds mill 9.Nawaz ginning factoryS 10. Raheem floor mill

3.4 Sampling Technique

Purposive and convenience sampling techniques are used for our data gathering.

3.5 Data Collection Method

1. We were conducted interviews with management of industries. 2. Secondary data was collected from books, research articles and online sources.

3.6 Questionnaire Design

We have design the Questionnaire contain 20 questions. These are all according to the requirement. In which include open and end questions. 19

3.7 Data Analysis

Collected data is described and explained by using descriptions and graphs. Standard Deviation and means and other statistical operations along with graph are prepared by using SPSS.

4. References
1. 2. 3. 4. Share of key SME sub-sectors in Pakistan (Economic source of Pakistan) Importance of SME www.gcu.edu.pk/publication/vc-sme.pdf SME Bank www.smebank.org/sme%20sector.htm Failure factors Article on critical success and failure factors of entrepreneurial organizations: study of SME in Bahawalpur Syed Wajahat Hussain Naqvi (corresponding author) Background of SME in Pakistan I. Article on Growth and Efficiency of Small Scale Industry and its Impact on Economic Development of Sindh Mumtaz Ali Junejo (Corresponding author) II. www.smeda,org III Article on Investigating the Major Constraints in Creation and Growth Of Small-scale Industries of Pa kistan. Dr. Mumtaz Ali Junejo, Dr. Chandan Lal Rohra and Dr. Hakim Ali Kanasro State of SME in Pakistan I. www.smeda.org II. Economic source of Pakistan Distribution of SME in GDP by sectors www.smeda.org Types of SME

5.

6.

7. 8.

www.yell.comwww.thomweb.co.ukwww.dotukdirectory.co.ukw ww.kompass.co.ukwww.britishchambers.org.uk 9. Anderson, P. (1982). Small Industry in developing countries: A discussion of World Development Report, 10(11). 10. Berry A. and Armando, Pinell - Siles, (1979). Small-Scale Enterprises in Columbia A case study. Studies in employment and rural development No. 56, (department of development economies, world bank.) 11. Cohn, T., and Lindberg, R. A. (1974). Survival and Growth: Management Strategies for the small firm, New York: AMACON. 12. Husain, S.I. (1983). Allocate and technical efficiency a study of small enterprise in rural Bangladesh. (World Bank). 20

13. Khan, M.I. (2004). Unlocking the Potential of Small Enterprises for Economic Development. Patiwala Publishers, Karachi.

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