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International Journal of

SME Development

International Journal of
SME Development
Volume 01 | Issue 01 | April 2014
Editor in Chief
M. Kamal Uddin, PhD
Professor & Director
Institute of Appropriate Technology, BUET
Editor
Syed Md. Ihsanul Karim, PhD
Managing Director, SME Foundation

April 2014

Co-editor
Md. Mujibur Rahaman
General Manager, SME Foundation
Sub-editor
Md. Mamunur Rahman
Deputy General Manager, SME Foundation
Editorial Assistant
Akhil Ranjan Tarafder, Program Manager
Md. Joynal Abdin, Program Officer
Cover Design
Ashim Kumar Halder
Copyright @2013 SME Foundation
ISSN: 2305-7750

Small & Medium Enterprise Foundation


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Phone +8802 8142983, 9142907 Fax: +88028142467
E-mail: info@smef.org.bd, Website: www.smef.org.bd

Published by:
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Phone: 8142983, 9142907, Fax: 8142467
E-mail: info@smef.org.bd
Website: www.smef.org.bd
Price: Tk. 100.00

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Editorial Board

Editorial Note
M. Kamal Uddin, PhD
Professor & Director
Institute of Appropriate Technology, BUET
K.M. Nabiul Islam, PhD
Senior Research Fellow
Bangladesh Institute of Development Studies
Razia Begum, PhD
Professor & Chairman
Department of Marketing, Dhaka University
Ijaz Hossain, PhD
Professor
Department of Chemical Engineering, BUET
Md. Ali Ashraf, PhD
Professor
Department of Farm Structure
Bangladesh Agricultural University (BAU)
Ahmed Ismail Mustafa, PhD
Chairman, Bangladesh Council of Scientific and Industrial Research (BCSIR) and
Professor, Department of Applied Chemistry & Chemical Engineering,
University of Dhaka
Toufic Ahmad Choudhury, PhD
Director General
Bangladesh Institute of Bank Management (BIBM)
Abdur Razzaq Akanda, PhD
Professor and Head
Department of Mechanical and Chemical Engineering
Islamic University of Technology
Khondaker Golam Moazzem, PhD
Additional Director, Research
Centre for Policy Dialogue (CPD)
Mr. Manzur Ahmed
Adviser
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI)

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In Bangladesh, Small and Medium Enterprises (SMEs) play a pivotal role in


national industrialization and economic growth. SMEs are large in aggregate
size, and thus have significant capacity for employment generation and
technological innovation & development. The latter promotes inter-sectoral
linkages, backward and forward linkages in the value chain, raising exports and
developing entrepreneurial skills. Indeed, experience gathered from multilateral,
bilateral and national institutions shows that supporting SMEs possesses
immense potential as an engine of GDP growth and employment creation. The
sector also plays an important role in building socio-economic harmony and
minimizes social injustice. Their locational flexibility is also an important
advantage in reducing regional imbalances. The future of SMEs is of major
policy and imperative concern given their strategic and operational importance in
any effort of reshaping industrial sector performance. SMEs in Bangladesh have
established their distinct position in different types of production systems and
have been getting immense recognition in the country. It is a proven fact that a
dynamic SMEs sector is a guarantee for more social cohesion and a better wealth
distribution in the country. In Bangladesh, SMEs absorb 70 to 80 percent of
industrial workers and constitute over 95 percent of business, while the capital
intensive industry just three to four percent.
With a view to spur SMEs sector, SME Foundation has taken an initiative to
publish a journal titled International Journal of SMEs Development. This is to
impart impulse and momentum in the process of building a robust SMEs sector
in the country. One of the prime goals is to capture and disseminate pertinent
information exploited from multifarious research endeavour conducted so far on
SMEs. Thus the broader objective is to collect and collate state-of-the-art
information and cognizance pertaining to SMEs from home and abroad.
It is gratifying to note that this journal is a venture to put forward the essential
elements of pertinent SMEs knowledge gained through professional experience
and research. In Bangladesh, it is extremely needed to create more and more
diversified SMEs having a gamut from the category of using indigenous
materials and facilities and on the other end, adorned with modern technology,
advanced operation management and new management pattern. The complexities
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in the development and application of SMEs technology require a long pursuit


and to get best results, it requires efficient technology management, transfer,
acquisition, assimilation and diffusion. There is a greater need for
experimentation for innovation & creativity. SMEs sector should re-visit the
conventional business mindset and be ready to overcome the challenges it brings
along with the new opportunities. Thus the journal possesses an aim to become
an important impetus for collation and dissemination of state-of-the-art of SMEs
knowledge which will be useful for the entrepreneurs, engineers, business
planners, academicians, policy makers, technologists, decision makers,
researchers, etc., especially those who are in cognition & entangled with practice
to devise innovative planning and new implementation modality in various
categories of SMEs.
This first issue of the journal has been adorned with invited articles & notes; with
a sanguine that the next issues will be furnished with diversified papers in other
fields. It is expected that the journal will play a dynamic role in invigorating
innovation, productivity & competitiveness and market adaptation for the
enterprises. The role-onus of the journal has been planned to render essential data
& information of various disciplines of SMEs such as modern operation
management, advanced marketing technique, competitive business plan, etc. This
will help SMEs to respond in the new & niche market and ultimately to develop
business strategy that targets the base of the pyramid group as well as the
missing middle of the enterprises and at the same time to explore the untapped
opportunities making effective paradigm shift.

Table of Contents
Articles
Women Entrepreneurship Development in the Small and
Medium Enterprises in Bangladesh: Prospects, Realities and
Policies

01

Momtaz Uddin Ahmed, PhD


Subcontracting: A Strategic Approach for SMEs Development 33
in Bangladesh
M. Kamal Uddin, PhD
Development of Tourism Industry through SME: A Study on
Comilla

59

Md Mainul Hasan, Mohhamad Rokibul Hossain


Prospects and Challenges of Plastic Industries in Bangladesh

77

M. Serajul Islam, PhD


Constraints and Challenges of SME Development in the
Developing Countries: A Case Study of India, Pakistan and
Bangladesh

87

Abeer Khandker
Prof. M. Kamal Uddin, PhD
Editor-in-Chief
International Journal of SMEs Development and
Director (Head)
Institute of Appropriate Technology
Bangladesh University of Engineering & Technology (BUET), Dhaka.

Note
Indigenous Technology and its Commercialistion
K Siddique-e Rabbani, PhD
Development of Appropriate Technology Based SMEs in
Bangladesh: Role of Bangladesh Council of Scientific and
Industrial Research (BCSIR)
Samina Ahmed, PhD

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132

International Journal of SME Development


Volume 01

Issue 01

1. Introduction

April 2014

Women Entrepreneurship Development in the


Small and Medium Enterprises in Bangladesh:
Prospects, Realities and Policies
Momtaz Uddin Ahmed, PhD1*
Abstract
Irrespective of gender type, entrepreneurship acts as a crucially important driver of
economic growth and social change in all societies. Development of women
entrepreneurship in Bangladesh is immensely important as women constitute half of the
countrys work force. Women-owned and women operated businesses are on increase in
Bangladesh. However, their representation in total business ownership is still peripheral,
being in the region of 3 to 5 percent. This is an indication of a huge potential human
resource lying untapped which needs to be utilized to transform and modernise the
countrys economic structure through creating new enterprises. There seems to be no
dearth of enthusiasm among women to assume business leadership to ensure their own
economic security, become selt-reliant, build professional career in business, contribute
to employment creation and income generation and assist national economic growth.
Like their counterparts in other developing countries, majority of the WEs in Bangladesh
make their debut in business at relatively young age, possess higher educational
background, elated social status and occupational background, and exhibit notable
intergenerational occupational mobility. They are eager to do well and strongly
motivated to innovate, diversify their business, and demonstrate dynamism to excell as
business professionals. Recent policy initiatives from successive Governments and
various private sector stakeholders to facilitate entry and retention of women as
entrepreneurs are noteworthy. But the ground reality is still highly inhibitive to womens
participation in business and operating as entrepreneurs in a conducive environment.
Women entrepreneurs still suffer form disproportionately greater obstacles than their
male counterparts in accessing bank credits, face rigid and non-transparent regulatory
barriers, institutional rigidities and various policy-induced constraints resulting from
gender-bias. Women entrepreneurs predicaments are further multiplied by the
pattriarchial social norms and family values which are seriously anti-developmental. The
need is therefore to remove all socio-economic barriers by taking more pro-active policy
initiatives and designing an effective implementation mechanism of the policies and
programmers at macro as well as micro levels which are gender-neutral and explicitly
pro-women.
*

Professor, Department of Economics, University of Dhaka, Bangladesh.


E-mail: ahmed_1947@hotmail.com / momtazahmed1970@gmail.com

International Journal of SME Development

Of late, women entrepreneurship development in the SMEs in Bangladesh has


come to the centre stage of policy making concerning development of the overall
small and medium enterprise sector as a pro-poor growth strategy. The reasons
are rather obvious. Talking globally, women are half of the human race, yet they
are practically invisible when it comes to owning and operating their own
business enterprises especially in the developing countries. Admittedly, women
have made significant inroads in the recent years (ever since formation of Beijing
Platform of Action for women) globally as well as in Bangladesh in different
areas of economic activities, and in professional and other pursuits under a
largely improved policy atmosphere encouraging womens participation in wide
range of entrepreneurial activities. But the ground reality still continues to be
very harsh. Womens predicaments in Bangladesh are at least three dimensional.
They are subject to abject poverty, widespread discrimination and inequality and
most importantly their scant participation in the work force.
Women are half of the population in Bangladesh, yet they are thinly represented
in the business world. They still continue to remain marginalized in the sphere of
entrepreneurship as women-owned businesses are reported by various sources to
constitute roughly 3 to 4 percent of the total business enterprises in Bangladesh.
In fact, womens participation in the countrys work force is still significantly
below that of men; 36% compared to 82.5% as of 2010. Except in the Ready
Made Garments (RMG) industry where nearly 90% of the 5 million workers are
women, their presence in the non-RMG industrial sectors is very small. The
implication is that a huge human resource remains untapped as sources of
economic growth and social progress. In order to build a sustainable democratic
society characterized by broader participation of all individuals, reduce poverty
and ensure prosperity through engaging the entire workforce in productive,
pursuits development of women entrepreneurship is indispensable.
In both developing and developed countries women entrepreneurship needs to be
comprehensively studied for several important reasons. First, during the last
decade women entrepreneurship has been recognized globally as an important
untapped resource for economic growth. Second, women entrepreneurs are found
by different studies to significantly impact national economic development by
creating jobs for themselves and being self-employed. They are also believed to
be capable of providing different solutions to problems of management,
organizations and business problems. They can also bring new approaches and
insights required to exploit entrepreneurial opportunities. Yet they still represent
a minority of all entrepreneurs especially in the developing countries. This

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

indicates existence of a market failure leading to discrimination against


womens potentials to become entrepreneurs and their iner potentials to become
successful entrepreneurs. Not surprisingly, women entrepreneurship still remains
a scantly researched area. On the contrary, mainstream research and programmes
of entrepreneurship development generally tend to be men-streamed. As a
result, the vitally important area of women entrepreneurship continues to remain
out of focus of serious research and analysis. Womens participation in
entrepreneurship has not only remained low, equal opportunity and access to
resources also has not become a reality due to many market and non-market
constraints. This market failure needs to be addressed by the policy makers so
that economic potentials of the group can be fully tapped.
Limited available evidence suggest that in both developing and developed
countries alike women still remain a tiny fraction of those who start new firms,
take to self-employment or are small business owners. Available empirical
studies (OECD, 2004) suggest that women owned businesses (firms owned and
managed) represent roughly between 25-30 percent of the total business
population in the OECD countries with few exceptions such as USA and Canada.
In the U.S. 40 percent of all firms are either women-led or women-owned. In
Canada women constitute 34 percent of all self-employed individuals and/or 34
percent of all small and medium enterprises. The comparative figure for South
Asia as a whole is noted (Tambunan, T.H. 2008) to be less than 10 percent. The
situation in East Asia, the region most successful in economic growth as well as
the region with the highest regional labour force participation rate and low
unemployment rates for women is much better, varying between 15-20 percent as
a whole. Notable exceptions are South Korea and Indonesia where womenowned businesses constitute over 32 percent of all business and 29 percent of
SMEs respectively.
It is to be rather distressingly noted that not many studies on the subject with
enough analytical vigour seem to have been carried out so far in Bangladesh.
Two broad groups of studies falling in the descriptive categories dealing with
stylized issues on entrepreneurship (i.e. SMEF Survey Report 2009 and BWCCI
Survey Report 2007 based on reasonably large samples) and Masters thesises
based on rather small samples (i.e. as small as 40 respondents) but with relatively
more analytical bent are currently available as the pioneering efforts in the field.
Among some of the earlier studies, Nilufer Karims works (1997 and 2000) are
useful guides with comprehensive coverage but again falling shy of rigorous
analytical touch. The present exercise is a modest attempt at filling some of these
gaps, especially providing an update on the current state of women
entrepreneurship development in the SMEs in Bangladesh, highlighting on their
International Journal of SME Development

profiles, characteristics, performance, and predicaments. Notwithstanding the


increasing economic and social significance of womens business ownership and
management adequate knowledge on the subject is lacking due to absence of
reliable data and comprehensive research. Based on the up-to-date secondary
sources of information available in the public domain, this article presents an
overview of the situation of women SME entrepreneurs in Bangladesh with a
view to unfolding existing knowledge gaps and identifying key elements of a
comprehensive policy strategy required to accelerate women entrepreneurship
development in Bangladesh.
The paper is structured as follows. After the introductory section, section II, deals
with the conceptual issues such as definition of entrepreneurship, women
entrepreneurs, and small and medium enterprises in Bangladesh. These are also
the keywords which will be repeatedly used in the paper and therefore need brief
elaboration. The profiles, characteristics, and current state of development of
women SME entrepreneurship in Bangladesh are reviewed and analyzed in
Section III. Barriers facing women entrepreneurship growth and policies put in
place to tackle them are highlighted in section IV. Some new directions for future
growth will also be suggested in this section. The concluding remarks are
presented in the final section.
2.0 Clarification of the Conceptual Issues
Many researchers take the word entrepreneurship very casually without
defining it carefully and ignoring the context in which it is discussed. But it is an
exceedingly complex concept making a specific and unambiguous definition very
difficult to be generally acceptable. We thus try to give a clear idea about what
we mean by entrepreneurship in our present context.
Definition of Entrepreneurship
Joshep Schumpeter (1934) identified entrepreneurs a century ago as innovators,
bringing new goods and technologies to markets, opening up new markets,
processes and ideas, and commercializing new knowledge in the context of the
developed western nations. Subsequent empirical research (Macro Vivarelli,
2012; Acs Z. J. et.al. 2005) in the context of both developed and developing
countries has shown that entrepreneurship is a multi-faceted concept, not
necessarily associated with innovation, productivity growth, and economic
development per se. Schumpeterian innovative entrepreneurs also coexist with
defensive and necessity entrepreneurs, the latter being identified as those
who enter a new business not because of market opportunities and innovative

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

ideas, but merely because they need an income to survive. This type of distresspushed or Survival-driven self-employment is particularly diffused in the
developing countries. In these countries poverty and lack of economic
opportunities in the formal wage sector often push many people into
entrepreneurial activities ranging from street vending to traditional and personal
services in most cases within the informal sector of the economy (Maloney
2004).
Later on, Schumpeter (1943) himself modified his position since the generic term
entrepreneur may include a population of very heterogonous agents, variously
termed as progressive innovators vs replicators, superstars vs. cluster of
followers and new founders etc. Many economists (Baoumol, W.j. 1990) went
to the extent to suggest that adopting a provocative stance by regarding radical
innovation and entrepreneurship as synonymous could eliminate the word
entrepreneur and substitute it with the founder which is more general and free
from overoptimistic implications.
Indeed, entrepreneurial ventures especially in the developing countries can be
observed as a rather heterogeneous aggregate consisting of real innovative
entrepreneurs bringing in creative destruction, together with the positive
followers bringing in overoptimistic and even escapees (self-employed)
from possible unemployment. Characterizing these different varieties some
researchers tend to identify the entrepreneurs as innovating, imitative,
fabian and drone based on their post-entry performance. The underlying
theme behind these deliberations is that these are alternative ways of looking at
the concept of entrepreneurship and binding it rigidly to the notion of
entrepreneurship being synymons with innovation will be narrow.
For the purpose of this exercise, we adopt a broad operational definition of
entrepreneurship. It is defined as the process or act of identifying opportunities in
the market place, mobilising resources required to pursue these opportunities, and
investing the resources to exploit the opportunities for long-term returns. It is
thus the process of creating something new, adding value devoting necessary
time and effort, assuming accompanying risks of uncertainty and obtaining
resulting rewards of monetary and personal satisfaction and independence.
Women Entrepreneurship
The next pertinent issue is to shed some light on who is an women entrepreneur.
Are women completely different breed from men as entrepreneur having distinct
characteristics and traits of their own? No, because both as human beings are
presumed to possess commonly identified entrepreneurial traits, such as creative

International Journal of SME Development

mind, drive and initiative, willingness to take risks, and be independent and so
on. However, much will depend on the social circumstances and economic
environment which significantly shape individuals entry into business and their
post-entry performance. In order to fully understand the differences between
mens and womens entrepreneurial qualities, performance of both groups at firm
levels after entry into business should be objectively evaluated. Nevertheless, it is
important to remember that as women entrepreneurship is both about womens
position in the society and the role of entrepreneurship in the same society, it can
thrive better in a positive socio-economic and cultural setting (including family
circumstances) and a conducive macro-economic environment. Thus, barring any
unfavorable exogenous circumstances and applying the general concept of
entrepreneurship, women entrepreneurs may simply be identified as a women or
a group of women who initiate, organize, and run a business enterprise. A South
Korean study (included in the APEC Regional study on women entrepreneurs,
1999) defines a women entrepreneur who is a defacto owner of a business and is
involved in the day-to-day running of that business. Depending on the specific
country circumstances, some criteria may be used to identify women as
entrepreneurs. For example, the Government of India defines women
entrepreneurs as an enterprise owned and controlled by women having a financial
stake of 51 percent of the invested capital and giving at least 51 percent of
employment generated by the enterprise to women (Aggaral, M. 2012).
A similar definition of women entrepreneurship is reported (Sultana, A. 2012) to
be used by Bangladesh Bank. The Bangladesh Bank (BB) deems a women as an
entrepreneur if she is an owner or proprietor of a privately run business
organization or owns at least 51 percent of share in case of a joint venture or
company listed with the office of the Registrar of Joint Stock Companies and
Firms. The BB definition also includes micro enterprises and cottage industries in
order to include these categories as beneficiaries of its SME loan policies and
programmers. The Government of Bangladesh uses a broader definition of the
term women entrepreneur. Under this definition, an enterprise owned and
controlled by women having financial interest of 51% of the capital invested and
giving at least 51% of the employment generated by the enterprise to women is
regarded as women entrepreneurs. In fact, this is exactly the same definition used
by the Government of India as noted above.
While such a definition may have specific policy objective, it will not be without
shortcomings, as it is restrictive in nature. For this exercise, we adopt a simple
and straightforward definition. Women entrepreneurs are those who own and run
a business enterprise both as employers and own-account workers.

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

Small and Medium Enterprises and Women Entrepreneurs

Small and Medium Enterprises

Women entrepreneurs world-wide tend to start business on a modest scale in the


micro, small and medium enterprises (abbreviated as MSMEs) primarily due to
various resource constraints (i.e. capital, training and skills, technology, credit,
infrastructures etc.) and lack of exposure and experience in corporate
management practices. Many empirical studies (i.e. Tambuna, T. 2008 and
sources quoted therein and APEC, 1999) in both developed and developing
countries note that more than 75% of the successful micro enterprises in the
formal and informal sectors are successfully developed and operated by women.
They also generally prefer to start and manage enterprises in different types of
industries than men where entry and exit is relatively easy and less challenging.
The natural choice, thus becomes MSMEs most often due to laters low
investment requirements, simpler technologies and short gestation gaps.

Talking about the SMEs, it can be stated bluntly that they constitute the
backbones of most economies in the countries of both developing and developed
countries. Their contributions to economic development vary roughly between 60
to 80 percent of industrial employment and 60 to 70 percent of GDP across
countries regardless of the stage of development (Ayyagari Meghana et. al 2003).
In the economies of the Asia-Pacific region the SMEs account for upwards of 90
percent of all industrial establishments and stand as dominant sources of
employment and incomes and thereby provide livelihoods for over three quarters
of the workforce in most countries including Japan (Tithapa, 2003). In
Bangladesh, the story is more revealing in this regard as the SMEs account for
over 99 % of the private sector establishments and provides more than 80 percent
of industrial employment. The country is thus rightly dubbed as the country of
SMEs which make phenomenal contributions to new enterprise creation (over 60
percent) employment generation, improvements in income distribution, poverty
alleviation, entrepreneurship development, export growth and development of the
rural economy.

That the SMEs serve as breeding grounds for development of both


Schumpeterian innovative entrepreneurs and for others who simply start and run
a business for living (i.e survival entrepreneurs) are well documented in the
literature. Citing the cases of the small-scale artisan producers in Vietnam and
the micro enterprises in the Ethiopian urban informal sector Voeten et. al. and
Gebreeyesus et. al. (included in Szirmai et. al. edited 2011) note that the SMEs
possess significant innovation capacities which contribute to enterprise efficiency
and economic growth.
Some researchers thus tend to regard women entrepreneurship and MSMEs as
synonymous. But this is over enthusiasm as they are different terms and have
different meanings and connotations. For example, Carland et. al (1984) writing
on entrepreneurship in the American economy, make a strong distinction
between the SME sector and entrepreneurship. However, while SMEs and
entrepreneurship have different meaning, both are important in an economy.
Indeed, the small business sector serves as a vehicle both for Schumpeterian
entrepreneurs and for people who simply own and run business for living
(Thurick, R. et. al 2004). As MSMEs do provide avenues for testing and
development of womens abilities as entrepreneurs and beginners in the
profession, the MSMEs play catalytic roles for women entrepreneurship
development. It is thus generally believed that if pro-women policies are put in
place to ensure improvements in womens access to opportunities and resources
women entrepreneurship development in the developing countries like
Bangladesh as in other parls of the world promises tremendous potentials for
empowering economically and socially and transforming societies into
birthright economies where new firms and enterprises constantly emerge.

International Journal of SME Development

3.0 Current State of Art of the women SME Entrepreneurs in Bangladesh:


Their Profiles, Characteristics and Post-Entry Performance
The title of this section is self-explanatory of the issues delineated to be
discussed and analyzed here. The current state of development of women SME
entrepreneurship will be highlighted through focusing on their profiles,
characteristics and performance, as permitted by the data availability. Results of
two major studies (SMEF survey 2009 and BWCCI survey 2007) available in the
public domain are the important sources of information used for this exercise.
Additionally wherever possible some information available in the SME
Foundation on selected women entrepreneurs will be used to enrich our analysis.
Use of statistical information from these sources is aimed at providing a broad
trend rather than making any comparison among these sources.
3.1 Profiles of Women SME Entrepreneurs
As noted earlier, in terms of owning and operating business enterprises women
still continue to remain marginalised in the sphere of entrepreneurship. Women
owned and operated business of all forms, formal and informal, are variously
reported to constitute between 5 to 6 percent of total business enterprises in
Bangladesh. It is thus a clear indication of the fact that a huge human resource
potential in Bangladesh remains underutilized and unexplored as sources of

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

economic growth and social change. The reasons (to be detailed in the next
section) are an overall unconducive policy environment and social and legal
barriers under which growth of women-led new firms and their expansion and
survival are difficult. However, despite various limitations women are braving
into business in increasingly large numbers and taking up challenges to flourish
and survive against all odds. It is thus interesting to explore why and how the
women entrepreneurs are entering into business in Bangladesh, and how are they
coping and performing. Let us first see who are these deviant groups of women
and what motivate them to take entrepreneurial initiatives and challenges.
Drivers of Womens Entry into Business in Bangladesh
According to standard text book approach the most important trigger factor
determining entry into business is profit, followed by other pull factors such as
economic growth and high innovative potentials in an environment of promising
technological opportunities (Szirmai, A. et. al. 2011). Further studies (Vivarelli,
M. 2012) also reveal that other than pull factors like profit expectations, there
may be various push factors such as fear of unemployment, low wages, and lack
of white color job opportunities in the formal sector job market etc. which
confront with the potential entrepreneurs personal traits to motivate entry.

As to the motivating factors pulling women into business in Bangladesh profit


earning (expressed as willingness to add to family incomes by the respondents
perhaps due to lack of proper articulation) is observed (Table-1) to be the most
important (48%) factor, followed by inspiration from family and friends (20%),
desire for professional independence (24%), financial freedom and security
(14%) and that for becoming self-employed (14%). Among host of other factors
such as self-inspiration, higher social status, establish womens rights etc. seem
to be important drivers as well. The BWCCI study emphasizes that women
entrepreneurs belonging to families with business background (i.e. either parents
or husbands having business) played an important part in inspiring them to enter
into business. The evidence presented above from two major studies indicate that
as in most other developing countries, the major supply side determinants of
womens debut as entrepreneurs in Bangladesh are profit motives, followed by
economic freedom, self-dependence, financial security, and inspiration from their
families and friends having business backgrounds.
Table: 1
Motivating Factors to Become Entrepreneurs
Motivating Factors

Apart from various exogenous factors, selected endogenous characteristics of the


new enterprise founders such as previous work experience, family tradition,
financial status and personal motivation etc. also act as drivers of entrepreneurial
initiatives and drives. Similarly, the post-entry performance (i.e. growth and
survival etc.) of an entrepreneur is seen to be influenced considerably by the
factors like level of education, training, skills, experience of previous jobs,
human capital strategy, innovation oriented economic sectors (i.e. technology and
knowledge-intensive industries) and overall economic and business-environment
etc. Let us turn to examine these supply and demand factors affecting growth of
women entrepreneurship in Bangladesh.
The empirical evidence provided is based primarily on the information derived
from two major studies on women entrepreneurship in Bangladesh cited earlier
(SMEF, 2009 and BWCCI 2007). Additionally, wherever appropriate selected
information will also be used from Small and Medium Enterprise Foundation
(SMEF) source not available in the public domain and will be referred to as
SMEF, 2012. The SMEF study is a sample survey of 1035 women entrepreneurs
representing national coverage (i.e, 34 districts, 6 divisions and 50 upazilas)
including respondents from both urban and rural areas. The BWCCI study is a
sample survey of 130 entrepreneurs with regional coverage.

International Journal of SME Development

To add to family income


To secure financial freedom & security
To become self-dependent
professionally
Inspiration from family & friends
Achieve self-employment
Avoid unemployment
Others

Percentage of Entrepreneurs
BWCCI
SMEF
(N=100)
(N=1024)
22
48
14
10
24
10
29
12
3
10

Note:
BWCCI- Bangladesh Women Chamber of Commerce and Industries
SMEF- Small and Medium Enterprise Foundation
N- Number of observations

Period of Entry in Business


Development of women entrepreneurship in Bangladesh is seen (Table 2) to have
started from 1990s and gathered momentum since 2000 and beyond. It is seen
from all three sources of data that nearly 90 percent of the women entrepreneurs
came into business during 1990s and 2010. This proliferation of women business
is thus seen to coincide with Bangladeshs entry into market economy and free

10

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

enterprise system under private sector-led development strategy. Women


entrepreneurship in particular was being fostered by an avalanche of womenfriendly policies put in place by different Governments since 1990s.
Table: 2
Year of Establishment of Enterprise
Years
1980-2000
2001-2005
2005-beyond

Percentage of Entrepreneurs
SMEF 09
BWCCI
SMEF 12
(N=1035)
(N=100)
(N=83)
43%
30%
32%
48%
40%
9%
30%
68%

Note: Same as Table-1

Demographic Profiles and Background of the WEs


Irrespective of gender differences, various personal characteristics of the
entrepreneurs such as age, level of education, training and work experience in
previous jobs, occupational background of the entrepreneurs and their parents
etc. significantly affect entry and determine entrepreneurial performance. We
turn to examine these issues depending on the data available to us.

Educational Qualifications, Training and Previous Work Experience


The level of education of the entrepreneurs across genders is considered an
important determinant of their performance. Most studies on entrepreneurship in
the developing countries tend to reveal that the entrepreneur is one of the highly
educated members of his/her community. A similar trend is also noticeable in
case of the WEs in Bangladesh. Information collated from all three sources and
presented in Table 4 show that 60 to 80 percent of the WEs have basic formal
education ranging between SSC and post-graduate levels. In fact, over 30 to 40
percent are graduates and master degree holders among the sample entrepreneurs.
Interestingly, 50 to 60 percent of the fathers and husbands of the WEs in SMEF
survey and BWCCI survey were noted to have college and university degrees
indicating that the WEs also come from enlightened families having higher
educational backgrounds. Recent empirical studies (Vivarelli 2012) demonstrate
that access to education, knowledge and human capital enhances the prospects
for survival in the competitive milieu and improves post-entry performance of
the entrepreneurs. We shall examine this in the context of WEs in Bangladesh to
explore whether highly educated entrepreneurs perform better than their less
qualified counterparts.
Table: 4
Level of Education of the WFs

Age of Entry into Business


As seen from Table 3, overwhelming majority of the WEs in Bangladesh made
their debut into business at ages 30 years and between 31-40 years. This is
empirically seen by many studies (Watanabe, S. 1970, Deeks, 1972, Ahemd M.
U, 1977) to be a common trend for the entrepreneurs in general in most countries.
At these age groups the debutants are believed to be at their prime time to
possess the spirit and inspiration for undertaking business initiative and taking
risks. WEs in Bangladesh do not seem to be any exception to the trend.
Table: 3
Age Distribution of the Entrepreneurs at the Point of Entry into Business
Age Groups
30 years
31-40 years
41-50 years
50 years + above

Percentage of Entrepreneurs
SMEF 09
BWCCI
SMEF
(N=1001)
(N=100)
(N=76)
48.8
58.3
48.7
41.64
26.7
32.9
9.0
13.5
6.0
5.3

Level of Education
Below SSC
SSC
HSC
Graduates
Post-Graduates

Percentage of Entrepreneurs
SMEF12
SMEF12
BWCCI
(N=88)
(N=1007)
(N=100)
23.9
30.6
10.9
14.8
25.0
34.7
14.8
21.0
26.7
20.5
15.0
16.7
20.5
4.4
10.9

Note: Same as Table-1

Other than formal education, training received on business development issues


(i.e. management, accounting and book keeping, business planning, financial
management, marketing etc.) either before or after entry into business is a
crucially important determinant of level of skills, raise management expertise,
diversify product range and enhance competitive strength. It is especially
important for women entrepreneurs to internalize business skills and attributes
and enhance capacity building. According to the SMEF study, over 50% of the
sample WEs received training before entering business, 19% during running

Note: Same as Table-1

International Journal of SME Development

11

12

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

business and 26% did not receive any training. Most of them received training on
different trades such as, beauty parlor, block and boutiks, poultry rearing,
handicrafts, embroidery etc. According to the BWCCI study, more than 48%
received training before entering their business and 42% received training after
entry into business. However, more than 70% receiving training expressed
dissatisfaction regarding effectiveness of training on grounds of lack of
relevance, methodology, and processes of training. Education and training have
been found (BWCCI, 2007) to inspire women entrepreneurs to get their
companies registered which increases access to information about regulatory
procedures and availability of business development service facilities. However,
the WEs from rural areas (around10 percent) could not avail training due to lack
of such facilities in their localities.
Besides education and training, previous work experience either as entrepreneurs
or managerial positions especially in similar activities where they get involved
later as entrepreneurs is found by many studies (i.e. McPherson 1996, Goedhuys,
et. al, 2000) to have positive links with a firms post-entry performance. In the
developed countries, spinoffs (entrepreneurs leaving a mother company to
establish new business) and serial entrepreneurs (entrepreneurs who have
previously run other business) are found to enjoy comparative advantages in
founding larger sized firms than others and also having better access to relevant
information (Vivarelli, M. 2012). The serial entrepreneurs could also increase
the possibility of founding new businesses and contributing to a firms better
accomplishments.

We shall look into three issues in this context: From what occupational
background do they come? How much intergenerational occupational mobility
was there among the entrepreneurs? Has social class origin been an important
determinant of entrepreneurial supply in the case of the WEs in Bangladesh?
Table 5 exhibits different occupational categories in which the samples WEs
were engaged prior to their entry into present business. It is revealed by the table
that the WEs were predominantly housewives (roughly 49% to 64%) except for
the SMEF study where the dominant category (54%) were students who took to
business after completing their studies. Previous involvement in business appears
to emerge as the next important occupational background (44%) in the SMEF
study, followed by services including teaching as other important areas of
previous occupational background of the WEs. Those who took to
entrepreneurship as a vocation with previous experience in business of various
length in different capacities is expected to do better than others. Finally, a large
chunk (nearly 45%) of the respondents who entered directly into business after
completing their careers as students must have pursued self-employment perhaps
to avoid unemployment or lack of employment in suitable jobs with good
compensation package. Some researches (Tambunan, T. 2007) call this category
forced entrepreneurs facing financial hardships due to death of husbands and
other compulsive situations. The other categories of WEs identified by
Tambunan are created entrepreneurs who are drawn to entrepreneurship by the
pull factors such as the economic incentives, the urge to try something on their
own and to be independent etc.

In the SMEF study (2009), 44% of WEs had previous business experience of five
years, 33.4 percent had five to ten years and over 13 percent had working
experience of ten to fifteen years. In the BWCCI, study around 53 percent of the
WEs were found to have three years or less than three years of experiences in
business, 20 percent had two years experience and 18 percent had only one year
experience in business. Unfortunately we can not relate their experiences to post
entry performance due to lack of data on growth of assets, growth of
employment, and that of profits etc. which could be related to their length of
business experiences. However, termed as Serial Entrepreneurs, their
previously acquired job experiences could increase the likelihood of founding a
new business and also contributing to a firms better performance.
Occupational Background of the WEs and their Parents and Husbands
Occupational mobility in response to economic opportunities is an important
determinant of entrepreneurial development in any society. To what extent has
this been true for the WEs in Bangladesh is the issue we turn to examine next?
International Journal of SME Development

13

Table: 5
Previous Occupation of the Entrepreneurs
Previous Occupation
Housewives
Students
Business
Services
Unemployed
Note: Same as Table-1

Percentage of Entrepreneurs
SMEF
BWCCI
SMEF09
(N=84)
(N=100)
(N=990)
48.8
23.0
64.6
6.0
54.0
17.4
7.4
44.4
21.0
12.6
7.8
3.8
4.6
-

The above analysis demonstrates a considerable degree of individual


occupational mobility of the WEs in Bangladesh by switching from their status as
housewives to industrial entrepreneurship which is also a function of
intergenerational occupational mobility. Fathers and husbands occupation
14

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

affects entrepreneurial activities in various ways, in accumulating funds for


investment, providing business contacts, and in providing support from the
family which is very important as positive social sanction for women in
Bangladesh.
Table 6 provides information on the occupational backgrounds of fathers and
husbands of the sample WEs. Several interesting observations can be made from
the table. First, over one third of fathers and more than half of the husbands of
the WEs were in business, followed by those being in civil and professional
services. This is indicative of the fact that the sample women were a socially
privileged class receiving both social and financial support from their parents and
husbands. Second, a marked intergenerational occupational mobility can be noted
from the fact that while 12.6 percent of the fathers belonged to farming
occupation (SMEF study), their daughters appear to have moved up vertically by
taking industrial/business pursuits. This is a clear example of upward
intergenerational vertical shift in occupation in terms of transition from fathers
occupation to that of their daughters. In fact, if we look at the figures on previous
occupational background of the daughters and fathers from a comparative
perspective in both tables 5 and 6 we can clearly notice a significant increase in
the proportion of daughters entering into business compared to that of their
fathers. This along with a complete break up with the farming background points
to a remarkable intergenerational occupational mobility of the Bangladeshi WEs.

SMEF 2012 source also returns a figure of above 82% starting with less than 10
to 49 employees confirming start of business by WEs in Bangladesh at a modest
scale of operation. However, the average enterprise size appeared to be relatively
large (50+) in the SMEF sample due to inclusion of medium sized enterprises
with more than 100 employees.
Type of Ownership
Consistent with the enterprise size, ownership pattern (Table 7) was found to be
dominated by sole proprietorship followed by joint ownership by family
members (10 to 15 percent) and partnerships (5 to 7 percent). Partnerships being
dominated by traditional kinship relations (i.e. with mothers, sisters, brothers
and husbands) is a reflection of traditional patriarchal social values where
womens business partnership with men from outside the family is still highly
restricted. This is also noted (BWCCI, 2007) to emanate from the fear of
insecurity as well as social stigma.
Table: 7
Type of Ownership of Enterprises
Type of Ownership
Sole proprietorship
Joint family Ownership
Partnership
Others

Table: 6
Previous Occupation of Fathers and Husbands of the Entrepreneurs
Previous
Occupation of
Fathers &
Husbands
Business
Services
Agriculture
Others

Percentage of Entrepreneurs
SMEF
BWCCI
Fathers
Husbands
Fathers
Husbands
(N=819)
(N=969)
(N=100)
(N=100)
35.3
54.0
34.8
43.5
22.0
22.7
33.7
45.1
12.6
5.0
3.0
30.0
12.0

Note: Same as Table-1

Size and Sources of Start-up Capital Investment

Note: Same as Table-1

3.2 Profiles of Women-Owned Enterprises


Enterprise Size
In keeping with the general trend in the developing countries, more than 80% of
the WEs in Bangladesh started as micro and small enterprises (SMEF, 2009). The
International Journal of SME Development

Percentage of Entrepreneurs
SMEF
BWCCI
(N=1025)
(N=130)
85.4
73.2
9.47
15.9
4.5
7.3
2.4
3.6

15

Corresponding to the WEs entry into smaller enterprise size at start and also
restricted access of such enterprises to institutional sources of capital for either
equity capital or loans, the size of start-up capital for the WEs was found to be
modest. According to information available from SMEF sources, the size of
initial capital varied between Tk 1 lac to 2 lacs for nearly 50 percent of the
respondents and for the rest it varied between Tk 2 to 10 lacs and above. In the
BWCCI study, the median size of start-up capital was found to be Tk 2 lacs.
Whether or not the small initial capital affects the subsequent performance of the
SME entrepreneurs has been explored by many researchers (Ahmed M. U. 1976).
The finding is that firms starting with small initial capital did just about as well in

16

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

terms of growth as did the firms starting with large assets. The same seems to
have been the case with the WEs in Bangladesh. Overwhelming (70 percent and
above) majority of the respondents in both surveys succeeded in raising their
current investment sizes required to diversify and expand their business. Most of
them also succeeded in making reasonable profits (gross as well as net),
increasing their annual sales and enjoying positive cash flows. However, easy
access to institutional credits at reasonable rates of interest would enable them to
expand and grow faster.
Sources of Initial Capital
Data presented in Table 8 reconfirms SME women entrepreneurs poor access to
financial resources by revealing that overwhelming majority of them met their
initial investment capital requirements from their personal savings. The next
important source of help in this respect (40% and above) was from their family
and friends (parents, husbands, in-laws etc.) who extended financial support to
enable them to make shoe-string start. On the contrary, commercial banks appear
to have provided only 3 to 4 percent reflecting their inherent anti-small and antiwomen lending policy approach. This is an universal phenomenon everywhere
including in the developed countries. For example, inherent gender-bias, rigid
lending policies etc. are noted (Barbara, et. al. 2000) not only to discourage
women to borrow debt and equity capital but also suffer from severe finance gap
in Canada. In fact, the women entrepreneurs despite being prominently present in
the SME business landscape in both Canada and USA, they remain capitalstarved from banking sources because of gender disparity affecting commercial
bank lending policies.

Sectors of Involvement of the WEs


Women Entrepreneurs in Bangladesh are currently involved mostly in simple
manufacturing activities requiring modest investments, simple technologies and
finer skills, followed by trading, and services. As table 8 suggests, overwhelming
majority prefer to take up handicrafts, RMG and Knit-wares and apparels,
fashion designs, garments and home textiles, beauty parlors, food processing etc.
These are activities which suit womens temperament and intrinsic work skills,
and are thus dominated by traditional gender skills. However, this trend is now
changing and women are gradually entering into occupations and activities which
were previously mens domain. For example, women are seen as owners and
managers of advertising firms, travel agencies, cold storage, shipping lines,
engineering workshops and garments industries. The urban women entrepreneurs
now tend to take up activities which are more innovative and challenging such as,
electronics, plastics, leather goods manufacturing, and software developments
etc. More importantly, womens presence in top managerial and executive roles
in both public and private sector enterprises as directors of large corporate
entities, presidents of chamber of commerce and industries and various trade
bodies are now being increasingly visible.
Table: 9
Sectors of Involvement of the Women Entrepreneurs in Bangladesh
Sectors
RMG and knit-wear
Garments and Home Textiles
(Clothing, Tailoring, etc.)
Beauty Parlors
Handicrafts (including block and
batiks, embroidery, etc.)
Agro-based and food products
Fashion designers
Others (electronic, light engineering,
plastics, leather goods, medicines)

Table: 8
Sources of Initial Capital
Sources of Initial
Capital
Self-financed
Family
Friends
Institutional sources

Percentage of Entrepreneurs
SMEF
BWCCI
SMEF09
(N=86)
(N=70)
(N=1026)
50%
61%
87%
36%
40%
43%
20%
3%
4%

46

69

11
21

11
27
10

6
-

7
-

Note: Same as Table-1

Note: Same as Table-1

International Journal of SME Development

Percentage of Entrepreneurs
SMEF09 BWCCI
SMEF
(N=1020) (N=100)
(N=73)
27.8
13
11
16
16
10

WEs in the rural areas are a district variety who operate mostly as self-employed
categories in the informal sector including both agricultural and non-agricultural
activities. These include homestead agriculture, livestock and poultry rearing,

17

18

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

fish farming, nursery and tree plantation, fishnet making, food processing, rice
processing etc. Considerable diversification towards more profitable activities
such as tailoring, cosmetics, jewelry trading etc. as opposed to subsistence
earning activities for mere survival is now flourishing because of support
services provided by the government under poverty alleviation programmes and
penetration of microcredit operations deep into the rural areas by the NGOs.
Nevertheless, the MEs are yet to make any notable inroad into large-scale
modern manufacturing activities where capital investments, high-end
technologies, strong management competence, greater gestation gaps, and high
risks and uncertainty are involved.

the bounds of critical values 0.15 and 0.46, our chi-squared value shows only a
38% probability that entrepreneurial success and qualification may be related.
That is, there is no significant difference in the proportion of more and less
successful entrepreneurs and their level of qualifications at the 0.05 level. Most
empirical studies (Ahmed, M.U. 1977 and the reference there) show that higher
formal education does not necessarily guarantee better performance of the
entrepreneurs. On the country, entrepreneurs with longer work experience in
similar activities and having trained in technical vocations tend to succeed more
than their counterparts with formal educational qualifications. Nevertheless,
higher formal education make entry into entrepreneurial endeavors easier and
have better access to information and knowledge.

3.3 Assessment of Post-entry Performance of the WEs in Bangladesh


The stylized trend in most studies on WEs in Bangladesh seems to be discussing
backgrounds and careers of the entrepreneurs only upto the point of founding
their enterprises. But mere formation of large numbers of enterprises is not
enough for growth and development of a country. It is important that post-entry
performance of the newly established firms be assessed. There may be various
methods to explore entrepreneurial performance such as rates of growth of
employment, output, sales and profits, innovation etc. over certain period of time
(i.e. at least five years). This requires longitudinal or panel data on these
variables which are hard to be obtained unless planned by the researchers while
collecting necessary data through surveys. For our purpose, we have estimated
the rate of gross profits per unit of total assets (GP/TA) for a sample of 62
entrepreneurs of the SMEF data available for 2012. Though growth of gross
output or annual sales turnover would be ideal as an index of entrepreneurial
performance, no such data is available in any of the three sources used for this
exercise.
The methodology used is that we have calculated a median profit rate (50
percent) and classified the enterprises into two categories: as more successful
achieving profits above 50 percent and those as less successful earning profits
below 50 percent. Then the entrepreneurs were categorized into two groups being
more qualified having education above degrees and those as less qualified with
education below degree levels. Table 9 illustrates the degree of association
between level of education and entrepreneurs success estimated by using X2 test
(i.e.(0-E)2/E). The results reveal that there is no statistically significant positive
association between higher education levels and rates of profits earned. The chisquare value of 0.2685 at one degree of freedom of the difference between the
number of more and less successful entrepreneurs with higher and lower
qualifications is not statistically significant at 0.05 percent level. According to
International Journal of SME Development

19

Table: 10
Association between Level of Education and Degree of Success
Level of
Education
More Qualified
Less Qualified
Total
Chi2
0.2685:df=1

More Successful

Less Successful

Total

9
16
25

11
26
37

20
42
62

Whether there exists any association between firm size and profitability of firms
has also been examined. Subject to data availability in the SMEF source, we
classified enterprises into two groups, i.e. small with number of workers 1 to 49
per enterprise and large with 50 to 100 workers. Based on the rate of profits
(GP/TA) in the same manner as done for exploring the relationship between
enterprise profit rates and education levels, we divided the respondents into more
successful and less successful categories. The results obtained by applying chai
square tests are presented in Table 11. The X2 value with one degree of freedom
is not significant statistically at 0.5 percent level and this shows that rates of
profits do not vary with the size of enterprises. Hence, the null hypotheses of a
positive association between size of firms and rates of profits is rejected. The
policy implication of the finding is for encouraging growth of firms of all sizes
through creating level playing fields under an enterprise size-neutral policy
environment.

20

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

The bottom line, however, is to have access to necessary resources to execute the
business plan and efficiently and profitably run the business operations in a
business-friendly environment. We cite practical examples by summarizing the
personal experiences of two national award winning women entrepreneurs who
had won national SME Women Entrepreneur Awards given by the Small and
Medium Enterprise Foundation in 2010 and 2012 to substantiate our beliefs.

Table: 11
Association between Firm size and Level of Success
Small
Large
Total
Chi2
0.0134:df=1

More Successful
8
3
11

Less Successful
17
11
28

Total
25
14
39

Tanuza Rahman: An Emblem of Perseverance and Dedication

Other than education, training and job experience, the most commonly identified
determinants of post-entry performance are noted by most studies referred earlier
to be the firm size, type of ownership and management, research and
development works, innovation etc. and external factors like access to capital,
information and knowledge, infrastructural facilities, regulatory framework, legal
and proprietary rights, and overall macroeconomic framework.
Overall most WEs of Bangladesh included in our sample from the SMEF source
tend to exhibit dynamism in many ways. Majority of them (50 to 60 percent) are
registered with legal bodies to obtain trade licenses required to avail business
development service facilities, use professional services (i.e. accounting and
management) for proper maintenance of their books and accounts (62%), have
memberships in chamber of commerce and industries and other relevant trade
bodies (30-40 percent), travel abroad to attend business fairs and trade-shows,
and also advertise their products for market promotion. Many WEs also seem to
be strongly motivated to increase productivity and enhance current market shares
by introducing simple innovations in product designs, technology and in
production processes for cost-savings and increased market competitiveness.
The sample respondents in the SMEF (2009) study were asked to give the
opinion about the qualities entrepreneurs should possess to become a successful
businessman. The replies received, based on their perceptions and experience,
though varied widely, had some common threads. For example, 60 percent of
them emphasized honesty, 55 percent mentioned hard work and 30 percent
each noted importance of education and knowledge, access to capital,
availability of skilled personnel, and good behaviour as necessary qualities
for excelling in business. A careful interpretation of these factors would seem to
indicate that the pivotal determinants of success in business run by the WEs in
Bangladesh require boldness to take risks, determination to face challenges, hard
work and integrity, entrepreneurial mindset, selection of viable projects, good
investment plans and proper training on production, management, and marketing.

International Journal of SME Development

21

Tanuza Rahman (Maya), the founder of Rong Handicrafts in Jessore town had won the Best
Women Entrepreneur award in 2010 from the SME Foundation. She entered into business in 1996
with an equity capital of only Tk. 2000. Working hard and diligently to become economically selfdependent, she succeeded in establishing Rong Handicrafts in Jessore town investing Tk
7,00,000 which is now reputed as a successful business enterprise. The employment size in 2010
was 2000 workers (which is planned to be raised to 5000 workers) and net profit earned the
previous year was Tk 32,50,000. This is a story of stunning success which was a result of untiring
hard work, determination and motivation to succeed. Mrs. Rahman claims herself to be not only a
successful woman but also a successful entrepreneur and successful person, capable of solving her
own problems by herself, and bring positive changes to the environment surrounding her.
Nilufa Yasmin: Symbol of Success through Quality and Determination to Fulfill Dreams
Nilufa Yasmin had won the SME Foundation National SME Women Entrepreneurs Award of Best
Women Micro Entrepreneurs Award in 2012. She is strong believer in achieving success fighting
against odds like poverty and unfavorable social barriers such as neighbors disapproval and
indecent remarks. Daughter of a poor father, she educated herself and received training side by side
to be able to start a business. She did it borrowing a little capital from her elder brother and started
S. N. Fashion involved in making womens dresses, block and batik, and embroidery works. The
business has rapidly grown in size and captured larger market share due to producing high quality
products. A loan from a Commercial bank at a concessional rate of 10% per annuam helped her
greatly in expanding her business. She now employs 600 women contract workers and 22 Group
Leaders. Besides the factory, she has two show-rooms and dreams to open show-rooms in each
Divisional cities of Bangladesh in the name of S. N. Fashion.

The two success cases are stories of exceptional entrepreneurial drive, hard work,
diligence and business acumen among women SME entrepreneurs of
Bangladesh. Their multiplicity in large numbers in the women community in a
conducive environment may make immense contributions to womens economic
empowerment, accelerate economic growth and national development. While a
good number in the SME sample seems to be upbeat having good business plans
for future growth and expansion, they are handicapped by resource constraints,
especially lack of capital, lack of skilled workers etc. and various socio-cultural
barriers creating gender-bias and related operational bottlenecks. We elaborate on
some of these issues briefly in the next section.

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Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

4.0

Barriers to Participation of Women Entrepreneurs in Business in


Bangladesh

Womens entry into entrepreneurial endeavors is increasing in Bangladesh under


positive policy changes towards gender mainstreaming and gender parity
encouraged through women-focused policies. Yet they remain far behind men in
enjoying freedom and other basic human rights required to enable them to control
their own life and activities and participate in economic pursuits on an equal
footing with men. The business environment for them still remains inconducive
in different dimensions and magnitudes keeping their participation in
entrepreneurial roles still rather peripheral. Most researchers commonly agree
that a combined interaction of various complex factors such as social and
cultural, religious, economic, institutional and structural barriers lead to
disadvantaged status of women in society and business in Bangladesh.
Summarizing the major problems encountered by the WEs in South Asia
including Bangladesh a UN ESCAP study (2005) and two ADB studies (1999a
and 19994b) noted that restricted access to credit and marketing networks, lack
of property rights, low risk-taking capacity, lack of access to modern technology,
production of low-end value adding and low quality products with low turnover
and low profits, lack of personal security, risks of sexual harassment, low level of
self-confidence, social and cultural barriers, restricted mobility and intense
pressures of dual responsibilities of business and household works greatly
impede women entrepreneurship development in these countries. Let us now try
to shed some light on the magnitude and characteristics of these barriers facing
the WEs in Bangladesh as they perceive and experience while running their
businesses.
In reply to the question asked about major hurdles facing the respondents covered
by the three reports used as our data sources, the most frequently emphasized
(Table 12) were lack of capital (equity and term loans), lack of access to bank
credits for working capital, lack of raw materials and skilled workers, lack of
support and encouragement from the family, social barriers (including sexual
harassment, eve teasing, restricted movements for security reasons, religious
beliefs and superstitions etc.), lack of information and knowledge about
availability of institutional support services (due to inadequate dissemination of
information about availability of such services by the concerned government
organizations), infrastructural facilities hindering quick transportation of goods
and services, payment of illegal tolls and bribes, bureaucratic red tapes etc. which
figured prominently. Extreme work pressure emanating from the obligations to
handle the dual responsibilities of business management and family chores
was voiced by many WEs as a serious obstacle hampering their business
International Journal of SME Development

23

performance. A strong resentment was voiced by many WEs against the dual
roles as entrepreneurs and mothers which basically is a reflection of lack of
enough family support. In at east 30 percent cases, non-cooperative behaviors
and adversary attitudes of men, the offshoots of patriarchal family norms still
persist to create difficult challenges facing the women entrepreneurs. This
involves a significant policy challenge towards changing mens attitude towards
women and treating them equal socially and economically.
Table: 12
Problems faced by the Women Entrepreneurs in Running Their Enterprise
Types of Problems
Lack of capital
Difficulties in Marketing Products
Lack of Raw materials
Lack of skilled workers
Lack of family support and cooperation
Social barriers arising from patriarchal attitude
Lack of security outside home while moving
Lack of information, proper knowledge and
training
Payment of illegal tolls
Payment of bribes to government officials
Others (lack of womens freedom, religious
beliefs sexual harassment etc.)

Percentage of Entrepreneurs
SMEF09 BWCCI* SMEF
(N=1009)
(N=100) (N=88)
87
90
18
21
50
5
21
75
5
14
65
5
45
20
95
24
81
5
9
52
11

45
34
10

* BWCCI respondents mentioned those difficulties faced by them in marketing their


products and in product development by them.

Note: Same as Table-1

While we have noted a long list of problems facing the WEs, elaborating on them
all in details is beyond the scope of this paper. We cannot, however be oblivious
to the most intricate problems haunting women as entrepreneurs, which they face
while trying to access bank credits. That WEs face insurmountable difficulties to
obtain loans from banks due to inherent gender-bias and rigid lending policies,
especially of the commercial banks is well rehearsed in the literature. In all our
data sources, womens access to bank credits is found to be rather scantly,
varying between 10 to 15 percent or even less (5%). While all formal credit

24

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

institutions seek tangible collaterals for loans, they are unable to provide them
because of their limited property rights. In addition, the requirement for the male
spouses co-signature or a guarantee declaration from father/husband is also
difficult. These combined with cumbersome documentation requirements,
complicated loan sanctioning procedures, and many other gender based
complicacies (i.e. lack of mobility, their low level of awareness and access to
information etc.) tend to effectively exclude women from bank borrowing.
Besides credit constraints, women entrepreneurs also complain about serious
difficulties faced in selling their products. Lack of information about potential
markets, lack of experience in pricing their products properly, intense
competition among the WEs themselves because of overcrowding in the same
sectors, credit selling and delayed payments are the major marketing constraints
facing the WEs. Thus, a lot of promotion and development functions need to be
carried out at policy and operational levels to create an overall women-friendly
and women-supportive environment for sustained development of women
entrepreneurship in Bangladesh. We briefly focus on the current policy
environment for women entrepreneurship development and make some
recommendations based on our assessment of the policy and institutional
perspectives.
Current Policies and Institutional Environment
The importance of women entrepreneurship development as an integral part of
national development is being acknowledged and priorities in all Five-Year
Development Plans and relevant Articles of the Constitution by all successive
governments, especially since 1980s and beyond. The National Action Plan
(NAP) of the Implementation of the National Women Development Policy 2011
for womens development commits comprehensive upliftment of women
emphasizing equal rights, economic self-reliance, broad-based participation in
political, social, civil, economic, and socio-cultural spheres. The creation of a
separate Ministry on Womens and Children Affairs, formulation of National
Policy for Advancement of Women-2008, and Preparation of National Womens
Development Plans, emphasis on women entrepreneurship development as a
priority in the SME Strategy and Policy 2005 etc. are leading examples of
Governments commitment towards womens empowerment and socio-economic
emancipation. In addition, a number of UN Agencies, Development Partners,
INGOs and NGOs are executing various income-generating and poverty
alleviation projects and programmes aimed at poverty alleviation and womens
welfare targeting them as the main beneficiaries for quite sometime.

International Journal of SME Development

25

Side by side with the Government, private sector stakeholders such as SMEF and
Chambers of Commerce and Industries (especially BWCCI) and trade bodies are
trying to address important promotional needs in various ways. Preparation of a
revised Gender Action Plan (GAP) by the SMEF and various advocacy and other
promotional activities in collaboration with other stakeholders are notable
examples. In order to identify gaps and promotional needs of the WEs, the SMEF
also prepared concept papers and women entrepreneurs profiles to influence
Government policies towards accelerating and, retention and promotion of
women entrepreneurs. Various special measures declared in the Industrial Policy
2010 as outcomes of SMEF advocacy efforts include: ensuring WEs access to
land and finance in the Export Processing Zones, reservation of 15% of total
SME lending for WEs, and inclusion of representatives from Women
Entrepreneurs Association (WEA) in the National Council for Industrial
Development.
The most notable of the programme initiatives in this direction are the special
budget provisions and Bangladesh Banks Refinancing Scheme for Women
SMEs since 2007 targeted to address the financing problems of WEs. In 20122013 National Budget, the Government allocated Tk. 1.0 billion as a special fund
to promote development of women entrepreneurship. A particularly notable step
taken by the Bangladesh Bank through its Refinance Schemes is the directive(s)
to the commercial banks to prioritise lending to women entrepreneurs through
allocation and distribution of 15 percent of the loanable funds at concessional
rates of interest (10%) to the WEs. BB also took a number of non-financial
measures to accelerate SME financing and the constantly pursuing all scheduled
banks to comply with them. For example, establishment of dedicated women
entrepreneurs desks, distribution of small loans to women without collaterals,
arrange entrepreneurship development training for them, and ensure
dissemination of adequate information about availability of these special
facilities to women entrepreneurs are some of the important areas.
All these sound encouraging, but ground reality is considerably different because
of inertia of the commercial banks to practice women-friendly banking habits.
According to the BWCCI Survey Report (2007), only 35% of 113 respondents
heard about the BB Circular but not its contents since the banks did not
adequately disseminate the information about the services made available to the
WEs through the banks. From all the data sources consulted, it emerged clearly
that the WEs continue to remain marginal as customers of bank loans, suffer
from rigid regulatory barriers, and many other institutional rigidities and policy
induced constraints which act as serious deterrents to their effective participation
and efficient operation of their businesses. The need is, therefore, to take more
26

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

concrete policy initiatives and design an workable implementation mechanism of


the policies and programmes at national and micro levels which are pro-women.
Some recommendations in this regard may include the following.

Enlarge opportunities for women to increase their effective participation


in the workforce both as white colour workers and entrepreneurs by
removing social and legal barriers and gender-bias embedded in the
existing policies and institutions geared to enterprise development. While
selected financing schemes are in place for the micro, cottage and SME
enterprises, they are yet to be vigorously implemented to encourage more
and more women to build up their own enterprises and contribute to the
nation building process.
Facilitate womens access to productive resources such as capital,
especially bank loans, skills training programmes, information about
technology, innovation of new products and processes and market
channels at home and abroad which will foster growth of an
entrepreneurial economy and society through removing various
distortions leading to market failures.
Set up dedicated womens cells and centers in the business development
services providing organizations and agencies to ease their access to
extension, promotion, and advisory services designed for women
entrepreneurs. Arrangement for delivering various support services to
women through one-stop delivery facilities may be an important step
to enable WEs to avoid harassments and obtain quick and easy access to
business promotion facilities.

Promote development of women entrepreneurs networks to facilitate


knowledge and information sharing about business developments at
national and international levels to promote production networking
beyond national borders and enjoy the advantages of value chain
arrangements and entry into local markets. In this context, setting up and
operation of a go-to website portal for women entrepreneurs by the
SME Foundation may be helpful to facilitate womens business growth
through consolidating business information and match-making among
the prospective WEs at regional and global levels.

Establish a separate Womens Bank to adequately address the special


financing needs of women entrepreneurs. Meanwhile the existing banks
could also bolster their efforts by opening separate windows for the
women clients as per Bangladesh Bank guidelines.

International Journal of SME Development

27

Set up National Women Entrepreneurship Development Taskforce to


constantly monitor progress of implementation of the women
entrepreneurship development policies and programmes by reviewing
them periodically and introduce necessary revisions if needed to obtain
best possible impacts of the on-going policies.

5.0 Concluding Remarks


I begin this section with the opening statement that entrepreneurship is a crucially
important driver of economic growth and social change. It contributes to
economic development and structural change in an economy by reallocating
resources from less to more productive uses, by cost cutting, and performing
gap filling, and input completing functions.
Development of women entrepreneurship in particular in Bangladesh is
immensely important to ensure optimum utilization of the nations half of the
workforce (large segment of which still remains untapped) and bring
modernizing transformation of the economy through creating new firms,
attracting resources into new activities, introducing new production processes or
products which contribute to productivity growth in the economy, and more
importantly generating large number of new jobs.
Indeed, there are more than 10 million self-employed women in Europe, in the
US 6.4 million self-employed women provide 9.2 million people with job
opportunities. Unfortunately, we have no such sex disaggregated statistics
required to quantity women entrepreneurs contribution to employment creation
and economic growth in Bangladesh.
What transpires from our discussion and analysis, based on three recent and large
sources of data so far available, women entrepreneurship in Bangladesh is
progressing albeit, at a slow pace. As a result, womens presence in business
activities either as employers, self-employed and/or own-account workers remain
marginal sharing only 3 to 5 percent of total business. It is not possible to arrive
at any estimated member of WEs in the country without conducting a national
census. It is thus imperative that a country-wide census/survey be undertaken
soon by the Bangladesh Bureau of statistics, Ministry of Planning, to create a
reliable data base on women entrepreneurs to facilitate meaningful policy
formulation and design comprehensive promotional programmes and incentive
structures for the WEs.
Like their counterparts elsewhere in Asia, women entrepreneurs in Bangladesh
are relatively young, mostly being in their 30s and 40s. Motivation of

28

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

entrepreneurship among women are varied and range from economic necessity to
wanting to add to their family incomes and the desire for their own economic
security and self-independence. WEs in Bangladesh belong to highly educated
class, but they enter into business ownership with relatively less previous job
experience than men. However, higher level of education and post-entry
performance was not found to have any positive association in our analysis of the
relationship between the two variables. Nevertheless, formal education is
important as a determinant of entrepreneurial supply, access to knowledge and
information.
Overwhelming majority of the WEs in Bangladesh start as owners of micro and
small of enterprises mostly primarily in traditional fields of activities due to
difficulties involved in raising initial capital from formal financial institutions.
Indeed, this is one of the most serious hurdles facing WEs in Bangladesh as
bankers do not consider them credit-worthy and are reluctant to finance their
business operations on grounds of gender-bias. This inertia should be removed
through constant advocacy and motivational campaigns to change traditional
banking habits. In this context, a deliberate Government initiative to increase the
proportion of female Board members in the state-owned as well as private sector
commercial banks to a mandatory figure of at least to 10 percent may be of some
help.

It is important to note here that the two case studies of successful women SME
entrepreneurs winning Nation Women Awards from the SME Foundation are
ample proofs of WEs in Bangladesh being strongly motivated and highly
innovative and dedicated to excel in their professions and contribute towards
national economic growth. Comprehensive women entrepreneurship promotion
policies and programmes and their effective implementation through regular
monitoring and evaluation through mechanisms suggested in a previous section
seem to be the possible directions for future. We must remove the glass
ceilings effects of the present policies that are in place to ensure genderequality, remove gender discrimination, and promote women to the top
management positions in industries, corporations and all other fields of business
and economic pursuits.
Besides removing distortions in the macro policies (i.e. credit rationing, nontransparent regulatory barriers etc.) micro interventions such as introduction of a
national women entrepreneurship day, development of an effective mechanism
for implementing women entrepreneurship promotion policies and incentive
structures, formulation of a national women entrepreneurship development task
force etc. must be designed and implemented in a focused manner to enable WEs
to enjoy free entry and exit into the business world and carry on business
operations with equal rights enjoyed by their male counterparts.

Whatever their reasons for entering into business, various policy distortions
resulting from market imperfections and/or market failures (i.e. credit
rationing, non-transparent regulatory barriers, rigid labour market policies and
taxation rules, bureaucratic red tapes, etc.) act as serious hurdles to new firm
growth and survival and expansion of the existing firms. Besides difficult access
to capital, other challenges facing WEs relate to access to information and
knowledge, and access to business development support networks. There is thus
a loud call from the WEs for more formal training and education in business
management issues including marketing, financing, technology, and more
importantly for releasing them from dual responsibilities of running a business
and raising a family. The implication is for changing patriarchal family norms
and social practices.
While the WEs in Bangladesh demonstrate notable individual as well as
intergenerational occupational mobility to move into independent business, build
professional carrier, do well in business, being innovative and growth seekers,
the existing social and legal barriers are still too much primitive and nonsupportive to discourage women from taking up business as independent
vocations.

International Journal of SME Development

29

30

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

Nilufer A. K. (2000), Women Entrepreneurship in Bangladesh A New Paradigm in


Development, paper presented on International Womens Day, Dhaka, Bangladesh

Footnotes & References


Aggarwal M. (2012), Entrepreneurship in India: Why and How? Faculty of Management
Banasthali University, Rajasthan, India
Ahmed, M. U. (1976), Size and efficiency: The case of the Irish Plastics Industry. The
Economic and Social Review, Vol. 8, No. 1
Ahmed, M. U. (1977), An Analysis of Entrepreneurs in the Irish Plastics Industry The
Economic and social Review Vol. 8, No. 4
Ahmed, M. U. (2008), Small and Medium Enterprise Development in Bangladesh,
Report of the PRSP-2 Thematic Study, Prepared for the Bangladesh Planning
Commission, Dhaka
Ahmed, M. U. (2009), Enhancing SME Access to Bank Financing in Bangladesh:
Problems and Way Forward, Paper presented to 4th Annual SME Banking and Financing
Conference, Kuala Lumpur, Malaysia, 17-18 November

OECD, 2nd Ministerial Conference On SMEs, (2004), Promoting Entrepreneurship and


Innovative SMEs in A Global Economy, 3-5 June, Istanbul, Turkey
Orser, Barbara et. al. (2006), Women Entrepreneurs and Financial Capital, published in
Theory and Practice of Entrepreneurship, E-journal
Rahman, M. (2010), Barriers of Women Entrepreneurs in Bangladesh, Masters Thesis,
Submitted to BRAC University
Schumpeter, J. A. (1934), The Theory of Economic Development, Harvard University
Press
Schumpeter, J. A. (1943), Capitalism, Socialism and Democracy, Allen and Unwih,
London
SME Foundation (2009) Women Entrepreneurs in SMEs: Bangladesh Perspective,
SMEF, Dhaka

Ahmed, M. U. (2009), Barriers to Participation of Women Entrepreneurs in the Formal


Industries Sector of Bangladesh, Report, prepared for Social Science Research Council,
Planning Division, Dhaka

Sultana, A. (2012), Promoting Womens Entrepreneurship Through SME: Growth and


Development in the Context of Bangladesh: Journal of Business and Management, Vol.
4, Issue 1

Asian Development Bank (ADB 2011), Program Completion Report, Small and Medium
Enterprise Sector Development Program (SMESDP), Bangladesh

Szirmai, A. (2011), Entrepreneurship, Innovation and Economic Development: An


Overview, e-book

Asia-Pacific Economic Cooperation, (APEC 1999), Women Entrepreneurs in SMEs in


the APEC Region

Tulus, T. (2008), Women Entrepreneurs in Micro Small and Medium Enterprises: Some
Evidence from Asian Developing Countries, University of New South Wales at ADFA,
Australia

Bangladesh Women Chamber of Commerce and Industries (BWCCI) (2008), Building


Women in Business: A Situation Analysis of Women Entrepreneurs in Bangladesh,
Dhaka

UN, ESCAP (2005), Developing Women Entrepreneurship in South Asia: Issues,


Initiatives and Experiences, mimeo, Bangkok

Baumol, W. J. (1990), Entrepreneurship: Productive, Unproductive and Destructive,


The Journal of Political Economy, Vol. 98

Vivarelli, Marco, (2012), Entrepreneurship in Advanced and Developing Countries,


Discussion Paper No. 6513, IZA, Germany

Hossain, A. M. (2012), Development of Women Entrepreneurs in Selected Business- A


Study on Institutional Supports, Hakkoni Publishers, Dhaka.

Zoltan Ac et. al. (2009), Entrepreneurship in Developing Countries, Jena Economic


Research Paper, Germany

Jahan F. (2010), Barriers to Women Entrepreneurs in Bangladesh, Dissertation Submitted


at BRAC Development Institute, BRAC University, Dhaka
McPherson, M. A. (1996), Growth of Micro and Small Enterprises in Africa, Journal of
Development Economics, Vol. 48
Moloney, W. (2004), Informality Revisited World Development, Vol. 32
Nilufer A. K. (1997), Factors Affecting Women Entrepreneurship in Small and Cottage
Industries in Bangladesh, June

International Journal of SME Development

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32

Women Entrepreneurship Development in the SME in Bangladesh: Prospects, Realities and Policies

International Journal of SME Development


Volume 01

Issue 01

1.0 Introduction

April 2014

Subcontracting: A Strategic Approach for


SMEs Development in Bangladesh
M. Kamal Uddin, PhD*1
Abstract
Inter-organizational linkage of industrial firms through subcontracting is an effective
means of facilitating greater participation in the product (or product component)
technology & production process, sharing of facilities, assurance of quality, price
competitiveness, advance marketing and augmentation of market horizon. The approach
is not only a supportive to small firms but also to larger firms which in turn gain better
management functionality rendering less hassle to producing even complex products with
multitude of modules. As a developing country, Bangladesh should adopt & spur such
strategy both in micro and macro level. In Bangladesh, SMEs (Small & Medium
Enterprises) possess high potency to proliferate through subcontracting. BSCIC
(Bangladesh Small & Cottage Industries Corporation) though launched its
subcontracting scheme in mid-eighties, has not been expanded significantly as was
planned. This scheme to be rejuvenated and all other possible forms of subcontracting
arrangement among the industries to be proliferated at larger scale. Since the sector
periphery of the State-Owned-Enterprises (SOEs) is being contracted, the scope of
subcontracting under government patronage is becoming limited. Thus subcontracting
among the industries in private sector to be spurred with dynamism at larger scale. The
outcome of the research study leads to formulation of some key policies & strategies for
proliferation of subcontracting in SMEs sector in Bangladesh.

Subcontracting refers to a type of contractual arrangement among firms under


which an enterprise (herein called the parent enterprise) gets component(s) of a
product/service made/done by other enterprise (herein called the subcontracting
enterprise) on contract basis. Generally, in an industry, whether it is
manufacturing or non-manufacturing, a product/job process consists of one or
multitude of components/modules or job segments. In most cases, an industry
making complex products/services having many modules, it is difficult to possess
all the required facilities in the same industry for making various components of
the product/service. It is conceivable that incorporation of all facilities in an
industry (especially for the case of large industry or industry producing capital
machinery/product) would incur high investment. This imparts liability of high
investment for an industry. Moreover, it would need technology of required level
and manpower expertise as well. In many cases, high investment adorned with
advanced technology is required to get one or more part of the job done. Hence,
mostly, it becomes difficult to make all the components or modules of the job in
one industry. Under the circumstances, a parent industry has to seek assistance of
one or more industries to get the specific module(s) done through subcontracting.
Generally, it is seen that the module of the job that is considered to be difficult to
execute for the parent enterprise or the part for which required facility or
expertise is not available, is subcontracted. It is not always the case that
subcontracting takes place only in absence of facilities within the parent
organization. Due to various multifaceted advantages, a parent organization may
embark upon giving subcontract to other company though the parent company
might have the facility or possess capability to perform such activity. Any
contract or subcontract is ultimately a viable financial, administrative practice
and mostly contingent on the policy of an enterprise.
There are generally two levels of application of subcontracting: micro level &
macro level. Micro level subcontracting corresponds to linkage among firms in
the private sector. On the other hand, macro level linkage program is conducted
under government patronage and the SOEs purchase the products of the local
firms under the stipulated government rules set forth for the subcontracting
scheme.
2.0 Objective and Methodology of the Research Study

Professor and Director, Institute of Appropriate Technology, Bangladesh University of


Engineering and Technology (BUET), Dhaka
Email: kamal@iat.buet.ac.bd

International Journal of SME Development

33

A research study on subcontracting was conducted by the author at the Institute


of Appropriate Technology, BUET, Dhaka in 2013. The objective of the research
was to find out the status and scenario of subcontracting in Bangladesh and to

34

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

explore how the linkage program among various ranges of enterprises through
subcontracting can be proliferated and strengthened. Deliberations of all these
aspects are beyond the scope of this paper. Some pertinent aspects and
conceptual ideas have been discussed. Table 3 shows some of the subcontracting
products of the surveyed industries. The methodology adopted in the research can
be summarized as follows:

Focus Group Discussion (FGD): Focus group discussion were carried


out with a number of subcontractors, parent organizations, end users,
stakeholders,
support
organizations,
marketing
middlemen,
entrepreneurs, factory managers, technicians, professional and R&D
organizations, financial institutions, etc.

Field Survey: A survey program was conducted on 25 selected small


industries. A questionnaire was served to all the selected industries for
surveying to probe various functional aspects such as subcontracting
process, subcontracting products/ services, backward and forward
linkages, supply chain management (SCM), input and output linkages,
flow chain of raw material and Bought-Off-Finished (BOF) item, etc.
The data collected through the questionnaire also included profile of
enterprise, investment, products, production process, machinery,
equipment & facilities, sector distribution, raw materials, manpower,
growth of sales, stakeholders, agencies, use of finished items, financial,
SWOT information, market demand, etc. Twenty five industries ranging
from small to large were selected and surveyed. Primary data were
obtained through in-depth interviews with the entrepreneurs and filling
of the questionnaire at the field.

The paper is an outcome of a research study recently conducted by the


author on subcontracting. A survey program was conducted on 25
selected small engineering industries focusing various aspects of
subcontracting.

3.0 Characteristics and Differences among Contracting, Subcontracting


and Outsourcing
The difference between contracting and subcontracting is contingent on the
sequential order of contractual chain and thus depends mainly on the logical
status of contract signing parties (with whom the contract is being made) and not
on the merit or share or volume of the performed portion of the job by the parties.
An 'owner' of a job/project can be nomenclatured here as the master of the
job/project who is the sole possessor/proprietor of it and is the top decision
International Journal of SME Development

35

maker pertaining to the concerned; thus the paymaster for its implementation
may be a person or a group or an organization or government itself. The 'owner'
can perform the job by himself or may get the job done by rendering contract to
some person/organization; then it is first contract in the contractual chain for the
particular job/project; such case is termed as 'contracting'. Thus when an 'owner'
of a job/project renders contract to someone to perform the entire or a specific
task of its kind, it is called contract or main contract and the person contracted is
termed as 'contractor' or 'main contractor'. In the contractual chain, when the
contractor' or 'main contractor' for his convenience, render entire or a specific
part of the job (which has been contracted from the 'owner') to other party, then it
is the second contract in the contractual series and is called as 'subcontracting'.
The 'main contractor' this way can subcontract out entire or one or more part of
his job to one or more persons/organizations. In the contractual chain, the
subcontractor can further subcontract out his portion of the job (or part) to other
person/organization for his benefit or convenience. Outsourcing is a method or
process of getting a job/service done by other person(s)/organization(s) from
anywhere outside the organization. A person / organization embarks upon
outsourcing when it becomes difficult for the organization to get the job/service
done by them or by subcontracting. There are a number of reasons for
outsourcing on the part of a parent organization. Some of them are lack of
required facilities, or if outsourcing is deemed to be convenient, or if incurring
cost is high, etc. General motive of outsourcing is to reduce cost; a firm resorts to
outsourcing when its in-house production/job accomplishment cost is high.
Generally, it is seen that subcontracting is more formal and possesses long and
good network with the parent organization. Subcontracting is found more in
manufacturing industries, construction sectors, etc. On the other hand,
outsourcing is seen to be intermittently done by an organization whenever needed
and found suitable; involvement is usually for shorter period.
4.0 Subcontracting in Small Engineering Industrial Sector in Bangladesh
Cottage, tiny and small engineering industries are called Light Engineering
Industries (LEIs), whereas cottage, tiny, small, & medium enterprises are called
SMEs (Small & Medium Enterprises). Thus LEIs belong to a sub-sector of
SMEs. The LEIs & SMEs can cater as subcontracting co-partners to larger
industries under subcontracting scheme. The LEIs as supportive industries to
both medium & large industries play a momentous role by rendering services
both as forward & backward linkages. In the process of industrialization of
Bangladesh, the role of LEIs & SMEs as linkage industries & supportive
industries, mutually as well as to the large industries is enormous. They can play

36

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

key role as complementary or feeder industry to various mills, factories, plants,


industries, etc. In the country, there are skilled labors and technicians who learn
by working and develop expertise in their respective trade. These engineering
industries are capable of producing import-substitute capital machinery/spare
parts for medium and large industries. The industries have variety of facilities
(such as casting, machining, forging, welding, heat treatment, electroplating and
other surface treatment, etc.) and machinery (such as lathe, shaper, drill machine,
boring machine, milling machine, gear cutting machine, welding sets, etc) as per
their requirement. But most of the small & medium industries can not use its full
capacity due to lack of work. Thirdly, the overhead cost of these industries is
comparatively low and thus an opportunity exists for these products of being
competitive to the imported products in the local market. In order to utilize the
potency of the local industries and to achieve their full capacity utilization,
marketing support & privilege to be rendered to the local industries. A marketing
policy based on subcontracting schemes under government patronage can be a
strategically motivated approach in merchandising local products in different
mills, factories, plants, and industries as well as large sectors such as power
stations, dockyard, railway, automobiles, etc., around the country.
5.0 Integrating Large and Small Scale Enterprise through Subcontracting
The development of efficient small-scale production is of prime importance to
the large-scale public sector corporations. The flexibility and spontaneity of
small-scale industry should be an immense asset to the corporations, and
contribute greatly to their profitability. The public sector corporations should
actively seek out small units, which can adapt their production, to the
requirements, provide them with the technical assistance to do so, and provide
the necessary quality control over their production. Unfortunately pressure within
the large industries of public corporations tends to run in the opposite direction. It
was found that most large units would, as a first choice, import them, would
purchase from small-scale industry as a second choice. There are examples of
products for which capacity already exists in small-scale industry, which are
being imported. It was reported that illegal monetary gain is the reason behind
the advocacy for import. Achieving a balanced industrial structure will require a
review on an industry-by-industry basis at an early stage. This should include the
plans of the sector corporations so as to ensure that production, which could be
undertaken at lower cost in small-scale units, is not pre-empted through import.
By definition SMEs (Small and medium industries) correspond practically to
cottage, tiny, small & medium industries (Kamal Uddin, 2002). SMEs have to
specialize in different activities or processes from large firms. Through

International Journal of SME Development

37

clustering, SMEs can jointly undertake functions where economies of scale arise.
For instance, information collection & distribution, new entrepreneurship,
collection of advanced & appropriate technologies and their application, training
workers, designing new products, conducting quality control, advanced
marketing, research activity, storing and transporting goods etc. Subcontracting
to large firms is an effective way for SMEs to build on their advantages. For
support services to create inter-firm linkages or subcontracting, it is essential that
parent firms and subcontracting firms may be identified. There are mostly three
types of sub sectors as stated below, in which SMEs are active in subcontracting
operation.
(a) Machinery and equipment.
(b) Chemicals, electrical and electronic products and transport equipment.
(c) Textiles, furniture and food processing industries.
In all these sub-sectors, parent organizations exist, which are subcontracting their
components or materials production to vendor industries or subsidiary industries.
These subsidiary or subcontracting firms, specializing in production of one
component or intermediate good are SMEs. Hence one major source of growth of
SMEs is the development of subcontracting firms.
6.0 Reasons for Subcontracting
The finished product usually consists of various parts and components. Facilities
for some of the production of some of the component do not exist in the parent
organization. The costs of establishing separate manufacturing capabilities for
these components do not always justify themselves. Thus it is more desirable for
firms to establish subcontracting agreements. Since parent firms have to face
severe competition, subcontracting agreements to reduce costs becomes a
necessity. Beside this, the subcontracting firm possesses greater production
flexibility. They can add a new plant and can retain their labor force, may be by
adapting through training, in new technologies. Subcontractors are generally used
to specialize in the production of one or few components; hence they achieve
greater production efficiency and produce high quality products. Mostly, large
industries do not want to retain all the tasks and in favor of shrinking its area of
production to avoid management hassle though the industry do not run in short of
capital for neither investment nor it is devoid of technological capability. If large
firms produce all their components for the finished product, then larger labor
force has to be engaged. This can create labor management problems. In order to
avoid such problems, it is preferred that several components may be distributed

38

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

to smaller subcontracting firms. Sub-contractors are normally smaller firms and


fully utilize their plant capacity and labor force. As such, wastage in production
is avoided. On the part of the subcontractors and in the context of globalization
and free market competition, three things are to be emphasized. They should
maintain lower price of the product. Secondly, they should ensure higher quality
of the product by enhancing technological capability and the most essential thing
is that they should comply the delivery schedules of products with the parent
organization.
7.0

Electrical Add on
Raw Material

Casting

Machining

Heat
Treatme
nt

Surface
Treatment

Mechanical Assembly

BOF Items Add On


Forging
Finished Product

Quality Testing

Modality of Subcontracting

In practice, different forms of subcontracting are in force in various types of


organizations. The particular type is contingent on the type of individual
industry. Industries are broadly classified into three categories, namely
Manufacturing Industries (e.g., metals, paper, plastic, chemical, electrical,
ceramics, etc.) & Non-Manufacturing Industries (e.g., construction, agriculture,
etc.) and Service Industries (transportation, automobiles maintenance,
telecommunication service, etc.). Manufacturing Industries are again subdivided
into Engineering Industries (Els) & Miscellaneous Industries (MIs). LEIs belong
to lower segment of Engineering Industrial Sector. SMEs belong to lower
segment of Manufacturing Industries, Non-Manufacturing and Service Industries.
Industries Manufacturing Industry includes all production, processing and
assembling activities as well as repairing and reconditioning of processed goods.
Non-manufacturing Industry involves production of different kind other than
manufacturing. Service Industry entangles activities rendering services, repair,
maintenance, fabrication, etc., which involve significant use of equipment or
fixed assets. All categories of industries have subcontracting of its kind whose
nature varies depending on the characteristics and typology of the industries.
Some general forms of subcontracting are mentioned in (Figures 1 & 2):
i)

Making spare parts

ii) Executing component(s) of production processes such as casting,


machining, forging, electroplating, heat treatment, etc.

Figure 1: Typical Production Process: Subcontracting is Given in Each of the


Component Modules
Subcontracting
Functionality
Spare Parts

Subcontracting
Enterprise

Machinery
Component(s)
of Production

Parent
Enterprise

Specific
Figure 2: Modality of Subcontracting

Subcontracting in manufacturing industry is done by supplying spares/machinery


or by executing a part of production process. On the other hand, in a service
industry, subcontracting is done mainly by rendering service/doing component(s)
of the service chain (e.g., repairing crankshaft).

iii) Making & installing capital machinery as a part of industrial unit.

8.0 The Development of SMEs & LEIs through Subcontracting

iv) Providing service for a segment(s) in the manufacturing chain or service


chain.

SMEs constitute the highest growth potential in Bangladesh. The sub-sectors


together play an increasingly dominant role in the economic development of
Bangladesh despite there being some lack of policy support in terms of finance,
technology, management, marketing, etc. SMEs have unique contribution in the
country's economy especially in view of their combined contribution to poverty

International Journal of SME Development

39

40

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

alleviation. The SMEs policy and strategy 2005 identified 11 no. of Booster
sector of SMEs. A recent estimate of IAT, BUET reveals that there are about
98,750 small industries (up to June, 12), 6,40,939 nos. of cottage industries (up to
June,12), in various sectors in Bangladesh. No of Employment is 32.28 lakh (up
to June,12) in SMEs sector. Presently, a large number of machinery and spare
parts are produced locally by the LEIs. SMEs play a vital role in the socioeconomic development of the country. Manufacturing and processing activities in
small and micro engineering enterprises contribute to the livelihood of huge
number of poorest citizen. It was declared a 'Priority' sector for development in
the mid-eighties (GOB, 1986). Subcontracting scheme in SMEs can be used as
tool that has immense potential for the growth of the sector. Viewing the
employment potential and its particular suitability for development, special
emphasis on subcontracting should be placed in government policies to produce
rapid growth in this sector. In the country, as labor cost and cost of infrastructure,
electricity, gas & water are cheaper than other countries; the cost of production
obviously can be competitive if management & marketing support in the form of
subcontracting can be provided in an appropriate planned manner.
9.0 Subcontracting Scheme of BSCIC
Due to many limitations and hindrances, the entrepreneurs of SMEs do not
succumb to be interested in achieving export market. Moreover, the influence in
the context of market economy & liberalization and backwardness of product
technology & production process, in many cases, the local products are facing
fierce competition even in the domestic market. Sometimes government has
taken some measures but overall situation was not improved. After launching
subcontracting program by BSCIC in 1986, the LEIs got comparatively more
privilege in the local market than before. Under the program, firstly the suitable
LEIs were selected and enlisted under subcontracting scheme. Later, linkages
were made between the LEIs and medium and large industries. Table 1 provides
number of the sub-contractors enlisted by BSCIC (1995).

Implementation of the Gazette notification of the Peoples Republic of

Bangladesh dated 1st October 1989 regarding sub contract.


Since 1983 BSCIC has been implementing the programme of subcontracting and
linkage establishment and has successfully brought about 1206 SCI units under
this programme. The Programme has been adopted keeping in view of the
successes achieved in this field by countries like Japan and Korea.
It is well recognized by now that sub-contacting activities have positively
beneficial implementation for creating a sound industrial base in the country.
Through this programme BSCIC also attempts to encourage subcontracting
relationships and to encourage Small Engineering Firms to enter Public tenders
for large firm contracts. Till today BSCIC assessment is that those subcontracting
units have already supplied import substitute engineering goods like spares of
other items worth BDT 300 crores. The market scope for expansion of these
engineering items is excellent.
To promote small enterprises/industries through the promotion of sub-contracting
relationship by BSCIC providing sub-contracting firms a package of promotional
services such as;
1. Technical assistance in production technology;

9.1 Subcontracting: Buyer Organizations of Products


There are 30 MOU (Memorandum of Understanding) for promoting subcontracting and establishing linkage between BSCIC sponsored (Enlisted) SCI
(s) and enterprise / Large establishment of the following organizations;

BSCIC has started Sub-contracting activities since1986. The main activities of


this programme are;
Identifying the Small and Cottage Industries those are complementary to

medium and large Industries and establishing linkage between them.


Create environment to signing the memorandum of understanding

(MOU) of sub- contracting with medium and large industries.


Provide assistances in signing the Memorandum of Understanding for

subcontracts and their implementation.

International Journal of SME Development

41

Liaison with large facilities and liaison between small a large firms
Information and assistance in tendering for orders;
Marketing and design services.

42

Bangladesh Steel and Engineering Corporation (BSEC)


Bangladesh Textile Mills Corporation (BTMC)
Bangladesh Sugar and Food Industries corporation (BSFIC)
Bangladesh Agriculture Corporation (BADC)
Bangladesh Railway
Bangladesh chemical Industries Corporation (BCIC)
Milk Vita
Rural Electrification Board (REB)
Power Development Board (PDB)
Bangladesh Jute Mills Corporation (BJMC)
Bangladesh Inland Water Transportation Authority (BIWTA)

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

Bangladesh Water Development Board


Petrobangla (BOGMC)
Bangladesh Water Transport Corporation (BIWTC)
Dhaka WASA
BRTC
Chittagong Port Authority
Bangladesh Fisheries Development Corporation
Chittagong WASA
Bangladesh Forest Development Corporation (BFIDC)
Biman Bangladesh Airlines
Mongla Port Authority
Public Health Engineering Department
Sena Kallyan Shangsta
Bangladesh Telegraph and Telephone Board (BTTB)
Khulna City Corporation
Civil Aviation Authority
Bangladesh hand Loom Board
Bangladesh Petroleum Corporation
Bangladesh Film Development Corporation (FDC)

requirements of Bangladesh Railway. As per BSCIC estimate, LEIs produces


about 3765 types of machinery & spare parts (Table 3).

A gazette notification was issued in 1989 that described rules and regulations of
the linkage stating that machinery and spare made of any metals, plastic,
ceramics, can be supplied to the State-Own ed-Enterprises (SOEs) by the Small
and Cottage Industries (SCIs) under subcontracting scheme. Under the
jurisdiction of this gazette, the enlisted light engineering industries (LEIs) in
BSCIC supplies various products (such as spare parts, equipment, small & capital
machinery) under subcontracting scheme. Table 2 provides a summary of
subcontracting arrangements made by BSCIC up to 1992 since its introduction of
such function. These LEIs, which are scattered all over the country, supply their
products to agriculture sector, automobile sector, gas sectors (Titas, Bakhrabad,
Jalalabad gas company), Sugar & Food Industries Corporation, Bangladesh
Railway, BRTA, BRTC, BIWTA (for ferry), BIWTC, Port Authority, WASA,
T&T, PDB, Public Health Engineering, Civil Aviation, Bangladesh Biman,
garments factory, pharmaceutical Industries, all fertilizer & chemical industries
under BCIC, industries under Engineering Industries Corporation, all industries
under BTMC, Jute Industries Corporation, paper & cement mills, other small,
medium & large industries, equipment for various laboratories, R&D institutes,
etc. Thus, firstly, the import substitute parts/products are saving foreign currency,
secondly, generating employment opportunity and thirdly, playing effective role
in technology assimilation. About 600 spare parts & other products (including
piston, liner) are supplied by LEIs to Bangladesh Railway. If some supportive
measures can be provided, LEIs are deemed to be able to supply 70-80% of the
International Journal of SME Development

43

Under the scheme, the enlisted SCls are able to produce machinery and spare
parts of large industries. Lack of investment and uncertainty of purchase by
consumer organizations give rise to deterrent circumstances in commercial
production of these products by the SCls. They are not getting required work
order from large industries especially from SOEs. Thus these SCIs can not run in
its full capacity in spite of possessing potentiality, expertise and efficiency.
Various steps are needed to upgrade the quality of the products and
simultaneously reducing the cost as well. Among other steps, subcontracting can
play a key role in merchandizing the products. To utilize the prospect of LEIs,
subcontracting scheme was launched. During 1986-91, as a part of marketing
activity, BSCIC arranged subcontracting orders amounting to Tk. 380.3 million,
while distributed credit for such purposes amounted to Tk. 11.25 million.
Marketing support such as subcontracting is an important type of support service
provided BSCIC. Unfortunately, little was known until recently about the effect
of such support. But it is obvious that Subcontracting can playa significant role in
assisting small firms to market their products. According to BSCIC annual
report, there has been an annual growth in the amounts of work order, 63.8
percent, and the number of small enterprises, 18.58 percent receiving such
marketing support during 1986-91 (GOB, 1992).
One of the very important aspects of LEIs is to serve the needs of local
consumers by supplying a wide range of products. In Bangladesh, over 90 per
cent of LEIs serve the local needs of the people and thus, they are engaged every
day in every economic sphere of the society. Moreover, it is revealed that there
are strong backward and forward linkages between the LEIs and other sectors
(such as agriculture, automobile, transportation sector) of the economy in
Bangladesh. Day by day this number of subcontracting LEIs is increasing. These
industries supply their diversified products, machinery and spare parts under
special arrangement of subcontracting scheme to different organizations, sector
corporations, and various sectors of the country.
10.0

Subcontracting Exchange Schemes

In order to develop subcontracting among the large and small enterprises among
various countries (e.g., SAARC, BIMSTEC, ICO, other friendly countries etc.),
Subcontracting Exchange Schemes can be launched. Professional Associations
and National Chambers can set-up such an establishment. They may collect
information about engineering industry components, and what vendor industries

44

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

can provide such components. These way inter-firm linkages can be expanded
among the countries. The activities of these organizations for interlink ages
among small & medium enterprises and assistance to these enterprises should be
properly identified. Thereafter program of maximum utilization of their services
may be formulated. This will lay a strong foundation for promoting effective
cooperation among small and medium enterprises among the various countries. It
is generally observed that through subcontracting with large firms, small
industries possess stable marketing. Hence, linkages with firms which demand
business products is highly essential.
11.0

Table 1: Subcontracting Industries Enlisted in BSCIC


Sl.
No.

Division/District

No. of
Small
Industries
Enlisted
in BSCIC

Sl.
No.

A. Dhaka Division
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Various Forms of Collaboration and Subcontracting

Links with big firms or with the network of SMEs are becoming a crucial issue.
Links with big firms are today usually in the form of subcontracting. In the case
of independent SMEs, their business associations are becoming indispensable.
Both these institutional forms make possible the process of 'learning-byinteracting'. Since technology is in essence an intangible asset, the market system
is not the best mechanisms for its acquisition ('market failure'). The network
production systems seem to have advantages in the learning process. The
reduction of the individual risk and the minimization of transaction costs are the
consequence of the network's superior learning capacity. This is confirmed by the
current processes of 'quasi disintegration' of big and multinational companies.
Instead of grouping, divisions under the strict control of a central office, big
firms form conglomerates of independent firms. Firms in these groups share
information more freely amongst themselves than with outsiders, but retain
certain autonomy. The classical case of Japan confirms the importance of close
links between big and small firms. The developed system of subcontracting
permits big firms to have a high degree of flexibility because SMEs are able to
follow them in permanent changes. Due to strong contracting, sub- contracting
and integrating links, the protection of, for example, Japanese industry was not
dependent on tariff barriers or on the yen depreciation.

Dhaka District
Gazipur District
Manikganj District
Narayanganj District
Norshingdhi District
Tangail District
Mymensingh District
KishoregnjDistrict
Faridpur District
Gopalganj District

469
38
1
17
3
6
2
1
3
1

1.
2.
3.
4.
5.
6.
7.
8.
9.

B. Chittagong

10.

Division

11.

1.

Chittagong District

145

12.

2.

Rangamati District

13.

3.

Coxbazar District

14.

4.

Comilla District

11

5.

6.
7.

Braharnanbaria
District
Chandpur District
Noakhali District

8.

Feni District

9.

Sylhet District

1
2

1.
2.
3.

1.

Division/District.

C. Rajshahi
Division:
Rajshahi District
Chapai Nawabganj
District
Natore District
Naugoan District
Kushtia District
Bogra District
Pabna District
Serajganj District
Rangpur District
Nilphamari
District
Lalmonirhat
District
Dinajpur District
Thakoregoan
District
Phanchagar
District
D. Khulna
Division
Khulna District
Satkhira District
Jessore District
E. Barisal
Division:
Barisal District
Total

No. of Small
Industries
Enlisted in
BSCIC

11
1
2
1
12
24
6
2
4
7
1
3
1
1

55
3
11

5
871

Source: BSCIC Report, 1995.


BSCIC (June, 2004)

The protection is primarily enabled by the strength of business associations,


subsidiary networks and flexible subcontracting. Such a market structure favors
trade among domestic companies instead of importation. A JIT (Just-In-Time)
International Journal of SME Development

45

46

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

system is a logistic-based coordination method in the 'production process. A


number of forms of collaboration between buyer and seller have been grouped
together under the term 'strategic alliances'. The need for links between
companies in strategic alliances may be occasioned by a desire to utilize distinct
specialization and localization among companies in, for example, geographical,
cultural, know-how, resources and other areas. A strategic alliance may embrace
different common functions and be arranged in different forms of formal
contract. Figure 3 delineated position subcontracting in the broader spectrum of
strategic alliances.

Table 3: Machinery/Spare Parts Products of LEIs in Bangladesh (2002)


SL No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

Table 2: Subcontracting Assistance Arranged by BSCIC


Activities

Year
1989-90

1990-91

1991-92

1986-92

Work order from big units (in Mil. 1'k.)

150

148

163

544

Actual supply of goods (in Mil. Tk.)

109

118

157

435

Registration of subcontracting units (No.)

134

178

94

755

Identification of big industries (No.)


Recommendation for subcontracting
(No.)
Establishment of subcontracting(No.)
Identification
of
subcontracting
tools(No.)
Small firms received work orders (No.)

29

15

189

121

160

81

709

466

207

86

1861

359

452

343

3455

51

68

61

295

345

141

100

1223

15

52

96

53

550

Credit for subcontracting (in Mil. Tk.)


Arranging seminars, workshops, etc.
(No.)
Skill development training (No.)

Automobile Spare parts


Railway Engines & Rail Spare parts
Bicycle & Cycle Rickshaw Spare parts
Machine Tools
Jute & Textile Spare parts
Chemical Industries: Machine & Spare parts
Sugar & Food Industries: Machine & Spare parts
Pharmaceutical Industries: Machine & Spare parts
Engineering & Metallurgical Industries: Spare parts
Ship Industries Spare parts
Agricultural Accessories & Spare parts
Oil & Gas Line Fittings
Electrical Accessories & Spare parts
Electronics Accessories & Spare parts
Telecommunication Accessories & Spare parts
Total:

Types of machinery
/Spare Parts
200
600
50
100
550
550
200
50
800
150
100
15
350
50
50
3815

Source: BSCIC (2002)

12.0

Bangladesh Gazette Enacting Rules for Subcontracting

By enforcing the Bangladesh Gazette (15 September, 1989), Peoples' Republic of


Bangladesh has enacted rules & regulations for making linkages between each
corporation, state-owned-enterprises/industries and small & cottage industries
under subcontracting scheme in order to procure machinery & spare parts made
of metals, plastic, ceramic produced by the local small firms. The small &
cottage industries are able to produce machinery & spare parts of large industries.
These small industries are facing difficulties in merchandizing their products
(machinery & spare parts) on commercial basis due to lack of investment and
uncertainty of getting purchase order by the consumer organizations. For such
reason, government has launched the subcontracting system under the rules &
regulations stipulated in the gazette. Though the small firms have got merit, skill,
efficiency & expertise, they are unable to use the full capacity of the factory.
Through development of small & cottage industries, in one hand, the scope of
employment generation will be augmented and secondly, the demand for
machinery and spare parts of large industries will be met. Thus foreign
dependency of large industries will be reduced and a significant amount of
foreign currency that is being used to import spare part & machinery in every
year will be saved. Through subcontracting arrangement, the small firms will
find opportunities to develop their technological skill and capability.

Source: GOB (1990) and (1992)

International Journal of SME Development

Sub-Sectors

47

48

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

13.0
Survey Data on Subcontracting Aspects
A survey was carried out on 25 nos. of selected industries in the engineering
sector. A summarized tabular scenario of subcontracting is shown in Table 4. The
complicated component that is difficult or not possible to make either by the
industry or by sub-contract is usually purchased as finished item or BOF items. A
number of spare parts of the machinery of the industries are produced in a routine
& scheduled manner by the sub-contractors. The industries that do not have
casting facility get the casting & molding job done by other industries having
foundry facility. The foundry workshops usually provide material as well. Some
specific industry who are particular about quality of the product, supply raw
materials of their own to the foundry to ensure quality of raw material. In that
case, only casting & molding charge is paid by the customer industry. In general,
major casting that is subcontracted is of cast iron (C.I). Twelve industries were
found to do C.I. casting by rendering sub-contract (Table 3). Beside c.1., other
casting such as mild steel (M.S.), aluminum, brass, gun metal, are also done on
subcontracting basis. Plastic and rubber are also molded on subcontract basis.
Two industries render subcontract on plastic items, one industry on rubber items
and other two industries on wooden components. Aluminum and brass casting
are done by three industries by rendering sub-contract. Some of the items that are
made on subcontracting basis are copper alloy bush, guide pin, wood component,
plastic component, spare parts, etc. Plastic three industries, rubber one industry,
two metal-based industries and wooden component two industries render subcontract. For die casting, die is made on sub-contract basis. One surveyed
industry was found to make die for other industries on sub-contract. Some special
machined parts were found to be done on sub-contract (from mainly Dholai
Khal) by five industries. Some surface treatments such as electroplating,
galvanization are done on sub-contract basis by two industries. This is done for
the industries that make laboratory equipment & machinery. Three industries
were found to get the heat treatment done from St. Joseph Institute, Dhaka, one
from BIT AC, on sub-contract basis. Two companies were found to get special
milling and gear cutting from other industries. Three industries for some other
special work such as polishing, hardness testing, spray painting, etc. were found
to get done on sub-contract. Two industries were found to get M.S. forging work
done from other workshop on sub-contract basis. One enterprise producing PVC
pipe extruder renders subcontracting for his electrical panel, heater making, etc.

Sewing machinery Company. Government policy was critical but largely is so far
as it protected sewing machines for home use from foreign units and made
Singer's entry into the Taiwan market conditional on Singer's establishment of
subcontracting network, the importance of Singer as a catalyst is indisputable and
the strategy Singer pursued to comply with government requirements may prove
instructive to policy makers in Bangladesh. Before Singer came to Taiwan in
1963, there already existed a group of small sewing machine producers. The
sewing machine industry, however, was stagnant. Government approved Singer's
investment for two reasons: First to save foreign exchange (local manufacturers
could not produce certain types of sewing machines), and secondly, Singer as a
technological leader could improve the quality of local parts if they were locally
produced. The government imposed the following conditions in approving
Singer's investment, in exchange for which Singer received the same 33% tariff
that other sewing manufacturers enjoyed. The Singer subsidiary should procure
83 percent of the required parts from local parts manufacturers a year after
establishment: provide them with standard blue prints and assign experience
engineers to help establish work methods, prepare material specifications, and
inspect finished products.
Collaboration in Strategic Alliances

High Degree of Dependency between


Partners
Askx`vi`i ga AwaK cwigvY wbfikxjZv

Acquisition
AvniY
Joint Venture
h_ D`vM

49

Contracted
Coordination
Pzwe mg^q mvab

Long Term Seller-Buyer


Relationship
`xN gqv`x Zv-weZv mcK
License
jvBm

Single
Transaction GKK
Av`vb c`vb

Sub-Contracting
mve-KUvws

Strategic Alliances
KkjMZ gx

14.0
Learning from Foreign Experience
The story of how subcontracting was successfully developed in Taiwan is very
interested indeed. Almost all observers in Taiwan agree that the foundation for
subcontracting in the general machinery sub-sector were laid by the Singer

International Journal of SME Development

Merger
GKxKiY

Low Degree of Dependency


between Partners
Askx`vi`i ga ^ cwigvY wbfikxjZv

Figure 3: Subcontracting in the Broad Spectrum of Various Collaborations.

50

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

In the neighboring country India, there are certain products that are reserved for
small-scale industries. As scheduled subcontractor, these small industries
produce the products for the parent industries. In Japan, almost all large &
medium scale Industries have cluster of industries that produce & supply
product/component only for their parent industries under long term agreement.
Product/components are produced under 'Bundling System'.

Industry

1-11
1-12
1-13

Table 4: Subcontracting Items of Some Industries (Survey, 2013)


Industry
I-I
1-2

1-3

1-4

1-5

1-6

1-7
1-8
1-9

l-l0

Subcontracting Products
No item is sub-contracted
Copper alloy bush
Wood component
Plastic component
Some spare parts (from Dhaka & Madhabdi)
Motor, electrical accessories, bearing
Some spares (machining)
Casting (10 tonlyr.) (C.I)
Motor electrical accessories, bearings)
Some spares (machining)
Casting (30 ton/yr.) (C.I)
Motor electrical accessories, bearings)
Casting (18-20 T/yr.) (C.I)
Motor 30 no./ set of machine, 3-25 HP, bearing, net,
burner, electric fittings, meters etc.
Some machined spares (Dhlaikhal)
Casting (C.I) (Dholaikhal)
Boiler burner parts, water treatment resin and media
(USA, France), various instruments, motor (0.5 to 7.5 H.P.,
Singapore),
activated carbon (India) electrical
accessories)
(I.6 ton/Month) (C.I.) (C.I. aluminum and mainly brass)
Motor, bearing, V -belt, circuit breaker
Gunmetal brass, plastics, rubber items (16 ton/yr.)
Motor, bearing, electrical accessories
Electroplating & galvanizing
Heat treatment from St. Joseph School
M.S. forging (5 ton/yr.)
Switch, circuit breaker, relay pressure gauge, testing equipment,
motor, electrical accessories
Casting (C.I) 3-6 ton/day

International Journal of SME Development

Sub-contract
Supply
Sub-contract
Sub-contract
Sub-contract
Sub-contract
BOF Items
Subcontract
Subcontract
BOF Items
Subcontract
Subcontract
BOF Items
Subcontract
BOF Items
Subcontract
Subcontract
BOF items

1-14

1-15

1-16
1-17
1-18
1-19
1-20
1-21
1-22

1-23
1-24
1-25

Subcontract
BOF item
Subcontract
BOF item
Subcontract
Subcontract
Subcontract

Subcontracting Products
Ball bearing and shaft, motor, electrical accessories
I. Parts of die, guide pin, bush, polishing
No item is sub-contracted
C.I. casting
Heat treatment
Painting
Hardness testing
Some spares
Motor, engine and electrical accessories
Casting C.I.
Wooden component
Gear cutting
Motor. electrical accessories
Casting C.I. (50 kg/month)
Electrical panel, heater making, milling (gear cutting)
Motor, electrical accessories
Some parts
Screw
No item is sub-contracted
No item is sub-contracted
Casting, AI, Brass and C.I.
Electrical accessories, and Motors
No item is sub-contracted
Casting C.I., brass, aluminum
Sheet cutting & bending
Electrical accessories, Motors, electrical control, display
Casting C.I., copper alloys
Grinding and surface treatment
Heat treatment (from BITAC)
Casting
Forging
Heat treatment
Electroplating

Sub-contract
Supply
BOF Items
Subcontract
Subcontract
Subcontract
Subcontract
Subcontract
Subcontract
BOF Items
Subcontract
Subcontract
Subcontract
BOF Items
Subcontract
Subcontract
BOF Items
Subcontract
BOF Items

Subcontract
BOF Items
Subcontract
Subcontract
BOF Items
Subcontract
Subcontract
Subcontract
Subcontract
Subcontract
Subcontract
Subcontract

The Mantta pump factory of UK has actively developed a subcontracting


network in the area around the factory. Most of the people who became surplus
to requirements at the factory are now employed in the local area by small
companies around the factory. For example, all the functions related to sheet
metal production, surface treatment and packaging are now subcontracted to such
companies. The sub-contractors went partly through the same educational events
as the workers in the factory. However, some of the stocks of the Manna factory
have moved to the sub- contractors due to a lower level of methodological
knowledge and capabilities of managing production. The sub-contractors now see

BOF item
Subcontract

51

52

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

that the situation was caused by obtaining the information on production capacity
needed in the near future too late. It is obvious that smooth cooperation between
sub-contractor and the main company needs constant care.
One special problem with subcontracting is to update the proper price of the
goods. In the local area, it is not possible to find competition every month or year
to find the market price. The tendency is towards long-term co-operation. That is
why both sides should agree the price according to methodological developments
over time. The problem was solved using weekly or monthly visits to subcontractors to give them advice on the latest methodological developments, and
to learn about current developments on the sub-contractor. The sub-contractors
are ranked in categories I. II and III according to their service level (quality of
parts. accuracy of delivery time. etc.). If a sub-contractor stays at the lowest
level, it is aware that it could be replaced if a better supplier is found. It is an
indicator that the company has started to look for a more reliable partner and
there should be some improvements in this sub-contractor's operation.
15.0

manner. Priority should be given to foreign investors for establishing industries


in the BSCIC industrial estates.
16.0
(1)

Expansion of Subcontracting in Micro & Macro level: Subcontracting


system to be proliferated comprehensively both in the Government sector
& private sector (micro & macro level). Since the sector periphery of the
state-owned industries (Sols) in Bangladesh is being contracted, the scope
of subcontracting under Government patronage is being limited. Thus
subcontracting among enterprises in private sector to be spurred with
dynamism at larger scale.

(2)

Bangladesh Gazette (1989): The rules & regulations stipulated in


Bangladesh Gazette (October, 1989) have to be revised. The
subcontracting scheme of the mentioned gazette applies to machinery and
spare parts made of metal, plastic and ceramics only. The scope of
subcontracting to be expanded to all products of Small & Medium
Enterprises (SMEs), as for examples chemicals, agro-products, garments,
textile, electrical etc. In the gazette, there should be provision of
punishment for those who violate the government rules subcontracting.
The gazette rules to be fostered and implemented.

(3)

Subcontracting Scheme of BSCIC: The subcontracting scheme of


BSCIC to be strengthened. The subcontracting section of BSCIC is to be
made powerful and its scope to be widened. Brochure with information
about subcontracting to be published time to time. The required fund to be
allotted for brochure publication.

(4)

Industrial Policy: 'Industrial Policy 2010 stated about the subcontracting


policy. The policy to be implemented.

(5)

Incentive: Incentive to be rendered to the subcontracting organizations


that act as linkage industries to large industries. Special facilities to be
given to the subcontractors of small industries in terms of concession in
VAT & turnover tax.

(6)

Standing Committee: A strong standing committee to be formed


comprising of representatives from inter-ministerial body such as Ministry
of Industry, Ministry of Commerce, Ministry of Law and from other
organizations such as BSCIC, University, FBCCI, Board of Investment,
EPB, etc. The committee will propose policy imperatives and
recommendations pertaining to subcontracting. The complex issues of

Policy Imperatives for BSCIC and Other Associated Organizations

As a corporate body of the Government, the prime objective of BSCIC is to


nurture & assist small & cottage industries (SCIs) in its growth trajectories.
BSCIC to be reorganized in the paradigm of multifaceted demand of the present
so that its capability augments in a competitive manner. To proliferate
subcontracting among various sizes of industries, it is essential to develop small
& cottage industries for different sectors. Cluster industries to be developed as
per requirement in different regions of the country. In the areas, where industrial
estate has not been built yet but possess significant potency, concerned authority
should provide infrastructure facility on priority basis as per the recommendation
of BSCIC. In the growing & blooming industrial areas of the country, BSCIC
should strengthen its continued effort in providing of at least those infrastructure
facilities that presently exist in other BSCIC's industrial estates. Through
development of subcontracting system, endeavor to be taken to establish
relationship between corporate sector and small & cottage industries. In order to
render financial assistance in developing subcontracting, especial fund to be
created through banks and financial organizations. Subcontracting enterprises,
irrespective of their locations, will be entitled to get incentives and other facilities
similar to Small & Cottage Industries around the country. BSCIC is to launch
'The Small Industry Credit Guarantee Scheme' with joint collaboration of
Bangladesh Bank, Government / Non-Governmental bank/ insurance and
financial organization in a most comprehensive, far-reaching and extensive

International Journal of SME Development

53

Policy Recommendations

54

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

subcontracting will be solved by the committee. Any sort of


arbitration/dispute between supplier & purchaser will be solved by this
committee. If any product is in use in perfect orderly fashion in the
country, then any change or replacement in the product to be approved by
the committee so that the genuine change prevails.
(7)

(8)

Subcontracting Monitoring Cell: A subcontracting monitoring cell is to


be formed. The monitoring cell will collect and preserve all information &
data regarding subcontracting from various concerned organizations (both
purchaser & vendor organizations) and will act as data bank of
subcontracting affairs. The data of product/components that can be
supplied through subcontracting from various organizations around the
country will be collected the monitoring cell. The importation of the
products/components by the importers organization to be
checked/supervised by the monitoring cell. The monitoring cell is
required as institutional setup to conduct all these essential activities.
Innovation Promotion: Opportunities to be rendered to the subcontractors regarding innovation promotion. Opportunities to be given to
produce the products /component that are not being produced in the
country. For this purpose, sample products or prototype to be distributed
among the potential sub-contractors and necessary advice and assistance
are to be provided.

(9)

Expert Forum: An expert forum can be formed comprising of experts of


relevant subject matters who will render required advisory services to the
sub-contractors.

(10)

Common Facility Center: A number of Service & Training Centers that


are modem having advanced technology have to be established around the
country. One center at each of the divisional city/town and at least two in
Dhaka Metropolitan are required. Through centers, the efficiency,
capabilities, expertise and productivity of the subcontracting firms will be
augmented.

(11)

Accountability: For better accountability, the subcontracting scheme to


be adhered to the Auditor General, Bangladesh.

(12)

Display Center: In order to merchandize the products, Product Prototype


Display center to be established permanently so that the products of the
whole country can be exhibited whole year sector wise. Local display
centers are to be established at various places to display local products.

International Journal of SME Development

55

(13)

Compatible Specification in Projects: For big projects, the specification


for each engineering component of the project to be such that it becomes
compatible to local firms so that they can compete effectively.

(14)

Importation of Foreign Goods: There should be explicit rules &


regulations for the consumer organizations regarding importation of
foreign goods. Opportunities to be given to the local industries to
produced the products instead of import. For this, emphasis to be given a
development of technological capabilities. For the consumer organization,
import can be allowed for the first time and then steps to be taken to
produce locally.

(15)

De-packaging of Large Projects: In the case of implementation of large


projects, de-packaging to be done to identify the engineering components
that can be made locally. Priority to be given to the local engineering
industries (individually or in consortium) to produce appropriate part of
the project

(16)

Subcontracting Rules to be made as Law: The rules and regulations


stipulated in the gazette to be made as law so that in case of
arbitration/dispute incurred between consumer organization and
subcontractors that has appeared at the court, can be solved lawfully.

(17)

Subcontracting Exchange Scheme: Steps to be taken to launch


Subcontracting Exchange Scheme with other countries (such as ICO,
SAARC, BIMSTEC, neighboring countries, friend countries etc.). The
foreign mission/embassy of Bangladesh can collect information & data
and take positive steps to implement such endeavor.

17.0

Conclusions

Development of subcontracting network is one of the prerequisites for healthy


growth of the engineering sector. Subcontracting allows firms to specialize in a
narrow field. Engineering products consist of a large number of components each
requiring a number of metals working processes for its manufacture. Complexity
of production planning and control and management increases exponentially with
the number of component parts to be manufactured in-house. Hence, much of the
managerial problems as well as cost of production can be reduced if the industry
can develop a system for promotion and patronization of firms who specialize in
a particular process or type of products. Subcontracting is less practiced in our
engineering industries. Many enterprises try to carry out entire operations by

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Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

themselves. The large units in the public sector were designed to produce almost
all the manufactured parts in-house. Even within the public sector units, there is
strong resistance to subcontracting. The impediments to the growth of metal
industries were identified in the mid-sixties as the lack of suppliers of quality
casting, forging, heat treatment, surface treatment and jigs and fixtures. The
objective behind creation of facilities in Bangladesh Machine Tools Factory
(BMTF) for such processes was to provide services to other industries as well.
However, in spite of the fact that BMTF was launched about 23 years back, it
failed to provide these services to outside units, partly due to lack of marketing
efforts. BIT AC was established in the sixties to render assistance to LEIs.
According to government notification (Ministry of Industries), it is mandatory
that sector corporations should render at least 20% of its work BITAC. Thus
BITAC is presently a competitor to LEIs on unleveled ground. The
subcontracting relationship being developed between sister organizations of
many private group industries developed recently appears to be promising one.
Many manufacturing units have also been found to subcontract out parts to other
workshops. Such subcontracting has been necessitated more due to limited
capacity rather than reasons of specialization. These units have been able to
manage orders for pumps which much exceed their capacity. While it is desirable
for the large public sector industries to develop their own subcontract supplier,
the procurement system does not permit them to promote a few selected firms
and provide technical and financial assistance to them. The operation and
management of the public sector units do not generate enough confidence in the
private entrepreneurs to invest in parts whose client is exclusively one
manufacturing unit.

e.g., R&D organizations, training institutions, financial institutions,


Chambers/Associations, NGOs, raw materials suppliers etc. to resolve this
problem and formulate policy imperative for various forms of cooperation
through subcontracting between industries so that a pathway can be formed
towards a strong, progressive & dynamic industrial sector.
References
M. Kamal Uddin (2002) The Small & Medium Enterprises: A Potential Sector to Spur
Technological & Economical Development of Bangladesh, FBCCI, September, 2002.
Government of Bangladesh (2010) The Industrial Policy, Ministry of Industry, Dhaka
SME Policy & Strategy (2005) Ministry of Industry, Government of Bangladesh.
Bangladesh Gazette 1989, 1990 and 1992.
BSCIC 1995, 1986 and 2004.

Government should formulate and implement policies so that state owned and
other large enterprises give priority to local Engineering Industries (EIs) while
purchasing spares and machinery. BSCIC subcontracting arrangement, which
was designed to achieve this, should be rejuvenated. While implementing large
projects, de-packaging should be done to identify the engineering components
that can be done locally. Local EIs/LEIs, individually or in consortium, should be
given priority to participate in bidding for the appropriate components of the
projects. Some of the local EIs are reported to have worked already for
international firms as sub-contractors and proven their capabilities. Local LEIs
often complain that concerned personnel of big state-owned and private
enterprises are more interested to buy machinery and spares from abroad because
of illegal monetary gains. Buyers, on the other hand, complain about poor quality
of LEIs products. The government, as a prime stakeholder, has a definite role to
play in bringing together not only these two parties but also other stakeholders

International Journal of SME Development

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58

Subcontracting: A Strategic Approach for SMEs Development in Bangladesh

International Journal of SME Development


Volume 01
| Issue 01
| April 2014

Development of Tourism Industry through SME:


A Study on Comilla
Md Mainul Hasan**1
Mohhamad Rokibul Hossain***2
Abstract
Tourism, one of the crucial industries in Bangladesh, can contribute a lot to the economy.
But this sector fails to give desired output due to inappropriate policy and operation of
SME. There is lot of entrepreneurs in tourism industries who suffers small financial crisis
for the proper development. This study aims at describing the way by which the tourism
industry can be addressed with SME. Facilitation of institutional financing to the tourism
SME can do ultimate development of the countrys economy.
Keywords: Tourism, SME, Economic Development, Community based Tourism, IT.

1. Introduction
Bangladesh is a country of natural beauty. She is blessed with endowment of
almighty. The seven, Bangladeshi divisions offer a variety of natural and cultural
micro-destinations suitable for tourist attractions. The tourism industry is a sector
which effect the entire society in many ways and has a profound impact on our
social, cultural and economic life Negrusa and Gica (2008). At the world level,
the industry of tourism and travels represents the most dynamic sector of activity
and, at the same time, the most important generator of jobs (Tiberiu, 2008).
Travel and Tourism contribute to the country in different sectors of economy and
society. As per World Travel and Tourism Council (WTTC) report (2011), the
total contribution of travel & tourism to GDP was BDT 381.6bn (4.7% of GDP),
and was forecasted to rise by 7.6% in 2012, and to rise by 6.5% pa to BDT
773.0bn in 2022. In 2011, travel & tourism directly supported 1,329,000 jobs
(1.9% of total employment). This was expected to rise by 3.6% in 2012 and rise
by 2.9% p.a. to 1,840,000 jobs (2.0% of total employment) in 2022. Despite of

having more potentialities of tourism industry in our country, it was not


developed to the expectation yet. The persons along with industries that are
directly or indirectly related to the tourism industry are facing more challenges as
well as obstacles as for the improper care and facilities provision by the
authorities. Most of the enterprises that are linked to tourism are micro, cottage,
meso, small and medium enterprises. Small and medium-sized enterprises (SME)
face a number of obstacles both in terms of their original establishment as well as
in their ongoing operations. There must be recognition that the small-scale
tourism related businesses can have an important impact on poverty reduction
(Walter, 2004). The persons who are involved with SME in tourism industry are
less skilled and deprived of the facilities comparing to other industries. This
study aims at strengthening the SMEs in tourism industry in Bangladesh.
2. Rationale of the Study
Bangladesh has basically three sectors of generating revenue: agriculture,
industry and service (Anonymous, 2010). Tourism is one the most prominent
service sector having more potentials in our country where different scope of
tourism exists. In this country, the scope of nature based tourism, culture based
tourism, and eco-tourism is quite evident (Shamsuddoha, 2004). Most of the
organizations that serve tourism industry is under the SME like micro, cottage,
small and medium enterprises (Bangladesh Bank, 2013). Most of the owners of
these enterprises face different problem like sudden and unforeseen changes in
demand, lack of skill and training, limitations of the finance and long procedure
to get loan etc. SME contributes in others sectors but in tourism industry, it
contributes little as expectation. There is also a gap of research in tourism sector
that motivates this study.
3. Objectives of the Study
Bangladesh is a country of heritage and history with large natural tourism
resources. Livelihood and inherited peoples hospitality attracts the tourists. But
the industry is not yet ready to explore all potentialities. So, the following
objectives have been determined to study the development the tourism through
SME in Bangladesh context.

Exploring the potentialities of SME in tourism industry in Bangladesh.

Identifying the present status of tourism SME

Revealing the constraints of SME and fostering through tourism industry.

** Lecture, Department of Marketing Comilla University, and


*** MBA Graduate, Department of Marketing, Commilla University. E-mail: s.rokib@gmail.com

International Journal of SME Development

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60

Development of Tourism Industry through SME: A Study on Comilla

4. Literature Review
Tourism is one of the largest industries in the world which is an important source
of income, employment and wealth in many countries (Anonymous, 2002).
Tourism has been changed into a worldwide industry and the competition
between tourism destinations in the world is increasing. Growth of tourism is due
to the performance of global transportation and, consequently, reduction of costs
of transportation and growth welfare of a major part of world population. United
Nations World Tourism Organization (UNWTO) estimated that international
trips of 565 million in 1995 would reach to more than one and a half billion in
2020 (Anonymous, 1999). While human resource development issues are
fundamental to improving SME competitiveness, an SME development strategy
should also address issues such as sustainable use of natural resources.
Agriculture and agro-processing, including use of forest and marine resources
and tourism figure predominantly among the industries where developing
countries have comparative advantages (Anonymous, 2004). Tourism is seen to
be an important part of the economic agenda, the arguments advanced in favor of
targeting small tourism businesses are similar to those for SME in general,
namely: their ability to create new jobs at a time when major operators are
downsizing; improvements to industrial relations and working environment;
diversified and flexible structure; stimulating competition, leading to an energetic
enterprise culture; and their creativity in introducing new service products. They
can also be part of the output experience for the tourist through their ability to
effect introductions to their neighbors, advising visitors about itineraries,
providing narratives on local history, culture, folklore and landscape, as well as
playing an active role in the advancement of the community (Stephen, 2002).
The Romanian tourism is largely dominated by SME, with more than 99% of the
firms employing fewer than 250 people. Putting aside the fact that in many
remote and rural areas, as well as urban locations, tourism is seen to be an
important part of the economic agenda, the arguments advanced in favor of
targeting small tourism businesses are similar to those for SME in general
(Negrusa and Gica 2008). Because the tourism market will have a higher level of
integration, it will become more important for SME to match different quality
levels. Tourism SME can also be a source of innovation and help shape
destination development. There are celebrated cases internationally where small
businesses have created an identity for a destination that has subsequently been
harnessed by local municipalities. Moreover, many municipalities in socially or
economically deprived areas of most established member states have also
developed expertise in accessing European Union (EU) resources to support

International Journal of SME Development

61

tourism SME programs that is usually as part of a wider social/regional


development agenda (www.oecd.org). It has been suggested that small tourism
enterprises form a natural amalgam, because the fortunes of the local destination
and the firms are closely intertwined (Buhalis and Cooper, 1998). Although
research indicates that tourism SME tend to cooperate rather than compete by
formulating value-added networks of product and service delivery that enhance
the tourist satisfaction, e.g., by referring customers to each other (Greffe, 1994).
SME play a key role in transition and developing countries. It is typically account
for more than 90% of all firms outside the agricultural sector, constitute a major
source of employment and generate significant domestic and export earnings. As
such, SME development emerges as a key instrument in poverty reduction efforts
(Anonymous, 2004). SME cooperation is needed at the destination level in order
to increase the competitiveness of SME and their respective destinations as well
as to facilitate higher customer satisfaction (Buhalis, 1999).
With the advent of electronic distribution channels, visitors are searching and
booking online, customizing their packages according to their individual needs
(Wang and Fesenmaier, 2006). Enterprises are seldom, if ever, self-sufficient and
they need to exchange resources in order to survive (Ahrne, 1994). SME
intending to expand are often held back because of a lack of appropriate
resources (Holmlund and Kock, 1998). In more advanced developing countries,
where there is reasonable progress in the fundamental institutions, SME may still
face challenges in accessing formal finance in the form of bank loans, guarantees,
venture capital, leasing and so on. For instance, although SME are by far the
largest group of customers of commercial banks in any economy, loans extended
to SME is often limited to very short periods, thereby ruling out financing of any
sizable investments (Anonymous, 2004). Shaw and Williams (1990) noted in
their study that family enterprises are of two kinds: firstly, the self-employed
who use family labor, have little market stability, low levels of capital
investment, weak management skills and are resistant to advice or change and
secondly, the small employer who uses family and non-family labor, has a better
business foundation, but can share similar behavior patterns to the self-employed
and are therefore equally vulnerable. The vulnerability of tourism SME is also
highlighted in the work of Morrison, Rimmington and Williamson (1998). Small
and micro tourism enterprises, however, face enormous difficulty competing with
their larger counterparts. Competition is made more difficult because many small
and micro tourism enterprises are often located in peripheral regions where
access to skills support is limited (Hollick, 2003). Despite the fact that the
tourism industry has been long established it is still based on SME, a factor that
hinders its dynamism to adopt new marketing models (Kotler, et al., 2006).

62

Development of Tourism Industry through SME: A Study on Comilla

Tourism SME often have severe limitations in respect of marketing, delivering


quality, price policy, cost control and re-adjustment ability (Wanhill, S., 2002).
SME do not proactively engage in networking. Micro and small tourism
operators tend to be lifestyle entrepreneurs, who often do not even consider
themselves part of the industry (Braun & Hollick, 2005). Other barriers to
entering industry networks have been put down to cultural factors on the one
hand and lack of resources (time, staff, opportunity) on the other. Small and
micro firms tend to limit their external contacts to compulsory contacts, e.g.,
local government and tax agencies and direct support actors and agencies, e.g.,
customers, accountants and banks (Evans, 1999).
In order to avoid marginalization of tourism SME in the knowledge economy,
tourism communities, industry players and policy makers seeking to advance the
role of tourism SME in the global economy would do well to address core
industry standards and performance practices (Gretzelet et al, 2000). The
majority of SME in developing and transition countries, however, has been less
able or unable to exploit the benefits of globalization and, to add to the situation,
are frequently under pressure on the local or domestic markets from cheaper
imports and foreign competition (Anonymous, 2004). SME, due to their size, are
particularly constrained by non-competitive real exchange rates, limited access to
finance, cumbersome bureaucratic procedures in setting up, operating and
growing a business, poor state of infrastructure and lack of effective institutional
structures. The removal of these constraints is a daunting task calling for holistic
SME support, i.e., an enabling environment for SME development consisting of
functioning macro and micro level institutions (Anonymous 2004). SME identify
financing, especially medium to long-term finance, as their topmost obstacle to
growth and investment. These obstacles come at two levels. In least developed
economies, and in some transition and developing economies deficiencies in both
the macroeconomic and microeconomic environments pose challenges: high
budget deficits and unstable exchange rates and legal, regulatory and
administrative environment poses major obstacles to access of SME to financing.
In more advanced developing countries, where there is reasonable progress in the
fundamental institutions, SME may still face challenges in accessing formal
finance in the form of bank loans, guarantees, venture capital, leasing and so on.
For instance, although SME are by far the largest group of customers of
commercial banks in any economy, loans extended to SME is often limited to
very short periods, thereby ruling out financing of any sizable investments
(Anonymous, 2004). The SME development strategy has to be inclusive and
build on a consensus on SME challenges, goal and broad policy direction among
key SME stakeholders. The strategy has to concert and coordinate efforts of

International Journal of SME Development

63

institutional structures that make or affect policy (the parliament, provincial


councils and political parties), the administrators of policy (line ministries, local
government authorities and regulatory structures), and public support
organizations (SME, export, investment, regional development, public sector
education and training institutions and financial institutions (White, 2002),
guiding enterprises, bicycle rental operations, small restaurants, retail operations
meeting the diverse needs of the tourist, the creation of small transportation
outfits and providing accommodation are a few examples of SME that can be
created. The accommodation business provides several opportunities for poverty
reduction. Initially development can be in the form of a homestay where a
portion of a dwelling is rehabilitated to meet the accommodation needs of
tourists. This can be expanded possibly into a stand-alone small-scale inn or
lodge (Walter, 2004).
5. Research Methodology
The research is qualitative in nature that is based on primary and secondary data.
Primary data have been collected by interviewing from stratified random samples
of the owners of cottage, micro and SME entities using a structured
questionnaire. The discussion guide focuses on the experience of the owner,
demand of the tourism destination along with their services, major constraints in
running the business from different view point like financial, operational skill
and technological knowledge and promotion facilities, knowledge of promotional
activities etc. The sample frame for the survey is the existing owner of SME in
the Comilla where the famous Shalbon Bihar, Comilla University are located.
The sample size for the study is 60 (sixty). The survey is conducted from January
to February 2013. Secondary information is gathered from various sources like
journals, books, websites, brochures, magazines, and newspapers etc. The
research procedure includes preparation of questionnaire, pre-testing of
questionnaire, survey, data decoding, data analysis, interpretation and findings.
SPSS 17 version is used to analyze the primary data. Mainly the descriptive
statistics is used to analyze the survey data.
6. Results and Discussion
Tourism is the 5th thirst sectors amongst 32 as per the National Industrial Policy
2010 published by the Ministry of Industry, Bangladesh. Tourism SME bears
more prominent role in the economic development of country even developing
one. Industry needs proper SME interfering for the development of tourism that
can give the opportunity in gaining destination competitiveness.

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Development of Tourism Industry through SME: A Study on Comilla

Tourism product is often a heritage or an attraction of local community that


exists in the micro-destination. Business activity in tourism industry includes
development and promotion aspects of attractive and sellable of local
community, non-native people transportation into local community, hospitality
management and directing activity of visitors and providing goods and services
for tourists to be able to purchase goods during their residence (Afsaneh
Pourjam). There can be little doubt that small and medium-sized enterprises play
an important part in destination competitiveness (www.oecd.org). Tourism is a
multidimensional sector belongs to many subsectors. There are more direct and
indirect components related to tourism industry. More SME are needed to be
established in this sector to flourish this dynamic industry. In developing
countries the manufacturing, service and trading functions are largely dominated
by small and medium sized enterprises (Kendall et, al. 2001).
The survey includes some specific questions to identify the potentialities and
constraints of the tourism SME in our country which includes gender of the SME
owners, knowledge of SME, business types, initial capital management,
destination role in employment of local people, financing facilities, and training
of the SME owners, Knowledge of SME and Use of IT in their business,
promotional knowledge, involvement in community based tourism and
cooperative in tourism industry.

others types of business. Here the Table:1 shows that only 1.20 % of the female
involve with the accommodation business and 4.8% of the female are involved
with restaurant business and the rest are dominated by the male . The survey
indicates that the female contribution is less than expectation.
Table: 1. Male and female participation in different types of business
Types of business
Transportation
Restaurant
Accommodation
Recreation
Others
Total

Gender of Respondent
Male
Female
11
0
19
3
4
1
5
0
17
0
56
4

Total
11
22
5
5
17
60

Source: Survey Result

In fact, women entrepreneurship development is a challenging phenomenon in


Bangladesh as women are lagged behind (economically and socially) compared
to men (Haque and Itohara, 2009; Rahman, 2009).
Male anfd female participation in tourism SME

Our Survey indicates that 38% of the SME owners are engaged with micro
business, 22% with cottage industry, 24% with small industry and the 14% of the
people are engaged with medium size enterprises.

9.6%

Male

Type of Busienss in tourism industry in comilla


Me

Male, 90.4%,

16%

Sm

Female

24%

Cot

22%

Mi

Figure: 2 Gender of SME owners


38%

Figure: 1. Types of SME in Comilla

Our survey indicates that 90.4% of the owners are male and others 9.6% female
are involved with SME in tourism sector. People are involving with different
types of business like transportation, restaurant, accommodation, recreation and

International Journal of SME Development

65

The initial capital is a major fact to start the business. Our survey finds that most
of the initial capital comes from the personal and family sources following the
other two sources which are financial institutions and friend. Thirty seven percent
respondents said that they started the business with their own capital and 36%
started business with the capital from the family, 14% owners started the
business borrowing money from friends and others got help from the financial

66

Development of Tourism Industry through SME: A Study on Comilla

institutions. The access to financial institutions is very difficult in our country


that demands for long and complicated procedures.
Initial Capital Source for the SME owners in Comilla
Financial

13

Family
Friends

37
14

Own investment

36

Figure :5. Destination Role in the employment of local people

Figure: 3 Sources of Initial Capital for SME in Comilla


Reliance on the financial institutions to get access to fund is not all that popular,
as the financial intuitions put SMEs in tight credit constraints due to stringent
collateral requirements (Meagher, 1998).
The question regarding the destination role in employment of the local people
indicates that destination has a major effect in the employment of local people
that is found in our survey. 38.33% the respondents and 43.33% of the
respondents said they are strongly agree and agree with the statement of
destination plays a vital role in the employment of local people. which indicates
that SME can play a vital role in utilizing resources what are existent in the
every micro destination of our country. Developing countries in the world are
considering this tourism industry as a vital source economic growth and
employment opportunity. Like any other global industry, tourism business
activities can greatly influence the process of local development (Afsaneh
Pourjam). Tourism continues to account for a dominant source of employment
(Miller and Henthorne, 1997). The Cuban travel and tourism sector employment
is estimated at 587,000 jobs in 2007, 11.2% of total employment, or 1 in every
8.9 jobs. By 2017, this should total 715,000 jobs, 13.4% of total employment or 1
in every 7.5 jobs (Anonymous, 2007).

Globalization has made the world like a village in which we cannot ignore the
modern information technology (IT) in developing our business by promoting the
business through IT and adopting with the modern IT facilities within business.

Figure : 6.Knowledge of Information Tecnology.


Our survey reveals that knowledge of IT is rare in the owners of SME in tourism
industry. Eighty percent respondents have no knowledge of IT where only 5%
know about IT, but they cannot apply in their business. On the above mentioned
context it is evident that small businesses are slow to apply technology to
improve their competitiveness as they are affected by their sheer small size and
limited resources (Quaddus and Hofmeyer, 2007). With increasing information
and communication technology (ICT) literacy of prospective customers,
consumer expectations on product information are rising. In light of this
development there is general agreement that tourism enterprise managers of the
future will need to have both business acumen and skills in ICT if they want to
exploit its full potential.
Our survey reveals that the training provision is so poor in this sector. We asked
the respondents about the formal training on SME.

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Development of Tourism Industry through SME: A Study on Comilla

Figure : 7.Formal trianing to SME owners.

Figure: 8 Loan provision by financial institution to SME owners.

The figure indicates that 73% of the respondents have no formal training
regarding their business operation, management, promotion and use of IT. The
training can help the owners to gain competitive advantage which is always
lacked by our SME owners in tourism sectors. The training materials have been
designed so that tourism SME who attend workshops or access the Toolkit
directly are able to create a set of plans to take a more strategic outlook on the
development of their business. For example, in each module SME can develop a
business plan, a marketing plan, an IT and ecommerce strategy, and a set of
policies and plans to improve their environmental practices. It is obvious that to
be a successful entrepreneur education and skill are the main component.
Entrepreneurs must have knowledge about the industry, managerial skill and
technological knowledge to be a successful one (Anonymous, 2012)

Table: 2 Major Barriers for Getting Loans

Our survey reveals that the accessibility of the SME owners to the financial
institutions is very difficult .The respondents say that sometimes they have to
follow a long and formal procedures to get the loan from financial institution that
ultimately creates obstacle to get the loan from the financial institutions. The
following figure Indicates that 83.33% of did not get the financial support from
any financial institutions as for not matching their requirement. Reliance on the
financial institutions to get access to fund is not all that popular, as the financial
intuitions put SMEs in tight credit constraints due to stringent collateral
requirements (Meagher, 1998).

% of
Responses
19.2
17.1
7.9

% of
Cases
85.2
75.9
35.2

Too much paperwork and bureaucracy in the banking system


Lack of long standing credit history with the
Lack of special client relationships with the bank
Lack of knowledge about the requirements

14.2
5.8
6.3
6.7

63.0
25.9
27.8
29.6

Lack of information regarding how to pre


Lack of management and banking skills
Lack of access to foreign banks
Lack of FDI

4.6
4.6
.8
1.7

20.4
20.4
3.7
7.4

Lack of access to non-bank equity capita


Lack of institutional investors and government
Lack of knowledge about the customer
Others

1.7
2.9
3.8
2.9

7.4
13.0
16.7
13.0

100.0

444.4

Barriers to SME owners in getting loan from institutions


High Interest Rate
High collateral Requirement
Financial institutions tendency to provide small term loan

Total Responses

Source: Haque, E. A. K. and Mahmud, S. (2003). Economic Policy Paper on Access to


Finance for SMEs

International Journal of SME Development

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70

Development of Tourism Industry through SME: A Study on Comilla

Cooperatives, community based tourism relationship among different parties is


needed for the development of an industry. Our survey reveals that the
cooperation and relationship among the entire stakeholder related to tourism
industry. Our covers two questions which are that about cooperative in this
industry and community based tourism. But the result is unsatisfactory.

7. Findings
A. Majority people are engaged with cottage and micro business where
involvement with small and medium enterprise is not significant.
B. Women participation in tourism sector is at the unexpected level
comparing to other sectors.
C. The owner of the SME in tourism industry has limited knowledge of
their business regarding business set up, management and operation.
D. Promotional knowledge, skill and facilities are limited to the SME
owners in tourism industry.
E. Knowledge of information technology as well as application of IT in
tourism sector is scarce.
F. Procedures of tourism SME loan are long and difficult.
G. Training is not provided by the respected authorities to SME owners and
employee in tourism industry.
H. Young and educated entrepreneur are not involved in tourism SME like
other SME sectors.
I. Absence of community based tourism is in our country.
J. Long and difficult procedures to access to the finance.

Table: 3 Cooperative and Community based tourism (CBT) in Comilla.

Strongly Agree
Strongly Agree
Neutral
Disagree
Strongly disagree
Total Respondents

Community
based tourism
6
3
7
16
28
60

Cooperative of
tourism
0
4
2
17
37
60

Source: Survey Result, 2013


Table-3 indicates that majority of the respondent disagreed with the statement
we have tourism cooperatives and there is community based tourism is
practiced in our locality. Out of 60 respondents, only 44 disagreed with the
statement of tourism cooperatives and 54 disagreed with statement of community
based tourism.(Sharpley, 2008) believe that local community involvement will
not be sustainable unless people themselves have a tendency to get the control of
their destiny.
It is widely recognized that Bangladesh is very rich by the natural beauty and
panoramic views, what a tourist wants to enjoy. But there is lack of effective
initiatives, proper management plan, and quick & sincere effort of government
(Akther, 2001). But this industry is not developed to the expected level as for
improper care and provision of facilities. In general Tourism is experiencing a
skills gap and the lack of qualified labor represents together with increased
competition on quality a vicious circle. It is obvious that for the sustainable and
ensured economic development of Bangladeshs SME must give intensive
emphasis. Development from the grass root level needs to be ensured. And the
tourism is only one multidimensional sector which constitutes more sub sector
and more prospects in every sub sector of tourism that can be achieved by the
proper initiatives to develop the industry. Tourism is an industry of providing
services. It could not be isolated from other sectors; rather it depends on some
combined effort of other service sub-sectors like hotel and motels, transports,
foods, security, guide etc. These facilities are the infrastructures of tourism which
is still far behind from satisfactory level (Rajib, 2012)
International Journal of SME Development

71

8. Conclusion
SME play prominent role in the socioeconomic development of the country
especially to the developing country like Bangladesh in which some of the
prospective sectors like tourism industry have not explored to the expectation.
Tourism is a multidimensional service industry belong some direct and more
indirect sub-sectors. So, well-developed tourism SME is a prerequisite to attain
higher growth of tourism. The prospect of SME in this sector is huge through
which development of entrepreneurship, enhancement living standard of the local
rural people, and poverty reduction by engaging more people in the industry is
possible. But the diagnosis of pros and cons of tourism sector can link to
investment, skills, unexploited potential of technology, and unawareness of the
local people regarding tourism.

72

Development of Tourism Industry through SME: A Study on Comilla

9. Recommendations:

References

The concentration is needed in the following matters for the development of


tourism SME in our country.
1. Initiatives of public and private sector should be taken to explore the
potentialities of tourism SME of every micro destination in Bangladesh.
2. Entrepreneurship development in tourism industry should be introduced
caring by local government.
3. Education and training initiative for employees and employers must be
taken for developing appropriate soft and hard skills.

Afrin, S., Islam, N., and Ahmed, S. U. (2008). A Multivariate Model of Micro Credit and
Rural Women Entrepreneurship Development in Bangladesh, Intl. J. Bus. Manag., Vol. 3
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Ahrne, G. (1994). Social Organizations: Interaction inside, outside and between
organisations. London: SAGE Publications.

4. Use of information technology in tourism SME create a real vertical


growth. So, it should be popularized with priority basis.

Anonymous (2004). Conference of Ministers Responsible for Small and Medium


Enterprises (SMEs), Promoting Entrepreneurship and Innovative SMEs in a Global
Economy: Towards a more a responsible and inclusive Globalization, Promoting SMEs
for development, OECD, Istanbul, Turkey.

5. Investment should be with nursed with incentives and institutional


financial policies should be reviewed.

Anonymous (2007). Cuba travel and tourism: Navigating the path ahead. The 2007
Travel & Tourism Economic Research, pp:10-20.

6. Women participation should be specially welcomed in tourism SME for


high growth.

Anonymous (2012). WTTC Travel & Tourism Bangladesh Economic Impact: 2012.
Anonymous, (2002). United Nation Environment programme (UNEP), 2002b, Quebec
Declaration on Ecotourism. www.uneptie.org/pc/tourism/ectourism/wes.html.
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TIS Babes Bolyal,Negotia,
Buhalis, D., and Cooper, C. (1999). Competition or Co-operation? In Embracing and
Managing Change in Tourism, edited by Eric Laws, Bill Faulkner and Gianna Moscardo.
London: Routledge, pp: 324-346.
Choudhury, T. A., and Raihan, A. (2000). Structural Adjustment Participatory Review
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advertising strategies and change in destination marketing organizations. J. of Travel
Research, 39(2), 146-155.
Haque, E. A. K. and Mahmud. S. (2003). Economic Policy Paper on Access to Finance
for SMEs: Problems and Remedies, The Dhaka Chamber of Commerce and Industries
(DCCI),The Center for International Private Enterprise (CIPE)(CIPE is an affiliate of the
U. S. Chamber of Commerce, Washington, D.C., USA.

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Haque, M. and Itohara, Y. (2009). Women Empowerment through Participation in MicroCredit Programme: A Case Study from Bangladesh. J. Soc. Sci., 5(3): 244-250.

Quaddus, M. and Hofmeyer, G. (2007). European Journal of Information Systems, Vol.


16, pp.202215.

Henthorne, T. and Miller, M. (2003). Cuban tourism in the Caribbean context: A regional
impact assessment. Journal of Travel Research, Vol. 42, No.1, pp.84-93.

Rahman, M. M. (2009). Credit Worthiness of women Entrepreneurs in Bangladesh, Small


& Medium Enterprise Foundation Royal Tower, 4 Panthapath, Dhaka-1215.

Hollick, M. (2003). No barriers to failure: rethinking tourism business entry. Paper


presented at the Council for Australian University Tourism and Hospitality Education
(CAUTHE) Conference, Coffs Harbour, NSW, February 5-8, 2003.

Rajib, J. (2012). An Evaluative Study on Tourism in Bangladesh,Vol.2,N0,1 .

Hollick, M. (2003). No barriers to failure: rethinking tourism business entry. Paper


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Small and Medium- sized Companies. International Small Business Journal Vol.
16(4):46-63.
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Development: A Study on Some Selected Entrepreneurs. Islamic Univ. Stud., 2: 7-13

Shamsuddoha, M. (2004). Sustainability of Tourism Industry: Bangladesh Perspective Conference on Technology and management for sustainable exploitation of Minerals and
natural resources
Sharpley, R. and Telfer, D. J. (2008). Tourism and Development, Routledge, pp .205232.
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entrepreneurial activity in Progress in Tourism, Recreation and Hospitality Management
(eds), London: Belhaven Press.
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development and main constraints, J. Dev. Agric. Econ., 1(2): 27-40.

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Alleviation: Pro-poor Tourism and the Challenges of Measuring Impact For Transport
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Countries, UNIDO PSD Technical Working Paper No. 8, February.

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skills in tourism industry:P;13.

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Marketing Strategy: An Investigation of Convention and Visitors Bureaus in the United
States. Journal of Travel Research, Vol. 44, No.3, pp.239-249. Http://jtr.sagepub.com

Johns, N and Mattsson, J (2005), Destination development through entrepreneurship: a


comparison of two cases, Tourism Management, 26 (4), pp. 605-616.
Kendall, J. D., Tung, L. L., Chua, K. H., Ng, C. H. D. and Tan, S. M. (2001). Receptivity
of singapores SMEs to electronic commerce adoption, Journal of Strategic Information
Systems, Vol. 10, pp. 223-242.
Kotler, P., Bowen J.T. and Makens J.C. (2006). Marketing for Hospitality and Tourism,
6th edition. Pearson Education.
Meagher, P. (1998). Secured Finance for SMEs in Bangladesh. Institutional Reform and
the Informal Sector (IRIS), Job Opportunities and Business Support (JOBS) Program,
June.

Wanhill, S. (2002) Sustaining tourism SMEs. VII Congreso Internacional del CLAD
sobre la Reforma del Estado y de la Administracin Pblica, Lisboa, Portugal.
White, S. and Juan, C. (2002). Enabling Small Enterprise through a Better Business
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Committee of Donor Agencies for Small Enterprise Development, Working Group on
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International Journal of SME Development

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76

Development of Tourism Industry through SME: A Study on Comilla

International Journal of SME Development


Volume 01 | Issue 01 | April 2014

control, certification, innovative technology and consultancy services is needed. This


paper recommends the setting up of Bangladesh Institute of Plastic Engineering and
Technology (BIPET) in this regard. The structure and objectives of the proposed
institute is in the light of Indian experience.

Prospects and Challenges of


Plastic Industries in Bangladesh
M. Serajul Islam, PhD*1

Non-availability of good quality molds is a big constraint in plastic sector. The country
lacks both the required machineries and skilled man-power in this regard. Upgradation
of mold design facilities of BITAC is recommended. BCSIR can upgrade its Polymer
Division for international certification of plastic products.

1.0 Global Plastic Industry

Plastics are versatile materials. They have good physical properties and economic
features such as light weight, attractive color, ease of processing, non-rusting property
and low cost. As a result, many house hold and technical items which were used to be
made of metal, wood, clay, etc. are now being made of plastics. Although the per capita
consumption of plastic in Bangladesh is 5 kg per year which is quite low compared to
the world average of 30 kg per year, it is expected to increase to 17 kg per year in 2020
current average in ASEAN countries.
The plastic industry has emerged as a vibrant industrial sector in Bangladesh during the
last two decades. At present there are 3000 plastic manufacturing units, 98% of which
belong to Small and Medium Enterprises (SMEs). The plastic sector is also one of the
thrust sectors in the Industrial Policy - 2010. Present domestic market size is Tk. 7,000
crore. The plastic sector provides employment of half a million people and constitutes
1.0 percent of the national GDP. A number of plastic items are directly exported to
different countries and total earning for both direct and deem (RMG accessories)
exports is about US $ 337 million.

Plastic replace other common materials such as metals and wood in numerous
applications because of their low cost and characteristics. Plastics offer several
advantages in production as they are easily softened or melted, and can be
molded into any shape. Manufacture of plastic goods has been increasing due to
low production costs and energy efficient production processes. As a result the
global production of plastic goods has increased from a mere 1.5 million MT in
1950 to 230 million MT in 2009. Fig. 1 illustrates this exponential growth over
the past 60 years.
250

200

Million (MT)

Abstract

Recycling of used plastics is very important form both environment conservation and
resource sustainability reasons. Availability of cheap labor has enabled this sector to
use recycling quite extensively in Bangladesh. Even then, more extensive recycling
particularly for mixed plastics using modern techniques is highly recommended.

International Journal of SME Development

77

100

50

0
1940

Although the future growth of plastic sector is very promising, an in-depth study reveals
multi-dimensional constraints. Lack of trained and skilled man-power, testing facilities
for operation, maintenance and mold making and international certification are the
major constraints in this sector. An institutional arrangement dedicated to plastic sector
to provide supporting services such as skilled manpower, testing facilities for quality
* Former Associate Professor of Chemical Engineering, Bangladesh University of Engineering
& Technology, Dhaka. E-mail: serajul.buet@gmail.com

150

1950

1960

1970

1980

1990

2000

2010

2020

Year

Fig. 1: Global production of plastic products


Sources: Plastic Europe-2010 and UN-ESCAP Report-2012
Global production of plastic products is dominated by developed countries of
North America and Europe (47%). China is the largest producer of plastic
78

Prospects and Challenges of Plastic Industries in Bangladesh

products (15%) among developing countries. Fig. 2 shows the global market
share in 2009 of plastic production for different countries.
Rest of Asia,
16.5%

Europe (WE +
CE), 24.0%

CIS, 3.0%

230 Million MT

Polymers import data in Table-1 are depicted in Fig. 4 showing an exponential


growth. A growth rate curve of 20% (base year 1990) is also depicted in this
figure. As can be seen from this figure, import data of polymers for the period
FY 1990-2011 fit well with the 20% growth curve. The project demand of
polymers in 2020 is 3.4 million tons which is quit high. For a reasonable growth
rate of 15% after 2011, the projected demand of polymers in 2020 will be 2.4
million tons. This value is in agreement with the estimated quantity based on
current per capita consumption of 17 kg/yr polymers in ASEAN countries.

China, 15.0%

Middle East,
Africa, 8.0%
Japan, 5.5%

NAFTA, 23.0%

and film grade machines in 1980s. Since early 1990s the plastics industry
witnessed a rapid growth due to introduction of free market economy. Since the
country does not have polymers production, required polymers are imported.
Table-1 shows the growth trend of imported polymers, the basic raw materials
for plastic goods production. Over the period of last 20 years, the polymers
import increased from around 14,000 MT in FY 1990 to 696,500 MT in FY
2011.

Latin America,
4.0%

Fig. 2: Market share of global plastic production in 2009


Sources: Plastic Europe-2010 and UN-ESCAP Report-2012

Table 1: Import of Polymers in Bangladesh, Period FY 1990-2011


Import Quantity (metric ton)
Financial
Bonded category
Non-Bonded category
Year
1989-1990
1990-1991
1991-1992
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002
74,637
121,532
2002-2003
60,606
126,571
2003-2004
57,477
157,053
2004-2005
85,365
295,168
2005-2006
80,628
193,246
2006-2007
103,853
184,611
2007-2008
97,772
199,005
2008-2009
98,708
250,416
2009-2010
179,688
414,152
2010-2011
215,644
480,896
Sources: FY 1990 - FY 1999 (BBS), FY 2002-2011 (NBR, BPGMEA)

At present plastic/polymer consumption is a measure of per capita GDP in a


country, Fig.3. From this figure it can be seen that per capita consumption in
India, lags well behind China and Brazil. The position of Bangladesh will be
discussed in next section.

Fig.3: Per capita polymer consumption vs. per capita GDP of selected countries (2009)
(Ref. Chemical and Petrochemical Manufacturers Association, India)

2.0 Growth of Plastic Industry in Bangladesh


The plastic industry is relatively new compared with the textile and leather
industries. The plastic industry began its journey as a small industry in 1960s.
The industry experienced an important growth with the introduction of injection
International Journal of SME Development

79

80

Total
14,021
15,262
22,165
39,880
66,421
11,981
103,454
51,384
86,318
59,515
--196,169
187,177
214,530
380,532
273,874
288,464
296,777
349,124
593,840
696,540

Prospects and Challenges of Plastic Industries in Bangladesh

Note: Apparent per capita consumption of imported polymers is 4.6 kg/yr.


Recycled plastic granules used in plastic industries is 20%. Per capita
consumption of imported and recycled polymers is about 5 kg/yr.
3500

Actual d ata

Pro jected

3000

The plastics industry is a dynamic industrial sector in the country. At present


domestic market is Tk 9,000 crore and export market including direct export of
plastic goods and deemed export of RMG accessories is Tk 2,700 crore. This
sector constitutes 1.0 percent of GDP and provides employment to half a million
people.
Export Earnings: Bangladesh is making an effort to diversify its export items.
Plastic products have a large potential for export diversification. The direct
export of plastic goods has been on the increase every year during the last
decade as depicted in Fig.6. An average growth rate is 20 percent per year.

2500
Thousand MT

3.0 Prospects of Plastic Industry

2000

20% Growth
1500
20 % GROWTH

100

1000

88.7

90
500

80
68.7

2025

Fig. 4: Statistical data on import of polymers.


Sources: FY 1990 FY 1999 (BBS), FY 2002 FY 2011 (NBR, BPGMEA)

60
44.4

50

52.3

50.6

48

38.8

40
30

54.1

2009-10

22

20
10

Per capita apparent consumption of polymers including bonded and non-bonded


categories in FY 2011 was about 5.0 kg/year. This data along with per capita
consumption of polymers for selected countries, including ASEAN and world
are illustrated in Fig. 5. Per capita consumption of Bangladesh lags well behind
world average of 30 kg.

2011-12

2003-04

0
2010-11

2020

2008-09

2015

2007-08

2010

Financial Year

2006-07

2005

2005-06

2000

2004-05

1995

US$ (Million)

70
0
1990

Financial Year

Fig. 6: Growth of direct export of plastic goods during FY 2004-FY 2012.


Per Capita Consumption (Kg/Year)

120

Source: Export Promotion Bureau.

100
100

Raw Materials: There is no production of polymers in Bangladesh. The plastic


industry uses imported raw materials of polymer granules. However, this is not
a disadvantage.

80

60

40

30

30

China

World

Competitiveness: The availability of cheap labor and the fast developing


recycling industry of post-consumption plastic wastes in Bangladesh are
potential advantages to provide competitiveness in the global market (Katalyst2005)

17

20
5

0
Bangladesh

India

Asean

USA

Fig. 5: Per capita consumption of polymers: Bangladesh vs Global


Sources: Kapur and Shashikant-2011, Bangladesh: Estimated using NBR data.
International Journal of SME Development

81

82

Prospects and Challenges of Plastic Industries in Bangladesh

Access to Market in Developed Countries: Recently developed countries have


opened their market for plastic products from developing countries, like
Bangladesh. This shift is due to the low cost of production in developing
countries with cheap labor and low transportation costs (Jahan and Khan-2012).

Mold/Die design and manufacture


Testing laboratories for quality control services
Other Issues:

Market Size Potential: As Bangladesh is moving towards industrialization, the


plastic sector will become important for manufacturing sector. At present per
capita consumption of polymers in Bangladesh is 5 kg/year as compared with
the global average of 30 kg/year. The per capita consumption of ASEAN
countries is 17 kg/year, (Fig.5). If we aspire to become a middle income country
by 2021 and attain per capita consumption of 17 kg/year for ASEAN countries,
then the size of the plastic industry will be 2.5 million tons/year compared with
0.7 million tons/year in 2011 (Table-2), an increase of 3.6 times. The UNESCAP Report-2012 also forecasts that the present turn over of the plastic
sector US $ 1 billion will become US $ 4 billion in 2020.

4.0

Recommendation to set up an Institute of Plastic (Bipet)

Lack of technical support services mentioned above is due to the absence of an


institute of plastic in the country. BPGMEA recognized the need for such an
institute as early as in 2002. In that year, Export Wing Chairman of BPGMEA
stated that:

Polymer Consumption (tons/yr)


14,000
700,000
2,500,000 (Present per capita consumption of 17
kg/yr for ASEAN countries)

Bangladesh does not have a proper school for plastic. To attain efficiency and
support our industry we need to have a proper polymer institute and a modern
testing laboratory for quality test (Shahedul Islam, Plastic Fair-2002).

Challenges

Some of the large-scale plastic industries have demonstrated capability to be


world class in terms of technology, product quality and costs in the country.
However, there are 3000 plastic manufacturing units of which 98% belong to
the Small and Medium Enterprises (SMEs). The major challenge facing this
sector is to make the SMEs competitive in the global market by upgrading them
in terms of innovative technology, products diversification and operation costs.
Recently, the SME Foundation has conducted a study on the Challenges and
Opportunities of Plastic Sector in Bangladesh (Islam-2012). The findings of
this study was presented by the author in a National Consultation Meeting on
SME Development: Plastic Sector on July 11, 2012 in SME Foundation. The
problems and recommendations are described below.
Major Problems: Technical Support Services
Skilled manpower development
Trouble shooting in operation of processing machines
International Journal of SME Development

5.0

Table-2: Market size Potential for Plastic Sector of Bangladesh in 2021.


Year
1990
2011
2021

Lack of an Institute of Plastic for training skilled workers and


technicians, and products diversification.
Uninterrupted power supply in plastic industries
A plastic industrial park for relocating small plastic factories of old
Dhaka City.
Infrastructure development to set up plastic wastes recycling industry.
Lack of long-term planning
Establishing national brands
Government policy must be consistent

83

The author of this paper presented the idea of establishing an institute of plastic
named as the Bangladesh Institute of Plastic Engineering and Technology
(BIPET), in a day-long seminar of the SME Foundation attended by experts
from BPGMEA, BUET, BCSIR and BITAC in 2008. This idea to set up BIPET
was finalized in a consultation meeting of the stakeholders on October 11, 2012.
The SME Foundation has already initiated the feasibility study for the
development of Project Proposal (PP) of BIPET through Chemical Engineering
Department, BUET.
The structure of the proposed BIPET will be in line with the Indian experience
of CIPET (Central Institute of Plastic Engineering and Technology). The CIPET
has over 40 years experience with 15 full-fledged regional centres in India.
Major activities of BIPET will include but not limited to:
Academic Programs
Technology Support Services
Research & Development
84

Prospects and Challenges of Plastic Industries in Bangladesh

Academic programs will include short-term certificate courses, diploma and


postgraduate degree in plastic engineering and technology. Technological
support services will provide the mold/die design and manufacture, CAD/CAM
services, testing of raw materials and plastic products for quality control,
technology upgrading and consultancy services. R & D activities are to be
conducted for products diversification, waste management and environmental
aspects of plastics for sustainable development.
The plastic industry is relatively new in the country compared with the textile
and leather sectors which have well established institutional arrangements.
Hence the plan to set up BIPET is an ambitious project. It is proposed to set up
BIPET in two phases:
Phase-1: Small institute in a rental building

Establishment of an Institute of Plastic (BIPET): SMEF and


BPGMEA have initiated the preparation of Feasibility Study/Project
Proposal (PP) of BIPET through Chemical Engineering Department,
BUET.

References
Helal, S. I. (2012), Public Private Dialogue of Promoting Development of the Plastic
Sector of Bangladesh, BFCCI-FNF, Dhaka.
Helal, S. I. (2002), Concepts of Plastic in Bangladesh, Souvenir of Plastic Fair,
BPGMEA, Dhaka.

Phase-2: Full-fledged institute in own campus


The establishment of BIPET would require a close cooperation between SMEF
(Ministry of Industries) and BPGMEA.

Islam, M.S. (2012), Study on the Plastic Sector for SME Foundation, Bangladesh.
Islam M.S. (2012), Necessity for an Institute of Plastic, Souvenir of International
Plastic Fair, BPGMEA, Dhaka.

Conclusion

Islam, M.S. (2008), Expert Consultation Meeting on Technology, Development,


Acquisition and Transfer: Plastic Sub-sector, SME Foundation, Bangladesh.

This paper has presented an overview of the plastic industry:


Bangladesh vs Global.

Jahan, S.M. and M.S.N. Khan (2012), Country Study on Bangladesh using Global
Value Chain Analysis: The Plastic Industry, Annex-I in UN-ESCAP Report.

The compilation of statistical data on the import of polymers in


Bangladesh during the period FY 1990 - FY 2011 showed that the
import of polymers was mere 14,000 tons in FY 1990 which has
increased to 697,000 tons in FY 2011. Thus current per capita
consumption of virgin polymers is about 5 kg/yr against world average
30 kg/yr.

KATALYST - Bangladesh (2005), Market Briefs: Plastics.

Market size potential of plastic industry in Bangladesh in 2020 is


estimated as 2.5-3.3 millions tons. The average increase is 4.2 times
compared with 0.7 million tons in FY 2011. UN-ESCAP Report-2012
predicts that the current turn over of US $ 1 billion would be US $ 4
billion in 2020, that is, an increase of 4 times. This information will be
useful for the long-term planning of the plastic industries in the country.

6.0

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Prospects and Challenges of Plastic Industries in Bangladesh

International Journal of SME Development


Volume 01

Issue 01

April 2014

Constraints and Challenges of SME Development in


the Developing Countries: A Case Study of India,
Pakistan and Bangladesh
Abeer Khandker*1
Abstract
Private enterprise development in developing countries is very challenging, and
developing SMEs is no different. In fact, developing SMEs, which can act as the engines
of growth in the near future, becomes more challenging due to lack of proper finance.
But this is not the only obstacle SMEs face. This paper is an endeavor to find out the
main obstacles and challenges in SME development in three South Asian countries
where the average income is low; namely India, Pakistan and Bangladesh. Using firm
level survey data collected by the World Bank in different years, this paper tries to point
out the challenges, barriers, weaknesses and potential for improvement in the case of
SME development by applying different statistical methods. This paper also presents a
comparative overview of the current SME development scenario of the three countries.
The findings point out a lot of similarities between the countries, and suggest a lot of
ways in which this sector can be developed further by eliminating the barriers and
developing institutions. Many of the constraints have been found to have negative
effects, but access to finance and electricity seem to be the main constraints, as
identified by many of the entrepreneurs of the countries under study. So, governments of
these countries should give high priority in removing the constrains identified,
especially lack of proper electricity supply and access to finance.

1. Introduction
Small and medium enterprises (SMEs) have slightly different definitions in
different countries, but their role in the economic development is recognized in
every developing nation. Not only do SMEs provide alternative sources of
income for those who do not have access to formal sources, but the contribution
of SMEs in total GDP is ever on the increase. The SMEs also serve the domestic
demand of specific products quite effectively.

* Senior Lecturer, Department of Business Administration, ASA University Bangladesh.


E-mail: abeerkhandker@yahoo.com

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But business operations in any country are not without problems, especially in
the developing countries. For operating any kind of business, there is a need for
dependable and effective sources of finance, both in the form of dept capital and
equity capital. Big firms have much easier access to finance of different types
than smaller firms, since banks require different levels of collateral for various
amounts of loans. Small businesses generally do not have the goodwill or the
required amount of collateral to get loans on a large scale. So, access to finance
seems to be a big obstacle for SMEs to overcome. But this is not, by far, the
only important obstacle for SMEs in the developing nations. SMEs, like any
business, need sufficient amounts of electricity, smooth transportation systems
and favorable regulatory environment to grow at higher rates. Also, some SMEs
lack the efficient labor for reaching the full potential of any country.
Studies which identify the main constraints the SMEs face in Bangladesh, India
and Pakistan using rigorous quantitative methodologies seem to be a rarity.
Studies commonly available are generally qualitative in nature and tend to focus
on the growth of business activities and their effects on economic growth, with
little focus on Small and Medium Enterprises. The World Bank, however,
administers surveys each year under its Enterprise Surveys program to find out
the constraints firms face in each country. The sample size of these surveys is
generally more than one thousand, including firms of all sizes and of almost all
sectors. These data themselves do not provide insights on the constraints faced
by SMEs, but some general statistical analysis of the raw data collected by the
World Bank from SMEs can help in deriving the main problems the SMEs
specifically face.
This paper, therefore, aims at providing a comprehensive conclusion about the
constraints SMEs in Bangladesh, India and Pakistan are facing and how they are
affecting their market performance. This conclusion would be derived through
firstly, determination of the constraints faced especially by the Small and
Medium Enterprises (SMEs); secondly, analyzing the opinions of the SME
owners about the constraints using simple statistical techniques; and finally,
econometric techniques would be used to find out the impact of the constraints
on the sales. Section 2 reviews the literature which deals with almost similar
issues, section 3 provides an overview of the SME development scenario of
India, Pakistan and Bangladesh, section 4 provides a detailed picture of the
methodology used in this study, section 5 discusses the results obtained from the
analysis, section 6 provides the major findings derived, section 7 discusses the
policy implications, section 8 describes the limitations of the study and the final
section concludes.

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

2. Literature Review
Many studies have highlighted the growth and development of the SME sector
in Bangladesh, India and Pakistan and the factors responsible for it. According
to many of these studies, SMEs contribute between 40 60 per cent of the total
output or value - added to many South Asian developing economies, and also
account for over 70 percent of total employment (Fan et al 2005; Nepal et al.
2004). However, a number of studies find that SMEs are frequently faced with
constraints and challenges (Bannock et al. 2002; Batra and Mahmood 2001;
Beck et al. 2004; Brunetti et al. 1998). The common constraints for SMEs
typically include financing, overcoming institutional, legal and administrative
barriers and accessing network support.
Among the studies highlighting the problems and prospects of SME sector in
Bangladesh, Bhattacharya and Hossain (2006) reported that the complex
documentation processes, lengthy releasing and clearing goods from ports,
corruption in the customs department, lack of automated customs procedures act
as major problems obstructing the growth of any business in Bangladesh, let
alone SMEs. This also makes trading across borders difficult. Ahmed(2002)
also highlighted the same sort of problems. However, Lester and Terry (2008)
commented that as SMEs started becoming involved in export activities, these
barriers became less severe, and the business environment and internal
capabilities emerged as stronger barriers. Overcoming these barriers has become
the key factor in developing the SME sector in Bangladesh, and the necessity
for trade facilitation has become prominent. It is in this context that Prasad
(2006) mentioned that trade facilitation initiatives had significant positive
impacts on the private sector by increasing the volume of exports and imports,
as well as through helping exporters find new markets. In addition, the
Organization for Economic Co-operation and Development (OECD)
emphasized that improved and simplified customs procedures had a
significantly positive impact on trade flows (OECD 2005a).
A global survey on Removing Barriers to SME Access to International
Markets by OECD-APEC (Asia-Pacific Economic Cooperation) identified a
range of barriers that were detrimental to access by SMEs to international
markets. Based on the survey results, Lester and Terry (2008) summarized four
barriers as the most serious impediments to SMEs access to international
markets, which are: (a) a shortage of working capital for financing exports; (b)
identifying foreign business opportunities; (c) limited information related to
locating/analyzing markets; and (d) inability to contact potential overseas
customers. These findings complement those of Duval (2007) which suggested

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that the focus of the multilateral trade facilitation agenda would ultimately need
to be broadened to address the need of developing countries in Asia and the
Pacific.
Wilson (2007) estimated that all countries could benefit from more efficient
customs and administrative procedures, with the greatest benefits accruing to
those countries with the least efficient customs and administrative procedures.
Wilson et al. (2004) found a significant positive relationship between trade flow
and port efficiency, customs environment, regulatory environment and service
sector infrastructure. The study estimated that global trade in manufactured
goods could gain as much as USD 377 billion from improvements in trade
facilitation measures. Most of these gains would benefit developing countries in
relative terms. Duval (2006) also concluded that the long-term benefits of trade
facilitation would exceed the perceived implementation costs for all measures
considered.
Schware and Kimberley (1995) focused on worldwide experience and
identification of factors that make way for trade facilitation through the
successful application of IT. The study found that accessible information and
communication technology (ICT) could significantly improve trade
performance. However, this technology must be accompanied by simplification
of documentation, reengineering of procedures, appropriate training and
availability of local expertise, and a reliable and cost-effective communications
infrastructure. Automation has, therefore, been considered to be making sense
only if it serves as a tool to support customs management practices (OECD
2005b). Duval (2006) and ESCAP (2006) made similar recommendations when
emphasizing the establishment of an IT-based single window system and a
modern risk management system for ensuring higher gains from trade
facilitation. This holds particularly true in the context that trade and transport
facilitation has become critically important for developing countries with a view
to reaping the benefits from the opportunities of global production and changing
trade patterns (UNCTAD 2005).
Among the more recent studies, Muhammad et al. (2010) in their study on SME
development of Malaysia found that economic downturns mostly affected small
SMEs with few working capital, skilled workforce, etc., especially those
involved with trading and supplying products or services to other businesses.
The major challenges faced by the SMEs during the bearish period thus became
lower cash flows and limited financing. Ahmed, Rahman & Haque (2011)
attempted to identify the constraints of development of manufacture based
SMEs in Bangladesh. According to their study, lack of infrastructural support,

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

political unrest, shortage as well as price hike of raw materials, high financing
cost and inadequate utility facility are some of the key factors for the slow
development of manufacture based SMEs. Nagaraju and Vani (2013) in their
study on India showed that commercial banks being the largest source of
financing for SMEs, more participation in lending can result in excellent
opportunities by proving a wide market to serve and make SME lending a
profitable banking operation. Chowdhury et al. (2013) attempted to identify
problems of SMEs in Bangladesh and potential solutions to that. The study
surveyed 100 SME consumers and the problems identified by them were long
waiting period for getting initial finance from banks because of tedious paper
works, inability to provide collateral to get loans, inexperience in preparing
sound financial systems for getting loans. As remedies the respondents advised
financial incentives for sound business plan and public-private partnership in
providing effective training. Another study (Khan et al., 2012) also reported
similar problems faced by SMEs like lack of training for workers, harassment of
government officials and poor supplementary utility facilities and sought
integrated steps from government.
These studies mainly are of a qualitative nature, and lack rigorous quantitative
analysis. Also, these studies mainly deal with the barriers impeding the growth
of exports of SMEs. However, the Enterprise Surveys program of the World
Bank has been recently conducting surveys worldwide on different firms, whose
data are available on request. These data provide deep insights to the constraints
the SMEs face in India, Pakistan and Bangladesh, but they have not been
analyzed in detail as yet. This study aims to fill in this gap in the existing
literature.

employ 36.14 lakh people and contribute approximately 5 percent of GDP. On


the other hand, according to the SME Chamber of India, MSMEs (Micro, Small
and Medium Enterprises) contribute 45% of the industrial output, 40% of
exports, 42 million in employment, creating one million jobs every year and
produces more than 8000 quality products for the Indian and international
markets. In Pakistan, according to the latest statistics of Small and Medium
Enterprises Development Authority (SMEDA) and economic survey reports of
the country, small and medium scale firms represent nearly 90% of all the
enterprises in Pakistan and employ 80% of the non-agricultural labor force.
These figures indicate the potential and further growth in this sector.
In Bangladesh, however, the Ministry of Finance and the Bangladesh Bureau of
Statistics (BBS) records data on industrial production using two broad
categories: small and cottage industries and medium to large industries. At a
much more disaggregated level, data is recorded according to different sectors,
such as agriculture, horticulture, fishing, mining, manufacturing, etc. But no
separate category for small and medium enterprises (SMEs) is used, because
SMEs fall into one of the categories described previously. Figure 3.1 shows the
production of both the broad categories, i.e. small and cottage industries and
medium to large industries, measured in crore taka. From the figure, it is
evident that the total industrial production is increasing, but the share of medium
to large scale industries is evidently increasing, while small and cottage
industries are lagging behind in terms of production growth.

3. SME Sector in India, Pakistan and Bangladesh: An Overview


Small and medium-sized enterprises (SMEs) have a special and important role
in the economic growth of South Asia and are a critical source for employment
creation as well as income generation. The countries under study, namely, India,
Pakistan and Bangladesh, are at different levels of development. India is well
ahead in terms of economic growth than the other two countries, while
Bangladesh is still considered as a Least Developed Country (LDC). However,
Small and Medium Enterprises (SMEs) have been contributing handsomely to
the economies of these countries, regardless of the size of the economy.
Bangladesh, India and Pakistan all have a growing and dynamic SME sector.
The latest statistics of Bangladesh Small and Cottage Industries Corporation
suggest that there are 103685 small and 830306 cottage industries, which

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Figure 3.1: Production of Industries in Bangladesh (in crore Taka)


Source: Bangladesh Economic Review, 2013 and BBS

The Bangladesh Bureau of Statistics, however, measures the quantum index of


production for different categories, and one of those categories is the quantum
index of production for small scale manufacturing, where the fiscal year 199596 is used as the base year. The data has been reported in figure 3.2. The figure

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

shows that small scale manufacturing industries have shown only minor
increases from the 1st quarter of 2008-09 to the 2nd quarter of 2012-13.
Figure 3.2: Quantum Index of Small Scale Manufacturing Industries (4 digit
level)

the gross output is evidently increasing each fiscal year, and the increase is quite
significant. In fact, from 2006-07 to 2011-12, the production of these enterprises
has been increasing at around 6 percent per annum.
The Pakistan Bureau of Statistics and Ministry of Finance records data on two
broad categories: large scale and small scale. Large industries fall under the
large scale category, while the rest fall under the small scale category. So, all
the medium and small enterprises automatically fall under the small scale
category.
Figure 3.4: Production of Small Scale Industries in Pakistan (in billion Rs.)

Source: Bangladesh Bureau of Statistics

The problem with data on SMEs in Bangladesh is that there is no separate


SME category in the national accounts. Data on Indian SMEs, however, do not
suffer from this problem as the Indian Ministry of Micro, Small and Medium
Enterprises (MSME) records data on SMEs regularly and separately. The data,
however, also includes micro enterprises, which means that these databases
record data not only on small and medium enterprises (SMEs), but on Micro,
Small and Medium Enterprises (MSMEs). Figure 3.3 shows the production of
MSMEs in the recent years.
Figure 3.3: Gross Output of Micro, Small and Medium Enterprises in India (in
crores)

Source: Pakistan Economic Survey, 2013, Ministry of Finance, Government of Pakistan

Figure 3.4 shows the production of small scale industries for different fiscal
years. The figure clearly indicates that the production of small and medium
enterprises is slowly increasing, and the rate of increase is almost constant, at
around a rate of 8 percent per annum. So, if the growth rates of SMEs are
compared, the growth of SMEs in Pakistan is the most impressive. However,
there are definitional differences among the countries, so these figures cannot be
directly compared.
4. Methodology

Source: Ministry of Micro, Small and Medium Enterprises (MSMEs), Government of India

The figure shows a sudden jump in the production of MSMEs from 2005-06 to
2006-07, caused by the inclusion of MSMEs of some other sectors as well. Still,
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Qualitative analysis of constraints faced by different business enterprises is


quite common, so the main analysis of this study would include quantitative
analysis. General statistical analysis would reveal the types of constraints the
SMEs in the three countries face while econometric analysis would show how
these constraints affect the sales of the SMEs, where sales represent the
performance of the enterprises. The enterprise surveys data collected from over
a thousand firms in each country would be used for the analysis.

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

4.1 Data

4.2 Definition of SMEs

This study has made use of secondary data, collected by the World Bank under
its Enterprise Surveys Program. Now, the World Bank has collected and
compiled data from different countries in different years. The latest firm level
survey the World Bank conducted in Bangladesh was in the year 2013. But for
India and Pakistan, World Bank didnt conduct any firm level survey after 2010,
and these surveys were interim surveys, which did not use the full questionnaire
of the enterprise surveys program. These data, however, do highlight the
constraints faced by the SMEs in India and Pakistan. So, 2010 data for India and
Pakistan and 2013 data of Bangladesh have been used for this analysis. The
Enterprise Surveys data includes data on all types of firms, so this analysis
would use data specifically on SMEs. By using the statistical software STATA,
all the analyses presented in this paper has only been done using data on SMEs.
This means that the sample of enterprises used for the analysis in this paper
includes only SMEs, and does not include large scale enterprises; hence, the
sample used for the analysis of this paper is a sub-sample of the Enterprise
Surveys Program database of the World Bank.

Since this paper is an analysis of Small and Medium Enterprises (SMEs), the
definitional complexities need to be clarified. The definition of SMEs differs
from country to country. The Industrial Policy of Bangladesh, 2010 defines
small and medium enterprises as: In manufacturing, small industry will be
deemed to comprise enterprises with either the value (replacement cost) of fixed
assets excluding land and building between Tk. 5 million and Tk. 100 million,
or with between 25 and 99 workers, and medium industry will be deemed to
comprise enterprises with either the value (replacement cost) of fixed assets
excluding land and building between Tk. 100 million and Tk. 300 million, or
with between 100 and 250 workers. For services, however, small industry
will correspond to enterprises with either the value (replacement cost) of fixed
assets excluding land and building between Tk. half a million and Tk. 10
million, or with between 10 and 25 workers, while medium industry will
correspond to enterprises with either the value (replacement cost) of fixed assets
excluding land and building between Tk. 10 million and Tk. 150 million, or
with between 50 and 100 workers. According to the Pakistan SME Policy,
2007, enterprises which employ upto 250 workers or have a paid up capital of
Rs. 25 million or lower are categorized as SMEs. The Government of India
enacted the Micro, Small and Medium Enterprises Development (MSMED) Act,
2006, and according to that act, A small enterprise is an enterprise where the
investment in plant and machinery is more than Rs. 25 lakh but does not exceed
Rs. 5 crore; and a medium enterprise is an enterprise where the investment in
plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

An Enterprise Survey is a firm-level survey of a representative sample of an


economys private sector. The surveys cover a broad range of business
environment topics including access to finance, corruption, infrastructure,
crime, competition, and performance measures. The World Bank has collected
this data from face-to-face interviews with top managers and business owners in
over 130,000 companies in 135 economies. The sizes of the samples from which
the data was collected under the Enterprise Surveys Programs in India, Pakistan
and Bangladesh are around fifteen hundred each, of which more than half are
SMEs. This paper only uses data on the SMEs, and not the large enterprises.
Hence, for analysis purposes, data on specifically SMEs have been selected
from the vast array of data using the statistical software STATA. Therefore, all
the results in this paper reflect solely the opinions of SME owners of
Bangladesh, India and Pakistan.
The constraints considered in this study are the same as those considered in the
enterprise surveys programs of the World Bank. These include lack of access to
finance; access to land; business licensing and permits; corruption; crime, theft
and disorder; customs and trade regulations; electricity; inadequately educated
workforce; labor regulations; political instability; practices of competitors in the
informal sector; tax administration; tax rates; and transportation.

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95

For comparison purposes, the World Bank employs its own definition of Small
and Medium Enterprises. For the sake of generating Enterprise Surveys data, the
World Bank defines Small and Medium Enterprises (SMEs) as enterprises
which employ maximum 99 workers; enterprises employing 1 to 19 workers are
defined as small enterprises and enterprises employing 20 to 99 workers are
defined as medium enterprises. The World Bank does not base its definition on
amount of investment, because currencies differ from country to country, and
exchange rates change over time. Hence, it becomes difficult to define SMEs for
the World Bank, especially since comparisons between countries have to be
made through their Enterprise Surveys data.
Using the World Bank definition of SMEs is useful for comparison among
countries, because use of country specific definitions may give misleading
results. More precisely, Bangladesh, India and Pakistan all three countries have
different definitions of SMEs. So, an SME in Bangladesh may not be regarded

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

as an SME in India or Pakistan, and since one of the purposes of this paper is to
compare the opinions of SME owners of all the three countries, using country
specific definitions would hamper comparability. So, the definition of SMEs
used by the Enterprise Surveys Program of the World Bank has been used in
this paper, so that the same kind of firms can be compared across countries.
4.3 General Statistical Analysis Methods

on SMEs have been separated, which includes data on 1065 small and medium
enterprises (according to the definition of World Bank). This data was used to
identify what the constraints were which troubled the SMEs in the three
countries. When the respondents of India, Pakistan and Bangladesh were asked
to rank the constraints, one or two of the constraints were identified as the most
severe by many of the respondents, as shown in tables 5.1, 5.2 and 5.3.
Table 4.1: Major Constraints in Bangladesh

The general analysis of the data in this study includes tabulating and grouping
the data according to the opinions of the respondents. The data on constraints of
SMEs have been firstly separated from the rest. After that, each of the
constraints is grouped according to the number of respondents who identified
that particular constraint as its main barrier. Furthermore, the main constraints
are analyzed further by viewing and grouping each of the responses according to
categories, i.e. whether each of the constraints is viewed as very severe, major,
moderate, minor or no obstacle. The results have been presented in tables and
pie charts (whichever applicable), which further elaborate the importance of
each of the constraints.

Name of the Constraint


Access to finance
Access to land
Business licensing and permits
Corruption
Crime
Customs and trade regulations
Electricity
Inadequately educated workforce
Political instability
Practices of competitors
Tax administration
Tax rates
Transport
Access to finance
Access to land
Total

4.4 Econometric Models


Econometric methods are required to find out the effects of different constraints
on the sales of the SMEs. The main equation to be estimated for each of the
three countries is

yi 0 1c1i 2 c2 i ...... n cni 1 Li ui


Here, yi denotes the total sales of firm i, c1i , c2i , .., cni denote n number of
constraints faced by firm i, Li denotes the total labor used by the firm and ui is
the error term. The main hypothesis to be tested in this case is whether i 0 .
Here, the constraints are actually dummy variables. For example, let us suppose
that the respondents are asked to rank different constraints, as they were asked
by the World Bank under their enterprise surveys program. Let us also suppose
that constraint 1 is lack of access to finance. If among the list of constraints, the
respondent ranks lack of access to finance as the most severe, then the value of
c1 = 1; otherwise, c1 = 0.

Percentage of Respondents
0.19
0.09
19.62
3.1
0.47
4.41
1.22
1.31
26.48
2.54
0.56
34.55
1.6
0.47
2.16
100

Table 4.1 shows that most of the respondents of Bangladesh ranked tax rates as
the number one constraint they face, and political instability was ranked as the
most severe constraint by the second largest number of respondents. This means
that the SME owners, who would be identified as small business owners
according to the Bangladeshi definition of SMEs, find tax rates to be their
biggest hurdle. The importance of political stability also is reflected through
their opinions.

4.5 Results
The data collected by World Bank through their enterprise surveys program has
been firstly grouped according to different categories. From those groups, data

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

Unlike India, the opinion of the Pakistani entrepreneurs regarding the most
severe constraint for operating SMEs seems to be unanimous. Table 5.3 shows
that almost 67% of the respondents think that lack of electricity is the major
problem of operating SMEs in Pakistan. Among the rest, 20% identified
political instability as the main constraint. Pakistan has been facing political
unrest for a long time, and the industries there do face shortage of electricity a
lot, and these opinions of the respondents reflect these facts.

Table 4.2: Major Constraints in India


Name of the Constraint
Access to Finance
Access to Land
Business Licensing and Permits
Corruption
Crime, Theft and Disorder
Customs and Trade Regulations
Electricity
Inadequately Educated Workforce
Labor Regulations
Political Instability
Practices of Competitors
Tax Administration
Tax Rates
Transport
Total

Percentage of Respondents
13.23
7.38
5.85
4.31
0.62
3.69
28
1.23
4.92
0.92
10.15
0.62
5.85
6.77
100.0

4.6 Analysis of Specific Constraints


The World Bank, under its enterprise surveys program, also asked the opinion
of the respondents of different countries about some specific constraints. The
constraints which were considered are corruption, lack of electricity, lack of
access to finance, transportation services and labor regulations.
4.6.1 Corruption

The respondents of India, however, seem to be divided in their opinion about


which one of the constraints can be considered as their number one problem, as
shown in Table 5.2. Like Bangladesh, most of the respondents (28%) identified
electricity as their main problem and the second largest number of respondents
(13.23%) identified access to finance as their major constraint. But unlike
Bangladesh, other constraints, such as practice of competitors, access to land,
transportation, tax rates etc. received more importance. Furthermore, compared
to Bangladesh, much less percentage of entrepreneurs thinks that lack of
electricity and access to finance are major problems in India.

Figure 4.1: Corruption as an obstacle in Bangladesh

Table 4.3: Major Constraints in Pakistan


Name of the Constraint
Access to finance
Access to land
Business licencing and permits
Corruption
Crime
Customs and trade regulations
Electricity
Inadequately educated workforce
Political instability
Practices of competitors
Tax rates
Transport
Total

International Journal of SME Development

Percentage of Respondents
1.7
2.0
0.3
2.0
4.3
1.0
66.4
0.7
19.9
1.0
0.3
0.3
100.0

According to World Bank Enterprise Surveys data of 2013, 1065 SME owners
of Bangladesh, who were the respondents of the survey, ranked corruption
according to their preferences. The results are mixed, since 27 % reported
corruption to be a major obstacle, 26 % reported it to be a moderate obstacle, 14
% reported to be a very severe obstacle and 19 % reported it to be a minor
obstacle. It is a bit surprising result, since corruption is rampant in Bangladesh,
but the SME sector does not face it as much as the large scale industries and
firms.

99

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

The Indian SMEs do think that corruption is an important obstacle, but are
divided in opinion about the importance of the obstacle. 17 %, 20 % and 25 %
view corruption as a major, moderate and minor obstacle. 34 % do not consider
it to be an obstacle and 4 % consider it to be a very severe obstacle.

obstacle, while the rest of the respondents ranked electricity as a minor obstacle
or no obstacle. So, approximately 50 % of the total respondents thought that
lack of electricity is either a very severe or major obstacle towards smooth
functioning of their firms.

Figure 4.2: Corruption as an Obstacle in India

Figure 4.4: Electricity as an Obstacle in Bangladesh

The Pakistani SMEs surveyed were divided in their opinion about corruption as
an obstacle. Almost equal percentages of respondents (16 % each) indicated
corruption as a major obstacle, very severe obstacle and a moderate obstacle. 28
% think it is a minor obstacle and 24 % do not think it is an obstacle.
Figure 4.3: Corruption as an Obstacle in Pakistan

Among the respondents of Indian SMEs, around 16 % of them consider


electricity to be a very severe obstacle, 36 % consider it as a major obstacle, 22
% consider it to be a moderate obstacle, 16 % consider it to be a minor obstacle
and 10 % do not consider it as an obstacle. So, these SMEs consider electricity
as an obstacle, but there is no unanimous opinion about the level of importance
of electricity as a constraint.
Figure 4.5: Electricity as an Obstacle in India

4.6.2 Electricity
Electricity is ranked as a major obstacle or a very severe obstacle by most of the
respondent firms of the survey in Bangladesh. 31.95 % of the respondents
indicated electricity, or rather, lack of electricity as a major obstacle, 18.79 %
respondents ranked it as a very severe obstacle, 33.8 % ranked it as a moderate

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An overwhelming 71 % of the respondents of Pakistan identified electricity as a


very severe obstacle towards business development. Moreover, another 13 %
indicated it to be a major obstacle. The rest of the respondents indicated this to

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

be either a moderate obstacle, minor obstacle or no obstacle (6 %, 5 % and 5 %


to be exact).

Figure 4.8: Access to Finance as an Obstacle in India

Figure 4.6: Electricity as an Obstacle in Pakistan

4.6.3 Access to Finance


The respondents in Bangladesh seem to be divided regarding their perception of
the nature of access to finance as an obstacle. A little less than 60 %, 59 % to be
exact, regard it as a minor obstacle or a moderate obstacle. Only 17 % identified
it as a major obstacle.

Among the Pakistani SMEs surveyed, a little less than half (46 %) did not
consider access to finance to be an obstacle, while another 27 % think it is a
minor obstacle. 14 %, 9 % and 4 % indicated it to be a moderate obstacle, major
obstacle and a very severe obstacle respectively.
Figure 4.9: Access to Finance as an Obstacle in Pakistan

Figure 4.7: Access to Finance as an Obstacle in Bangladesh

4.6.4 Transportation System:


The Indian SMEs surveyed by the World Bank also seemed divided in their
opinion about access to finance as an obstacle. 30 % of them viewed it as a
moderate obstacle, 25 % viewed it as no obstacle, 21 % viewed it as a major
obstacle, 13 % viewed it as a minor obstacle and 11 % of them think it is a very
severe obstacle.

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The respondents did not consider transport to be a very important obstacle, since
29 % and 34 % of them considered it to be a minor obstacle and a moderate
obstacle respectively, while 19 % respondents did not consider it to be an
obstacle at all. Only 6 % considered it to be a major obstacle and only 4 %
considered it to be a very severe obstacle.

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

Figure 4.10: Transportation System as an Obstacle in Bangladesh

Figure 4.12: Transportation System as an Obstacle in Pakistan

The respondents in India were mostly divided in their opinion about


transportation system as an obstacle to enterprise growth. Almost the same
percentages of people (27 %, 23 %, 23 % and 22 % to be exact) identified this
as a minor, moderate, major obstacle and as no obstacle at all. Only 5 %
indicated it to be a very severe obstacle.

4.6.5 Labor Regulations

Figure 4.11: Transportation System as an Obstacle in India

Among the Small and Medium sized firms of Bangladesh surveyed by the
World Bank, a little less than half of them didnt consider labor regulations as a
constraint and 29 % consider it to be a minor obstacle. So, around 80 % of the
respondents did not consider labor regulations as an important obstacle towards
operating business properly. Only 4 % of the respondents considered labor
regulations to be either a very severe or a major obstacle, while the rest of the
respondents (20 %) considered it to be a moderate obstacle.
Figure 4.13: Labor Regulations as an Obstacle in Bangladesh

The respondents of Pakistan generally think that transportation system is not a


very important obstacle for SMEs in Pakistan, since 45 % think it is no obstacle
and 35 % think it is a minor obstacle. The rest of the 20 % are divided in their
opinion about corruption.

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The Indian SMEs surveyed by World Bank were mostly divided in their opinion
about transportation system as an obstacle to enterprise growth. Almost the
same percentages of people (28 %, 23 %, 23 % and 24 % to be exact) identified
this as a moderate, major, minor and no obstacle. Only 2 % indicated it to be a
very severe obstacle.

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

has been included from among the factors of production as one of the main
independent variables. Since the constraints are dummy variables, the
interpretation is mainly done from a relative perspective, i.e. relative to a base
category. Moreover, all the categories cannot be used as dummy variables due
to collinearity problems. Here, transport has been used as the base category for
the constraint dummies. The area dummies have been included to control for
any effects of the area of operation, and the values of those variables are 1 if the
SME belongs to a particular area, 0 otherwise. The area dummies are used to
control for access to market, since access to market mainly varies from area to
area.

Figure 4.14: Labor Regulations as an Obstacle in India

Around 56 % and 32 % respondents of Pakistan think that labor regulations


represent no obstacle and minor obstacle respectively. So, they do not think this
is an important obstacle, since only 1 %, 4 % and 7 % indicate it to be a very
severe obstacle, major obstacle and a moderate obstacle.
Figure 4.15: Labor Regulations as an Obstacle in Pakistan

Nevertheless, in simple terms, electricity, access to land and access to finance


seem to have significant impacts on the log of sales of the SMEs, as can be seen
from the point of view of statistical significance. More precisely, these
constraints differ significantly from the base category in terms of impact on
sales, hence it can be concluded that their impact is quite significant.
Bangladeshi SME owners, therefore, seem to have problems gaining access to
finance and getting adequate electricity very frequently, since not only are these
identified as the most severe problems, but they are also having significant
impacts on sales.

4.7 Results of Econometric Analysis


The regression equation (1) of the methodology section has been applied on data
of SMEs of the three countries under consideration. The results, however, are
mixed, but mostly reflect the results obtained from the general statistical
analysis of the previous section.
Table 5.4 shows the results of estimating equation (1) using data of Bangladesh.
The independent variables include dummy variables showing the constraints,
area of operation (such as Dhaka, Chittagong etc.) and log values of the total
number of workers employed. Since the SMEs are mainly labor intensive, labor
International Journal of SME Development

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

Table 5.5: Regression results for India

Table 5.4: Regression results for Bangladesh

Independent Variables
Log of labor
Ownership
Tax Administration
Practices of Competitors

Dependent Variable: Log of Sales


Standard
Coefficient
t
P > |t|
Error
1.075726
0.040118 26.81
0
0.7098
0.135444 5.24
0
0.126771
0.618181 0.21
0.838
-0.18616 0.386925 -0.48
0.631

[95% Confidence
Interval
0.997002 1.15445
0.444018 0.975581
-1.08628 1.339826
-0.94542 0.573104

Political Instability

-0.54147

0.220895 -2.45

0.014 -0.97493 -0.10801

Labor Regulations
Inadequately Educated
Workforce
Electricity
Customs and Trade
Regulations
Crime, Theft and Disorder

-0.67422

0.56931 -1.18

0.237 -1.79138 0.442936

-0.34165

0.326452 -1.05

0.296 -0.98225 0.298944

-0.71045

0.224859 -3.16

0.002 -1.15169 -0.26921

-0.0946

0.40527 -0.23

0.815 -0.88986 0.700661

-0.49637

0.415762 -1.19

0.233 -1.31222 0.319476

Corruption
Business Licensing and
Permits
Access to Land

-0.47971

0.287952 -1.67

0.096 -1.04476 0.085338

-0.82875

0.681549 -1.22

0.224 -2.16615

-0.80692

0.311471 -2.59

0.01 -1.41811 -0.19572

Access to Finance

-0.62396

0.229756 -2.72

0.007 -1.07481 -0.17311

Dhaka

0.663233

0.146242

4.54

0 0.376262 0.950204

Chittagong

0.923335

0.163344

5.65

0 0.602805 1.243865

Khulna

0.879063

0.207956

4.23

0 0.470991 1.287135

Constant

12.7355

0.273714 46.53

0 12.19839

0.50865

Table 5.5 shows the results of applying the same regression technique on data
collected from the SMEs of India by the World Bank. The table reveals that
access to land, customs and trade regulations and practices of competitors tend
to be significant variables in determining the amount of sales of the SMEs.
Here, the base category is transport services, and compared to this base
category, the previously mentioned constraints only have statistically significant
differences. This result is not in line with the result derived from the earlier
general analysis on India, and also it does not have any similarity with the
econometric findings of the data on Bangladesh.
109

P > |t|

0.924812
0.373414
0.988316

Standard
Error
0.101951
0.343115
0.405161

9.07
1.09
2.44

0.000
0.277
0.015

[95% Confidence
Interval
0.724152 1.125471
-0.30191 1.048736
0.190876 1.785756

0.630453

0.45419

1.39

0.166

-0.26349

1.524392

0.538801
-0.16238

0.50428
1.1097

1.07
-0.15

0.286
0.884

-0.45372
-2.3465

1.531328
2.021739

1.666455

0.547118

3.05

0.003

0.589613

2.743296

0.501881

0.300075

1.67

0.096

-0.08873

1.092491

1.039391

0.915124

1.14

0.257

-0.76176

2.840544

0.692418
0.691895

0.443251
0.90482

1.56
0.76

0.119
0.445

-0.17999
-1.08898

1.564826
2.472766

1.023597

0.392496

2.61

0.01

0.251084

1.79611

1.108141
1.048664
-0.0579
0.688136
1.961681
0.812781
12.41847

1.124679
0.442305
0.28031
0.280917
0.303629
0.27516
0.393788

0.99
2.37
-0.21
2.45
6.46
2.95
31.54

0.325
0.018
0.836
0.015
0
0.003
0

-1.10546
0.178117
-0.60961
0.135232
1.364076
0.271209
11.64341

3.321742
1.919212
0.493807
1.241039
2.559287
1.354352
13.19352

Independent Variables Coefficient


Log of Labor
Access to Finance
Access to Land
Business Licensing and
Permits
Corruption
Crime
Customs and Trade
Regulations
Electricity
Inadeqately Educated
Workforce
Labor Regulations
Political Instability
Practices of
Competitors
Tax Administration
Tax Rates
Gujarat
Tamil Nadu
Delhi
Andhra Pradesh
Constant

Number of Observations: 308

13.2726

Number of Observations: 1036


R-squared: 0.5010
Prob. > F : 0.0000
Adjusted R-squared: 0.4927
Note: The number of observations, i.e. 1036 only refers to the number of Small and Medium
Enterprises (SMEs) included in the sample, and the sample does not include any large scale firm

International Journal of SME Development

Dependent Variable: Log of Sales

R-squared: 0.4166

Prob. > F : 0.0000


Adjusted R-squared: 0.3803
Note: The number of observations, i.e. 308 only refers to the number of Small and Medium
Enterprises (SMEs) included in the sample, and the sample does not include any large scale firm

Table 5.6 shows the regression results of applying econometric techniques on


data of SMEs of Pakistan.

110

Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

Table 5.6: Regression results for Pakistan


Dependent Variable: Log of Sales
Independent Variables

Coefficient

1.253171
Log of Labor
2.561849
Islamabad/Rawalpindi
-0.50732
Karachi
0.276843
Political Instability
Inadequately Educated
-1.57568
Workforce
-1.12983
Electricity
-5.75066
Customs and Trade Regulations
0.385166
Crime
0.224887
Corruption
-2.68254
Business Licensing and Permits
-1.21333
Access to Land
-0.51634
Access to Finance
13.7323
Constant
Number of Observations: 156

Standard
Error
0.195736
0.530469
0.572904
1.799389

t
6.4
4.83
-0.89
0.15

P > |t|
0.000
0.000
0.377
0.878

[95% Confidence
Interval
0.866262 1.640081
1.513275 3.610423
-1.63977 0.62514
-3.27999 3.833681

2.95222

-0.53 0.594 -7.41131

4.25995

1.831052
2.219433
1.903996
2.270957
3.096424
2.125833
2.445723
1.999005

-0.62 0.538 -4.74926


-2.59 0.011 -10.1378
0.2 0.84 -3.37845
0.1 0.921 -4.2641
-0.87 0.388 -8.80322
-0.57 0.569 -5.41545
-0.21 0.833 -5.35078
6.87 0.000 9.780883
R-squared: 0.4001

2.489595
-1.36352
4.14878
4.71387
3.438135
2.988786
4.318102
17.68372

Prob. > F : 0.0000


Adjusted R-squared: 0.3497
Note: The number of observations, i.e. 1036 only refers to the number of Small and Medium
Enterprises (SMEs) included in the sample, and the sample does not include any large scale
firm.

In this case, only customs and trade regulations is found to be statistically


significant using the same base category as in the previous cases, while the rest
do not have significant enough impacts. This result is not expected, however,
given the importance lack of electricity received in the general analysis of the
constraints in Pakistan. Maybe there are other constraints which the Pakistani
entrepreneurs failed to identify, but which hamper their sales very much.
5. Major Findings

econometric analysis in some cases, lack of electricity seems to be a very severe


obstacle which can hamper the sales of the products as well. Most of the
respondents of India, Pakistan and Bangladesh have indicated lack of electricity
to be the main barrier towards successful SME growth. This indicates the
shortage of electricity supply in these parts of the world, indicating that there is
a need for a much better supply and production of electricity for SME
development. The access to better power supply also needs to be made available
for the SMEs in the countries. Also, tax rates seem to be another obstacle for the
SMEs of Bangladesh, as most of the SME owners surveyed identified it as the
most severe problem. Many of the Bangladeshi SME owners identified political
instability as another serious problem as well.
The next constraint which has received much attention throughout this analysis
is access to finance. For SMEs especially, this seems to be a very big problem
and is also seen to be hampering their sales in some cases. No doubt, lack of
access to finance can pose very severe problems for any business, and SMEs in
South Asia tend to have little or no access to formal sources of finance, be it
capital market or money market. Banks have specialized SME loans, but these
are not sufficient. The area of SME loans need to be further enhanced, as
financing needs are one of the most important.
Corruption has been a big problem in South Asia, particularly in the countries
under study. But corruption does not seem to have a very severe impact on SME
growth since the respondents of the survey administered by the World Bank
under its Enterprise Surveys Program have not identified corruption in general
to be as severe a problem as electricity and access to finance. Practices of
competitors have received particular interest from the respondents of India
especially, where many of them have indicated it to be one of the barriers to
business growth. There were also other constraints mentioned by the
respondents of the survey, but their opinions about those constraints seem to be
divided.

The analysis of the data has proved that there are a number of constraints which
are hampering the growth of SMEs in Bangladesh, Pakistan and India.
However, some constraints are more severe than the rest, at least according to
the respondents of the survey administered by the World Bank under its
enterprise surveys program. Moreover, the severity of the constraints may vary
from country to country.

The general analysis also showed that compared to the Bangladeshi and
Pakistani respondents, a smaller percentage of Indians identified electricity and
access to finance as the most severe constraint for operating SMEs. This is
indicative of the fact that in India, the financial institutions along with policy
initiatives of the government have managed to make SME financing more
available for entrepreneurs. Also, India has been able to provide better power
supply to its SMEs than the other two countries under study.

One constraint which receives much attention especially in Bangladesh and


Pakistan is the lack of electricity. Both in the general analysis and in the

Customs and trade regulations in both India and Pakistan are having negative
and significant impacts on sales, as shown by the regression results. This means

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

that the countries need to follow pro SME policies and eliminate any kind of
tariff or non-tariff barrier for promoting and developing the SME sector.
6. Policy Implications

Also, this study makes use of the definition of SMEs used by the World Bank in
conducting the surveys under the Enterprise Surveys program of the World
Bank. Country-specific definitions could not be used for the analysis presented
in this study due to problems of comparability, as described in section 4.1.

Although the study may not be the most comprehensive study of all, it still has
some strong implications for policy. One of those implications is that, the
development of SMEs in the countries under study, especially in Bangladesh
and Pakistan, depends largely on how the governments of those countries deal
with the ever growing demand of electricity. If the countries cannot ensure
proper electric supply to the SMEs, then this sectors growth will most certainly
be hampered.

The lack of adequate data on SMEs is another drawback of this study. The only
comprehensive firm level data on the constraints faced by the SMEs was the one
used in this study. The rest are either qualitative studies providing little or no
data, policy notes and limited data on the number of different SMEs and their
productions.

Another very clear policy implication is that the access to SME financing needs
to be improved. There are many banks in India, Pakistan and Bangladesh which
give SME loans, and many Microfinance Institutions (MFIs) also give loans
under easy conditions for starting and operating SMEs. Their outreach needs to
be expanded dramatically, and governments need to focus on better policy
initiatives to help this thriving sector in availing better sources of financing.

Bangladesh, India and Pakistan are three different countries situated in South
Asia, with varying levels of economic development. But the SMEs of these
three countries seem to have some common problems. One of them is lack of
electricity, another being lack of access to finance. These constraints not only
are identified as one of the main constraints hampering the growth of SMEs in
the three countries under study, but also these constraints seem to have negative
impact on the growth of the sales of the SMEs, as revealed by the econometric
analysis. Now, these three South Asian countries have been plagued by power
shortages for decades now. The governments of these countries have taken
many steps to ensure proper power supply in many cases, but this problem is
sustaining. Another problem lack of access to finance has also been a matter
of concern for SME development. Banks and Microfinance Institutions have
developed much in the recent decades in these countries, but that has not
dramatically improved the situation, as many SME owners still believe access to
finance as one of the major problems of SME development, especially in
Bangladesh and Pakistan. Therefore, since these countries share some common
problems which hamper SME growth, maybe it is time for a collective and
concerted effort to eradicate these constraints and help boost the development of
SMEs in South Asia.

Among the other constraints, trade barriers and customs regulations are having
significant impacts on sales. So, these trade related policies need to be pro-SME
policies, so that SMEs can grow enough to export in the foreign markets.
Political instability and tax rates came out as the most severe problems in
Bangladesh, so these problems need to be handled carefully.
7. Limitations of the Study
The main limitation of this study is that it is based on the surveys conducted by
the World Bank, and so this study has only considered the measurable
constraints which were considered by the World Bank in their questionnaires.
The World Bank, however, included these constraints only because they are
easily measurable and because, according to them, these are the basic problems
any business could face in any part of the world. Still, the limitations of the
study include not being able to quantify the effect of lack of technology, lack of
access to market, lack of access to raw materials, etc. Only partial effects of
these constraints were measured. For example, area dummies represent one
dimension of access to markets, since access to markets varies according to area
of operation. But lack of technology is mostly not measurable due to
unavailability of data, and quantifying lack of raw materials is a difficult task as
well.

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8. Conclusion

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

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Constraints and Challenges of SME Development in the Developing Countries: A Case Study of .

International Journal of SME Development


Volume 01
| Issue 01
| April 2014

Indigenous Technology and its Commercialisation


K Siddique-e Rabbani, PhD*1

"Small industry is the backbone of a nation" - this saying is well established in


the developed world but not so in the Third World. It is because we have not
understood the real meaning of the phrase Small Industry. Small industry that
can form the backbone of a nation can only be the ones that are based on home
grown technology for products that are used by the people in the immediate
neighbourhood within the country. We will discuss shortly why this is important,
but before doing so we might as well discuss some basic points, how we define
indigenous technology, etc.
1. What is indigenous technology?
The answer is hidden in the phrase itself, technology that originates from
within. When technological designing of a product or its process is done by local
innovators using their own talents, we would call it indigenous technology. If at
least some indigenous design is not present we would not call it an indigenous
technology. To illustrate, in a Television assembly industry, the whole design is
done elsewhere, all the parts and components including the housing or cabinet are
chosen or made, standardized and collected in a kit form by one or more foreign
firms. The local producer has only to place the components in the right places on
the printed circuit board, solder them, fix the various parts in the cabinet, and
interconnect them. This nowhere requires the brains of local technology
innovators. Only during testing of the devices some engineering knowledge is
required. So we call this an assembly industry. It uses local labour but is not an
indigenous technology based industry. On the other hand, when in the eighties
some local technology innovators started making voltage stabilisers on a
commercial scale, they designed and made their printed circuit boards,
transformers and cabinets. Some copied the electronic circuits from elsewhere

and adapted them while some designed the circuits themselves. They had to
innovate and improvise devices and gadgets needed for the manufacturing
process as well, as importing such things would be much beyond their project
costs. Possibly some of them took some help from foreign designs, but had to use
their own talents in improvising the product using components that are available
in the local market, whether imported or locally produced. These electronic
industries can be termed indigenous technology based as against Television
assembly industry, though outwardly the final working of both would look
similar; therefore, policymakers find it very difficult to distinguish between the
two.
Similarly when a car or a truck comes out of the production line of an assembly
Industry in Bangladesh, there is no touch of local technological innovation. It
imports all the parts for a vehicle in a package and just fixes them at the
designated places. On the other hand the three wheeler vans and passenger
vehicles, in the name of Nasimon, Bhatbhatia, etc., that the local small
innovators developed using diesel engines meant for shallow water pumps are
indeed indigenous technology based products. The whole design of the vehicles
are indigenous, there have been many ingenious improvisations in using parts or
components made out of locally available raw materials, not necessarily meant
for making vehicles. Unfortunately there has been a strong negative media
campaign against these vehicles, and these are now officially banned in
Bangladesh, thanks to the rich vested interest groups which see these as potential
competitors and which exercise a great influence on the national policymakers.
The quality of these vehicles is not as bad as the media portrays them, otherwise
they would be facing accidents every day, since thousands of them ply around the
whole of the country in spite of the official ban. Some of these vehicles are
much better than the Mercedes Benz of the 1930s.While we should have taken
steps to support these semi-educated innovators in improving the quality and
finishing of these vehicles employing educated engineers of the country, we have
taken the opposite step of banning them altogether. If we had promoted them as
suggested, we would now be exporting these vehicles to other Third World
countries. Unfortunately, almost all of our policymakers are without technical
background and they do not understand the importance of indigenous technology
based industry. This is how our Government policies play a negative role
sometimes.
2. Why is indigenous technology important?

There may be many arguments in favour of indigenous technology based


industry. The foremost would be the enhancement of the quality of life of the

Professor, Department of Biomedical Physics & Technology, Dhaka University.


E-mail: ksrabbani@gmail.com

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common people. Usually local innovators face a problem in their own lives or in
the lives of people around, and they try to innovate a technological solution to
that problem. Soon this becomes a product and if commercialized, can reach
many more people as there is a ready market. It also creates an economic activity
in which many followers can join later.
From the above scenario one can guess that since the technology is locally
innovated, when such an industry grows it creates a network of backward linkage
for supply of component parts. Since these rely on local expertise and locally
available raw materials, the technology is usually within the grasp of many
others, and the network builds up quickly. This has not been possible with foreign
technology based industries in the past in our country since a huge technology
gap exists with the western world. Philips electronics can be cited as an example,
which started in the nineteen sixties. A condition was given that gradually they
will have to include components made locally into their products, but it never
happened, since we did not develop any homegrown industry that can supply the
components with the quality they need. India, on the other hand made strong
policies to support home grown technology based industry right since partition in
1947, which allowed local industrial infrastructure and expertise to grow. Now
when Suzuki wanted to establish a car assembly line they could choose some
parts from local producers resulting in Maruti-Suzuki cars. We have not been
able to integrate local technology with any foreign technology based industry set
up in our country till now.
An indigenous technology based industry hardly needs a capital to start. Usually
the innovator makes a prototype using his/her own resources, and sells a few at
first. With the return s/he makes more, and corrects and modifies the design if
necessary based on customer feedback. No technology can work perfectly from
the first day that it is developed. It is true even for the West. If one sells a large
number of products and finds out later that there was a serious fault, think of the
consequences; it will be the end of that enterprise. So through limited marketing
the entrepreneur builds up confidence and grows. When such an industry grows
the entrepreneur learns the tricks of the trade through real life feedback, which is
adapted to the particular socio-econo-political situation, unlike foreign bred
management practices which cannot be applied here directly. Most of the time
such an industry builds itself into a network which patronises each other and
there is very little requirement of formal bank loans at the early stages. It is only
when such an industry acquires sufficient experience with successful
entrepreneurship and confidence in their products that it may want to expand and
go for bank loans. Therefore finance is not really a problem for initiation of such
indigenous technology based industries. Customers and other entrepreneurs
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support such nascent innovative enterprises due to an innate cultural urge which
the modern economic theorists could never comprehend.
It needs to be emphasized by repeating the scenario in the industrially developed
West. The backbone of their economy is still innovative technology based small
industries. Microsoft, Apple computers, Hewlett Packard, Ford all started from
garage sized endeavours.
Among the Third World countries, India and China are coming to the global
scene in terms of industrial contribution in a big way. This has been possibly only
because they did not listen to the advice of international experts or banks or
donors in the past sixty years or so, rather they took policies in their own way, to
strengthen their own technology base through nurturing home grown technology
based industry. It takes a long time, 30 years or more, to incubate such
enterprises, and it is really difficult for most policy planners in the Third World to
have such deep understanding and foresight. The five year term is the maximum
that an elected Government can look forward to and therefore they look for short
cuts, which in effect go in the interest of the multinationals and their promoters
which influence the policies of these countries. India and China had some
personalities who could lead the nation to come out of such influence, and the
results are there for all of us to see.
3. Commercialisation by innovator necessary
When an innovator designs and develops new equipment from scratch its
manufacture and marketing can successfully be done only by the innovator, the
technology designer, no one else. No established businessman, however
successful he or she is, how much money he or she puts into it, will not be able to
carry the project through to success. This is an important message that I want to
put across which I learnt the hard way, through my own real-life experience. Now
when I look back to industrial development in the West, the same picture
emerges. If one looks at all the giants in industry like Sony, HP, IBM, Intel, Ford,
Toyota, Honda, Marconi, General Electric, and going further back into the great
players of the industrial revolution like George Stevenson, Cartwright,
Wedgwood, Arkwright and others, all successful business ventures were initiated
and piloted by the technology innovators themselves.
Why? To understand we need to discuss the processes that need to be followed in
order to take a new technology based product from the laboratory to a successful
business. Briefly the steps, together with the challenges, can be summarised as
follows.

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4. Steps from design to manufacture

V.

I.

Based on the user feedback the design should be modified and improved further.
Often the cabinet design (housing of the equipment) and user interface to the
product becomes more important than the technology of the product itself.

The first step is in designing and developing a basic working model of a product
that the designer feels can get a market. Here the designer's ability to understand
the people, their culture and habits, market dynamics, etc. plays a very important
role. Choosing a wrong product may lead to wastage of money and effort.
Besides, the challenge is very daunting in the Third world since the people have
become used to high standards of products imported from the industrially
developed world. The customers will tolerate a few defects in products from
developed countries, but not a single one from an indigenous product. Therefore
the challenge is more than that faced by early developers in the industrialised
world.
II.
Next the working prototype should be tested in the laboratory, home or office of
the designer or at the premises of technically sound close friends. This is needed
so that the continuous performance of the product may be monitored. Many
weaknesses of the design will be revealed at this stage. Unless these are
addressed to and improved upon, the product cannot be taken for commercial
marketing. The effort will have to end there.
III.
Upon feedback of the above initial trial the product have to be redesigned in a
user friendly way for use by general people, which can be manufactured with
available production technology at an affordable price. In some situations the
production processes and technology for these may also need to be innovated and
developed. This is a very important industrial design step.

VI.
If everything goes well, the product may now be manufactured for limited
marketing. It will be found that the product failed to perform properly at some
places, due to situations or due to manners of use that the designer never
imagined of. Sometimes serious problems arise which have to be addressed
urgently and solved in order to keep the reputation of the product and of the
manufacturer. This creates a very challenging situation. Sometimes the problems
are very subtle and sophisticated and the innovator finds it difficult to solve it.
S/he may need the assistance of other experts which presents a very difficult
situation, and an innovator without sufficient funds may find it almost
impossible.
VII.
At this stage much information will be available that will have an important
bearing on the decisions related to the product. In the worst case the product may
not get any buyer, or the technical challenges cannot be solved, and it may have
to dropped totally. In a less unfortunate scenario the product may need to be
redesigned to make the product more attractive at the price asked for. In the best
case scenario if the designer took care of the issues properly beforehand, the
product will need only a few modifications to carry it along further. After such
modifications, the product will still need further limited marketing. Only when
the return of products from customers due to manufacturing defects,
malfunctioning or inability to use, etc., falls below 1% that it can be taken up for
large scale manufacture and marketing.

IV.
Limited field trial should be given to the industrial prototype by distributing to a
limited number of users who will cooperate by providing the designer with
important feedback. Therefore, users should be chosen who have sympathy and
trust in the designer, and with whom the designer has direct contact, and who will
bear with failures and interruptions in service. There may be situations when the
product may cause harm and injury to people and their property, and one has to
be very careful about the safety aspects in the product design.

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VIII.
In most probability the processes for certain manufacturing steps, and quality
testing of the product will not be available off the shelf. Even if it is available
from an industrially developed country, it is likely to be prohibitively expensive.
So the designer has to innovate, improvise and develop these items too.

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5. Decision making needs the innovator


It is clear that all the above steps need a lot of technical innovation, expenditure
and patience before a product can give a return on the investment. At least two
years is a typical timeframe if the required technical expertise is readily available.
In Third World countries like Bangladesh where industrial revolution has not
taken place, and where businessmen are mostly traders gaining a quick return on
their investment, the patience for such long periods cannot be expected. This is
more so for a technology that is untested in the market before, and by people who
may not have been able to establish adequate credentials for their technology as
yet. On the other hand a technological product is like a baby to the innovator, s/he
will go a long way to see that his/her baby is nurtured to adulthood, even if it
needs overcoming a lot of barriers and results in temporary losses. Besides, it is
only the technology innovator who knows his/her own abilities, and how far s/he
can take his/her product.
Therefore the decision making authority of such a business should lie in the
hands of the innovator him/herself. If it lies in the hands of anyone else, the
company will not be able to succeed eventually. One might argue that not all
technology innovators turn out to be good entrepreneurs. True, but it's only those
that can become both are our best bet. They need to be nurtured and supported by
policies of the Government and of the society.
6. An R&D based industry, not an ordinary industry, can absorb other
innovations
Usually the technology entrepreneurs start off with almost zero capital, relying
only on their talent and innovation, which is never understood by our
policymakers who borrow their concepts from the present situation of large and
medium industries in the West through the academic courses on economics and
business management. They never got to know what went behind the real
development in the West during the industrial revolution, and what even now
goes behind the growth of recent giants like Sony, Ford and the like, all of which
started from innovative efforts in a small space like a garage. When such an R&D
based small industry grows large, it can promote and absorb innovations by later
generation innovators. An R&D based industry usually has the infrastructure and
manpower to turn a technological innovation into an industrial product through a
process known as industrial design. None of the large industries set up in our
country has such capability, since they only depend on turn-key industrial
machinery and processes. This is a crucial point which is not at all understood by
our policymakers, not even by our intellectuals at the Universities. For this reason

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we have been hearing the slogans of University-Industry interaction since


decades. These intellectuals still wonder and ask why the industries do not put
money to the Universities in Bangladesh. Why should they? They do not need
any technological brainpower for running their turn-key projects, nor even for
product innovation. If they give some money for charity that is a different issue,
it is never a University-Industry interaction.
7. Suggestions for the technology innovator turned entrepreneur
Having placed the argument that the technology innovator should him/herself
become the entrepreneur I will give some suggestions for a technical innovator to
begin a manufacturing business based on own design.
a. How to choose a product
The best choice for starting a product comes naturally. If one feels that he/she
needs a technical solution to one of the problems that he/she encounters
frequently, and if others face it too, that can be the indicator for a new product.
Behind every product, whether it is the ceiling fan or refrigerator or shoes or the
floor sweep, people had felt a necessity, and some innovator probably built one
for him/herself first. Seeing that it may have a demand among the fellow people
the person tries to make more and sell. This quickly gives a feedback as well,
whether the product is going to catch a market or not.
Next, one has to see if the cost of the product would be competitive if a similar
product, whether local or foreign, is already available in the market. As a rule of
thumb, consumer items that are usually produced in very large quantities in the
industrially developed countries are not suitable for local production in the Third
World. One may place digital wrist watches, mobile phones, etc. in this category.
It is difficult to compete against such imported products since economy of scale
plays a big factor, not to mention the flashy cabinets which will be almost
impossible to make in a Third World country like Bangladesh. It is also not wise
to go into components like IC's, resistors, capacitors, etc., of the electronic
industry for which the unit cost is very low, and has to be produced in millions to
make an industry viable. However, in specialized equipment such as Electromedical equipment, professional laboratory equipment, industrial equipment,
agricultural machinery, there is an opportunity, since these are produced in small
scale, and to remain in competition, companies have to invest a lot of money for
continuous R&D. Since the cost of expert manpower for such R&D is very high
in industrially developed countries, the price of such equipment tends to be very
high too, and this gives a window of opportunity for the technologists of the

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Third World. They can make such equipment and sell them within their own
countries profitably at fraction of the prices of the comparable imported ones.
The functionality of such professional equipment is more important than the
flashy outlook, and this is a favourable point for the Third World designer.
Therefore one should keep the above points in view while choosing a product for
local designing.
b. Assessing own ability
One has to assess ones own capability sincerely and realistically; whether he/she
is technically sound enough to handle the problem, and to improve the product
when need arises. Just copying an existing product without having the basic
technical expertise will not lead one far, and the entrepreneur is sure to fail when
faced with competition. Therefore, one has to go for a product in which he/she
has a sound technological base to start with.
c. SWOT analysis
Since there are many products in the market already, one has to be extra careful.
One needs to find out whether there are similar products elsewhere and whether
the one in mind can stand a competition if there is. This calls for a SWOT
analysis. SWOT is an abbreviation standing for, "Strength, Weakness,
Opportunity, and Threat". The words speak for themselves, and one has to assess
the SWOT of the product with an open mind. Discussing it with sympathetic but
critical friends and experts would be useful, because an innovator may find it
difficult to see the oppositions and threats to his/her own products.
Of course sometimes one has to take risks, and the intelligence and experience of
the innovator is of prime importance here, since others may not understand the
value of an innovative product. Well known examples are the Computer and the
Photocopying machine. At one point, IBM, the giant in business machines,
discussed in its board meeting that 10 or 15 computers can solve the problems of
the whole world, so it is not worth going into this product. They had to reverse
their decision within a few years. Rank Xerox employed a market survey team to
assess the marketability of their new innovation - a photocopier machine. The
report was highly negative, that people would like to copy by writing instead of
investing in such an expensive machine. Since the innovator was in a decision
making position, the company went ahead with the product in spite of the
negative market survey report. The result is before all of us. Conventional market
survey does not always work when the product is entirely new. Therefore trial
marketing is your best bet. When I developed a new product, Over and Under
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Voltage Protector (OUVP), later termed Volt Guard, in 1981 after all our
household appliances were damaged due to a sustained 400volts on the 220volt
line, I talked to a few local industries. No one got interested; they were scared to
invest in a new product that is not known in the world market. In 1989 I turned
myself into an entrepreneur, side by side with my University job, together with a
couple of ex-students. We personally met people at their homes and offices
carrying a variable transformer to produce high voltage and to demonstrate the
protection that the new device offers at a low cost. We tried to convince people
that we need such protection very much for all our appliances because of the
extreme abnormalities of power lines experienced in Bangladesh, which is not
experienced in the industrially developed countries, and that this was the reason
for its absence in the world market. I wrote educational advertisements and
articles in the media to explain the necessity of such a product, we presented our
products in exhibitions and fairs, and gradually the new product established well
in the Bangladesh market, with others making similar products of late. Even there
were brief introduction of similar foreign products in the market but they could
not survive the power abnormalities here, and the local voltage protectors, and
stabilisers with built in voltage protectors still reign the market.
d. Going slow, and going for quality
It is not a good idea to go for a large scale production using a newly developed
product right at the beginning. One should go slow; in phases, which will give
valuable feedback whether to continue with the product or not. Of course, in a
small scale one will be limited by many things. Procuring good quality raw
materials, making a good housing or cabinet become difficult challenges. One
may have to test each individual parts or components at procurement. This may
add some cost, but quality is the best bet, without this one cannot sustain for long.
People are prepared to pay a bit more for quality. Besides, in the Third World
cost of intelligent manpower is much less than that in the West, so such testing
will not increase the price significantly.
One should not worry too much that a product cannot be given a nice looking
finishing as the imported ones. It is impossible in a small scale production, and in
a Third World setting. Here again, the role of the innovator comes into play.
Making the best of whatever facilities and materials are available one can try to
design and give the best possible finishing. If the inner quality and performance
are good and the cost is competitive one may succeed even with less attractive
finishing.

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e. Initial finance and cash flow


With the revenue earned from selling the first few items one can make more.
Eventually when one establishes a mark in the market, suppliers will come to the
doorsteps with offers. If one can sell well these suppliers will be ready to give
credit as well. Therefore finance is not a major problem for the really innovative
technologist turned entrepreneur (sometimes called Technopreneur though it
has not become popular).
Since the beginner will be starting off without much cash in hand, one has to take
care of selling in credit. Initially it feels attractive that one can sell more if credit
is given, but soon the entrepreneur will realize what a great mistake it was. Soon
there will be a shortage of cash flow, and this can ruin a business within a short
time. It is better not to sell than giving credit; it is the rule of the game.
f.

Marketing, establishing brands

As mentioned before, one first starts selling the products to people known
personally and who have trust in the innovator. Gradually when the small
enterprise starts to grow and wants to sell to a wider population, to people who do
not know the innovator personally, this poses a new challenge. Here there is no
alternative to advertisement and a brand name. Apparently it appears as a load
on the limited resources, but it will soon pay off. If one can maintain a good
quality of the products, people will be ready to pay a higher price for that, but one
needs advertisement for people to know, and to opt for the quality product. Once
the brand name is established in the market, things get easier.
Many small manufacturers in our country start off selling their products to
wholesale distributors, but they will mostly squeeze the small entrepreneur out.
This will also not allow the improvement of the quality of the products, because
that will need putting a higher price tag, which the wholesalers dislike. Therefore
one should start with ones own marketing campaign, wholesale people and
distributors will flock to the manufacturer when a product and a brand name is
established. Then one can dictate ones own terms for the business. It is a game
of establishing pecking order, who can peck whom as in community of chickens.
If one cannot be in the commanding position, he/she is ruined.
g. Growing bigger, borrowing from banks
As one gets bigger and gets more confident on the quality of the products and in
his/her ability of managing more people and the organization, one may think of
borrowing from banks to expand the business. Getting bank loans before one has

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made oneself ready may pull down the earlier success. It is a new challenge, and
unless one has developed the capability, chances of success are remote. This is
the reason for so many failed enterprises.
h. Creating network
As one establishes in the market and starts to produce more, one will have to
learn to sub-contract manufacturing of some of the components of the products.
There will be enterprises which are already in the trade, even some of the
manufacturers own workers may start such enterprises. One has to use this
facility well, co-operate with the others, and give them necessary feedback to
improve on the quality. Sometimes one may have to help the sub-contracting
enterprises with technological solutions as well. Such a network help minimize
the size of ones business which may go beyond grasp if one tries to manufacture
everything.
i.

Exporting

When one has created a large infrastructure for manufacture and for marketing all
throughout the country, the entrepreneur is automatically ready for export. If a
product has a demand at home, it must have a demand abroad, particularly in
Third World countries having similar economic and social conditions. There is a
very good chance that such efforts will succeed, since it comes with a strong local
background. Besides, in such technology based products one will not have to beg
for quotas from other Governments, as often happens with labour oriented
industries.
7. Conclusion
I have tried to present a picture of the scenario that will help both the technology
innovator and the policymakers to understand the direction of industrialization
that we need. There is no alternative to indigenous technology based industries
that cater to the improvement of the quality of life of the common people.
Although many policymakers suggest that technology can be purchased, in fact,
this is never possible. One has to go through the whole process of R&D to be in a
position where he/she can even copy a foreign product by understanding its
basics. No one in the current world gives out industrial technology, one has to
develop ones own. Exploiting cheap labour for products used by people in
economically advanced countries remote from us makes us completely dependent
on them. Ready-made garments based on foreign designs and foreign raw
materials, computer data entry and handicrafts, all for foreign consumers, may

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look attractive at present, but will not take us very far in sustained
industrialization. We have to appreciate that there goes on a process of
establishing a pecking order globally as well, and unless we increase our own
inherent strength, no amount of shouting and invoking of words like kindness and
humanity will not get the desired actions from the world community in the short
or long term.

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International Journal of SME Development


Volume 01
| Issue 01
| April 2014

Development of Appropriate Technology Based SMEs


in Bangladesh: Role of Bangladesh Council of Scientific
and Industrial Research (BCSIR)
Samina Ahmed, PhD*1

Abstract
This paper highlights and assesses the role of Bangladesh Council of Scientific and
Industrial Research (BCSIR) in exploring the small and medium enterprises (SMEs) in
our country. BCSIR, as the prime public research organization is obligated to perform
scientific and technological research works to explore industrial development. In tune
with the objective, so far BCSIR has contributed to boost up appropriate technology
based SME sectors to some extent. However this contribution is not significant and the
motto with which it started its mission has not yet been fulfilled to the fullest extent. It
could have done further provided adequate R&D allocation on one hand and
magnanimous support from the entrepreneurs on the other hand.
Keywords: Appropriate technology, SME, BCSIR, R&D.

1. Introduction
In this 21st century small and medium enterprises (SMEs) particularly stapled
with need based appropriate technology have occupied the front line in
controlling the lively economy of developing countries. Appropriate technology
based SMEs can easily penetrate into local market to accelerate the economy by
speedy but low-cost employment generation, lucrative revenue earnings as well
as controlling export and trade. Indeed being the prime driver of long-term
sustainable escalation of socio-economic condition, SMEs globally have emerged
as an obligatory component of the supply chain in all key industrial sectors.
Bangladesh as a developing country is striving to turn into a middle income
country through underpinning a healthy economic base by 2021, the 50th
*

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Principal Scientific Officer, Institute of Glass and Ceramic Research and Testing (IGCRT).
E-mail: shanta_samina@yahoo.com

Development of Appropriate Technology Based SMEs in Bangladesh: Role of Bangladesh Council of

anniversary of our independence. However to achieve this target, certainly the


role of appropriate technology oriented demand based SME sectors is pivotal.
Because such SMEs have grasp the steering of rapid and sustainable
industrialization placed in musical chair of amplifying economy and always
being replaced by latest innovations. In the perspective of Bangladesh there is no
other substitute but exploring SMEs based on appropriate technology. Although
SMEs of this category need lower capital investments but generate significant
work opportunities particularly for young generation and female workers.
However, lack of proper access to appropriate technology is one of the
hindrances for sustainable development of SMEs in our country and to overcome
this obstacle, being the largest multi-disciplinary government research
organization Bangladesh Council of Scientific and Industrial Research (BCSIR)
is always marching forward. Indeed, BCSIR is playing a crucial role in the
countrys industrial development by promoting and commercializing research
and technology.
2.

Role of BCSIR in exploring SMEs

2.1 Functions of BCSIR


BCSIR commenced its magnificent journey as the East Regional Laboratories
of PCSIR (Pakistan Council of Scientific and Industrial Research) in January
1955 and since commencement BCSIR is being engaged in performing scientific
and technological research works with the aim to achieve self-reliance in
industrial development. Indeed, BCSIR is mandated to execute scientific and
industrial research and development (R&D) programmes to expedite the socioeconomic development of the country providing services to the: (i) society; (ii)
industry; and (iii) entrepreneurs, SMEs. In tune with this mandate, R&D
programmes of BCSIR are always being emphasized on the following focused
objectives:
i)

Development of marketable products from indigenous resources with


a view to substitute currently imported products and promoting
exports.

technologies related to the industries as well as useful to the current needs of the
country. Prioritizing the socio-economic condition, BCSIR always pays attention
on developing appropriate technology with a motive to assist and explore SMEs.
Thus the key issues considered for choosing R&D projects are:
i)

National demand and market acceptability;

ii) Feasibility (technical, schedule, economic and operational);


iii) Utilization of local resources and raw materials;
iv) Expected outcome and output;
v) Suitability for the establishment of SMEs; and
vi) Competitive sustainability
In order to fulfill the demand of time BCSIR has expanded its domain and aiming
to be self-reliance in industrialization, nine full-fledged research units of BCSIR
are performing R&D projects in various emerging fields of science and
technology. Since, techno-economic feasibility study is the prerequisite for any
industrial process to be commercialized; BCSIR has also established a Pilot
Plant and Process Development Centre (PP & PDC) to conduct the technoeconomic feasibility study of the processes developed by different units of
BCSIR. Thus, the entire effort of BCSIR blends both the innovation and
commercialization of developed technologies toward the successful
establishment of sustainable SMEs.
2.2 Execution of applied R&D projects for product or technology
development
Materialization of a R&D project to a successful end is not so easy as the entire
procedure is a collective form of many individual steps. Nevertheless to
materialize any R&D project successfully, BCSIR usually collates various steps
starting from project selection to execution for desired product or technology
development as sketched in Figure 1.

ii) Development of indigenous technology suited to our environment by


adaptation and assimilation of imported technology.
iii) Promote and assist national industrial development by providing
technical services and scientific inputs to industrial enterprises.
However, keeping the above mentioned mandates in mind BCSIR is mostly
performing applied R&D programmes concerning with the development of

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134

Development of Appropriate Technology Based SMEs in Bangladesh: Role of Bangladesh Council of

BCSIR is obligated to stimulate industrialization in the country; so it is


imperative to publicize the developed technologies crossing the boundary of
BCSIR. In order to disseminate and commercialize developed R&D outputs to
local entrepreneurs as well as to prop up the establishment of new
entrepreneurship an open bid system is offered by BCSIR. Such an open bid
system has merits of many folds; e.g. (i) it helps BCSIR to lease out developed
process in a transparent way; (ii) a significant number of entrepreneurs get
opportunity to participate in the bid; and (iii) it encourages a competitive market
to be flourished. So far BCSIR has developed about 950 processes and among
them about 390 processes have been leased out for commercialization which
have directly contributed the establishment of SMEs and offered huge
employment opportunities. Some of the important processes which have already
been commercialized by local entrepreneurs to explore SMEs are:
i.

Brake oil.

ii.

Portable fibre glass biogas digester.

iii. Fire extinguisher.

Fig. 1 Execution of applied R&D projects en route for technology development

Spirulina as food supplement.

v.

Water filter

vi.

Oral saline

vii. Iodized table salt

The success of any R&D project is measured in terms of its output and outcome;
i.e. nos. of processes developed, patents registered as well as scientific
publications have been set as accountable criteria on one hand while on the other
hand successful commercialization of developed processes is also considered.
Hence aiming the establishment of SMEs, economic feasibility, technical
feasibility, operational feasibility etc. get top priority to assess a developed
process. Nonetheless, as break-even point (BEP), payback period, internal rate
of return (IRR), net present value (NPV) and profit volume ratio (PV ratio) etc.
act as the key norms for a process to be commercialized as successful and
sustainable one, these factors are taken into account while developing a process
in BCSIR.
2.3 Commercialization of developed technologies or processes to explore
SMEs
Successful commercialization is one of the key performance indicators (KPI) to
assess the contribution of BCSIR particularly in accelerating the economy and
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iv.

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viii. Soybean oil


ix.

Diabetic sweats and biscuits

x.

Anti diabetic herbal tea

xi.

Soy protein biscuit

It should be mentioned here that BCSIR transport pool as well as the government
transport pool is using the developed brake oil which is of international standard.
However, during the last 10 years 234 lessees came forward to join their hands
with BCSIR in commercializing the developed processes and thus over this
period BCSIR contributed to generate revenue of 1.6 million BDT. A pictorial
representation as illustrated in Figure 2 portrays the percentage of BCSIR
lessees/entrepreneurs during this phase.

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2.5 Contribution of BCSIR in exploring SMEs SWOT analysis


Being the largest public research organization BCSIR is authorized to endorse
industrialization through scientific and technological development and so far
BCSIR has contributed to boost up appropriate technology based SME sectors to
some extent. However this contribution is not significant and the motto with
which it started its mission has not yet been fulfilled to the fullest extent. It could
have done further provided adequate R&D allocation on one hand and
magnanimous support from the entrepreneurs in developing local technologies on
the other hand. It should be mentioned here that in several cases though the
developed processes have significant merits but successful industrialization faces
hindrance and even subsidy is being offered to disseminate them.
However, following SWOT (strength, weakness, opportunities and threat)
analysis sketches a pen picture of R&D involvement and innovation scenario of
BCSIR.
Fig. 2. Percentage of lessees / entrepreneurs involved in commercializing the developed
processes of BCSIR during the period 2000 2012.

Elements
(i) Strengths

However, still BCSIR has about 560 processes in its credit which are ready to be
leased out for commercialization and among these processes some important
ones are:

(ii) Weaknesses
(iii) Opportunities

i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.
xiii.
xiv.
xv.

Ceramic stain (royal blue, pink, red-brown, green and black).


Dual-fuel engine for irrigation purpose.
Improved cooking stove.
Arsenic removal filter.
Arsenic detection kit.
Low cost transparent glaze for pottery.
Chrome free tanning process.
Formalin detection kit.
Insulating brick from rice husk ash.
Bio-ceramic material.
Diabetic shoe
Urea formaldehyde resin.
Super saver dim-light.
Energy efficient and energy saving building brick.
Water proof wood varnish

International Journal of SME Development

(iv) Threats

Indicators
Competitive human resource
Technical efficiency and expertise
Significant number of developed processes in credit
Lack of proper dissemination of developed technologies
Cultivate new and emerging technologies for the
expansion of SMEs
Create competition in local market
Create job opportunities
Explore cost-effective technologies as import substitute
Accelerate countrys economy
Conflict of interest
Aggressive competition

It is clearly evident from this SWOT analysis that the strengths and opportunities
related with the R&D innovations are in favourable position for industrialization
by exploring SMEs and this could be materialized to a considerable extent with
the openhanded support particularly from the entrepreneurs who would minimize
the weaknesses and threats.

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Development of Appropriate Technology Based SMEs in Bangladesh: Role of Bangladesh Council of

3.

Conclusion

BCSIR is habitually performing scientific and technological R&D works


particularly giving emphasis on appropriate technology to explore
industrialization /SMEs which will ultimately foster economic development at
national level. Since inception, BCSIR has a good number of developed
processes in its credit which offers significant opportunities for potential
development of SMEs. On the other hand, with the ever increasing global
competitiveness, entrepreneurs are also facing intense pressure to augment
economic development as well as profitability which could be achieved through
the application of new and innovative technologies. So a mutual fusion of both
parties (BCSIR & SMEs) mission and objectives can certainly contribute in
sustainable industrialization and thus such an attempt will be a cornerstone to
fortify our economy in this global competition and we are eagerly looking
forward to that.

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Development of Appropriate Technology Based SMEs in Bangladesh: Role of Bangladesh Council of

International Journal of SME Development


Guidelines for Authors1
Introduction
The stress is on original work by the authors. The submission should incorporate
the review comments provided and will be reviewed as per the review sections
and comments provided. Insights and contribution (both theoretical and practice
oriented) being generated would be given prior weight. It is to be noted that
invitation to select papers does not guarantee a journal publication. Authors are
required to ensure their submission as per the guidelines provided. Submissions
not following the guidelines will be rejected and not reviewed and no extension
for resubmission will be provided.
Language
The final submission should be written in English only. You may use this
template as a sample (Template has to be developed).
Length
The final submission should be strictly limited to 7000 words (including abstract,
keywords). Tables, Figures and other illustrations, references are not counted in
the word count. The submission should be in double spacing format. We follow a
single column format. Papers which cross the word limit will be rejected and will
not be reviewed.
Page Layout
All margins should be 2.54 cm (1inch) wide. Text should be fully justified. Do
not type anything outside the print area. The page number should be at the
middle of the page footer. No other content should be present in either the header
/ footer of the submission.
Font
We follow the Times New Roman, 14pt boldface for title, 12pt boldface for
section subtitles and 12 point non-boldface for main text. All the sections and sub
sections should have a numbered heading. For example, the main section would
1.
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The Editorial Board reserves right to change any clause of this guideline without any prior
notification.
International Journal of SME Development: Guidelines for Authors

be 1, sub section would be 1.1 and the sub section further would be 1.1, 1.1.1.
Please limit to three (3) levels of sub sections.
Title
The title should provide a concise statement of the contents. The title alone
should be given on the first page of the submission. The title should begin at 2.54
cm from the top edge of the page, centered, and in 14-point, boldface type.
Capitalize the first letter of nouns, pronouns, verbs, adjectives, and adverbs; do
not capitalize articles, conjunctions, or prepositions (unless the title begins with
such a word). Leave a blank line after the title.
Area covers
Under the domain of SME Development IJSMED covers but not limited to the
following areas: International Business and Marketing of SME products,
Organizational Development and Challenges, Leadership and corporate
governance, Sector studies: constraints and opportunities, Entrepreneurship and
business development, Prospective new SME sub-sector / product / services/
operations, supply chain management and value chain analysis of SME products,
Human resource development / capacity building, Women entrepreneurship
development, Innovation and change management, Technology transfer,
technology up gradation, Standardization, international certification of SME
products, IPR and other rights for SMEs, Access to finance / SME banking,
Economic Theory and SME related policy issues, etc.
Separate file for Author(s) and Affiliation(s)
The names of authors and their affiliation should not appear anywhere in the final
submission. You need to submit a separate file containing the title of the paper,
plus the names, affiliation and complete addresses, e-mail and fax number of
authors, brief biographical notes about authors and any acknowledgements, all in
Times New Roman, 12- point, non-boldface type. The author for correspondence
should be marked.
Main text
Type your main text as double spaced in 12-point, justified. Paragraphs are not
to be indented. Please leave a blank line when a new section starts, but do not
place any additional blank lines between paragraphs (the double spacing
followed will suffice).

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Illustrations, photographs and tables


Figures, photographs and tables should be included into the text and fit in the text
area.
Captions to tables should be given at the top of each table. Captions to figures
and photographs should be given at the end of each figure and photograph. Font
size should be 10 for captions. Line drawings should be in a form suitable for
reproduction without modification. The illustration should be sharp and visible,
especially when highlighting an aspect. In cases of using any other copyrighted
image or content as a reference for the paper, it is the duty of the author to get
due approval for use where applicable.
PowerPoint Presentation
This will be required post the review status of the full submission. At the time of
full paper, the authors have to submit a PowerPoint presentation as per earlier
guidelines provided. This extended abstract would be published as conference
proceedings. Further information would be provided in due course.
References citation
List and number all bibliographical references in 12-point font, double spaced, at
the end of your paper using the Harvard style. All references must be cited in the
text (Name, year of publication). Where appropriate, include the name(s) of
editors of referenced books. Websites accessed have to be cited with their access
date.
Sample citations
Jack, J and Moinihan P, Year. Book Title, Publisher, Location.
Lara A.B, Jones C.D, and Roberts E.F, Year. Article Title, Journal, Vol. 122,
No.3 pp. 1-10,
Publisher, Location
Rumelt R, 1984 in Hart, Stuart L, Year. Article Title, Journal, Volume 20, No.4,
pp. 986-1014, available at
http://www.cbe.wwu.edu/dunn/rprnts.naturalresourceviewofthefirm.pdf
(Accessed 19 June 2010)

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