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by Per Christiansen Swedforest Consulting AB Santo Domingo Dominican Republic Background There has been considerable activity to help reduce rural poverty in Latin America. Efforts have included policy reform and accompanying field programmes for rural development. Many of these integrated development programmes have had forestry components and it is in connection with work on these that the author has collected the information with follows. Forest-based small-scale processing enterprises (FB-SSIs), having good opportunities for growth, play a very important role as a promising source for increasing employment, for better standard of living and in the long run for developing rural areas. This paper describes and comments on experiences with such enterprises with emphasis on the role, nature and structure of producer organizations and of external institutions set up to assist them. It discusses main strengths and weaknesses in achieving success and identifies key issues relate to the organization of producers and of assisting agencies. Three specific illustrative cases selected from very different types of location will be described. Experience suggests that in discussing the institutional impact on development of smallscale forest-based processing enterprises, It is necessary to consider the whole production chain from the forest to the market. Problems such as infrastructure, social structure, long-term wood supply, logging and transportation considerations, distribution system and marketing policy and systems, have to be considered as activities closely interrelated with the enterprise. Most of the small-scale forest-based enterprises reviewed here as case studies are private companies, often owned by individuals. There are, however, also different types of cooperatives, usually supported by governments or other external institutions, some of which receive international assistance. The traditional and commonest small-scale processing activity besides firewood and charcoal-making is pitsawing and mechanized sawmilling, the later being predominantly the rustic circular sawmill. Many countries have up to 200-300 such small sawmills often operating at well below their installed capacity.
These sawmills are often an essential base for other forest-based processing units, which convent sawn lumber further into different end-use products such as furniture, boxes, parquet, handles, mouldings. This secondary processing is often integrated with the sawmilling on the same location. However, a sawmill often also supplies raw material for a series of separate small wood-based processing units normally owned by families or individuals. This paper discusses only development of small rural wood-based enterprises as wood is the most important forest product. Other activities, such as resin-tapping, use of fruitbearing trees, handicrafts from non-wood forest produce tend to have only localized importance, and will not be dealt with here. So far, external support to these small enterprises is very limited: Governmental institutions usually emphasize controlling functions and enforcement of laws. They sometimes also organise special training courses. In general, there is little systematic and direct advisory service on any aspect and no financing or credit is made available. In response to the limited external assistance, producers of similar products such as sawmill owners, usually have some kind of cooperation with each other. They often form special-interest associations, which are normally a forum for addressing marketing questions, fixing prices etc. The associations are usually not able to achieve much, being usually weak due to limited financing. For this reason they can offer little to their members by way of necessary technical and financial support. A few small enterprises control their own supply of raw materials including their own forest management system and capacity for logging and transportation: they are obviously much stronger than those which depend on other entrepreneurs for their raw materials or for distributing their manufactured products. Using a chain saw Case study 1: FB-SSIs IN THE PLAN SIERRA PROJECT IN DOMINICAN REPUBLIC The setting The Plan Sierra project is an integrated rural development scheme in the pine-forested mountain region in the north. The project covers some 250 000 hectares spread over four watersheds. The project started in 1979 and the national budget has been approximately US $ 700 000 since them. Over the years, the project has been able to attract quite substantial support from abroad - bilaterally from Sweden, Holland, Germany and USA and from international institutions such as Kellogg's Foundation and the World Food Programme of the UN. The more important activities are reforestation with forest trees and perennial crops, soil conservation, annual crops, cattle grazing, and development of wood-based processing industry with raw material from managed forests. Supporting sub-programmes exist, such as development of infrastructure, health services, training and education, and social organization.
One very important element in Plan Sierra's activities is providing credit to the farmers. The project normally grants credits to groups of farmers but the individuals in the group make the commitment to repay with the future harvest and the group's responsibility as the only security demanded by the lenders. Although so far 70 percent of this credit has gone to coffee production, the project started in 1985 to also give credit for forest investment. This complements technical assistance to owners of private forests regarding elaboration and practical application of forest management plans. In the project area, 400 forest owners have now been identified, of whom 13 own a total of 770 hectares. They are initially involved in development of afforestation, forest management and roundwood production, but some of them can in the future establish small wood-based industries to use their forest resources. To prevent overexploitation of forests for quick revenue, the new forestry law of 1985 requires forest owners to obtain special permits from “La Comision Tecnica Forestal” for harvesting their forests. The permits will only be issued if a proper forest management plan exists. Within the framework of the integrated project is a Swedish-funded subprogramme (named “Celestina”) which implements a forest management plan for about 4 000 hectares of badly cut-over and degraded pine forests (Pinus Occidentalis) and utilizing the harvested products in a processing industry unit with two sawmills and other installed equipment. The main objective of this management plan is to restore and utilize the degraded forests, thus achieving an improved long-term economic yield and also obtaining a social impact on the project by employing and training people in working ages from the 110 families (600 persons) living within the Celestina area. The ultimate goal is to give economic self reliance by processing and marketing forestry products to an annual total of about 6000 m3. In the Plan Sierra region, about 40 small-scale wood-based enterprises are located and developed, all with a maximum distance from Celestina of 30 km. They produce mostly furniture and handicrafts and most of them are small and individually owned. The processed furniture is of rustic type and is often only poorly finished. However, there is a good local market for the small workshops and the bigger ones sell on the domestic market. Some of these enterprises have up to 15 persons employed and the owners also subcontract people, many times women, to prefabricate furniture pieces or make special operations in their homes, which has a good spin-off employment effect in the neighbourhood. Institutional problems and support The main problems encountered include bad internal organization and lack of cooperation between enterprises even to solve common problems relating to financing and marketing; raw material is of poor quality; sawn lumber is usually not sufficiently dry and the board size is normally not related to the need, which results in unnecessary waste and raises costs; the products normally have such defects that they can only be sold on the local market at comparatively low prices. Furthermore, only the biggest enterprises have an organized distribution system and good marketing contacts. Most of the other producers
lack a distribution system and have very little contact with the marketing centres. They also lack low-cost credit and so do not invest enough in enterprise expansion. The institutional support has been very poor up to date. Most of the enterprises could have good opportunities to increase their production and the quality of the products if they got sufficient technical and economic support. Nearly all of the producers buy their raw material from the Celestina Project, which is the only producer of sawn lumber in the region. In order to improve the situation, the Celestina project plans to create a special programme to train owners and employees and try to find manufacturing techniques for improving product quality. National instructors will be trained by international specialists to run training courses, and to advise on production techniques and on new equipment needed to improve production. While detailed analysis of assistance requirements is only now being done, it is nevertheless possible to say that the greatest need falls under the following elements: a) assessment of enterprise raw material needs; b) estimation of local and other markets as well as design of appropriate marketing and distribution systems for maximum reach in the main selling centres; c) review of transportation problems and assistance in their solution; d) formulation of measures to improve quality of the products both through skills improvement and by development of technical alternatives and new investments in equipment; e) provision of investment and working capital; and f) promotion of better organization systems, especially regarding cooperation between manufacturers of similar products for joint raw material purchase, marketing, price policy, storage and distribution. Case study 2: SMALL CIRCULAR SAWMILLS ON THE COLOMBIAN PACIFIC COAST The setting This case will be briefly presented as an example of how some 40 traditional small circular sawmill enterprises have survived under very bad economic conditions almost without external support. The situation for this industry was studied in 1982: it appeared that these enterprises have good development opportunities provided a common strategy is worked out for new structure, marketing, credit possibilities, reliable raw material supply and external assistance.
The Pacific coast has been the traditional area for forest harvesting activities in Colombia. The coastal tropical rain forests constitute the main raw material source for the hardwood-based industry. The characteristics for this coastland is a very high annual rainfall of 6 000-8 000 mm, clay soils, low population and lack of infrastructure. Construction of roads is very expensive under such conditions, which is the reason why all transportation is done on waterways. The area has also a very poor social structure and low standards of living. The case study covers about 40 riverside sawmills in the region of the San Juan river about 50 km north of the harbour town of Buenaventura. All installations are of traditional rustic circular sawmill type owned by small private companies or by individuals. Sawmill installations and machinery are between 10 and 40 years old, although a few have new machinery, diesel motors and new buildings. Some of the sawmills obtain yearly permits to cut specified volumes of wood but the most common system of raw material supply is through special logging entrepreneurs mostly natives living upriver who float the logs in bundles of 20 to 200 units to the mill sites where they negotiate with the sawmill owners.
With only a few exceptions, the sawmills operate at only 10-30 percent of their installed capacity. The main obstacles to improving production are: a) Lack of logs - partly during the dry season when log floating may not be possible, partly because of lack of funds to pay the entrepreneurs delivering the logs, who normally require cash payment. The logging entrepreneurs sometimes have to wait up to three weeks at millsite for payment; b) Shortage of spare parts - the sawmills being old, they frequently need spare parts, but lack operational capital to keep stocks of these. The sawmills often suspend operations for months while awaiting delivery of spare parts or because they cannot finance the purchase;
c) Product storage and marketing problems - the sawmill owners usually do not possess their own boats to deliver their sawn products and do not have a storage or marketing organization in Buenaventura. Usually they have to wait until purchasers or intermediaries arrive and negotiate to comparatively low prices at millsite; and d) High waste factor and poor quality - due to poor state of equipment and low operator skills. Some problems also arise from lack of a structured policy for all wood-based industries where the best managed, equipped and located sawmills with possibility to survive can be developed and be included in a reinvestment plan supported by external assistance. The inferior group of sawmills with insoluble economic problems should then be allowed to close down or not receive external support. The lack of a policy framework is worsened by weak institutional support. The limited external support which is available tends to concentrate on raw materials licencing and similar administrative support. An association of sawmill owners exists whose main activities are price fixing. It gives little technical and financial assistance to its members due to lack of funds. Possible Role of Support Organizations If adequate assistance was made available to tackle the above problems, the sawmill owners as a group have good opportunities for growth and development. The access to forest reserves in the region is favourable and there is room on the domestic market for hardwood products at acceptable prices. To be effective, any assistance must be made available over a long period and should be flexible. It must win the confidence of the entrepreneurs; in this respect government assistance agencies appear to attract little trust as they have in the past been frequently associated with politically motivated changes. To improve the situation, international technical assistance (including training) and financing must be given to the sawmill owners association which is also supported by the Department of Agriculture and Industry and the national association of wood-based industry. These should together form the programme of developing the sawmill enterprises and solving their urgent problems. International technical assistance and financing with a soft loans system to the owners and international assistance cooperation would also be recommended. Execution would be through a selected team of technical specialists which would work out a system how to organize and strengthen the association for greater effectiveness in all fields. Case study 3: FOREST COOPERATIVES FOR PRODUCTION IN GUATEMALA The setting This third case study covers a 48-member forestry cooperative for production - San Juan Ixcoy Ltd - which started up in 1978. It is located in the north-western part of the highlands, called “Altiplano”, where members own small forest lots of generally badly cut and degraded pine trees. The members of the cooperative all belong to the ethnic
group “nativos” of whom 80 percent are illiterates. The region supports 50 percent of the people (3 million) of whom only about 45 percent are economically active. The highlands have a road density of only 1 metre per hectare (compared with a recommended density of 10-20 metres per hectare necessary for adequate administration of the forests). Because of this, large forest areas cannot be economically utilized. Where logging operations are attempted, transportation costs are very high; this partly explains the very low level of rural development. It is estimated that over 50 percent of wood is burnt to waste during land clearing for shifting cultivation. Of the balance which is harvested, about 90 percent is converted into firewood and charcoal. The “modern” forest industry consists of 155 registered sawmills for all of Guatemala. Most of them have an annual production of less than 5 000 boardfeet (one shift) which is much less than the installed capacity. Most sawmills are located close to the capital, on both coasts and in the Province of Petén while in the highlands (where the pine forests are concentrated), there are very few mechanized sawmills. However, pitsawing is frequently done there. There are also a lot of small enterprises for production of wood-based furniture, boxes and handicrafts, especially in the towns. The Institutional Framework: cooperatives and support agencies The decree-law No. 1653 of December 1966 controls cooperatives in the state-owned farms and grants the legal mandate to promote cooperatives in the whole country to the Superintendence of the Banks (Ministry of Economy), the Ministry of Agriculture, and the National Institute of Agricultural Transformation (INTA). A federation of only forestry cooperatives does not yet exist. The forestry Institute, INAFOR, therefore has the principal responsibility which it discharges through a special promoter group. The members of San Juan Ixcoy Ltd Forestry Cooperative have participated in courses organized by the Federation of the Agriculture Cooperatives (FEDECOAC). Guatemalan co-operative workers cutting wood with a chain saw Based on the forestry law, a new plan for developing the forestry sector was prepared in May 1978 which proposes 26 different programmes including a project to develop activities of forestry cooperatives. The sub-section “Forestry Cooperatives” under the Promotion and Evaluation Unit in INAFOR has the direct responsibility for developing and promoting forestry cooperatives in close collaboration with the Department of Agriculture Cooperatives under the Ministry of Agriculture and with a special advisor on cooperatives under the Presidency of the Republic. The local offices in the sub-districts of INAFOR participate very little in these promotion and support activities. The promoter group in INAFOR headquarters has carried out pre feasibility studies, socio-economic studies, and training of the new forest cooperatives. Before August 1978, a special FAO/TCP project gave technical assistance in the developing of this programme. However, this international project which was co-sponsored by the Lutheran
Church and an international cooperative federation, finished too early to fulfill its main objectives of advising pilot forestry cooperatives and training national staff or teams. The performance to date has in some cases been commendable but it is clearly necessary to strengthen this section of INAFOR and improve its technical and financial status up to a level which will satisfy the needs. It may be necessary to replace it with a more autonomous special federation for forestry cooperatives which should have the legal power and economic base to take over most of the responsibilities. Such a federation would in the long term be financed by contributions from the different forestry cooperatives, but in the initial 10-15 years, external financial as well as technical assistance support would be essential. The forest cooperative movement is located in specific areas of the Altiplano with the principal purpose of promoting production, industrialization and marketing of forestry products by means of an intelligent utilization of privately owned and communal forests. The cooperative has aimed to ensure that forest land now divided into very small plots is grouped into bigger units in order to make possible a more rational use of the resources and dispose sufficient raw material for future regional industrialization. Benefits foreseen include better product prices, incentives to a long-term economic management of existing forests, increased level of employment, and a better rural environment generally. More immediate alms include ensuring rational utilization of forest resources through establishment of forest industries which will permit optimum use of raw materials and promotion of organized participation in roundwood sales to members' own mills as well as to other industry. Creation of profitable markets for all products is also an essential function. In the longer term, the cooperative would also aim to increase production of raw materials in order to support a larger forest industry; and to improve the standard of living in the rural communities. In order to achieve an adequate development of the forestry cooperatives, experience has shown that initial activities require comparatively big investments. These should in each individual case be adapted to the production and marketing possibilities. The minimum amount for such investments varied between US $ 70 000 and 90 000 in 1980. The new cooperatives usually also lack working capital and it is therefore necessary to obtain local bank credits or international cooperation. A great part of the investments made in the new operating cooperatives has been obtained through international donations through pilot projects. The national development bank (BANDESA) had the possibility to give loans to cooperatives in the country, based on a contract between the Government and the InterAmerican Development Bank (IDB). The conditions for these credits were favourable as to pay-off time and interest rate. However, the steps to obtain such credits have been very complicated, including a series of requirements not always possible to satisfy. For example, two years after presenting its request to BANDESA, the San Juan Ixcoy cooperative has not yet received credits.
A special problem in credit matters is the guarantee. The Government has discussed the possibility to have the growing forest, the wooded land without forest and the products obtained in the future constitute bank guarantees for long-term credits according to periods which will be fixed in advance in the management plan. In such cases, INAFOR should advise in the evaluation of the guarantee if requested by any of the interested enterprises. The existing cooperatives for production each have a circular sawmill, logging equipment and a forest tractor, which INAFOR rents or lends out for the initial activities. The income resulting from this will be earmarked for a special fund for the development of new cooperatives. In the forest cooperative San Juan Ixcoy, not all 48 members are forest owners. There are also several people who contribute with their own work in the forest management operations and in the processing of roundwood. The forest owners also participate in the work because this is usually the only source of income for them. In all, the owners have a forest area of about 1 000 hectares with parcels varying between 5 and 100 hectares. Part of the forest belongs to the Municipality of San Juan Ixcoy. The forest management includes an active plan for clear-cutting of degraded pine forests and reforestation. The forest cooperative tries to achieve the best utilization of the trees and avoid waste in producing logs for its own sawmills, poles, and firewood for sale and for its own lime ovens. The most important non-wood based product is lime whose price is very low. A small circular sawmill was established in 1978 with an installed capacity of 2 000 boardfeet per 8-hour shift, i.e. a yearly production of 450 000 boardfeet. However, two years after start-up, the sawmill still produced only 40-50% of its installed capacity which was due to a lot of defects in the administration and organization of operations. Among other things, there was a constant change of specialized operators, which was difficult to foresee. Due to the long distance to the domestic market centres, lack of a local market in the region, and low prices, profitability was poor. Some products were also sold at millsite, which made marketing easier, but the prices could be dictated by intermediaries. INAFOR made an economic financing plan to find a realistic method to improve profitability by a rational utilization of the resources during the period 1978-1983. According to this analysis, it could be possible to increase production from 175 000 to 300 000 boardfeet. It also appeared that breakeven point for 1983 was at an annual production of 160 000 boardfeet. The analysis shows that the cooperative project could have a good feasibility but there is a strong need of long-term technical assistance to reach the goal, probably also supported by international cooperation. A total of 32 members are employed by the cooperative. A quick analysis of worker costs reveals considerable anomalies in wage levels. Earnings often vary little between unskilled and higher grades. Management seems to be poorly paid. It is likely in general that motivation is poor as a result of a poor pay structure.
Certain specific problems existed in the development and establishment of forest cooperatives for production in Guatemala the most significant of which were as follows: a) The prospective members often distrusted the objectives of the cooperative. They doubted that the profit would be for the members and thought the cooperative would instead be a centre to establish business with the forest resources in the region; b) The basic schooling is very low which creates many problems, especially in administrative, skill-transfer, and organizational aspects; c) In general, the directors do not have the capacity to operate in a satisfactory way; d) Low salaries and local conflicts cause frequent changes of specialized workers, which reduces productivity; e) Financing is a problem; f) The forest cooperatives do not have a long-term programme (10-15 years) and they have inadequate external assistance to start them off on a sound footing; g) The cooperative movement lacks the legal protection available to private companies which facilitates many administrative and financial matters. Discussion and conclusions Cases presented in this paper and experience from other Latin American countries or regions have shown that producers' organizations are often established for small-scale wood-based enterprises. These are needed to promote common interests and give technical and economic assistance to members as well as to serve as a forum to solve joint problems and support the progress of their industries. The ability of many existing associations to fulfill these objectives is, however, quite low due to limited resources in funds as well as in technical and administrative know-how to play an important role in the development of members' industry. A producers' organization should ideally have a firm anchorage in the region, enjoy confidence among its members. It should become the main forum for addressing common issues, such as production strategies, marketing (including price fixing), delivery and storage of manufactured products, negotiation of credits and organizing technical and administrative assistance to the members. The associations would employ a specialist or a team of trained persons to carry out the activities. They would have a decentralized administration operating close to the members' industry in order to be efficient and to maintain close contacts with members. The very poor support given by national institutions to privately owned wood-based, small-scale enterprises is due mostly to lack of funds and technical know-how; attempts to run too large and geographically spread programmes with too ambitious objectives in
relation to available resources; excessive centralisation of proposed assistance agencies; and lack of inter-institutional coordination in the producers' region causing misunderstandings and conflicts. Furthermore, far too many assistance programmes are approved for short periods which are in many cases not extended. It seems essential to ensure that the assistance be continued over two or three governmental periods with the most intensive support being in the first years. In view of the many problems facing small enterprises, the prerequisite for a well balanced strategy for implanting support programmes to achieve objectives of progress is strong and well balanced external institutional support. To benefit fully from such assistance, the producers also normally need a sound internal organization whose personnel should be trained by the external agency to take over the support responsibilities to solve and handle members' common matters and give assistance on technical and administrative matters to each enterprise. International cooperation would be needed in many cases in order to finance necessary investments and operational costs and transfer technical, administrative and marketing know-how to national staff, local specialist teams, enterprise owners and employees.
Promoting communal small-scale forestbased processing enterprises: lessons from a project in Peru.
by T. Oksanen and W. Rijssenbeek1/
Project GCP/PER/030/SWE - “Apoyo al aprovechamiento de plantaciones forestales de una comunidad campesina del Cusco”, is executed by FAO under Sweden/FAO Trust Fund arrangements. It is associated with a much larger INFOR/FAO/Netherlands project on fuelwood and local community development. Background In the past 25 years the rural communities in the Peruvian Sierra have been establishing plantations of Eucalyptus globulus with the aid of the state and various projects sponsored from abroad. There are now some 150 000 hectares of these forests of which 20-30 000 ha are ready for harvesting. However, it has been noticed that the communities have benefitted very little from the existence of these forests. The benefits have mainly accrued to a small group of middlemen, who have bought the standing timber from the communities for a whistle. In some cases the earnings from the sale of a full-grown eucalypt have not been enough to buy a bottle of beer; hardly an incentive to go on with the reforestation. Yet the growth of the population and the economic stagnation in the Sierra are forcing a growing number of people to join the misery-belts around the big coastal cities.
It was for these reasons that the Project FAO/Holanda/INFOR started looking for ways of promoting the creation of small communal forest-based enterprises (SCFE), to increase benefits reaching the people - and so give a real incentive for reforestation and strenghten the economic base of the rural communities. The work is still very much in a pilot stage. The project is still seeking for optimum products and technologies for the SCFE, and looking at alternative organizational arrangements to strike a balance between community participation and efficiency. It is strongly felt that as the forest resource has been established through massive community participation and belongs to the whole community, the benefits should also be shared and not go to just a few people. Market and Enterprise characteristics Products and Markets According to the market studies that were made, the main products demanded at regional level are mineprops and mine sleepers; sawn timber for mines; treated poles for electric power-lines; charcoal; and rustic chairs. At the local level (nearby towns etc.), demand is for posts, beams and sawn timber for housebuilding; charcoal and firewood; rustic wooden chairs and tables; and artisanal household utensils. At the community level, the main markets are for firewood; posts and beams for housebuilding; and simple furniture, such as chairs, benches, tables and beds. Of these products rustic wooden chairs, charcoal, firewood, treated posts and sawn-timber have been produced in the SCFEs up to date. In the evaluation of markets for SCFE products two limiting factors were taken into account: firstly, that finer woods from the Selva (which are available throughout the Sierra) are strongly preferred for fine carpentry and joinery; and secondly, that products which require expensive machinery or very special skills for their manufacture could not be considered feasible for the SCFEs. For the products selected, most of the technologies employed have already been tested in small family enterprises, only one SCFE has major imported components. Turning a chair leg at a rural community workshop Markets and technology by product Chairs Chair manufacture is the most common type of SCFE that has been introduced in the communities. There are now a total of eight workshops which generally have a locally built wooden lathe powered by a water wheel driven from small creeks or irrigation canals, with a fall of about five metres. They need little raw-material, about 2-3 trees a week depending on size, produce up to 40 chairs in six working days, and employ normally five persons. The net value of the production varies with productivity and whether the chairs are sold within the community for a lower price, or outside for a higher one. In Huaraz the net value has been calculated at US $ 12/m3 roundwood. Taking
into account the low opportunity cost of the workers, the real value of the production is much higher. The materials and tools needed for the workshop cost less than US$ 500, and even including the costs of training and working capital, the total costs are not more than US $ 1000. The chairs have a well developed market on the local level in some parts of the country (Huaraz, Huancayo), both for local use and for resale in the big cities of the coast. In other parts (Cusco) they are recently being introduced with some success. Demand exists also on the community level but, unfortunately, at a very low price-level. Charcoal The main buyers of the charcoal produced in the communities are the local restaurants, mainly those specializing in fried chicken. In some cases it has been possible to agree on deliveries directly from the community on a regular basis. Other group of buyers of lesser importance are the local blacksmiths. Charcoal is being produced in one community in Huaraz with a transportable metal kiln, type Mark 5. In Cusco there are two communities producing charcoal with a locally designed method, a hybrid between a metal kiln and a simple earth pit. The latter has a somewhat lower yield than the mark 5 (16-18% compared with 25%), but due to its much lower initial cost (US$ 150 compared with US$ 800) it is a more feasible alternative for many communities. The productivity of the Mark 5 has been about 250 kgs of charcoal in 3-4 days, with a two-man team operating the kiln. This has made possible a profit of US $ 14/m3 roundwood. In Cusco the profits have been slightly lower due to the differences in yield and a longer cooling time for the pit (5-6 day cycle). Compared to firewood production the profits have been about 1.5 times higher. Rural forest industries greatly increase the value of trees for the local people Preservation of poles and posts The preservation of posts was first started in Huaraz as a communal industry with the idea of selling the posts to Electroperu (the state-owned electricity-company). Pretty soon it was noticed that because of the high profitability of the treated-posts' business and the monopsonistic condition of the market (even the communities buy their posts through Electroperu), there are arrangements between the buyer and the existing producers which close the market to new producers. The “Boucherie” process is used to treat electricity poles. A solution of water and CCB (copper-chrome-borax) is forced by the pressure of a five metres' fall to enter one end of an inclined fresh pole which it penetrates for the whole 8-11 meters in two days. The
portable Boucherie-plants used in the project produce six posts in two days, with a fourman team operating the plant. They can be easily modified to produce up to 12 posts in two days. The profits are about US $ 23/m3 roundwood for low-voltage posts (used in the communities), and US $ 28/m3 roundwood for high-voltage posts (used in the main lines between the communities). The cost of the plant, and the auxiliary equipment needed for its operation (tools for manual logging etc.), is about US$ 1000. Under a new scheme the CENFORs (departmental-level administrative body of the INFOR)2/ of Huaraz, Huancayo and Cusco now operate one plant each, which they lend with the necessary technical assistance to the communities participating in electrification projects to treat poles from communal or individual plantations. The communities can save about 10% on the costs of an electrification project by treating their posts under this scheme instead of buying them through Electroperu. Hopefully, in the long run, they can also establish themselves as reliable direct suppliers of treated posts, and so gain access to the markets.
INFOR = Instituto Nacional Forestal y de Fauna CENFOR = Centro Forestal Sawmilling and Carpentry A very special case of the SCFE in Peru is that of the Project FAO/SIDA/INFOR in the community of Juan Velasco Alvarado in Cusco. This is the only industrial-scale project which has been attempted in the communities; it consists of a small sawmill, a carpentryshop and the production of charcoal, firewood and other by-products. It was created through an US $ 150 000 donation from the Swedish International Development Agency, with the intention to show to the communities of the Sierra the benefits of small-scale communal wood industries. The mill is still in installation stage, and therefore there is no information on its productivity and profitability. Enterprise Ownership and management The enterprises are invariably owned by the whole community, but the management forms vary depending on communal decisions. The alternative forms of managing the enterprises are: (a) The enterprise is managed by a committee, (as for any traditional communal activity like irrigation etc.). The committee is supervised by the Administrative Council of the community, which in turn depends on the General Assembly for any major decisions. The community receives all the income and pays the workers. (b) The enterprise is managed by a Committee (as at (a) above) but the work is done as a communal obligation instead of for wages. The participants are in turn free from other work-obligations as compensation.
(c) The General Assembly designates a group to run the enterprise. The group receives 70 percent of the income with the other 30 percent going to the community. The Community provides the roundwood in communal work. (d) The SCFE is rented out to a carpenter by the community. The carpenter hires workers and buys the wood from the community in what is an extreme case of privatization of the SCFE. (e) In the case of the Project FAO/SIDA/INFOR a legally constituted enterprise has been formed within the community to manage the small industry. The paid workers (who earn wages) have to be community-members, and their hiring and level of wages is approved by the General Assembly. The environment for SCFE development Linkages to Agriculture The Peruvian Sierra is an extremely harsh environment in which people are preoccupied not with development but survival and continuation of the family. They achieve this by a combination of activities, such as agriculture, livestock-raising, handicrafts and paid work within and outside of the community. This unspecialised economy may seem primitive, but it is well adapted to the environment. It is extremely complicated in its use of the different components and well integrated to the markets outside of the community. It is estimated by peruvian economists that about 50% of production is for subsistence consumption, and the balance is sold or bartered. The economic and social situation of the community farmer has three specific caracteristics which influence the SCFE. Firstly, although he lives in a community, the economic decision-making takes place in the family. It is the family, not the community, which is responsible for the well-being of its members. Secondly, almost all production is done by the family, the community only allots the lands to the families and maintains the infrastructure. Thirdly, due to his precarious economic situation the community farmer has a very high aversion to risks. He simply cannot afford to fail in his economic undertakings. Sorting handles for agricultural and workshop use For these reasons, the SCFEs have to form another complement of the economic activities of the community farmer who is willing and would be able to participate in the SCFE when the alternative would be to look for seasonal work outside of the community but not participate at the expense of his agriculture. This is because agriculture remains the backbone of the Sierra economy and the only source of social-security its inhabitants have. It is therefore essential to adjust the scale of SCFE operations to this reality, and to promote alternatives which require specialized full-time workers only if there are landless and unemployed people facing forced migration. Opportunities for and constraints to SCFE development
The key opportunities seem to be in the development of SCFEs that require a low investment and make products with high local demand preferably from end-users who can be reached directly by the producer. The low level of investment allows the entrepreneurs to suspend production and resume it easily depending on the pressures of other, more important, economic activities. It also implies simple technology in which all workers can carry out all production functions if necessary except very few key tasks. The high demand allows each producer to easily find a buyer at the going price whenever he has got a product to sell. The products should preferably be sold directly to the users in order to bypass middlemen. Some SCFEs which meet these criteria include production of rustic wooden chairs and other furniture; production of charcoal (in some regions only since in many others firewood is still the main fuel); production of simple construction materials, such as posts, beams and (pit) sawn-timber. Also there seems to exist a good opportunity for community participation in low-cost preservation of poles for village power-lines. For these small-size enterprises there remain several constraints to taking up opportunities. With regard to administration, one constraint is that in many cases a lot of work is required before the communal organization can manage even the smallest SCFE. Secondly, there are often conflicts between the SCFE enployees and the community as to the level of wages and the distribution of profits. In more than one case the community has kept the wage level so low that the workers have left. Thirdly, there is a tendency within the group directly involved in the SCFE to try to privatizise the enterprise as soon as profits are shown which creates conflicts with the rest of the community, and undermines the ideas behind the SCFE. The persons directly involved with the SCFE inadvertently form a new power group which is resented and not easily accepted by traditional community leaders. The new groups can threaten the privileges they have enjoyed (such as the uncontrolled use of community funds, and profits from acting as middlemen in the sales of the forests). The SCFEs also face considerable market problems when they attempt to take up opportunities. They often have problems in maintaining the necessary business contacts particularly for the wider regional market as this requires visits to the buyers. This often forces them to use costly middlemen. In addition some profitable markets are closed to competition by deals between buyers and existing producers. Sometimes bribes are also necessary to cut down transportation costs. All this is difficult for the SCFE to handle. Administrative/organisational and market aspects are the largest problems facing small enterprises in the Sierra. The creation of larger scale communal enterprises by the FAO/SIDA/INFOR project was intended to avoid these constraints. However, it appears that the larger project also faces important constraints such as the weak administrative capacity of the traditional communal organization to manage activities that move money. Such projects also demand a high level of institutional support which the public administration does not have the capacity to give. Even for these larger projects, it is difficult to achieve full-time operation and specialization of workers.
Finally, it is clear that due to the limited resource-base of the communities, it is necessary for several communities to cooperate even to run a small sawmill, which in turn multiplies the administrative problems and the need for institutional support. The main operational problems relate to shortages of raw materials, finance, and skills. The more general problems of markets and organisation were already covered under “constraints”. With regard to raw materials, problems in obtaining a sufficient flow of wood until now have been experienced only in the FAO/SIDA/INFOR project, where they were clearly a result of an incomplete evaluation of the forest resource before the project was started. They have now been resolved by buying logs from outside the project. Loading on the timber-rack in the Peruvian Sierra In the past, almost all SCFE equipment has been donated to the community which for its part has provided the local construction materials and construction labour. Training of the workers has also been without cost to the community. This arrangement has worked well due to the small amounts of money involved in most projects. It is obvious, however, that to expand the activity it will be necessary to obtain other forms of financing. There is already one chair-workshop in operation which has been established with a soft loan from an NGO. Experience shows that although technical skills to operate these simple industries are acquired by workers after only a few weeks of on-the-job training, managerial skills require much more time. Even simple management training requires an ability to read with comprehension, write and make simple calculations - skills which can be hard to find. Yet they form the basis for any administrative training: adequate managerial skills (such as accounting) are not only needed to run the SCFE, but also for community control of the SCFE which can help establish confidence between the SCFE and the rest of the community. Lessons of experience The products and types of enterprises introduced to the communities seem to be about right, considering the opportunities and constraints already mentioned such as the constraints imposed by the linkages of the SCFE with agriculture; the weak administrative capacity of the communal organizations; and the low level of institutional support available. Although it seems that the SCFEs have to be oriented towards the markets outside the community to guarantee their economic feasibility, care has to be taken to provide byproducts (firewood etc.) to satisfy the needs of the community members. This is a concrete benefit to the community, it shows immediately and acts as an incentive to the community not to abandon the SCFE.
It has become obvious that although the SCFE are communal, the incentives to the community members participating in the enterprise have to be personal, and strong enough to justify their participation from the point of view of the family economy. A lot of experimenting and investigation is still needed to determine whether the communal management of these small enterprises is feasible and in tune with the natural development trends in the communities. An alternative could be to combine communal ownership of the SCFE with family management, as is already the case with agriculture. The selection of communities and identification of the type of SCFE to be started has to be based on a much more careful analysis of the organizational capacity of the community than has been done previously. To achieve the level of community participation needed for a successful SCFE, more emphasis should be given to extension and training, and the community must participate in the formulation of the SCFE-project from the beginning. The existing SCFEs have been too much concepts from the outside, that have been planted in the communities, mainly on the basis of often superficial technical evaluation. A long period of structured follow-up (probably several years) is needed for each SCFEproject to guarantee its continuation. To carry out identification of SCFEs, selection of communities and to provide full support immediately as well as in the long-term requires a lot from the CENFORs both in terms of abilities and money. In their present state, the CENFORs cannot cope; therefore to carry out the work, an adequate support system must be created to strenghten the CENFORs. There seems to be every justification for an internationally financed SCFEproject for the Peruvian Sierra.
Extension services to small-scale industries: the Tanzania experience.
by H.M. Mwang'ombola Consultant Small-Scale Industries Development Organisation/SICATA Tanzania
The setting A common system for providing a wide range of assistance to small-scale enterprises is through extension services. These help entrepreneurs in identifying opportunities, diagnosing problems, assessing their own capabilities and weaknesses, and providing timely advice in all matters. The emphasis of extension services, their organisation, and degree to which they are associated with follow-up technical or financial assistance vary widely. This paper outlines the format adopted in Tanzania which emphasizes consultancy, training, and problem-oriented applied research. Introduction The socio-economic structure of the Republic of Tanzania favours the establishment of small-scale industries to help the country to achieve self-reliance, rural development and long term socialist transformation. Small-scale Industries (SSIs) require less capital Investment and shorter gestation periods, and provide employment to a larger number of people for a given cost. They help in taking industries closer to the resources in rural areas and thus favour balanced regional development and high level of community or cooperative control over the means of production. They also help in reducing income and other economic disparities. In recognition of these advantages the promotion of SSIs is a major element of Tanzania's development policy. In the Tanzania context, a small industry is defined as any unit whose control is within the capability of its people individually or collectively in terms of capital required and know-how. This includes handicrafts and cottage industries. The definition has deliberately avoided the use of internationally recognised criteria such as size of capital or number of employees, etc., in order to provide for more flexibility. SSI promotional efforts were started by the creation in 1966 of the National Small-Scale Industries Corporation (NSCIC) under the National Development Corporation (NDC). Due to operational inefficiency, poor planning and lack of an extension network, NSIC provided little constructive support of small-scale industrial development and was subsequently replaced by the Small-Scale Industries Development Organisation (SIDO) in 1973. Initial steps to establish a decentralised industrial extension service involved posting an SSI promotion officer (SIPO) to each region or province. This extension officer is supported by economists and industrial engineers in each region. On average, SSI entrepreneurs are persons with elementary education, artisans, skilled tradesmen and successful small merchants. Few people with a secondary or higher education are found in small industries. This implies that the management of such an industry is often based on common sense, intuition and personal values of the local community. Modern management principles are rarely explicitly followed. Thus the businessmen deal differently with time, rationality, achievement, traditions, beliefs and other values than expected in modern industry. The Western idea that “time is money” has
hardly caught on: this is apparent not only in the lack of punctuality and the amount of time spent on things like meeting friends during working hours, but also in the general absence of planning, which by its very nature, is time-based. Rational decision-making has a different meaning as well: decisions are generally not based primarily on production goals but on ties with the extended family, friendship and tribal affiliations. The so-called “drive to achieve” - expressed in the obsession with growth, in seeing hard work as a virtue in itself, and in strongly competitive attitudes - is yet to be adopted by many small entrepreneurs for whom other norms and values are equally or more important. Short-term successes are often enjoyed at the expense of long-term achievements. The entrepreneur often values above all else gaining social status and respect and he retains many traditions of an agricultural society. These include sometimes frequent extended absences to meet family obligations, or to attend lengthy meetings. They also lead to employment of relatives who may not necessarily have the required skills for a given SSI job. Main SSI problems Small industries have not been spared from the effects of Tanzania's severe economic problems. Almost all inputs present a problem: skilled manpower, finance, raw materials, machinery/spare parts, and sometimes information. The long distances involved in distribution, prohibitive transport costs (due to extremely high prices for fuel and spare parts, and the very poor state of main roads), and difficult communications have led to ever-higher black-market prices. As the cost of living has sky-rocketed, the purchasing power of the people has declined, so creating market problems for all industry including SSI. To some extent the many rules and regulations imposed upon private entrepreneurs have also kept the SSI from reaching their full potential during the last decade. But the cautious liberalisation which is underway at present will most likely contribute to betterment of the SSI situation. Some problems that face the small industrialists have to do with the industrialists themselves, most of whom are very inert to change. Firstly, the small-scale of activities itself results in poor competitiveness in the sense that, for instance, bulk buying of required raw materials at appropriate prices is not possible. Secondly, labour skills are often centred on only one person, the owner, instead of a number of workers specializing in certain steps of production. Furthermore, production methods and techniques are often obsolete and result in higher costs and lower quality products. Finally, the entrepreneur appears indifferent to market dictates, being more strongly influenced by culture and environment. SSIs are noted for making products according to the entrepreneurs' wishes, skill and standards rather than in response to market wishes. Wood-based SSIs in Kilimanjaro Region: main problems
The Kilimanjaro region of Tanzania (on which this paper is focussed) is known for its high intensity of commercial business. Of the small industries found in the area, metal working takes a lion's share followed by wood working industries, especially carpentry; though charcoaling cannot be overlooked. A rough physical count of wood based industries in the region revealed about 270 units in operation. The range was from those employing one person to those which have about 5 employees (both permanent and trainees). Randomly, a total of 49 units were visited by the author of which 42 were carpentry units, and the rest sawmills. Thirty-four of the enterprises were rural. A number of problems were mentioned most frequently by entrepreneurs. Most of the units visited lacked modern tools that could help improve efficiency. Where they used machinery, the equipment was often old and needed replacement or was often out of order for lack of spare parts. Since most spares must be imported and foreign exchange is practically unavailable, this problem can play serious havoc with production. It is worsened by lack of proper maintenance which is an important reason for breakdowns.
Another important problem is that the main raw material (wood) is not readily available in this region, though Tanzania has an abundance of forests. In this particular area of study, forests are scarce, and the few that can be found, do not produce the good type of wood needed for, e.g. carpentry; timber has to be brought in from very distant places, a factor that leads to very high prices of finished goods. Because of the rapid depletion of forests in Tanzania, the government has instituted very strong measures against tree felling all over the country. This has brought about a very low supply of timber in the market. Rough estimates have put the present supply of timber at a quarter of the previous decade. Naturally, this has contributed a great deal to the high prices of finished goods and a big lay off of labour in the wood industry. Thus while these 49 units together used to employ about 245 people (average of 5 per unit), they now have only 147 men working (average of 3 per unit). Also due to lack of foreign exchange, supply of components like nails, screws, glue, varnish, locks, hinges, upholstery, etc. is poor. These have to be imported. The few available can be bought in the black market where prices are exorbitant. Lack of
industrial specialisation and standardisation among SSI means that each one has to stock a wide array of costly inputs in order to meet all orders. A common difficulty arises with regard to markets and marketing: most of the industrialists interviewed were found to be the traditional type of craftsmen who are inert to change. They see fashion as foreign among them and do not respond to changing market tastes. This is reinforced by nearly total lack of a market information acquisition system; it is a matter of “make what you can”. No product differentiation is done to evade competition. The geographical market reach is also very limited and most are convinced that furniture cannot be exported due to its bulk. Finance problems relate to both liquidity and investment funds. Firstly, liquidity is often very low, because turnover is also low; and secondly, much money is tied up in stocks of raw materials that are often bought in unnecessarily large quantities due to their uncertain availability. The liquidity problem also prevails amongst some of these units because the enterprises are just supplementary sources of income to agriculture and so receive only limited attention. Long-term investment finance is also not readily available. Yet most small industrialists cannot secure loans from financial institutions because they lack proper financial records from which assessment can be made to demonstrate their viability to lending institutions. SSI entrepreneurs also have problems in convincing banks of their managerial competence which is an important consideration for institutional lenders. It is also reported that SSI inability to give security in the form of real estate, i.e. land or buildings is a problem in securing loan assistance. In Tanzania land has never been a major form of security, partly because the marketability of land is very limited owing to traditional restrictions on its transferability. Therefore, banks ask borrowers for guarantees by third parties, including public institutions like SIDO, which are not always able to stand for entrepreneurs they do not know. Expansion of guarantee facilities may help to resolve the problem. Financing problems also partly arise from weaknesses on the part of bankers. In general, banks lack accessibility to potential borrowers not only in terms of lending but also in project identification, project formulation, and technical and management guidance, which can be even more crucial problems than lending itself. Another problem is that of capability and efficiency of bank staff, worsened by inadequacy of qualified manpower. Where the industry owns modern equipment it is frequently faced by electric power cuts or voltage instability. For many places electricity is not available at all. Furthermore, few SSIs employ competent electricians to correctly wire and service equipment so that breakdowns or damage are common. Shortage of skilled labour is a common feature of small industries. Many workers are self trained artisans whose skills are normally low. Family affiliations of the owner often dictate selection of workers, regardless of their skills. Also due to low wages, labour turnover is very high, especially in the urban areas. The more skilled workers often move
from small industries to larger ones, in search of better pay and employment security. SSIs are therefore often forced to rely on cheap casual workers or less qualified personnel and as a result their productivity is poor, and workmanship is irregular and unreliable. Official assistance to SSI development Government has attempted to provide assistance to the small-industry sector in solving the problems outlined above. Some improvement has been ensured through policy changes intended to improve the environment for SSI operation but more emphasis has been on providing extension services to improve SSI performance. Supply of key inputs (finance, raw materials, equipment, etc.) often accompanies the extension support. Extension services The provision of efficient industrial extension services is one of the most important forms of assistance offered by SIDO and by some financial institutions like commercial banks. This type of assistance is primarily oriented towards servicing existing production capacity. It is concerned with improving the organisation of production and the technologies of both product and production processes. The overall objective is to improve efficiency and increase production, quality and product design. For the already established small industrialist SIDO has instituted a project under the name of “Small Industries Consultancy And Training Assistance (SICATA)”: this is a semi-autonomous project to cary out consultancy, training, and problem oriented applied research. The project team conducts for entrepreneurs detailed studies of plant layout, production processes, product designs, plant maintenance. From these studies, SICATA is able to tailor-make training programmes for upgrading entrepreneur skills. No two programmes are identical since target groups dictate the type of course content required. Special attention is given to markets and marketing for which the SICATA project gives tailor-made training to develop skills in market research, target setting, product design, pricing and selection of optimal marketing channels. SIDO also runs a “Transfer of Technology” programme which involves linking one firm from a developed country to one in Tanzania. An example of the methods adopted in technology transfer is the SIDA-financed “sister industry programme” with Sweden whereby Swedish Small and Medium Scale Industries enter into specific technology transfer agreements with SIDO for establishment of various small-scale industries in Tanzania. The Swedish partner firm provides machinery, know-how, and start-up raw materials. Over a short period, Tanzanian workers are trained in the Swedish Sister Industry which also sends its technicians to install the unit in Tanzania and provides additional on-site training for workers at all levels. This programme has proved to be advantageous in that it minimizes entrepreneur's expenses on research and product development and has a short gestation period. 1/
For an evaluation of the merits and problems with “sister-industry” and other technology transfer methods, see the article by El-Namaki (In this publication). El-Namaki also discusses the SICATA system. Assistance accompanying extension services Assistance in raw material procurement is an important activity. SIDO endeavours to ensure adequate and suitable procurement of raw materials for the SSI sector. It has formulated suitable policies and procedures for distribution of various raw materials to industries which command higher priority in the national economy. Specific assistance is rendered to existing enterprises in switching over from imported to indigenous raw materials wherever technically and economically feasible. An example has been successful substitution of local for imported wood for manufacturing pencils and kitchen knife handles. SIDO purchases raw materials and stores them at established centres, usually at the head and regional offices, for distribution to entreprises served by them. Where scarcity of raw materials is due to foreign exchange problems, the ability of SIDO to procure essential materials for SSIs is particularly valuable but it is not able to meet all equirements. With regard to finance, SIDO provides credit to SSIs to supplement the very limited assistance from banks which have so far proved reluctant to finance the sector. For this credit system, SIDO depends on annual government budgetary allocations in order to promote the growth of small industries in the country. The allocations finance among other things the SIDO's hire purchase scheme which has come to be the main source of financing for small-scale industries. Under this scheme SIDO sells the machines to small entrepreneurs on hire purchase basis on moderate terms. This assistance has had a “snow ball” effect, in that the National Bank of Commerce and other financial institutions have now come forward to help such entrepreneurs with working capital and long term capital, hereby increasing the total investment in SSIs. Such hire purchase benefits have unfortunately so far been mostly accessible to urban entrepreneurs.
SIDO also helps small industries in applying for bank loans. SIDO guides them in preparing all necessary financial reports required by banks and may sometimes also act as loan guarantor to able entrepreneurs who have no security or collateral. In spite of SIDO help, SSIs continue to face severe problems with the many rules, regulations and procedures associated with bank lending. In the field of marketing, the Government, through SIDO undertakes promotion of products from small-scale industries by way of trade fairs, both in local and foreign markets. SIDO displays SSI products at its pavilion at the Dar-es-Salaam International trade fair grounds. In cooperation with the Board of External Trade, SIDO represents SSIs with export potential at various trade fairs. Recognising that marketing functions start from conception of the idea to produce, SIDO also advises entrepreneurs on product design, quality of raw materials required, and quality of product itself. SIDO has also established retail shops for small industry products which serve as “taste centres” and points from which to disseminate market information to small-scale industrialists. In order to develop technology and management, SIDO emphasizes improvement of personnel skills rather than equipment or facilities. Special courses are conducted for supervisors and managerial personnel in order to expose them to new skills such as financial management, planning and cost accounting. Entrepreneurs are trained in business management as wee as in production techniques. SIDO has 15 Training-Cum-Production centres where entrepreneurs are trained in specific production fields such as fruit and vegetable preservation/canning, hand-made paper, or soap making. These centres also offer training in basic industrial skills such as machine shop, electrical or foundry practice; or in trades like carpentry, fitting/turning or sheet-metal work.
Roadside tree plantation
Decentralising institutional support for small-scale enterprises.
by Dr. Enyinna Chuta Modibbo Adama College University of Maiduguri, Nigeria Introduction In its broad sense, the word institution consists of, inter alia various policies in the form of official government statements or measures, programmes and projects, and organisational arrangements which are meant for promoting socio-economic development in any given country. Most often the policies and measures are economic and include industrial, agricultural, financial, technological and marketing instruments. There are also legal dimensions which ensure that the various institutional arrangements are implemented. However, to the extent that the various arrangements do not have impact at the grassroots, rural industries and forest-based small enterprises would be greatly handicapped. A major reason for the ineffectiveness of existing policies and measures is inadequate or total lack of decentralisation of institutional facilities. The purpose of this paper is to review the existing state of knowledge on decentralisation as a strategy of rural development and examine empirical evidence on decentralisation efforts with particular reference to rural industries. An attempt will be made to identify factors which are crucial for decentralising facilities for forest-based industries. Finally, some conclusions will be drawn on possible lines of action. Objectives of and progress in decentralisation Any decentralisation strategy must identify factors or objectives which give rise to such efforts, examine various forms of decentralisation and in what context it can take place. In countries where a decentralised development strategy has been adopted, a combination of factors has been responsible. Rondinelli (1983) has identified at least five of such factors, namely, deficiency of central planning and management, a shift of emphasis from growth to an equity-maximisation objective in the promotion of the heterogeneous and extensive informal sector, need for expeditious action, and emphasis on principles of mass mobilisation and self-reliance.
In spite of the expressed desire of many countries to decentralise government services in general, and small-scale industry support facilities in particular, little progress has been made so far. The preliminary results of a study in progress on eighteen institutions in developing countries show the extent of decentralisation of essential services for rural industries. Our survey results show that none of the eighteen institutions have decentralised their facilities to divisional or district levels. Twelve out of eighteen institutions operate at state, regional or provincial levels without further decentralisation to rural areas. Only three of our responding institutions use some form of village level organisations (rural cooperatives, youth brigades, village councils, etc.) to promote rural industry. Not only may such organisations have a potential for facilitating a participatory role of rural enterpreneurs in the development process, they may also lead to a reduction in the cost of delivering essential services to large numbers of small rural producers. Processes of decentralisation Four major forms of decentralisation process have also been identified (Rondinelli, 1983). The first process, namely deconcentration involves shifting of workloads within the central government hierarchy to field projects. In Thailand deconcentration was achieved through the provision of special financial grants for certain projects, in Pakistan through local co-ordination of various ministerial efforts at the grassroots, in Sri Lanka through district administration and in Indonesia through provincial development planning. Delegation is the second process: it attempts to transfer functions to semiautonomous field units like the 1970 Small Farmers' Development Agency in Malaysia. A third process of decentralisation known as devolution attempts to transfer functions to government agencies at state, provincial, district or local government level. The 1980 District Development Councils in Sri Lanka constitute an example. Finally, private nongovernment agencies have been used as avenues for decentralisation. Experience from Asia shows that decentralisation has, in most cases, taken the form of deconcentration and delegation. The District Development Council (DDC) is probably the only example of devolution as a form of decentralisation in the region. However, by denying rural producers important decision-making roles, the DDC's in Sri-Lanka faced numerous problems. The use of non-governmental agencies is poorly documented and perhaps not well understood. Thus the achievement of mass mobilisation and selfreliance as a key factor in any decentralisation process is far from being realised. Village-level organisations have been studied by Brown (1982) with regard to their role in rural industries. Two major types of village-level organisations which have the potential for promoting rural industry in developing countries, are community-based and group-based organisations. A central feature of community-based organisations is the fact that they address more fully the need for grassroots participation in order to bring about real change at the village level. Integrated community-based organisations are the most successful at achieving integration and participation at the grassroots. There is emphasis on programmes which integrate various projects, different levels of ministerial inputs and services of various organisation. Other forms of community-based-industries, Chinese
brigades, and Israeli Kibbutzim; all three share the positive quality of being highly efficient, and integrated with agriculture. Another type of community-based organisation, namely village cooperatives, have been reasonably successful in promoting rural industry. A major accomplishment of such cooperatives has been their ability to reduce dependence on the exploitative tendency of middlemen. The key to their success also seems to rest on strong leadership, and high income level of the villagers to foster the purchase of shares and other activities. The ability of low income villagers to participate and benefit has not yet been demonstrated. Group-based organisations have achieved varying degrees of success in promoting rural industry. Organisations such as cooperatives can more effectively promote rural industries if they serve as an effective two-way channel of communication between the people and the government, and if they receive the needed raw materials, have access to efficient marketing channels, and members are trained in pertinent skills. As an example, the youth brigades in Botswana have a genuine concern for financial viability. However, most brigades in Botswana (with the exception of the builder's brigade), have problems in securing a market for their products as well as defining their relationship with government. What appears crucial is to determine how village-level organisations fit into a country's development plan and how this relationship can be best utilised. Hauling logs - a mixture of old and new Approaches in rural industrialisation and decentralising services for it In addition to the question of form of decentralisation process, a major issue that has to be addressed is the context in which services for small enterprises have to be decentralised. In many countries several approaches have been utilised for the promotion of rural industries (Chuta and Sethuraman, 1984). The problem-oriented approach tends to focus on constraints and so we have credit loan schemes, raw material banks, industrial areas, etc. The sectoral approach covers the broad spectrum of problems for small enterprises without distinguishing between specific activity types in the sector. Most small enterprise or rural industry programmes include agro-based or forest-based enterprises. A third alternative approach has been to develop rural industry within the frame-work of Community Development Programmes. An example of this approach is the Integrated Rural Development Programme. The unique characteristics of forest-based small enterprises and the relative merits of alternative processes and approaches will have to be understood before determining their appropriate mix in any decentralised and integrated efforts. Although the Chinese model of rural industrialisation may not be transferable in its entirety to other developing countries, there are a few insights. First, maximum use of local resources is crucial. Second, promotional strategy considers important sectoral linkages which constitute a basis for future growth of the enterprise. Third, the role of the subsector (in our case, forest-based enterprises) in overall industrial development strategy should be clearly understood.
Despite the relative importance of rural industries in the development process, there are only a handful of developing countries where specialised rural industry institutions have been established. Notwithstanding their paucity in developing countries, rural industry institutions continue to face a unique and difficult task of inducing change in a rural milieu. Since the development of rural industry is part and parcel of the entire process of rural development (including agricultural development), rural industry institutions have to consider issues relating to the linkages between farm and rural non-farm activities (especifically, food processing, agricultural tools and implements, etc.) while at the same time cater to the promotional needs of other non-farm rural small-scale enterprises (such as artistic and utilitarian handicrafts) which constitute productive employment in rural areas. Since rural industrial production units have to depend on some nearby towns for marketing and other special services (such as banking, etc.), rural industry institutions have to consider problems related to the accessibility of essential services to their clients (Chuta, 1985). Decentralisation of services is essential for this. The general poverty of rural people and the presence of sectoral (farm, rural non-farm) and locational (villagetown) linkages characteristic of rural industry promotion, present difficult problems which cannot be solved without the cooperation, coordination and collaboration of government ministries or departments at all levels of administration (national, provincial, district and village). Strepping bark from grewia mollis - used for tying house rafters In some countries, rural industry institutions exist alongside parallel organisations which are specifically designated to promote cottage industries, handicrafts and small enterprises. The lack of existence of rural industry institutions in most developing countries and their coexistence with parallel institutions in a few others raise questions which need to be addressed. One major issue is whether existing institutions and the services which they provide are decentralised enough at the grassroots to have the desired impact on the numerous and heterogeneous small enterprises which exist in rural areas. Furthermore, it would be important to ascertain the nature of constraints which hamper the capacity of institutions to service the needs of rural industry. From the survey of eighteen institutions referred to earlier, responses show that the range of services needed by rural enterprises is wide. Our survey results show that technology training and management services seem to be the major areas of need. The need for credit, raw material and marketing services are also important. However, almost all the responding institutions are unanimous on the greatest obstacles encountered while delivering services to rural enterprises. Such obstacles include lack of adequate infrastructure, namely roads, electricity, transportation or vehicle and communication facilities. In two countries, Malaysia and Ecuador, a major obstacle identified is the poor receptivity of rural producers to new ideas. Gabon is the only country which points out that the lack of a well-defined rural development policy is a major obstacle in the promotion of rural industry.
In terms of suggested remedies, most institutions emphasize the need for greater decentralisation of promotional efforts at the grassroots, and general infrastructural development. But it is also clear that in some developing countries promotional efforts will have to focus on the development of innovative attitudes and profit motivation. For example, in Malaysia the adoption of innovative schemes which include training in the proper use of idle time and increased awareness of monetary values has been emphasized. These training components seem also to be crucial for Malagasy where the existence of an extreme subsistency economy is mentioned as a major obstacle in promoting rural enterprises. Notwithstanding all this, the lack of adequate finance continues to be one of the major constraints. However, the Indian experience points to the fact that organisational and administrative problems, if not solved, can become a major obstacle in delivering services to rural enterprises. An important question to ask is how rural industry institutions can have an impact on rural enterprises without their being located in villages. Our survey shows that all the institutions which returned completed questionnaires relied on extension mechanisms for delivering services to rural enterprises. The extension methods which proved the most effective are, first, on-the-spot individualised interaction with production units, and second, group demonstrations at the premises of institutions. Other outreach avenues mentioned include radio, workshops, trade fairs, television and handouts, and their use varied between countries. In India for example, all such means of outreach are utilised. Both the individualised and group-oriented extension approaches have inherent problems. While the former has been shown to be too costly and insufficient to have the desired impact on large numbers of rural enterprise, the success of the later depends on how convenient it is for rural enterpreneurs to assemble in urban-based facilities for group demonstrations. Implementation factors Rondinelli (1983) has suggested four factors which can make for a successful implementation of any decentralisation process. First, there has to be political and administrative support. The promotion of forest-based industries should be an integral part of forestry development policy of governments. Administrative machinery should also be provided for practical implementation of policy. Lack of administrative support and coordination was a major weakness of Integrated Rural Development Programmes in Pakistan. The second important factor deals with attitudinal and cultural variables. Without mutual trust and confidence, it is inconceivable that village cooperatives and associations can succeed. The right leadership for village level organisation is a prerequisite for successful decentralisation. Training in this regard is vital. Third, there are organisational factors which impinge on the linkage of decentralised units with higher level authorites. This linkage is important for the effectiveness of implementing agencies at the grassroots. The nature of the linkage will of course depend
on the form of the decentralisation process. The Integrated Rural Development Programme would be the link in a case of deconcentration process. Finally, there are resource factors. Without the necessary finance, skill of trainers and raw materials, decentralisation effort will be constrained. No matter how efficient field officers might be, if they cannot receive their salaries regularly, mobilise local raw materials and have access to important tools and equipment at the grassroots, the success of any process of decentralisation will be very limited.
Conclusions Table 28 summarises issues related to decentralisation and lists the main forms decentralisation can take. The need for decentralised support for forest-based small industry stems from the need to ensure distributional equity and promote self-reliant development. The pursuit of these objectives need not however, exclude goals of achieving the growth of the subsector. Services to be decentralized should focus on technology and skill development in the context of either the problem-oriented, sectoral or community development strategies. In fact, there is no reason why forest-based industries cannot be promoted within existing sectoral programmes. The exact pattern of decentralisation deserves careful consideration. At the provincial level the methods of deconcentration and/or delegation can be effective. Entrepreneurs in these locations will have the requisite education, finance, and management capacity to fit into the bureaucratic system of government agencies. Thus industrial estates or common services facilities located at the district level could effectively be utilized by furniture and wood-processing enterprises. However, at the grassroots, channels of decentralisation should include community-based organisations, village cooperatives and trade associations which allow for democratic identification of problems and solutions in the
most informal manner. Thus, participation can be engendered by clear perception of benefits to be derived (Holcroft, 1984). Afforestation campaign programmes could become more effective if such efforts are tied into the activities of village-level forestbased enterprise cooperatives who can now produce their own inputs. Table 28: Summary of issues and approaches to decentralisation - Should be mass mobilisation & participation at grass-roots level; self-reliance. RATIONALE: - Deficiency of central planning and management to achieve set objectives. - Lack of acquaintance with problems at grass-roots. - poor transportation and communications in rural areas. FORMS: Type Description Remarks Deconcentration Central control through - economic district/provincial administration - but ineffective form of remote control - unduly beaurocratic Delegation Semi-autonomous field units - beaurocratic bottlenecks (integrated rural development - takes over decision-making project) role of small producers Devolution Transfer of functions to government - beaurocratic bottlenecks at local level (e.g. District - Takes over decision-making Development Council) role of small producers Non-Governmental Includes village-level group - and - the only form aimed at Organisations (NGOs) community-based organisations achieving objectives of (cooperatives, associations) decentralisation - cost-effective SUITABILITY OF FORMS OF DECENTRALISATION: - The NGO forms are most suitable for promoting rural-based cottage & handicraft activities - Delegation forms are suitable for promoting small workshop/factory types of enterprises via autonomous units such as rural technology centres, industrial development centres, etc. - The effectiveness of deconcentration and devolution forms is questionable ISSUES: 1. How to decentralise without caking away the decision-making role of small manufacturers. 2. What criteria to use for determining the superiority and appropriateness of any decentralisation process. 3. What costs and benefits are associated with centralised promotional effects versus decentralised ones. OBJECTIVE:
4. Whether FB-SSEs can be effectively promoted within existing framework of rural industrialisation/small industry programmes.
It is conceivable that processes of deconcentration and delegation could incorporate the use of government agencies in delivering the needed service at the grassroots. This can be achieved through the medium of efficient on-the-spot extension mechanisms. No decentralisation process which ignores infrastructural development can succeed (Lele, 1975). Since products of rural sawmills must reach secondary forest-based industries located in small and large towns, provision of necessary access roads is important. Infrastructural development will also reduce input prices and therefore prices of finished products. Other factors, administrative, organisational, cultural and resource-wise, which affect the implementation of any decentralisation programmes should also be addressed. The need to establish regional centres for economical production of equipment and execution of training programmes needed at the grassroots should be given serious consideration.
Institutional support for small-scale rural processing enterprises: the case of India.
by Dr. K.P. Parameshwaran Retired Commissioner for Small-scale Industries Government of India, New Delhi Introduction In India, the latest definition of a small-scale industry (SSI) is any unit with an upper limit on investment (in plant and machinery) of from Rs. 0.20 million to Rs. 0.35 million in the case of SSI and Rs. 0.45 million in the case of ancillary units. What is called the village and small industries (VSI) sector comprises both traditional and modern small industries; it is constituted by eight specific groups viz. Handloom, Handicrafts, Coir, Sericulture, Khadi, Village Industries, Small-Scale Industries and Powerlooms. The last two items constitute the modern group of industries, the others being traditional. In the economic development of India, a strategic position has been given to the development of village and small industries (VSI) which constitute an important segment of the overall economy. Next to agriculture, the VSI sector provides the greatest employment opportunities, a considerable portion of which is in rural and semi-rural areas. It contributes about fifty percent of the value added in manufacturing.
India's overall policy on all industrial development is contained in the Industrial Policy Resolution of 1956, as amended from time to time. New priorities have been developed as and when required including some designed to reduce the basic handicaps of smallscale industries. The latest of these is the Industrial Policy of July 1980 which alms to harmonise growth in the small-scale sector with that in the large and medium sectors and to remove the dichotomies between the two sectors. During the sixth plan period (1979-80 to 1984-85) production in this sector increased from Rs. 335380 million to Rs. 657300 million at current prices and employment from 23.37 million to 31.50 million persons. The latter figure represents nearly 80 percent of the entire industrial employment. Of this total, modern small-scale industries employ 9 million people; next in importance is the handloom subsector which employs about 7.5 million people. During the seventh plan period (1985-90) the total value of production of the VSI sector is expected to increase by about 52.4 percent and employment by 27 percent to 40.0 million. The seventh plan also lays emphasis on the necessity of providing a new thrust for tiny units having fixed investment of less than Rs. 0.2 million. They form nearly 90 percent of the total number of small-scale industrial enterprises. A modified strategy will provide adequate facilities in rural and semi-urban areas which will increase dispersion of these industries. Table 24: Growth of Village Industries (VIS) Table 24 shows the changes in value of production and employment in village and small industries during the period 1973-1985. In terms of value of production, the traditional industry share has declined from 16 to 12 percent; that of modern small industries has risen from 68 to 87 percent. In terms of employment, similar direction of change has occured but traditional industries still account for an important 57 percent of total VSI employment and modern industries 40 percent. Key Problems The impressive recent growth of village and small industries recorded above suggests a healthy sector. This is in general true but a number of problems continue to face the sector. An important one is that the interdependence of the different strata of industry (large, medium and small) has not been fully realised. Thus, for example, schemes for making VSI ancillaries of large industries have not spread as widely as had been hoped for. The second problem is that many VSI are technologically obsolete and this has restrained their growth. They are also undercapitalised, use outmoded equipment and exhibit low productivity and high production costs. Furthermore, many small units are sickly and significant numbers of them are going out of business. Some of these should never have been started as they are in activities where prospects are too poor to justify further encouragement of VSI development. Another important problem is that in the name of backward area development, industries have been set up in inaccessible areas where there are no distinct advantages of raw materials or market. This has resulted in considerable increase in production costs.
Marketing arrangements continue to be a hurdle in spite of official schemes to favour VSI. Reservation of some official markets for VSI has been abused: it is noted for example that many small units tend to overprice their goods due to the absence of competition from larger scale industries. With regard to raw materials, small-scale enterprises still have to purchase these in small lots and through middlemen, which results in high costs. By contrast, large industries are offered raw materials at lower cost under long-term agreements. Finally, there is no unified law so far to protect or regulate small-scale industries. Instead, a wide array of laws and ad hoc regulations apply to the sector, some on a local basis. There is accordingly much room for misinterpretation and for inadvertment infringement of regulations. This leads to less than orderly development of the small-scale sector. Institutional framework Official Assistance Institutions For developmental purposes, the entire field of village and small industries has been grouped broadly under six different areas. Each area comes under the overview of one of the following organizations set up by the Central Government: a) The Small-Scale Industries Board b) The Khadi and Village Industries Commission c) The All India Handicrafts Board d) The Central Silk Board e) The Central Coir Board f) The All India Handloom Board The last three have specialist responsibilities reflected in their names. They will not be discussed further in this paper. The Small-Scale Industries Board is chaired by the Union Minister of Industry with the Development Commissioner for Small-Scale Industries (DCSSI) as its Member Secretary. Other union ministries, state governments, SSI associations, financial institutions, eminent industrialists etc. are represented on the board. As the Secretariat of this board the office of the DCSSI (also known as Small Industries Development Organisation (SIDO)) is the nodal agency for formulating, coordinating and monitoring the policies and programmes for promotion and development of small-scale industries in the country. Facilities are provided by SIDO through a network of 26 small industries service institutes (SISIs), 20 branch institutes, 40 extension centres, product and process development centres, production centres, field testing stations etc. in areas where specific types of industries are concentrated.
A range of specialised institutions have been set up for providing assistance to SSIs. These are the National Small Industries Corporation, the National Institute for Entrepreneurship and Small Business Development, the Small Industries Extension Training Institute, Integrated Training Centre, and several centres or institutes on tools design and training. Operating in parallel to SIDO is the Khadi and Village Industries Commission (KVIC) which is a government-financed statutory body responsible for selected types of village industries including Khadi.1/ The national KVIC formulates the broad pattern of development needs of the village industries many of which are in the “tiny” category and are traditional. Similar action is taken by the state level KVI Boards which are jointly funded by the respective State Governments. The KVIC also operates through registered institutions and Cooperative Societies which are directly financed by the KVIC or partly through respective State Governments depending on whether they serve more than one state.
Khadi is traditional Indian cloth which is fully handmade.
An essential form of transport in country districts All-India Handicraft Boards are a third set of national institutions which oversee implementation of small industry programmes. Some states have also set up Handicrafts Development Boards to supplement the activities of the All India Organisations. In areas of concentration of particular handicraft items, Research and Development Centres, Design Centres etc. are established. Small Enterprises' Organisations The large number of official assistance institutions at national, state, and lower levels still have problems in reaching their dispersed clientele. Small industries have attempted to facilitate access by grouping themselves into associations. Such associations also provide direct assistance to their members but their most important role is probably that of lobbying for small-industry interests in dealings with the authorities. The most prominent VSI organisations are outlined below. At the top is the Federation of Associations of Small Industries of India (FASII), established in 1959, whose main aim is to promote the development of small-scale industries. The Federation has set up functional and industry-wise panels at national and regional levels which are consulted by the central and state governments in framing policies and providing assistance to SSI units. Recognised as the national apex body, FASII has been given representation on all committees of the Central Ministries as well as State Governments. The federation has played an important role in changing the definition of small industry, seeking reservation of items for exclusive SSI production and supply and negotiating a host of other concessions to small industries. Membership includes associations at all levels, prominent individual units, and industry-specific associations.
Small-Scale Industry Cooperatives have been organised in almost all fields of village and small industries. In the case of many subsectors the progress has not been significant so that there are still under 0.1 million cooperatives. At the national level, a National Federation of Industrial Co-operatives (NFIC) exists which assists in local and overseas promotion and marketing of cooperative products and imports scarce raw materials, components and goods for its members. Societies at state and regional or district levels and large primary societies are members of the NFIC while the Government of India and the State Trading Corporation are shareholders. The Federation concentrates marketing attention on a few priority products (wood carvings among them). There is also a National Alliance of Young Entrepreneurs (NAYE) which works to safeguard the interests of young entrepreneurs; it has a special wing for women entrepreneurs. The Alliance is represented in the metropolitan cities and in all states. Assistance to small industries development India provides a wide array of assistance programmes to promote small industry development. They can perhaps be conveniently grouped under four headings as follows: - Assistance in expanding markets (including preference in purchasing by government; support in joint tendering for government purchase contracts; price preference; and reservation of certain product lines or industries for only small-scale manufacturers). - Supply of essential raw materials. - Provision (and subsidy on cost) of finance for investment and working capital. - Provision of technical assistance and other advisory services. Policy and implementation bodies along all these lines exist at national and state levels and sometimes also lower down. Many forms of assistance are given from the large variety of institutions but an attempt has been made to provide “one window” bassistance through District Industries Centres which directly provide all assistance or at least coordinate it. Assistance in expanding markets Reservation for small industries of certain items is a policy whereby the central government and many national organizations buy exclusively from the SSI sector in order to solve the market difficulties of the SSI units. As at the end of March 1984, 404 items were included in the list for exclusive SSI supply. Table 26 gives the list of forest-based products which fall into this group. In addition, there were 12 items to be preferentially procured from SSI units up to 75 percent and 25 items up to 50 percent of total requirements. Central government also offers 15 percent price preference to tenders by SSI; many states offer the same.
Government has also recognised that since individual SSI units are scattered throughout the country and their resources are limited, they find it difficult to participate in government stores purchase programmes even if certain items are reserved for them to supply. It accordingly allows state SSI corporations to tender on behalf of the small-scale units. Government also reserves certain industries or product lines for exclusive manufacture by the small-scale sector provided that such articles/goods can be produced economically by small enterprises. The total number of items so reserved stood at 126 in 1968 but had reached 872 in 1984. Table 27 gives the list of forest-based products which fall into this group. In the case of other items reserved for production in the SSI sector but not included in the list of items for exclusive or preferential purchase, a 15 percent price preference is given. The combined effect of the above favourable discrimination in marketing and market opportunities has been to increase the small industry share in government's total indigenous purchases from about 7 percent in 1973/74 to 12 percent by 1983/4. A facility which mostly aims at expanding small industry markets but also helps in promoting their technological improvement is “ancillarisation”. Under this scheme, a small industry is deliberately created to be or is transformed into being an ancillary of a larger industry on a formal sub-contract basis. The incentives for the large industry include access to cheaper loans, assured raw material supply etc. The programme is run by state level ancillary advisory committees which also plan and provide infrastructural facilities. The Committees include representatives of large industrial units, public sector undertakings, private sector associations of industries, development agencies, financial institutions, and ancillaries themselves. Plant level committees on ancillary development also exist in public sector undertakings and large industrial houses. Table 26: List of forest-based items which can only be purchased by government from the SSI sector. Wooden items - Crates - Tool handles - Hand drawn carts - Teak Blocks - Tent poles - Shelving - Wood wool - Plugs - Ammunition boxes - Chairs - Mallets - Flush doors
- Wooden Pins - Veneers Other - Cane baskets - Bamboo cool handles - Brooms Mats and matting (which includes items made from forest materials) can only be purchased from the handicraft: sector.
Table 27: List of forest-based products reserved for exclusive production by the SSI sector Seats for buses and trucks Wooden truck bodies Wooden crates Tea chest plywood Seasoned wood Wooden sewing machine covers Cable drums Tent poles Wooden plugs Wooden or bamboo handles Teak blocks Wooden storage cupboards Shelves and racks Wood-wool Hockey stocks Wooden flooring tiles Wooden boats Natural oils of cashew shell, sandal wood, pine, eucalyptus Turpentine Wooden furniture and fixtures
Supply of essential but scarce raw materials Policy favours imports where they give further impetus to exports and support the growth of indigenous industries. During the period 1982-84, the share of SSI in total value of industrial-input imports averaged 26-28 percent, the rest having gone to larger industries. Out of the licenses issued for the SSI sector in 1983/84, those for raw materials/components accounted for 59 percent by value. Scarce indigenous raw materials are allocated to State Small Industries Corporations (SSICs) at the beginning of each year for distribution to SSIs as needed. This arrangement enables the SSI units to obtain their requirements on an as and when required basis. The assured supply of scarce raw materials enables SSI units to plan their production programme well in advance. Provision of subsidized finance
Financial outlays by central and state governments to VSI grew from Rs. 52 million in 1951/56 to Rs. 6161 million in the 1980/85 development plan. The proposed figure for 1985/90 is Rs. 11205 millions. These government financial outlays form a minor portion of the total flow of funds to the SSI sector. Much larger resources are provided by the network of Commercial Banks, Cooperative Banks and Regional Rural Banks, State Financial Corporations, State Industrial Development Corporations, and the National Small Industries Corporation. There has been consistent growth in the availability of credit facilities extended by Commercial Banks. During the 5-year period of 1979/83 the annual disbursement had nearly doubled in volume to Rs. 50506 million lent to 1.23 million enterprises. Such loans are covered by the Industrial Development Bank of India (IDBI) under its refinance scheme. All loans up to Rs. 0.5 million are covered by the automatic refinance scheme at the concessional rate of interest. State Finance Corporations also lend to the VSI sector (also eligible for refinance by IDBI at concessional rate of interest). The IDBI itself lends heavily to SSI: the total assistance provided by it to the VSI sector up to March, 1986 was Rs. 52850 million. Its annual financing has doubled between 1979/80 and to 1982/83 when it reached Rs. 2902 millions, which included refinancing of advances made by other institutions. The interest rate charged by IDBI for refinance differs for various purposes. It is as low as 6 percent in specified backward areas but range between 8.25 and 9.58 percent in nonbackward areas. The IBDI is the apex financial institution providing assistance to industries of all types and sizes. The SSI sector's share in IBDI disbursements has increased from nearly 16 percent during 1970/75 to about 31 percent in 1980/85 and IDBI has now established a separate Rs. 25 billion fund called “Small Industries Fund” to take over the bank's own existing and future assistance to SSIs. This new fund is expected to pay particular attention to “micro” industries. In order to ensure that financial institutions do lend to small-scale industries, the Reserve Bank of India requires all Commercial Banks and other financing institutions to ensure that at least 12.5 percent of the total credit advances is reserved for weaker sections like rural artisans, village craftsmen, or cottage industries. Some specialization exists in types of lending: the commercial banks provide the bulk of short-term advances to SSI units and the state finance corporations provide long-term loans. Both types of finance are made available at relatively low rates of interest for the SSI sector, the present schedule being as under: Type of loan (%) Composite loans up to Rs. 25,000 Rate of interest
i) Backward areas ii) Other areas Short-term advances i) Up to Rs. 0.2 million ii) Over Rs. 0.2 million to Rs. 2.5 million iii) Above Rs. 2.5 million Term loans i) Backward areas ii) Other areas
10.0 12.0 14.0 16.5 18.0 12.5 13.5
The financing referred to so far is available for a wide range of purposes. Additional specific modes of financing are adopted to cover purchase of machinery and to encourage growth of VSI into the medium-scale sector: these include a bills rediscounting scheme; provision of seed capital; interest-free sales tax loans; national small industries corporation hire-purchase; and state investment subsidies. The bills rediscount scheme is operated by the Industrial Development Bank of India which covers bills/promisory notes arising out of sales of indigenous machinery on a deferred payment basis. Bills/Promisory notes drawn in favour of or by the machinery manufacturers are in the first instance discounted by them with their banks which in turn rediscount these bills with the IDBI at concessional interest rates of from 9 to 10.25 percent. In India, tree planting close to SSE's also receives official support Seed capital is provided by the government for technically or professionally qualified or skilled SSI entrepreneurs who want to expand to medium scale. The seed capital is an interest-free equity loan carrying a service charge of one percent p.a. and an initial moratorium of up to 5 years. Small enterprises expanding into medium scale units are also eligible to get an interestfree sales tax loan equivalent to the sales tax paid by them for a period of 3 years prior to proposed expansion. This loan is repayable in three equal annual instalments after a moratorium of six years. The National Small Industries Corporation enables the SSI sector to obtain local or imported machinery and equipment through its long-term hire purchase scheme. The SSI generally deposits 10 percent of the value of the machinery and this outlay is eligible for refinance from IDBI at concessional rates of interest. Finally, the government encourages rural fixed investment by paying a 15 percent subsidy or Rs. 1.5 million (whichever is less) for SSI units set up in notified backward
areas and new industrial complexes in selected places. Some State Governments also pay subsidies of varying generosity to selected priority categories of industries set up in areas not covered by Central or State level subsidy schemes. It is clear from the foregoing information on finance that many incentives are provided. In order to control the direction of industrialization, the incentives are sometimes made selective in nature when the government feels that (a) a subsector is overcrowded (b) the activities are not essential and socially beneficial in nature or (c) attraction of private initiative is high even without incentives due to the industry's potential profit earning capacity. Precaution is also taken to ensure that the enterpreneur has sustained and continued stake and interest in the project. The entrepreneur is therefore required to make a minimum contribution which ranges from 15 percent for “technocrat entrepreneurs” and for all backward areas, to 20 percent in other cases. To reduce waste of resources, government also insists that the financing institution make a detailed technical and financial appraisal of the project before sanctioning assistance. In order to ensure prompt repayment, a penalty of 5 percent per annum is levied on the defaulted portion of loans. There is also a commitment charge of one percent payable by the enterpreneur (0.5 percent in backward areas). Banks retain first claim on fixed assets created from their loans. Provision of technical assistance and general advisory services A systematic review undertaken during the mid-seventies revealed that the benefits of the SSI programme were, by and large, limited to those situated in urban and semi-urban areas and were used mainly by modern mechanised SSI units. It was therefore decided to create District Industries Centres as focal points for industrial development in every district of the country. The functions of these District Centres (whose costs are shared equally by central and state governments) are: to coordinate promotion of small, tiny, village and cottage industries; to provide all services and support at pre-investment, investment and post-investment stages to the decentralised industries sector under a single roof; to provide incentives for industrial units to be set up in rural areas which will mainly supply local markets and use local raw materials and skills. Each district centre can have functional managers for Economic Investigation, Credit, Village Industries, Raw Materials, Marketing, Training Information, Infrastructure etc. depending on the local need. Technical assistance in each field is obtained from the nearest Small Industries Service Institute. The vital aspect of this programme is the “single window concept” and delegation of powers to the local level in respect of administrative, financial, and external trade matters. It is now reported that the District Industries Centres (which are spread over the entire country), have not fulfilled all their tasks. It appears that they need to be strengthened and given adequate inputs for establishing small units in rural areas.
A second thrust of assistance is entrepreneurial development. This started in the 1960s with training of unemployed but technically qualified engineers. Subsequently the scheme was expanded to cover different types of entrepreneurs such as (a) agriculturists who had sufficient capital but did not know investment channels, and (b) merchants who desired to also manufacture their own goods. Funding for entrepreneurial development training is given to small industries service institutes, the National Small Industries Corporation, State Directorates of Industries and technical colleges. A National Institute for Entrepreneurship and Small Business Development was established in 1983 with responsibility for training programmes for motivators, trainers and entrepreneurs themselves and for research and development in entrepreneurship and small business management. In due course, regional and state level training institutes are to be established. A new scheme for unemployed rural youths to be converted into entrepreneurs has now been started. It is implemented by District Industry Centres. Once they “graduate,” youths obtain a bank loan which attracts a capital subsidy of 25 percent payable by the Government to the lending bank at between 10-12 percent p.a. interest. Tiny and artisanal units will form the bulk of the clientele. Industrial estates are a third line of assistance. By grouping SSI units, the programme enables development authorities to establish common service centres and facilitates the dissemination of modern production techniques. In several industrial estates, economies have been achieved through collective purchase of raw materials and other collaboration. Within the industrial estates occupants of factory sheds are helped to own them through easy hire-purchase terms. There are also concessional charges for transport, water and power; temporary exemption is authorised from sales-tax and duties on specified goods and services for certain categories of industries. Special assistance is provided to encourage location of industry in backward areas. The special loan interest rates have been mentioned earlier but other incentives include preferential treatment in the grant of industrial licences and outright subsidy on fixed capital investment. More than half the districts in the country are considered backward and therefore eligible for concessional finance of which 101 are entitled to even greater subsides than the rest. To differentiate by degree of backwardness, the industrially backward areas have now been categorised into three strata which attract subsidies ranging from 10 to 25 percent. The new format has been so successful that in certain areas some of the concessions have had to be withdrawn so as to avoid overcrowding of industrial units. Some remote areas need this method of logging Forest-based small-scale manufacturing
Among the village industries scheduled for development by KVIC are the following forest based industries: collection of forest plants and herbs for (mostly medicinal purposes); cane and bamboo processing; gums and resins; khattha manufacturing; and shellac industry. These industries utilise minor forest produce which are under the control of State Forest Departments. The Khadi and Village Industries Commission (KVIC) helps individual entrepreneurs directly or through State Departments/agencies. However, in the absence of assured and sustained raw material supply and a regular and profitable market for the collectors, these industries may have created much employment but have generated little additional income. The technologies required to make these industries more successful are still to be propagated extensively amongst the tribals who are the main beneficiaries. With regard to collection of forest plants and herbs a very large proportion of the plants is found in temperate regions and at high altitudes in the Himalayan and sub-Himalayan ranges and scattered in other hilly tracts in Assam, Kerala etc. The traditional established pattern of collection by tribesmen continues; produce reaches the dealers in towns and villages through middlemen who have regular dealings with the tribal people, lend them money, purchase their forest produce and supply them with other goods, often by barter. There has been indiscriminate exploitation of both the resources and the tribesmen in the past. Sparce distribution, difficulty of access to and high cost of transport to reach the natural habitat of the plants, extermination of the rare plants, incorrect identification of the genuine plants are among difficulties faced in this industry. It is in this context that the Khadi and Village Industry Commission and other agencies moved to organise the tribals into cooperatives which can obtain benefits directly for their members instead of through middlemen. The cane and bamboo industry is widespread in India since the raw materials occur everywhere and are associated with many aspects of rural activity. The availability of canes in India is meager compared to its requirements. The chief uses are for making furniture, baskets, handles for umbrellas, and mats. Industries based on gums and resins, and khattha (a medicinal extract of Khair tree heartwood) are relatively minor relative to cane/bamboo and collection of herbs. Shellac, which employs over a million people, is more prominent. With regard to wood processing, there are nearly 8 000 units producing wood products in the small-scale sector employing 0.29 million persons or about 1 percent of the SSI employment total. The average employment per unit works out to 4.2 persons compared to the SSI sector average of 6 persons. The average investment in plant and machinery for a woodworking unit is Rs. 19 184 which is only 40 percent of the average for the whole SSI sector. The much smaller size of enterprises in the forest-based sector suggests that of the existing assistance programmes, the most relevant in many cases will be those designed for “tiny” units.
The location of many residual forest resources in relatively isolated localities also suggests that many forest-based SSI may have “backward area” status and so attract the additional support this status entitles them to. It is interesting to note the position occupied by the sub-group “wood products” in SSI sector. Table 25 shows the all-India proportions in terms of number of units, employment and investment for 1983; it shows that wood products accounted for 9 percent of SSI enterprises, 6.7 percent of the labour force and 5.7 percent of investment. Many forest-based SSI enterprises would be entitled to the extra privileges and assistance to “tiny” units since they tend to have only up to Rs. 0.2 million investment in machinery and equipment. They are generally artisan oriented, use relatively little machinery and equipment, much of which is locally made. Such units have access to all the facilities and concessions available to small-scale units generally. In addition, they receive priority assistance in getting organized and in allocation of sheds in industrial estates. Government also gives some priority to “tiny” units in allocating scarce raw materials. Bank loans are given to them without security (whether collateral or otherwise). On their part “tiny” units have affiliated themselves with large SSI enterprises in district and state level associations which are ultimately represented in the national federation of SSI associations. In spite of the special efforts to assist them, however, the “tiny” units continue to face serious problems, the most important being small rural markets, low productivity, high costs and poor or stagnant technology. Modernization is proving difficult due to the very small capital base of these enterprises. Table 25: Wood products in the Indian SSI sector in 1983. Percentage of Number of Units Employment Investment Wood Products 9.0 6.7 5.7 Leather and Leather Products 9.9 4.1 2.3 Metal Products 9.7 9.0 7.6 Food Products 17.9 18.6 21.7 Source: Small-Scale Industries in India - Book of Statistics Industry Group
Improving management and the managerial skills of small-scale entrepreneurs.
A Guatemala forest worker uses a chain saw A cooperative sawmill in Guatemala by Ake Sahlin Management Development Branch International Labour Organisation (ILO) Geneva Introduction Despite many favourable attributes, the average small enterprise is often struggling for survival in a hostile environment. Lessons learnt in Africa show that the policy framework many times is to the disadvantage of the small entrepreneur. For example, in the case of Nigeria, recent studies disclose that import tariffs applied favour larger companies and the use of advanced technologies. In one case, large companies paid duties of between 0-10 per cent on the import value while small-scale competitors had to pay 30-65 per cent although they were producing identical or similar goods. A result of the policy framework is that many entrepreneurs are tempted to use an inappropriate technology. They soon find themselves trapped in a situation they cannot manage. Limited technical skills mean that maintenance will be poorly done and the machinery will deteriorate. Lack of spareparts and in some cases raw material for the production process due to foreign currency restrictions might halt the operation altogether. Many businessmen running a small venture are also facing capital restrictions although not for investments in machinery and equipment. On the contrary, funds for investment in fixed assets are often easily accessible and in fact many small enterprises have a large unused capacity. The commonly encountered capital constraint is instead to get working capital. Indeed, very few sources are available to supply the small entrepreneur with money to buy raw material and intermediates, to pay workers wages, etc. Small-scale enterprises in the forest sector rarely exist with business as the single dominating activity of the owner/manager: the small business operation is carried out on part-time basis, often as a complement to agricultural activities. In many cases, assets are also used for several ventures. It is therefore very difficult to measure the real importance and productivity of the sector or to assist the forest-based activity in isolation. It is also noted that forest-based small enterprises often are located where raw material is available. Compared with other lines of business they tend to be more spread out and consequently more difficult to reach with traditional approaches and assistance such as management training and extension service. Most forest-based small scale enterprises apply unsophisticated production methods and equipment. It seems that most work on an order basis rather than producing for stock to
supply a distant market. Although such a system reduces the working capital tied up in production or stock, it also limits the scope for productivity improvements. It is of interest to note that early findings from an ILO-study presently being executed shows that the above-mentioned characteristics apply not only to the formal sector but also to forest-based businesses of the informal sector. A conclusion that might be drawn from this is that when discussing needs for management improvements and assistance, there are few reasons for separating the analysis of small enterprises in the formal sector from that of the informal sector. Management of small-scale enterprises To avoid academic discussion, management is here simply defined as the way a commercial/business activity is organized. Before looking at the forest-based sector, discussed below are some general issues relating to small enterprise management. While it is realised that management in small enterprises normally is personalised rather than being institutionalised, still the management of small enterprises can improve their position vis-a-vis competitors by introducing management practices that give consistency and viability to the administration of the entire business. The very ownership of a business tends to create elitist attitudes and self-orientation. It imposes a monocular vision which limits the company's capacity to respond positively and aggressively to business opportunities and changing business conditions. A person who stands head and shoulders over his colleagues in perceived authority can create benefits as well as disadvantages for the business. In cases where he is a poor manager even though a good entrepreneur, his domination might prevent the enterprise from obtaining the skills and methods which are needed for further growth. A gap is thus created between the manager/owner's perception of the situation and his own abilities on the one hand and of the actual needs of the business on the other. Small enterprises often apply a minimum of formalisation. They achieve the output without much of differentiation in job content. The built-in informality facilitates a smooth response to minor disruptions but it renders at the same time excuses for not establishing and enforcing proper performance standards. Due to the informality of the business and to the fact that most small enterprises are operating with short product cycles, the managers/entrepreneurs do not conceptualise their situation in terms of opportunities, expertise or strength. The enterprise might as a consequence implement decisions on the basis of unvalid assumptions or a misperception of the situation. Discipline at workplace is affected in cases where a small enterprise is filled with relatives of the owner or manager, especially if there are elderly relatives since in many cultures it is difficult or even impossible to govern or reprimand such an older relative/employee. The extended family system, where it operates, requires that in the recruitment of employees for such a family business, relations of the owner/manager have to be considered irrespective of other employment criteria.
Since many entrepreneurs of small enterprises lack managerial experience when they start their business career, there is often a tendency of basing decisions and actions on hope and dreams rather than solid data. There are for example numerous cases of small enterprises going into bankruptcy because of the simple fact that they did not know how to price their goods or services. In such cases, even the introduction of the most basic management principles could improve the performance of the enterprises. In short, the following characterises organisation and management of small enterprises: - the entrepreneur succeeds in business due to his technical skills, not because of his ability to conceptualise market opportunities or plan ahead in strategic terms; - in contrast to large companies, which can usually afford specialist staff, the small enterprise manager is a relatively isolated individual trying to deal with long-term policy issues and day-to-day operational problems simultaneously; - small enterprise managers often operate without adequate quantitative data or other information, rather following the strategy of other successful entrepreneurs; - due to low wages, limited job security and a low status from working in a small-scale enterprise, the manager cannot easily recruit and keep qualified employees. Due to these shortcomings, many small enterprises fail to adjust in response to environmental changes, introduction of new technology or similar developments. When the skills and experience of the owner/manager become outdated, the enterprise slips into stagnation. Given the characteristics of small enterprises in the forest-sector, with many tiny units on the border between formal and informal sector supplementing the income of the entrepreneur's family, the need for management improvement are more basic or different from those of many other lines of business. Due to the informal and irregular manner in which operations are carried out, often as a complement to agricultural work, the financial flows of the enterprise are not separated from the economy of the family. Proper books and records are rarely maintained and the assets of the enterprise not insured. Making baskets - a family business Many entrepreneurs in the forest sector also depend on limited market opportunities and produce few or a single product of a relatively low quality which excludes them from operating on export markets. The often poor quality of products is basically an effect of rudimentary tools and equipment being utilized. The use of relatives or poorly trained employees with low payment reinforces the quality problem. Especially in rural areas, qualified workers are not easily found. Finally, in addition to low salaries, many small enterprises such as those in the forest sector offer poor working conditions and lack even the most basic safety-measures. This
tends to increase the problem of experienced workers moving to larger enterprises in urban areas. Entrepreneurship and management development issues related to the small enterprise sector Management support to the small enterprise sector covers the whole range of issues from identification/selection of entrepreneurs, initial management training, support through extension services and functional support to strengthening of small enterprise development agencies and development of national policies on promotion of small enterprises. Many countries have training programmes for the small enterprise sector but lack a specific education and training policy for small enterprises development. A number of issues need to be resolved before policies can be implemented at the national level. In the first place, potential entrepreneurs have to be identified. Even when selection procedures are used, only a relatively small percentage of graduates actually start and succeed in business. Some experts believe that wasted effort and financial loss can best be avoided by a self-selection process whereby rigorous exercises completed before attending a formal training programme allow participants to judge their own entrepreneurial potential. Another issue is to determine the appropriate level of training. Assuming that entrepreneurship can be induced, should the starting point for entrepreneurship development be the primary, secondary, post-secondary or post-tertiary education level? The answer to this question will depend to a certain extent on the type and level of training of the personnel involved in small enterprises development assistance. It is sometimes argued that including entrepreneurship training in the primary or secondary curriculum would mean devoting less attention to basic skills such as languages, mathematics and science. This is countered by those who maintain that entrepreneureal attitudes take a long time to develop and should therefore be taught as early as possible. One reason for introducing self-employment concepts to children at the primary level in developing countries is that many of them do not pursue their formal education at the secondary level. The cost of doing so would be minimal yet it would enable young people to be informed of the possibilities of self-employment as a career. An issue of interest is also whether early entrepreneurship training should be sector oriented in order to gear potential entrepreneurs towards expanding lines of business or if the training should be kept general. In some industrialised countries, post-secondary educational institutions provide special training programmes for potential entrepreneurs. In the developing countries, too, university-level business programmes sometimes cater to the specific needs of small enterprises. Governments are now having to decide whether to introduce basic changes in the educational system so as to offer business education and training for various agegroups.
Financing entrepreneurship development programmes is also an important issue. In some countries, the entire cost is borne by the government, in others by the participants. The decision in this matter will depend to a large extent on the type of small enterprises being aimed at (modern small enterprises, craftworkers, informal sector entrepreneurs, selfemployed women, etc.). As to whether the government or the private sector should be responsible for such programmes, opinions differ, some arguing that overall government control is essential to coordinate the programme and others that the government should not be involved in any part of the programme that can he carried out by the private sector. In some instances entrepreneurship development programmes are offered jointly by government and private sector organisations. There is considerable controversy, too, over whether the programme should stop at business creation and the participants be left entirely to their own ventures once they have received their initial training or whether, on the contrary, follow-up counselling and even other types of assistance such as credit should be available for the first year or two of operation of a new small enterprise as part of the programme. Given the particular characteristics of the forest-based small enterprise sector with small, family based units distributed in rural areas, successful assistance programmes will probably differ considerably from most existing approaches. One key issue is whether to concentrate on those with the largest potential for entrepreneurship and assume that the local community will benefit eventually rather than using scarce resources to support income supplementing activities with little scope for improvement. Although very small income generating business ventures are important from the individual's point of view and contribute to employment and national production output, it can still be argued that due to the irregular nature of activities the productivity of assistance to such tiny units is less than that of support to somewhat larger and more permanent enterprises. In the field of social science, during the past 50 years, extensive research has been carried out regarding the issue how human beings learn and acquire skills. Although much is known today about the learning process, relatively few research projects have focussed on how successful businessmen obtained their entrepreneurial and managerial skills. Available evidence indicates that the development of entrepreneurial and managerial skills is a process different from most other learning. The importance of the childhood, early experience from working life as well as an environment favourable to business ventures are all ingredients necessary for the development of entrepreneurial attitudes and talents. Although the issue whether entrepreneurship can be taught or is inherited is still debated, there is today fairly strong support for the assumption that such traits can be developed through well designed training programmes as will be further discussed below. When it comes to development of managerial skills, the issue is not whether they can be transfered by training but rather to what extent the quality of training programmes can be improved to the level where they attract the attention of hardworking entrepreneurs. A vast number of small business training institutions throughout the world are offering more or less comprehensive training programmes geared towards the local business community. Many of these efforts fail, often because the programme design is poor. Too many programmes are containing over-sophisticated components and abstract training
materials far from the reality of the entrepreneur. In many cases, the programmes are also over-ambitious in terms of the commitment expected from the entrepreneurs. Few successful, or moderately successful entrepreneurs can manage to stay away from their businesses for long periods, something which is unfortunately often not taken into account among training officers designing the programmes. Practical youth training in a local business community The key factor explaining why management training programmes for small businesses are so poorly received by many entrepreneurs seems to be the fact that they are usually designed by people in ministries, public small enterprise promotion agencies, forest departments or similar institutions. Often these officials have little or no experience themselves from the small business sector. ILO experience shows that only if the training is planned and conducted by trainers familiar with the conditions of small enterprise management will it become practical-oriented and well received by the entrepreneurs. Once the programme is perceived as practical and useful by the local business community, the institution offering the training gets a solid response from the entrepreneurs. There is also the issue of the cost-effectiveness of training. Which group training methods have given good results? What successful methodologies exist that are learner-based? Questions such as these stem from a general desire to apply the wealth of knowledge in the fields of social psychology and cultural anthropology to the design and execution of small-enterprise training programmes. Extension services in one form or another exist in almost every country, where they are generally looked upon as one of the most important components of any serious small enterprise development programme. Yet they invariably seem to suffer from a number of unexplained shortcomings. It is therefore important to identify specific action that could be taken to improve the way they are designed and operated. ILO activities in entrepreneurship and management development Traditionally, most ILO activities in the field of small enterprises promotion start in response to a member State's need for assistance in training and extension services. A considerable number of field projects have been carried out over the years and their volume continues to grow. This is not to say that the countries concerned have necessarily made notable progress in training or advisory services for small enterprises. Two critical problems prevail in the field of training. First, many countries have no comprehensive training policy and any training programme for small enterprises in these circumstances is almost bound to be wanting in quality and quantity. Therefore, the ILO's employment and training programmes seek increasingly to develop a strategy based on sound training policies. The second problem is that many approaches and methodologies for small enterprises
development in developing countries have proven to be conceptually weak. These two problems have been tackled in several ways. Texts, manuals, handbooks, workbooks and trainers' guides for small enterprises have been devised as part of the ILO's Training Programme in order to provide more practical, simple, down-to-earth training materials and to improve the cost-effectiveness of training; too often in the past entrepreneurs have had difficulty coping with over-sophisticated techniques. The ILO has, with the support of the Swedish International Development Agency (SIDA), launched and integrated small enterprise management training programme “Improve Your Business”, which is being introduced in a number of countries in Africa, Asia and the Caribbean, following the successful promotion of a similar scheme in Sweden and other European countries during the 1970s by the Swedish Employers Confederations. Essentially, the package consists of a handbook and a workbook. The material can be used without an instructor as an analytical and counselling tool as well as for group learning. The basic aim of the material is not, as most training materials, to passively transfer knowledge to trainees but rather to motivate them to ask themselves how they are performing as managers of their businesses. By triggering off a process whereby the entrepreneurs frequently assess their respective business much more is achieved than through traditional training. In order to facilitate this self-assessment, the workbook offers an number of a checklists and exercises which are designed in such a way that the entrepreneur has to review his own situation. In areas where the entrepreneur feels that he can improve his managerial performance, the handbook offers practical advice. Supporting training activities, seminars, workshops and individual counselling are carried out with the same aim, no to tell the entrepreneurs what to do but rather to stimulate them to look at their own way of doing things in business. The success of this programme so far has been tremendous. Numerous country adaptations have already been published and drafts of translations into French, Arabic, Swahili and Bahasa are at present available. Additional training materials using the same basic approach are also currently being produced. A trainers' guide and a business counselling guide, both belonging to the “Improve Your Business” family, are also presently being finalised. An evaluation of the Improve Your Business programme in Kenya shows that a significant number of the entrepreneurs participating in the programme did actually improve their managerial behaviour during the course of it or immediately afterwards. For example, many of the participants started using simple bookkeeping systems and basic principles for costing and pricing as a result of the programme. Film strips - one of the mass media training material The ILO has also developed mass-media training material for small enterprises. The material was first developed in Latin America, where experiments are being undertaken in Colombia (radio), Mexico (television), Peru (video), Brazil (photostrips), Costa Rica (audio-slides) and Argentina (radio-programmed instruction for rural producers). A
similar training scheme for small enterprises by radio, classes and correspondence has also been designed for island economies in the South Pacific. There is a contradiction in designing entrepreneurship development and management training programmes which has to be handled in order to achieve maximum costeffectiveness in training. On the one hand, training of individuals or small groups, especially on the job training, tend to have more impact than traditional training of larger groups of entrepreneurs. At the same time, the cost per participant increases drastically when the number of persons participating in the programme is reduced. One approach in training which has been applied by the ILO is action learning. This approach has both proven to be cost-effective and generated a lot of positive spin-off effects apart from improving management performance. Since 1981 the ILO is implementing programmes based on action-learning for small enterprises in several Latin American countries. The approach is based on the premise that people learn by doing, not simply by attending classes. Accordingly, an action-learning programme consists of setting up groups of entrepreneurs, each of whom identifies problems in his enterprise and works to reduce or cure these problems, meeting together periodically to discuss progress and plan further action. The group dynamic concept is important as it motivates or puts pressure on the participants to actually carry out their plans and makes the experience and skills of all participants available to each other. Initially, group-activities are coordinated by a facilitator who triggers off the early interaction in the group. An evaluation of the Latin American project shows that action learning is a very appropriate methodology for training entrepreneurs to think about their enterprises, make thorough analysis of difficulties encountered and develop realistic action plans. By participating in a group, the entrepreneurs are able to extend their commercial network and later “joint ventures” are sometimes born in the groups. At the same time, the approach has to be used with caution. For a successful implementation, the following requirements must be met: - a well planned and implemented promotion of the programme and very careful group selection, so that the future participants will form as homogenous a group as possible; - some highly-participative, fully-relaxed work sessions that will make the entrepreneurs feel “at home”, and accept helping others so that the others will help them. Although it is difficult to make a cost-effectiveness evaluation of the method, and as the outcome would depend largely on the geographical distribution of the group, available experience shows that the approach is more cost-effective than traditional training programmes. Action learning can prove appropriate for training of small, rural based businesses in the forest-sector. Making wooden toys in Costa Rica
An additional finding of an ILO project in Costa Rica was that action-learning works as well with peasant farmers as with urban entrepreneurs. In a later project in Honduras, work with farmers was included in a project which also aimed at urban entrepreneurs. The results obtained in the course of only six months are quite remarkable. The urban entrepreneurs identified various management areas in which their technical knowledge was deficient, and formed working groups to address other problems such as raw materials quality. The farmers identified problems as soil diseases and insect pests and made contact with public health agencies. The farmers also identified various community level problems which were later dealt with as result of their initiative. Finally, action-learning by participating in groups of entrepreneurs might eventually end in the small business community organising itself, something which clearly has a number of advantages but is hard to achieve since entrepreneurs are individualists and might object to such an attempt, especially if it comes from outside their own business community. In the future, working through action-learning groups might also prove to be a feasible way of introducing sound business practices among otherwise conservative entrepreneurs. If the informal leaders in such groups can be identified and influenced to adapt more efficient management principles, others might follow since we know that entrepreneurs tend to copy the successful entrepreneurs rather than training officers or other so-called experts. Presently, the ILO is also working on a special training programme for female entrepreneurs. Research on the topic recently carried out indicated that there are specific training needs among women entrepreneurs and that there is a large demand for training efforts geared towards this group. With regard to the training of consultants and advisers for the small enterprise sector, an ILO book “Management consulting: A guide to the profession”, includes a special section providing practical guidelines on consulting for small enterprises at various stages of development. This publication has been used extensively to train consultants and extension officers in both industrialised and developing countries. Entrepreneurship development is receiving attention at various levels. Firstly, to introduce conceptual and practical awareness of self-employment as a career option for young people, a teachers' guide has been pilot-tested in several countries and its adaptation is in progress. To assist the self-employed, a guide entitled “The practice of entrepreneurship” was published in 1982. Secondly, a comprehensive research study taking into account recent conceptual developments and practical applications has been undertaken by the ILO to assess the training components of entrepreneurship development programmes for business creation. The study includes pre-selection techniques for identifying entrepreneurs with potential for success. The results of the study are to be published soon. A spin-off from this exercise has been the creation of a bibliographical data-base with cross-references on this subject.
Thirdly, a number of field projects have been initiated to introduce entrepreneurship training into vocational training. Instances of this novel approach include projects in Malawi and Uganda where combined vocational, managerial and entrepreneurial development schemes linked to financial support to young entrepreneurs are being tested. In Morocco a managerial component is being introduced into the vocational training offered at 60 rural training centres. These projects are seen as pilot activies for potentially important innovations in vocational training. Lessons of experience and new ideas Finally, through its long history of executing field-projects, the ILO has gained considerable experience in designing and implementing business creation projects. The following are the main lessons learned in this area: - a business creation or entrepreneurship development programme should start with the human-being and his business idea rather than with general plans for industrial development in the particular area or with market opportunities identified by experts. Identifying persons with the entrepreneurial qualities and who believe in what they are doing/want to do is more important than the line of business as such; - efforts should be made to select those people most likely to succeed in business. A properly designed and implemented promotion for the business creation programme guarantees that a sufficient number of applications are received to cater for a reasonable number of potential entrepreneurs; - the subsequent selection process should reveal the applicant's background, age, earlier working experience, the realism of his business idea, motivation, entrepreneurial attitudes and other relevant information. The necessary information can often be best obtained by the use of a battery of forms, tests and a structured interview; - the aim of the training is to let those selected develop their usually infantile business ideas into feasible and viable proposals. The training component should cover all major areas of management, introduced one at a time as the business idea grows more mature. When, for example, the entrepreneur is gathering information about his potential market, he is also given a theoretical content in terms of sessions on marketing. In such a way, a group of entrepreneurs develops their respective business ideas, step-by-step getting familiar with new management topics. Since the training is practical-oriented and the entrepreneurs/trainees expected to be quite active, they are given a number of specific tasks to carry out as part of the learning process. The task could be for each to compile a list of suppliers of raw materials for their potential business, something which might become useful once their enterprises are started. It is then up to the individual entrepreneur to use available means to carry out the assignments and prove that he has entrepreneurial talents.
The built-in difficulties in these training tasks are also functioning as selection mechanisms, if the entrepreneurs do not accomplish the tasks they drop out of the programme. Only those with a good commercial spirit and perseverance survive the training phase; - the outcome of the training should for each entrepreneur be a well conceived businessplan, and a full-fleshed loan application which can be submitted to a commercial bank; - usually, commercial banks are preferred to soft loan schemes. Firstly, an independent bank will make its own assessment of the proposal and thereby add views on the viability of the proposed business. Secondly, by interacting with an independent, commercial institution, the entrepreneur will immediately gain a realistic perception of how to deal with banks and of the real cost of capital. Finally, by approaching a commercial institution at an early stage, the entrepreneurs are given the opportunity to build up a relation of mutual trust with the bank, something they can benefit from later on. Depending on the conditions in each case, this basic model for business creation is then followed up with other elements of management training and extension services. Recent requests to the ILO for technical assistance have also concerned ways - and means of redeploying redundant employees from overstaffed public sector enterprises, it is expected that a recent training package, “Working for Yourself”, which aims at helping people with some working experience and skills to start a business, will provide a useful contribution to solving these problems. The package is based on a material earlier produced and successfully used in the United Kingdom. The first field testing of the ILO version for developing countries will take place in Nigeria during 1987. “Working for Yourself” is a programme aimed at taking participants successfully through the stages of starting a business before they actually do it. The programme caters particulary for those who are starting on a very small-scale, usually based on their personal skills. It is suitable for those who are unemployed but have some basic skill or technical qualifications and for those who recently left school or a college/training institution. The programme is in 8 modules, each logically linked with the stages of development of a business. Participants are therefore supported individually or by participation in group interaction to develop their business idea through each stage alongside the programme. The teaching style needed when introducing working for yourself is highly participative. Learning starts from where the participants are. Trainers do not teach “subject” but facilitate knowledge as it becomes relevant and only in digestible amounts and in appropriate language. The trainers must be highly flexible with a wide range of reference and business knowledge. Working for yourself is perceived as an appropriate programme for small, rural based enterprises in the forest sector. The characteristics of the programme also make it suitable for the action learning methodology. On the job training
In the field of handicrafts and cottage industries, the ILO favours on-the-job rather than formal training or, exceptionally, short training courses when the subject-matter cannot be conveniently taught at the workplace. Training to use improved technologies or introduce new products is a reasonably straightforward exercise but business and management training poses great difficulties because of the trainees' low levels of literacy and numeracy. The ILO has been assisting numerous countries in establishing extension services. Generally speaking, all ILO field projects for small enterprises have an extension services component in one form or another. This may focus on technical issues, as in Egypt in the early 1980s; on promotion aspects, as in Paraguay; or on rural artisan association building, as in the Gambia. The field work is linked to on-going ILO research into ways and means of improving the performance and cost-effectiveness of extension services. In a similar vein, a study has been made of methods of improving the management of institutions promoting small enterprises development in developing countries. With respect to cooperatives, the ILO has introduced a successful global exercise in training known as “Materials and techniques for cooperative management training” (MATCOM). This inter-regional project, commenced in 1978 and funded jointly by SIDA, NORAD and FINNIDA, focusses on preparing and disseminating training manuals and materials adapted to local conditions. Seminars are organised in which the training of trainers is a key feature.
Delivering logs to a saw-mill
Developing and promoting technology and technical skills in small-scale rural manufacturing enterprises.
by Dr. M. S. S. El-Namaki Director, RVB Delft (Research Institute for Management Science) The Netherlands The problem There exists a common belief, supported by developing country case histories, that small industry could be a prime mode of economic growth if it overcomes some structural problems and assumes a proper industrial policy role. The World Bank, UNIDO, ILO and a multiple of research forums have explored some of these problems and come away with the conclusion that the sector suffers from a shortage of managerial skill and a scarcity of technological input. This lack of managerial skill as well as the fragile technological base have demonstrated themselves in a tangible enterprise mortality rate in invariably all developing countries encountered in the course of this and other research efforts. The following paper addresses, therefore, four specific issues: (a) Technological characteristics of small industry in a number of developing countries especially in Africa and Asia. (b) Commonly identified technology problems of the sector in these countries. (c) Different approaches applied to the problem of technology development and transfer as well as managerial skill creation within the sector. (d) An evaluation of the situation and an assessment of the needs for additional efforts in this regard. The approach is observation oriented with the results of contemporary research on small industry in general and technology development and transfer in particular, being the major input. The author's own individual and institutional exposure to these problems have, obviously, supplemented this analyses. A few limitations are, however, worth noting. Small industry is difficult to define precisely and there is always the danger of getting off focus. The paper therefore covered a relatively wide span starting with the limited, near informal sector units up to the well structured and relatively mature units.
Writings on management and technology within the sector are, on the otherhand, abundant but center around worn out themes i.e. bad management, weak entrepreneurial pulse, hostile environment, etc. and the treatment of the problems of technology in the sector is more implicit than explicit. This paper has therefore made an explicit attempt at separating the two issues and dealing with each as a recognizable problem within one broad frame. The scarcity of data on forest based industries in general and those of developing countries in particular has added to the difficulty of providing a clear focus. So reference has been made to a broader set of small industries in general and to forest-based industries whenever the data was rich enough and reliable enough to be included. Technological characteristics of small scale industry in developing countries The technological characteristics of small scale industry in developing countries could, in the author's view, be measured in terms of six specific variables: (a) economies of scale; (b) the technological base; (c) technological disparity; (d) infrastructural base; (e) learning; (f) industry differentials; (g) labour intensity; and (h) linkage pattern. The list is by no means exhaustive but it provides as complete a view as can be, of the different factors at play in the determination of the technological characteristics of the sector. We now examine each of those variables closely. Economies of scale Small industrial units are, by assumption, limited scale manufacturing operations that do only selectively, demonstrate the typical impact of scale on productivity and output. They emerge and persist in industries where scale economies are either relatively unimportant or are associated with limited levels of employment and investment. They also decline whenever scale economies become significant. Breaking the size barrier is, in fact, a measure of success of the small industry entrepreneur. The experience of Korea and Taiwan (Ho, 1980) could probably be of assistance in thowing some light on what could be considered, for various industries, the minimum efficient plant size and in what industries could small scale manufacturing units be considered efficient. Korea and Taiwan have experienced a shift from small low technology content industries in the late fifties and early sixties to large high technology content industries in the seventies and eighties. Both countries had a strong small industry sector in the sixties that declined - in terms of total employment - gradually but measurably, over the last two decades. The share of Korean small enterprises (5-49 employees) declined from 54% in 1958 to 17% in 1975. The identical share of Taiwan small industrial units demonstrated a parallel decline from 45% 1954 to 26% in 1961 (Ibid). A walking tractor hauling poles on a trailer
In Korea, in particular, an estimation of efficient plant size according to the “survivor technique” (calculating for two points in time the share of an industry's output by size of establishment and consider those sizes that experience increases in their shares as efficient sizes), suggests that the efficient plant size in most industries is above 100 workers (Ibid). It also suggests that the incidence of efficiency in the small industry is most observed in two industrial branches: food and textiles. Summing up, not every small industry is, from a size-technology point of view, appropriate. Certain technologies and industrial branches, lend themselves to small scale application without jeopardizing productivity and efficiency. Those are most common in the wood, furniture, garment, leather and timber industries. The smaller the industry, moreover, the more difficult is the question of size-technology fit. Cottage industries and handicraft should find their justification not because of the level of productivity achieved but because of the level of employment generated.1/ In both Korea and Taiwan three industries accounted for three quarters of the net increase in factory employment in manufacturing, (a) textiles and apparels, (b) products of chemicals, petroleum, coal, rubber and plastic and (c) metal products, machinery and equipment. Within these three groups, strong growth was experienced by such industries as man-made fibres, fabrics, petrochemicals, chemical fertilizers and electrical machinery and apparatus, where the average size of establishment is quite large and where scale economies are known to be important (Ho, 1980). It may be interesting here to refer also to another survey that has been carried out in 1981 of the size of manufacturing plants within thirty three major industries in Britain, Germany and the United States over the period 1970-1973 (Paris, 1981) that supports the notion that certain industries are more likely candidates for small scale operations than others. From the thirty three industrial groups surveyed six; leather, clothing, furniture, timber, cement products and beverages, had a median plant size of 100 employees or less in Germany. Britain demonstrated a higher plant size for clothing, furniture and cement. The United States, on the other hand, demonstrated an even higher plant size that those of Germany and Britain. Other industries demonstrated a larger size of employment, across the board, and little significant country differentials. Median plant size in selected industrial groups 19701973 (number of workers): Britain Germany USA Germany/Britain Leather etc 90 70 160 .81 Clothing 120 100 180 .78 Furniture 130 70 200 .56 Cement etc 140 70 80 .45 Timber 60 20 110 .27
There's need to increase efficiency and reduce drudgery Technological base
Small industries are dependent for their equipment and process technology on a limited number of resources that start with (a) the entrepreneurs' own technical expertise probably gained during earlier stages of paid employment (Schmitz, 1982); (b) large firms that provide the technology as a component within a sub-contracting arrangement (Ibid); (c) government institutions desirous to support a measure of indigenous technology. And although the level of technology associated with any small industry initiative is a function of all three variables, there is sufficient evidence to suggest that the first is the prime source of technology in small industry in a significant number of developing countries. Case studies from Brazil (Schmitz, 1980) indicate that thorough knowledge of the production process tends to be the small producers' strong point. “The most important source of skill and know how found was previous wage employment. The training and experience gained in this way varied with the job previously held, but generally it provided a sufficient basis to pick up the missing technical aspects through a process of learning by doing, which was an integral part of the small producers' struggle for survival or expansion”. Similar conclusions were reached in Eastern Africa (King, 1974, 1975, 1979). This fairly narrow base of technological input does result in a strong measure of technological “retardness” that expresses itself in, among other things, a comparatively low level of labour productivity in the respective plant or plants. “Many small scale operators are engaged in a process of production and technological development but their ability to develop cumulatively over extended periods is limited” (Bienefeld, 1975). Technological disparity The generic term small-scale industry conceals, in fact, three levels of technological sophistication each related to a specific type of activity: craft production, cottage industries and small manufacturing. Each of those three is, in fact, a distinct mode of production with different scale and level of technology parameters. The simplest and least problematic level of technology is that of crafts. Carpentry, furniture etc demand relatively limited technological input. Cottage industry demands a relatively higher level while small-scale industry could demand again comparatively, the highest level of technological input in the sector. The five levels of technological input identified in the case of a sample of seventy small scale carpenters in Dakar (Van Dijk, 1982) could provide an illustration. These conclusions are also supported by an FAO study exploring the level of mechanization of a number of small forest based industries in Jamaica, Thailand, Honduras, Egypt, Sierra Leone and Bangladesh (FAO, 1985). The study revealed that a large number of small (up to 10 workers) forest based industries do not use any machines, whether powered or non powered (69% in Jamaica and Honduras and 93% and 99% in Egypt and Bangladesh). An examination of the level and availability of equipment and process technology in yet another sample of 465 small enterprises in the Senegal (van Dijk, 1982) could provide an
additional illustration. The study distinguishes between two levels of technology, simple and more sophisticated and measures the percentage of each in the respective ample. Table 20: Technology level among a sample of carpenters in Dakar, 1977. Share Number % Simple tools, no machines. 57 81 One machine, relatively simple (e.g. boring machine) 5 8 One combination machine 3 4 Several machines including a combination machine 5 7 An appropriate technology (e.g. circular saw) 0 0 Total 70 100 Source: Van Dijk, 1982. Technology Table 21: Segmentation of technology by level among a sample of smaller industrial units in the Senegal, 1977 Activity Blacksmiths Brickmakers Carpenters Electrical repair Furniture making Mechanical repair Watch repair Others Tool or machine required Welding equipment A blockmaking machine A measuring instrument A measuring instrument A sawing machine A measuring instrument A measuring instrument A piece of equipment worth more than 10000 F CFA % using higher level technology (by No.) 40.3 0 21.9 53.3 88.0 51.1 11.4 27.8 39.1
Total sample Source: Van Dijk, 1982.
Factors influencing the choice of a specific level of technology for this group were found to include investment level, scale, knowledge about and accessibility of specific types of technologies, human prejudice against or for a specific technology, cultural factors and the existence of a technology gap i.e. non-conformity of the available technology with the level desired by the entrepreneur or recommended by the feasibility makers. Infrastructural base
Experience of a large number of countries in both Africa and Asia has shown that small industry usually needs a strong infrastructural base, although this need may vary according to the size and nature of industry. The smaller the unit and the less formal is its frame, the less the need for this infrastructure. The larger the unit and the more complex the product or the process, the greater the need for this infra structural base. Very small and artisanal establishments provide their own power (mechanical, hand or generator) and can adapt to different types of physical location and shelter (Page and Steel, 1984). The larger small industries are very much dependent on the existence of the facilities usually contained within an industrial estate. Those could be technically oriented services as central repair workshops, facilities for the bulk purchase of raw material and warehousing facilities or common facilities as foundries, electroplating shops, tool and die shops, heat treatment shops, woodworking shops, a quality control laboratory and a special machine shops. Although industrial estates are usually the focus of all these facilities, a UNIDO exploration of the relevance and effectiveness of industrial estates for small industry development has revealed, however, that industrial estates had little success in attracting industry to rural areas (UNIDO, 1978). Industry differentials The term forest-based industries conceals, in fact, a number of different industries with different characteristics. They differ in terms of labour input, proximity to the raw material base (the forest), nature of raw materials used and their utilization pattern, sensitivity to scale, resort to technology, marketability of output etc. Coconut sawmilling in Jamaica The most important of those, in terms of employment in a number of surveyed countries are those based on wood such as carpentry, furniture, upholstery and wood carving but others as bamboo works, mat making, basket making, hat making, agricultural tools, canning, medical and aromatic herbs etc can also be locally important. Assuming that since all these industries are forest based they are equal in technological and managerial paramaters could be dangerous. The very difference between these industries could spell out their susceptibility to stimulation and lead to a direct differentiation in the applied methods and approaches. Learning Contemporary and not that distant research has revealed the existence of a measure of correlation between average total or partial cost of production of a product and the cumulative volume of production. Average total cost declines with increase in volume not only as a result of economies of scale but also as a response to four other factors that have proved instrumental in causing a cost decline. Technology is prime among these factors while dexterity, learning and quality of management follow by not too far a distance. This so called learning or experience impact was traced in large manufacturing operations producing a wide variety of products from integrated circuits to baby food.
The author strongly feels, although admittedly has yet to accumulate empirical evidence, that small industries in most developing countries are not susceptible to the learning or experience impact just described. The reasons for that are the following: first is the fact that many small scale industries, also in the forest sector, do not lend themselves to large scale operations. Second is the frequently observed low level of technological input and technological adaptation in many of those industries. Third is the long established high labour intensity and low labour dexterity, in many of those industries. Fourth is the often cited constrained managerial performance of the great majority of these units. And fifth, and last, is the limited scope for learning given the environmental constraints of the industries. As said earlier, precious little empirical evidence is there to support the suggested relationship between learning and the small scale industry sector in developing countries. Suggestive evidence is, however, there. Labour intensity Aggregate data consistently show that increasing size is associated with decreasing numbers of workers relative to capital. This labour intensity of small industry is a favourite argument in favour of the industry and a frequently cited rationale for its stimulation. Several determinants could actually lead to this labour intensity. One of these could be the degree of “sophistication” of utilized technology. Differences in labour intensity may simply reflect the impact of differences in the wage/rental ratios facing small and large firms on their choice of both technique and industry. Another determinant may be the degree of informality of the enterprise, with informal sector enterprises more inclined towards substituting capital with labour and employing low-skill, minimum wage-tied labour. And a third possible determinant of this labour intensity could he the economies of scale that we have mentioned earlier and the fact that certain industries and industrial branches require considerable capital outlay within a wider span of scale than that reachable by a small industry. Linkage pattern The probability is high that the forward linkage of small-scale forest based industries to large scale industries is lower than their backward linkage. This is due to the non-forestbased raw material purchase by SSI manufacturers. The extent of the linkage may depend on the level of subcontracting that exists between small and large scale manufacturers although links through the open market could also be important (FAO, 1985). Simple powered tools are essential for higher productivity Commonly identified management and technology problems within the Forestbased small industry sector An ever elusive technology
Technology is a scarce commodity in small industry in most developing countries. Barriers, and there are many of them, restrain the flow and inhibit the access of the entrepreneur to this technology. There are source-related barriers, investment-related barriers, market-related barriers, development-related barriers and access-related barriers. A source related barrier is that resulting from a reluctance of the large industry to provide essential production technologies to the small firm out of a restrictive attitude towards technology dissemination or fear of outright competition or rivalry. Some of these sourcerelated barriers are institutionalized and have deep roots in developed country technology export restriction regulations (Barton, 1984). Investment related barriers arise from the existence of a prohibitive price for the technological input, a price that is beyond the financial capabilities of the small enterprise. Market structure barriers reflect a high measure of concentration that converts the small industrial unit into a marginal player with no virtual impact on technology transfer or development. Development related barriers arise from market information imperfections or ignorance. The small entrepreneurs' knowledge of new technologies is scarce and distant (Schmitz 1982; Choi, 1986). “For small enterprises the adoption of the latest technology means a discontinuous leap from their previous technology” (Bienefeld, 1975). New technology enters into the country, moreover, through foreign subsidiaries or is developed through local firms larger in size and potential than the small industrial unit. Access-related barriers refer primarily to the efficiency of the institutional infra-structure created to support the process of technology development for the small industry owner. Although this point will be explored at length later, it is necessary to draw attention here to the still rather limited reach of much of the existing technological support institutions and existence of an invisible barrier between the small industrial units and these institutions. Reliance on the infrastructural support Small rural industries depend, sometimes to an excessive extent, on infrastructural support and their productivity and opportunities for survival do, as a result, display a dependence on the accessibility and validity of that support. Attitude towards that support is, however, not uniform. Some governments favour a self reliance approach to the whole issue. “In the Philippines ...while conditions are made congenial, the measures are largely to promote self help. The Philippines five year plan (1983-87) indicates “the promotion of individual self reliance and self esteem will be pursued in the context of broad community participation and involvement” (Rau, 1986). Pool manufacturing practices and working conditions Small plants, in a sizeable number of developing countries, do demonstrate stark deficiences related to basic production management techniques as plant layout, material flow, production planning, physical distribution, quality control, product and process design etc. The observation applies to small industrial plants observed in countries as varied as Kenya and the Philippines.
The same plants do also harbour adverse working conditions that undermine productivity and safety. Inferior technology, deficient raw material, incomplete infrastructure, irregular supply of energy, inappropriate equipment all contribute to these adverse conditions. Many entrepreneurs had their first exposure to manufacturing in similarly ill-fit environments and do not have a sound comparative base to guide them. Information on safety and the working environment rarely reaches the small enterprise. Knowledge of what may be considered proper working conditions is scarce, limited and little professional advice is sought in this regard. The result is high accident rate, poor work attitudes and, ultimately, lower productivity. (Louzine, 1982). Limited technological skills Technological skills available in small industries, especially the rural ones, is mostly limited to the owner and a very few, if any, individuals around him. The owner's skill is mostly earned at an earlier stage in his career and seldom developed to match the dynamic nature of most industries. The technological skills of the other individuals within the enterprise is mostly limited and seldom developed. Limited funds, operational pressures and poor basic education account for that. The labour market, moreover, and in the majority of cases, seldom provides a direct and sufficient coverage of the technological skill gap that emerges from this situation. The result is a tangible level of technological stagnation reflected in poor to very poor product specifications, outmoded product designs, limited product range, inefficient manufacturing processes, loss in touch with the market etc. The most casual observation of small and cottage industry in countries as varied as Nepal and Sri Lanka would confirm this observation. Empty pockets and limited resources for technological development Finance, or rather lack of it is one of the most commonly cited small industry problems almost everywhere. The problem takes, however, a different shape depending on the source and the angle from which it is viewed. The small industry owner expresses it, more often than not, in terms of limited access to sources of funds and restrictive practices by these sources. Sources of funds view it in terms of deficient managerial skills and the inability of the entrepreneur to exercise control. The truth lies somewhere between the two extreme positions depending on the country in question and the situation at hand. What is certain is that the scarcity of financial resources does impact upon the technological capability of the enterprises as equipment become difficult to modernize, training programmes become difficult to pursue, basic applied product and process adjustment become difficult to allocate time to etc. Private sector financial institutions in the Philippines, for example, make few loans and even fewer term loans to small enterprises. The government's programmes have shown that the risks and arrears of lending to SSE are far higher than commercial banks would normally accept. One of the most important reasons for this high risk element is the shortage of information on small enterprises and the absence of a formal record keeping
system on credit worthiness which is, in many cases, due to the broad distribution of the qualities of the owner and the difficulty that he encounters into distinguishing between sound and unsound loan requests. (Anderson, 1981). Philippino cottage industry, where loans are granted on basis of collateral and a personal knowledge of the local enterprise, provide, however, a better record than that for larger small firms. The experience of the Philippines is not that much different from that of many other developing countries. Government programmes do provide an increasing number of small enterprises with access to institutional credit. The volume of lending is mostly, however, small compared to demand. And with structural constraints preventing the private finance sector from filling the gap, technology assumes a remote and untangible role. Scarce technological software Small industry in a large number of observed developing countries demonstrate a multiple of specific and in many ways non-conventional managerial traits that one seldom encounters in medium or larger firms. First is the very small management team that brings along with it a lack of specialization, a predominance of multi-functional roles, a shortage of promotable manpower, a pronounced domination by a leader and a large measure of informal control. Second there is the limited control of the environment and the limited resources available to scan it, anticipate potential changes and adapt capacity accordingly. Third there is the informal pattern of operation, with conflicts resolved more easily and loyalties assuming a high magnitude. Fourth there is the general unawareness or indifference to the structured approach to the managerial function and the need for a longer term vision of the enterprise and its environment. (Gibb, 1983). Chinese girl working in the family business These and other related problems lead to the emergence of performance bottlenecks. Owners concentrate on tasks that they value rather than adopt a rational approach to task identification and pursual. Planning develops as response to events instead of a rational choice of a course of action that promises most returns. Manpower practices deviate from the structured and managerially acceptable and demonstrate a bias toward the social and paternalistic. This is reinforced by considerable use of family labour. Control becomes ad hoc and seldom based on proper information flows. Many small industries start, moreover, with far too limited insight into the real market potential of their products and proper channel or channels to pursue. Some of their problems arise from their technical orientation, and their preoccupation with product specifications more than market requisites. Yet another cause of their problem is the little emphasis placed on the marketing function in their appraisal and feasibility plans. The problem could also have roots in the tense competition from other small enterprises or even medium industries sensing the entry of the small industry as a longer term threat or an unnecessary pressure on costs and margins. And last but not least is the very simple
and sheer lack of skill on how to identify a market opportunity, choose channels of distribution and approach those channels and maintain a presence. Initiative demonstrated by the small industry entrepreneur is also not always and undisputedly welcomed by his environment. In fact there is sufficient evidence that environmental forces ranging from purely cultural and social currents to ingrained government bureaucracy go quite a long way towards restraining the driving force behind small industry in many developing countries. A case in point is China's emerging economic policy guidelines stimulating individual initiative and encouraging entrepreneurship. Yet an article in the China Daily (April 16,1985) entitled “losing out in the love business” demonstrates the extent of the cultural resistance to the principle and practice of free enterprise. This article started with the following statement “Shanghai's private entrepreneurs some of whom earn more than people employed by the state find difficulties in the love affairs”. It went on to underline the failure of the emerging class of Chinese entrepreneurs to find marriage partners because “people think that self employment is too risky, they still consider entrepreneurs of low social status and some self employed Chinese entrepreneurs seem to be poorly educated and rustic in their language and behaviour” (El-Namaki et al, 1985). Small industry in Peru provides another example. An investigation has revealed that it takes a starting entrepreneur 289 days in order to get a permission to establish a small clothing factory. And that a licence to start a business in a more politically sensitive industry takes three to eight years (The Economist, July 19, 1986). Technological skill, know-how development, and their promotion in developing countries Technology, for the small entrepreneur, is simply knowledge essential for the conduct of a productive function. It includes: (a) Industry specific knowledge; (b) Product-systemrelated knowledge; (c) Firm-specific knowledge; and, finally, (d) On-going problemsolving capability or skill essential for solving management problems. Technology viewed within this context has a “soft” as well as a “hard” component. The soft component relates to the human capability generation process linked to the absorbtion and management of the technology. The hard components focuses on the essential technological processes and equipment utilized in the manufacturing process. Both components are of equal significance. They could be either transferred or generated domestically. Transfer has provided the answer for decades. Development and generation receive contemporary attention. The following discussion treats technological skill as a function of both the transfer as well as the domestic development process. The transfer of technological know how and skill Some experience exists in transfer of technology. However, small industries, despite their prevelance and omni-presence, are rather difficult to track and account for when it comes
to the transfer of technology. A few surveys quoted in a UNIDO study confirm the contention that small industrial units in both Germany and France have been quite active in the transfer of technology to business partners elsewhere. The survey conducted in the Republic of Germany indicates that nearly one fourth of the 415 enterprises studied had taken part in technology transfers by 1973. The various studies available on France are perhaps more relevant. One survey shows that nearly half of the 100 or so small sized enterprises studied had taken part in technology transfers by 1976 and that the other half had been unable or had not wished to do so. There is also a statistic given in yet another UNIDO study that suggests that small sized enterprises account for 15 to 30% of the total number of subsidiaries of parent companies of European origin operating in Brazil, Mexico, Peru and Venezuela, as well as of the total number of licensing agreements concluded by European firms in these countries (UNIDO, 1982). It is worth noting here that technological skill development has only recently become an explicit element of the transfer process. This does not mean, however, that it is given its due attention today. Transfer programmes as the sister industry programme of Sweden and the pilot plant programme of the Netherlands have demonstrated strong bias towards equipment transfer at the expense of human skill transfer. One can also add that reasons vary for the interest of small industry in Western Europe in the process of transfer of technology. Continued access to markets threatened by tariff or non tariff barriers is one reason. Extention of traditional export relationship is yet another. Some of them also see it as a part of a policy of gradual “sharing” of specific manufacturing processes with developing countries as a dimension of an overall international policy of redistribution of labour. With regard to the transfer process itself, a few approaches exist, of which prime examples include “sister industries”, “transfer agents”, “South-South cooperation” and use of “pilot plants”. These methods are reviewed below. (a) The sister industry relationship, a Swedish approach The essense of the sister industry relationship is a long term technology transfer relationship between two small industries one in a developed country and the other in a developing country. The senior sister is not necessarily a manufacturer of production equipment, nor a consultant, but rather a company that is using the technology itself. The junior sister is typically a newly established small enterprise within a national small industry creation scheme. And the basic assumption is that assistance is rendered and most needed in the short term and that the longer term should bring about a measure of self reliance. The relationship could entail one or all of the following components: On the senior sister's side: (i) preliminary project proposal; (ii) detailed specification and costing of the entire project; (iii) purchase of necessary machinery, equipment and starting material; (iv) technological training of selected entrepreneur; (v) supporting
expertise for the installation and running of the machinery and equipment; (vi) supportive advisory service (vii) continued purchase and delivery of spares, materials etc. On the junior sister's side: (i) providing an equity input; (ii) managerial and technical responsibility for the operations of the firm; (iii) desire and readiness to continue the development of the product, the market and the firm. The framework of cooperation is set out in an agreement between the Swedish organization and a home country counterpart. The senior sister and the supervisory counterpart agree on the type of technology to transferred, the products to be manufactured, the capacity of the plant, the extent of training required and scope of the support in installation and running of the plant. The local supervisory agency enters, in its turn, into a hire purchase agreement with the junior sister specifying the extent of financial input from the entrepreneur and the supervisory agency. The local supervisory counterpart harbours a responsibility to: (i) identify products and technologies with high priority; (ii) identify and select the entrepreneurs; (iii) carry out feasibility studies; (iv) provide plant infrastructure (buildings etc.); (v) provide the common facilities required within the industrial estate. SIDA (the Swedish aid agency) is, on the other hand, held responsible for the identification and selection of the senior sister, financing and monitoring of the programme. (b) The transfer agent, an Asian approach “Technonet Asia” is a typical example for another approach to technology transfer, and adaptation. National member organizations have a strong small and medium scale industry function and a national industrial policy role. They cooperate in the transfer of indigenous technology through: - Making available to one another industrial and technical information on products and processes developed and available in their respective countries. - Identifying technology seeds and technology needs for eventual facilitation of transfer or sharing of results. - Developing effective coordination and liaison with local institutions concerned with the development of small and medium sized industries as well as with local sources of technical information and expertise. Technonet has been fulfilling a significant function as technological broker and an agent for South-South cooperation. The limited geographical coverage of the organization and the limited scale of the operations may be considered its most significant drawback. (c) South-South cooperation, an Indian approach
Cooperation among governments and organizations from developing countries in the transfer of technology is a commonly advocated channel. Several government agencies and corporations in India, for example, have been playing a pioneering role in this respect. The government owned Central Machine Tools has helped to set up a metalworking research institute in Iran. The National Industrial Development Corporation has been setting up industrial estates in Guyana and equipping a technical training institute in Malaysia. Hindustan Machine Tools has been establishing an advanced training centre in Iraq etc. The Indian government's small industry programme in Tanzania is possibly, a typical example for a South-South technological approach with all it opportunities and problems. A credit line was established, in 1977, in order to be utilized for import of machinery and training of Tanzanians in India. Fourty-eight small independent industrial projects were selected and 31 quasi-independent district development corporations were also, until 1985, identified for a transfer of technology, a credit arrangement or both. The implementation of the programme was faced with serious problems both at the despatching and the receiving end. Some shipments were not containerized, some cases of machinery were incomplete, some factory buildings were behind schedule and some contemplated training has never taken place. All in all however the attempt provides what could be considered positive results worth imitating elsewhere. (d) The Pilot Plant, a Dutch approach Transfer of technology through Multinational Corporations is a familiar and controversial issue. It is laden with the by now common and familiar arguments against multi nationals in general and their involvement in the industrialization process in developing countries in particular. The case of the pilot plant initiated in the Netherlands by a multinational is worth referring to because it represents the potential role of a multi national in the transfer and adaptation of technology to the small industry in developing countries. The origin of the plant is without any doubt the self interest of the multinational itself. The corporation was faced with the problem of creating assembly and manufacturing units in countries with less than optimum industrial infrastructure. The decision was therefore taken in the fifties to simulate the process by building in the Netherlands a limited scale plant that could embody the difficulties and constraints encountered in developing countries. The experience meant compromising on a number of variables including the equipment, which had to be largely local, comparatively simple and adapted to the environmental conditions in the host country as well as the scale which had to be adjusted to the limited batch production. The transfer of technology process was seen by the multi-national as the ultimate product of three components. The first is the so called general industrial know how. This is more operations management-related type of information that could be transferred through training and on the job exercise. The second is product related technology (product specifications, product operation, product quality standards). And the third is processrelated technology (tooling, line planning and balancing, production flow etc).
Making trunks in China An evaluation of the different approaches to technology transfer It is necessary to ask whether the various approaches to technology transfer just reviewed are appropriate and efficient. (a) Could the South really teach the other South? South-South transfer of technology is very attractive and sounds very valid within the ideological and political commitments of developing countries. Experience has however shown us that there are many problems involved in the process: - Is the technology transferable? Some specific cases of technology transferred from Asian to African environments disclosed a non-compatibility almost equal to that of that imported from the North. - Does the recipient have the capability to absorb the transferred technology? The gap between some developing countries could be just as wide as that between developed and developing countries. - Is there enough skill at transferring technology? Experience indicates that skill is needed in the management of the transfer process. Elementary errors related to the process of transfer itself create dramatic consequences. (b) Is it a sister or a mother relationship? Experience has taught those involved in the creation of sister-industry relationships between small industries in developing and developed countries that the process, contrary to the appealing impression it gives, is complex and cumbersome. The Tanzanian experience has revealed many points of weakness and the following are just a few of them: - Greater emphasis on the technological transfer process than the economic viability of the project. - Technological bias has lead to a near total omission of the managerial training and skill creation dimension. - Identifying “elder” sister in the developed country seemed difficult and guiding them throughout the process seemed even more difficult. - Specific environmental constraints common to developing countries as shortage of foreign exchange or lack of local raw material could cause unsurmountable obstacles to the desired technology transfer process. Taken together one can state that the essence of the concept is sound once managerial and economic constraints are given due attention and the transferred technology is sufficiently adapted to domestic and typically local conditions.
(c) Who protects us against the self interest of the multinationals? Multinationals' selfdenial might not last as long and be as durable as to provide a genuine support to small industry. The following specific problems have emerged in a number of observed cases: - Tied technology. Tied to the equipment and processes provided by the multi-national are usually specific raw material and component inputs that vary from those locally available and can only be supplied by the multi-national itself. - Tied outlets. Multinationals impose, in many cases, specific marketing conditions to their technology transfer. Those amount to the a near confinement of all marketing efforts, especially in export markets, to that very multinational. - Limited opportunities for skill transfer. Technological skill transfer is a second priority in multinational operations, as evidenced almost everywhere. Their cooperation with rural small industries almost excludes this transfer altogether. The development of indigenous technological skill and know-how Developing technological competence has long been identified as one of the most complicated issues facing developing countries today2. Global R&D is seriously biased towards developed countries. Secondary and higher education in developing countries, the main bastion of technological infrastructure, on the other hand, demonstrate considerable insufficiency. Student composition within developing country universities and technical institutions demonstrate, generally, a strong bias towards law, social science and other arts subjects. Some of the indicators of technological competence as the percentage of expenditure on research and development as a percentage of GDP, the number of technicians per 10000 inhabitants and the number of scientists and engineers also per 10000 reflect alarming disparity between the developed and the developing countries (See Table 22).
Just six countries, (the USA, Britain, France, Japan, USSR and West Germany) accounted in 1979 for nearly 85% of all R&D spending and 70% of R&D manpower resources (The Economist, August 25, 1979), some of the research in pioneering areas as microelectronics and biotechnology for example is almost exclusively concentrated in industrialized countries.
New roads - a step towards the development of both small and large-scale industries Table 22: Some indicators of technological competence in developed and developing countries.
Japan Argentina Bangladesh Egypt 1976 1976 1973 1973 Spending on R&D as % of GDP 2.0 1.8 0.2 0.8 Technicians (per 10000 population) 8.0 4.3 0.1 Scientists and engineers (per 10000 population) 35.4 3.1 0.2 3.0 Source: The Economist, August 25, 1979. Having said this, it should be stressed, however, that the experience of a significant number of developing countries indicate that the development and diffusion of domestic or improved technologies within the small scale industry sector offers a lot in terms of enterprise productivity, employment generation and import substitution. It is, moreover, usually associated with a tempering in rural-urban migration, and a boosting in the use of local raw material, local tools and equipment and local intermediate inputs. Many government programmes have been developed, therefore, with the objective of developing adjusted or adapted technologies especially in rural areas and encouraging the use of those.
Manufacturing technologies of interest to rural producers have been developed for a large number of consumer and small capital goods, including processed food, agricultural tools and implements and wood products. Several approaches are also being tried to improve the dissemination of technological information among rural producers, including the establishment of specialized technological institutions and extension agencies (ILO, 1986). Approaches to indigenous technology development It must be obvious, however, that domestic technology development in developing countries is a difficult process especially when we are dealing with a small industry. What is going on right now is the result of multiple efforts. Some of the initiative emerges from individuals, some from enterprises and some from specialized institutions created for this specific purpose.
(a) The individual approach. Individual initiative of an entrepreneur with some technical ability and the business insight to identify a product or a process and tie that to a market opportunity, is still the most common pattern in many developing countries. Many of the small and rural industries one comes across in countries as varied as India and Nigeria have been created in this way. And many of them do demonstrate the technological limitations of this individual Initiative too. (b) The enterprise approach. Technological innovation here is the product of a goal that has been set by the enterprise as a result of a market signal or simply technical bias of the entrepreneur himself. Though not very common among small and rural industry, it does frequently emerge as an extension of the private initiative referred to above. (c) The institutional approach. The Institutional approach is fairly novel to many developing countries but seems to be the favourite solution of the majority. The frame in itself assumes different dimensions and diverse forms and maintains a wide variety of linkages and roots. One could in fact distinguish between four varieties of these technological development institutions as outlined below. Case profiles of technology development institutions in various countries are given in the “boxes” - the first giving examples from Asia, the second from Africa. - The extension-cum-technical development institution: This is an institution that has been created in order to develop small industry in the broadest sense and technology enhancement is seen as part and parcel of the function. The technology development function is either conducted within the broad frame of the organization or delegated to a specialized institution created within that frame. A typical example for this are the small industry organizations of Tanzania, Zambia and more recently Zimbabwe. In all three cases, technology is seen as part of a broader formula that includes entrepreneurial development, consultancy and technical support. - The product, process and equipment design institution: This is an institution created with the prime objective of designing new products, adjusting the specifications of existing ones, creating or reformulating processes and developing new equipments and tools. The target group could be primarily small industry, like Thailand's Industrial Service Institutions. A few institutions, however, cater for the needs of both small and medium scale industry as Egypt's Engineering and Industrial Design Development Centre. - The research institution: Emphasis here is placed on applied research in the first place and the technological diffusion of the results of this research in the second. A few of this type of institutions exist in South Korea and Taiwan. They maintain, in many cases, strong link with universities and technical institutions and identify themselves, more frequently than not, with the academic and educational systems.
- The training institution: Many of the small industry promotion and technological training institutions one comes across in the Philippines, India, Thailand, Sri Lanka, Tanzania, Kenya etc fall under this category. Their prime objective is the training of cadres for the cottage and small industries in the country. They differ considerably in approach and level. Some conduct what is tantamount to vocational training while others approximate the polytechnic approach. (d) The training approach. As the reader must have observed by now, training plays a central role in the process of development of basic technical skill, product related technology and process related technology. Almost each of the organizations referred to in the case profiles (see “boxes”) has its own programme for either conceptual preparation or skill generation. One can in fact talk of three types of training; training aiming at the technical skills and industry or branch knowledge of the entrepreneur (ISC training in Thailand for example); training directed at the managerial skills of the entrepreneur (SIDO's extension training in Tanzania for example); and training provided in order to keep the entrepreneur informed of recent mainly technological developments within his field (training provided by the SMIPC of Korea for example). Training conducted by the Small Industry Extension Training Institute of India, for example, covers a wide range of topics that range from entrepreneurial development in the classic sense to specific aspects of technology. Training conducted by Small Industry Consultancy and Training Institute of Tanzania (SICATA) includes basic consultancy skills (for extension officers), functional management (for the existing entrepreneur), entrepreneurial development (for the emerging entrepreneur), small industry development policy (for the policy formulating and support agencies) and, last but not least technical drawing, technical maintenance and metal working (for practicing entrepreneurs) (See Figure 3). Figure 3: The consultancy-cum-training model Some of this training is organized on a national basis while a considerable segment is carried out in collaboration with other developing or developed countries. SIDO Tanzania's SSI training programmes for example, are carried out in collaboration with a Dutch counterpart. There are training centres that are created as a by-product of some form of technological collaboration e.g. the collaboration between India and the governments of Guyana, Iraq and Malaysia. (e) The programme approach. Technology development could follow a programme approach i.e. a cluster of efforts developed by the government or the private sector in order to stimulate technical education or skill development among a specific group of individuals. These programmes are usually confined to a specific target group, run along non conventional lines and have a variable life cycle. They are also financed, in a large number of cases, out of special allocations beyond the traditional budget outlays of the
respective agency. Some examples, which refer to India, Kenya, and Egypt are given in the boxes”. Village carpenters learn to build carts PROFILES OF LOCAL TECHNOLOGY DEVELOPMENT INSTITUTIONS: ASIAN EXAMPLES CASE ONE: The industrial service institutions of Thailand. There are several of industrial service institutions in Thailand and they have all been created with the objective of providing technical information, extension, advice as well as training within the light engineering branch. Services available cover industrial engineering, industrial design, packaging, furniture and woodworking, heat treatment, electroplating, machine shop practice, tool and die design and making, foundry technology and low cost automation. The institutions develop, also, appropriate machinery and equipment as low cost import-substitutes. The institutions also undertake techno-economic surveys to appraise the availability of technical and economic resources within certain branches of industry. CASE TWO: The Indian Council for Advancement of Rural Technology The Council has been established by the government of India in order to fulfill several functions centering around the collection of information, the conduct of technology oriented training programmes and the acting as a focal point for rural technology related issues. The most important objective from our point of view is probably that of acting as “a catalyst for development of technology appropriate for the rural areas by identifying the crucial problems encountered by the rural people and funding research and development efforts by different organizations”. This function is supplemented by that of disseminating knowledge on rural technology to manufacturers of machinery, tools, equipment and spare parts and of sponsoring training programmes, supporting research and strengthening existing research and development institutions. CASE THREE: The Small and Medium Industry Promotion Corporation of the Republic of Korea (SMIPC). SMIPC is a fairly recent creation of the Korean government in order to support the technological and managerial development of SSIs in the country. The resource base is strong and the function includes extension services of technological, managerial and promotional nature. Specific handicrafts manufacturers with the market or capability for export of quality products are given generous assistance. Applied technology and management training programmes are provided at regular pace and with the minimum of cost. Specific diagnostic services are also extended to the enterprises and they are also helped in the process of adjustment and response.
PROFILES OF LOCAL TECHNOLOGY DEVELOPMENT INSTITUTIONS: EXAMPLES FROM AFRICA CASE ONE: The Small Industries Development Organization (SIDO) of Tanzania. SIDO was established in the early seventies in order to promote and coordinate small-scale industry development in the country. Small industry included, according to the Parliamentary Act, craft production, cottage industries and small-scale manufacturing. Activities cover a wide span and include extension, credit, technology transfer, technology development, industrial estate creation and training. In the process, SIDO has undertaken a number of programmes with outspoken vision and policy behind them as the sister industry programme (in cooperation with the Swedish industry) and the Indo-Tanzanian programme (in cooperation with the Indian industry) and the Small Industry Consultancy and Training Programme (SICATA) (in cooperation with the Netherlands government - see Figure 3). CASE TWO: The Egyptian Engineering and Industrial Design Centre. The Engineering and Industrial Design Centre of Egypt (EIDC) was established in the late sixties with the specific purpose of developing a design capability for industrial products in the country and enhance the technological development of the industrial sector of Egypt. The tasks included: industrial product design and development, capital goods equipment design, production technology and tool design, process design, and prototype and tool manufacturing. The institution has been quite active along a broad front. In the agricultural sector, mobile threshers with electric and diesel drives, small trailers, irrigation pumps and sprayers were locally designed or redesigned in order to suit local conditions and transferred to industry for manufacturing. Among the agricultural implements a small woodworking lathe was also developed in order to be manufactured in small shops and sold to woodworking and small furniture industry.
TECHNOLOGY DEVELOPMENT IN A GENERAL SSI ASSISTANCE PROGRAMME CONTEXT EXAMPLES FROM INDIA AND KENYA CASE ONE: The Birla Institute of Technology. - India Selected engineering students are invited in the last year of their degree course to carry out a research project to develop a practical solution to a technical problem which can form the basis of a small-scale engineering enterprise. Their answer to the problem is presented in writing (and in laboratory prototypes where applicable), as part of their material for the final examination. Many of them proceed with the developed product or process and create their own small industry.
CASE TWO: The village polytechnic programme in Kenya. The programme provides unemployed primary school leavers with six month training in one or several simple skills for which there is a market in the villages. They also receive some basic management training. It is made clear from the beginning that the objective is to enable the trainees to create their own jobs by operating independently within their own community. Their technological skills are developed under very constrained conditions as they have to work with the minimum of equipment, and they therefore develop the ability to improvise and make the best use of limited resources (Harper, 1984).
INTEGRATED ASSISTANCE TO FOREST-BASED ENTERPRISES THE CASE OF THE EGYPTIAN FURNITURE INDUSTRY Egyptian industry has a prominent artisanal sector which produces mostly a wide range of household goods for local markets. The top four enterprise types in terms of employment and number of establishments can be ranked as: ready made garments, woodworking and furniture, food processing, and engineering and metallurgy. Major problems adversely affecting productivity, quality and, by extension, constraining the growth of small scale industry are: obsolete machinery; deficiencies in production and management (in product design and development, production planning and work methods, material selection, quality control, preventive maintenance etc.); poor working conditions and housekeeping (Ikram, 1980). Comparative advantage has led to concentration of the woodworking and furniture industry in Damietta province. Serious problems facing the industry are primarily technological such as poor finishing, workmanship, bad product designs, scarce machinery. Egypt is tackling these problems of technological retardness as follows: Product design. The creation of a provincial centre for product design and prototype production. Compelling units with more than fourty workers to create their own design centre. Encouraging the manufacturing of standardized semi-finished goods for assembly at urban centres. Encourage a measure of substitution between wood and synthetic substitutes. Training. Creating a department for interior design in Damietta as an extension of the Faculty of Creative Arts (Cairo). Introducing the following specializations within the curriculum of vocational training at secondary school level in the country: upholstery, carving, shaping etc. Confining the practical training of those attending vocational training classes to specified factories selected carefully by a group of specialists in the field. Organizing practical and focussed training programmes for construction workers involved in wood installation.
Marketing. Improving the availability and quality of inputs. Excluding furniture exports from all fiscal levies and duties and introducing a tax rebate system. Developing a marketing-oriented brochure reviewing the potential of the industry in Egypt. Including furniture in trade agreements. Cooperative effort. Reviewing the definition of small industry and craftsman, from a credit and finance point of view. Reviewing the potential for a cross-country furniture cooperative marketing organization. Creating a small industry/craft cooperative finance institution.
Technology development - an evaluation of the experience and approaches The applied effectiveness of the institutional structure Appraisal of the effectiveness of the institutional structures with regards to the issue of technology development is complex and could carry strong subjective elements into it. The observations which follow are the results of evaluations that have been done by some international organizations which we shall have to put our faith in. There is a general feeling that the institutional approach does suffer from a number of weaknesses, as follows: - A widely spread effort. Many of the organizations created for the development of the small industry sector are given multiple functions and wide scope of activities. The result is a variable degree of attention given to technology development with, on occasions, a strong diversion of efforts away from technological development and into administrative and regulatory issues. - Non-selectivity of crafts and industrial branches. Undiscriminate attention is given to a wide variety of crafts and industrial branches without giving due regard to the relative significance and comparative advantage of some of those to specific rural communities or to the country as a whole. - Low level of technological training. Technology provided in many of the technologycum-extension or basic technology institutions is outmoded and, at times, outright outdated. Equipment associated with this type of training is often cumbersome and inefficient. - Industrial estate focus. The concentration of efforts on industrial estate entrepreneurs, which is commonly observed, does limit the ability of other non-industrial estate dwellers to develop their products and processes technologically. - The factory vs non-factory segmentation. The preference given in some cases, to factory type small industry could lead, on the longer term, to a stagnation of specific traditional
crafts and appropriate technologies that might provide a perfect alternative to imported or transferred technologies. - Training bias. Many of the training programmes offered within some institutions demonstrate a bias towards the upper levels of technical education. The consequence is a heavier concentration of training on already “developed” individuals and a disregard of the lower levels of the production skills. The relevance and effectiveness of the training function There are variable degrees of success of the training approach as a whole and many serious problems encountered there. First, is the ability of the entrepreneur to follow the training and absorb the contents. In Tanzania, a significant number of the entrants or existing entrepreneurs, especially in the village industry programmes, have basic reading and comprehension difficulties. The classic approach to training have failed there almost dramatically. Second, the high measure of differentiation required for technology training to be effective. Put differently, training has to focus on the specific problem areas of the rural industry. Much training does not fulfil this criterion. Third, is the lack of appropriate training material that relates to the entrepreneurs' realities and touches upon his day to day problems. Much if not the majority of the material is developed elsewhere and the relevance leaves, sometimes, a lot to be desired. Language of training could become an unsurmountable barrier (Oude Vrielink, 1983). Fourth, is the scarcity of equipped and motivated individuals that could perform the training cum extension function. This is a special problem in some countries of Eastern and Western Africa and the Pacific. The problem of commercialization of indigenous technology The development of indigenous technology is by no means a guarantee that this technology is going to be integrated in main stream of industry and business in the respective developing country. Experience of a number of developing countries from India to Korea reflect a variable degree of utilization of results of national research and development (R&D) efforts within the business sector in general and within small industry in particular. Factors identified as crucial in the process of commercialization of indigenous technology include the R&D capabilities and the management of the R&D function, how multi disciplinary is the approach, the strength of the link between R&D efforts and applied industry problems, the expertise of the R&D personnel, the orientation of the R&D function towards the educational system and needs of the country concerned etc. Some less encouraging factors could, however, restrain the process considerably. Consider for example the commonly observed absence of demand for technological innovation, the preoccupation with technical excellence at the cost of commercial reality, conflict between the interest of industry and that of R&D institutions, technological gaps between R&D institutions and industry, the observed time lag in technology transfer, and lack of substantial follow up.
A note on micro enterprises in the FB sector The analysis so far although addressing “small-scale industries” has covered approaches or insights which are more relevant to the larger small enterprises. As we said earlier, FBSSIs demonstrate a strong bias towards particular smallness. Put differently, a large number of these enterprises display the typical characteristics of “micro” enterprises i.e. limited number of employees, small investment and strong dependence on one or two individuals for their very existence. The technological problems that an enterprise of this size and magnitude faces are, obviously, of a different magnitude from those confronted by larger and more structured small industries. Their technological needs are simple and mundane (mostly limited to basic manual or power assisted tools and the most elementary of management processes). Their perception of technology is very basic and tangible. Their investment in technology is limited. And their accessibility to technology is constrained. Table 23 summarises some prime indicators of FB-SSI smallness. The problem of technological enhancement here is more that of making basic and essential tools available to the small entrepreneur, assisting him in adopting low cost automation techniques, encouraging him to use more power assisted tools and equipment, and, finally, stimulating him to adopt a managed approach to operations within the micro unit. The ultimate objective is, obviously, reaching greater productivity and, possibly, lower cost of production. Several approaches could contribute to this enhancement process. First is encouraging village level associations of manufacturers. These could cooperate in machinery and equipment acquisition and utilization, exchange technical advice and complement each others' processes. Second is the provision of mobile technical support units i.e. technically-oriented and equipped extension officers who visit the villages with the purpose of assisting in specific technical problems i.e. machine maintenance, efficient raw material utilization, substitution of scarce inputs etc. Third are the village industry “common facilities”, where specific production equipment for industrial processes are accessible to the small entrepreneur. Fourth is the stimulation of specific village level extension with emphasis on low cost automation and basic power assisted production processes. Summing up, a degree of decentralization of support services and facilities to rural areas is essential for an improved access of “micro” FB-SSIs to basic technology an increase in the and effectiveness of these services.
Table 23: A few characteristics of forest-based enterprises.
Characteristic Have 5 or fewer workers (%) Firms with no machines(%) % of Employment in rural areas Source: FAO, 1985. A few recommendations
Jamaica Thailand Honduras Egypt 96 69 79 79 96 69 100 97 93 65
Sierra Leone 96
Bangladesh 96 99 -
It is obvious that the problem of developing a technological capability for forest-based small industry in developing countries is complex and involved. To pretend that a few recommendations will provide all the answers is misleading. The following therefore, are a few thoughts that may help directing attention towards some of the most urgent problems. The measures suggested hereafter can best be grouped as either policy level recommendations or enterprise level recommendations. Policy level recommendations (a) A regional approach to South-South technological cooperation. In order for the South-South technology transfer to materialize clear and approachable regional channels should be created. “Technonet Asia”, though with a few significant adjustments could serve as a model. Its span of activities should actually be as broad as to include the following: - the identification and formulation of the need for a specific technology type within a country, a group of countries or a region. - The identification of alternative suppliers or supply sources of that technology within the country, the area or the region. - Have an insight into the alternative techniques available within a branch or industry. - Preliminary evaluation and selection of the most appropriate technology for a small industry. - Provision of assistance in the acquisition, assimilation, adaptation and adoption of the transferred technology. (b) Better integration of technological skill generation in the transfer process.
There is plenty of room for the improvement of the transfer of technology process as we know it now. The sister industry programme could be adjusted and made more penetrative by linking it to existing technology development and technology training resources within the developing country itself. This would convert it into a continuous system instead of an ad-hoc one. Yet another approach is that of the “micro-centre” linkage between developed and developing countries. Microcentres are a network of small industries operating within a specific industrial sector in a developed country. The purpose of the networking is essentially solving technical and managerial problems that do hamper the development of the units and providing an expanded opportunity for each member. For example, in the Netherlands, micro centres are currently providing a linkage relationship with a similar setup that was created in Indonesia with essentially identical purposes. The element of interest here is that the Indonesian unit will be able to benefit from the Netherlands base and have free access to its resources. Specific training efforts are provided as part of the resource transfer package. (c) Reconsidering vocational training. One of the important gaps in technical and technological knowledge is that of the middle line in production and manufacturing organizations. Many of the existing systems of development of middle level technicians suffer from their weak linkage with industry, on one hand, and their limited response to the actual national technological needs, on the other. An improvement of the system is urgently needed and some borrowing from a foreign system might not be that unusual. The system one has in mind here is the German system of vocational training. It has three distinctive features. The first is the clustering effect it has on small scale industry in the country. Every small industry plant is required by law to belong to a handicraft guild, that regulates their behaviour and, more importantly, organizes the technical training of the following generation. This type of vocational training in Germany is treated as the natural sequel to schooling. It is legally obligatory for three years for all 15 to 18 years olds not otherwise in full time education. They must be released from work one day a week to attend an approved course at a vocational training school. Secondly, youngsters in that age group may be employed only by firms having approved training facilities. And finally, the school course must be complementary with the youngster's employment. A system of this nature once adapted to the realities of small and rural industries in developing countries, would compensate for the deficient supply of basic technological know how to the sector. The training could, for example, take place at industrial estate factories, the technology cum-training centers etc.
(d) Encouraging the commercialization of indigenous technology. There exists a feeling that the commercialization of indigenous technology within the small industry sector could be greatly facilitated if: - Development banks assume an active role in the allocation of funds to projects aiming at the exploitation of novel approaches to identified technological problems. This active role could take many forms ranging from preferential interest rates to extended grace periods and longer repayment schedules. - Investment guarantee agencies for R&D are created in order to cater for the limitedresource entrepreneur with the business potential but not the resource base. - Commercial banks extending their credit services in order to include technical and managerial support to the small enterprise. - Venture capital is stimulated and encouraged to enter the small industry investment market and deal specifically with the problems of product and process development there. - Governments should also encourage the flow of technology-related information (industry structure, new product development, new process development, competitive initiative, international market opportunities etc.) and boost a free flow of that information within the respective relevant sectors. Enterprise level recommendations
(e) Stimulating technologically oriented cooperation among SSI entrepreneurs It is the author's contention that the self interest of the small entrepreneur should provide the driving force behind the problem of technological development within the SSI sector. This cooperation could aim at identification of areas of common technological insufficiency, the collaboration in identifying sources of external assistance (if needed), the mobilization of funds for concentrated research and the dissemination of the results of the technological effort. One of the good examples for this collaboration are the “branch cooperatives” known within the Korean system. Branch-related small industry there is organized, within the framework of the Korean Federation of Small Business, in cooperatives that perform, jointly, many functions. It is a broader and innovative application of cooperative principles. This cooperative pattern could prove crucial in solving as tricky problems as process related technological development or product related adaptation and adjustment. The bottleneck within an approach of this nature is naturally the encouragement of branch-based cooperation and how to keep any coordinatory organ lean and effective. The Korean model provides a simple straight forward structure where the entrepreneur is the prime focus and driving force and the Small Industry Federation is merely the coordinator.
(f) Focussed technological exposure Bringing technology to the small rural entrepreneur requires pragmatic action. Venues have to be created that combine practicality and accessibility. A typical example is the technology shop. This is a display of practical approaches to the manufacturing of specific products, of improved tools and equipment, of substitutes to outmoded products and of possible sources of information on new developments. They could be static, located in a rural capital or dynamic, moving from one manufacturing location to the other. (g) Continuous consultancy first and training second Technological training should relate in the most direct of ways to the SSI technological problems and should provide, in the same direct way an answer to these problems. The only way to achieve that is to add to training two other significant elements, diagnosis and continuous consultancy. A period of diagnosis or exploration of the specific problems of an enterprise should preceed any attempt at technical training. This period should allow an examination of the technical and product-related issues of the enterprise, and supplement that with a view of the managerial dimension. The results of this diagnosis should lead to a clustering of the small industries according to their problem focus and, more importantly, an adaptation of the training message to these problems. Specific, problem-based training programmes could then be developed, implemented and followed up. The participating entrepreneurs have a lot in common and are inclined to share experiences and, probably collaborate even after the training is over. Continuous consultancy is tantamount to the creation of a permanent relationship with the entrepreneur, a relationship that extends beyond the training programme. It, in fact, starts with the diagnosis phase and goes through the training and extends in the future as much as enterprise needs dictate. (h) Encouraging village level technical extension services One of the prime issues constraining the development of technological skills among small entrepreneurs is their accessibility. This problem could be solved by using existing channels as agricultural or forestry extention officers, to provide the technological support function as part of their total support package. They have the access and the intimate knowledge of the clientele that would allow an effective service. They maintain, also, the added advantage that their advice could be directly related to forest-based industries and the very specific problems that those face.
(i) Introducing a village level industrial estate programmes Mini industrial estates containing basic common facilities and a skeleton of extention services and located at convenient locations within the rural areas would go a long way towards covering the immediate technological needs of forest-based village industries. These estates should avoid the common errors of those larger ones which have been created in or around urban areas and whose state of technology sophistication proved to be out of reach of the micro entrepreneurs. They should contain very basic tools and equipment, charge little or nothing for their services, provide relevant advice on low cost automation, support the limited scale manufacturing of production tools and supply relevant managerial and technological advice.