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Small Scale Industry

Answer: Definition of Small Scale industries

Sometimes called a small business, a small-scale enterprise is a business that employs a small
number of workers and does not have a high volume of sales. Such enterprises are generally
privately owned and operated sole proprietorships, corporations or partnerships. The legal
definition of a small-scale enterprise varies by industry and country.
Small business has been defined by various authors in various ways. Some definitions are given
According to Small business Act, A business which is independently owned and
operated & not dominant in its field
According to Bolton Report, A Small firm in one that has a relatively small share of its
According to Stoner, Freeman &Gilbert, Small business refers to business locally
owned and managed, often with very few employees working at a single location.
According to United States Government, A small business is one with fewer than 500
In Bangladesh for manufacturing industries, the Industrial Policy 2005 defines SME are as



An enterprise would be treated as small if, using todays market prices, the
replacement cost of plant, machinery, building, structures, and other
parts/components, fixtures, support utilities, and associated technical services (such
as turn-key consultancy) would total up to BDT10 million.
An enterprise would be treated as medium if, using todays market prices, the
replacement cost of plant, machinery, building, structures, and other
parts/components, fixtures, support utilities, and associated technical services (such
as turn-key consultancy) would total up to BDT100 million.
Land is excluded for both of these definitions above.

For non-manufacturing activities (such as trading or other services), the Task Force
definitions of SME are as follows:
An enterprise would be treated as small if it has fewer than 25 workers, in full-time
An enterprise would be treated as medium if it has between 25 and 100 employees.
An alternative, albeit informal definition of SMEs used by the Bangladesh Bureau of
Statistics takes head-count as its basis. Enterprises with up to 9 employees are
treated as micro; between 10 and 49, as small; between 50 and 99, as

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medium, and all the rest, as large. For statistical purposes, this is the definition
used here.

Classification of Small Scale Industry

A common classification is between traditional small industries and modern small industries.
Traditional small industry
Traditional small industries include khadi and handloom, village industries, handicrafts,
sericulture, coir, etc.
Modern small industry
Modern SSIs produce wide range of goods from comparatively simple items to sophisticated
products such as television sets, electronics, control system, various engineering products,
particularly as ancillaries to the large industries.
The traditional small industries are highly labor-intensive while the modern small-scale units
make the use of highly sophisticated machinery and equipment.

Roles of small scale industries in our economy

In a developing country like Bangladesh and India, the role and importance of small-scale
industries is very significant towards poverty eradication, employment generation, rural
development and creating regional balance in promotion and growth of various development
It is estimated that this sector has been contributing about 40% of the gross value of output
produced in the manufacturing sector and the generation of employment by the small-scale
sector is more than five times to that of the large-scale sector.
This clearly shows the importance of small-scale industries in the economic development of the
country. The small-scale industry has been playing an important role in the growth process of
Bangladesh economy since independence in spite of stiff competition from the large sector and
not very encouraging support from the government.

The following are some of the important role played by small- scale industries in Bangladesh:

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Employment generation: The basic problem that is confronting the Bangladesh economy
is increasing pressure of population on the land and the need to create massive
employment opportunities. This problem is solved to larger extent by small-scale
industries because small- scale industries are labour intensive in character. They generate
huge number of employment opportunities. Employment generation by this sector has
shown a phenomenal growth. It is a powerful tool of job creation.
Mobilization of resources and entrepreneurial skill: Small-scale industries can mobilize
a good amount of savings and entrepreneurial skill from rural and semi-urban areas
remain untouched from the clutches of large industries and put them into productive use
by investing in small-scale units. Small entrepreneurs also improve social welfare of a
country by harnessing dormant, previously overlooked talent. Thus, a huge amount of
latent resources being mobilized by the small-scale sector for the development of the
Equitable distribution of income: Small entrepreneurs stimulate a redistribution of
wealth, income and political power within societies in ways that are economically
positive and without being politically disruptive. Thus a small-scale industry ensures
equitable distribution of income and wealth in the Bangladesh society which is largely
characterized by more concentration of income and wealth in the organized section
keeping unorganized sector undeveloped. This is mainly due to the fact that small
industries are widespread as compared to large industries and are having large
employment potential.

Regional dispersal of industries: There has been massive concentration of industries in a

few large cities of different division of Bangladesh. People migrate from rural and semi
urban areas to these highly developed centers in search of employment and sometimes to
earn a better living which ultimately leads to many evil consequences of over-crowding,
pollution, creation of slums, etc. This problem of Bangladeshi economy is better solved
by small- scale industries which utilize local resources and brings about dispersion of
industries in the various parts of the country thus promotes balanced regional
Provides opportunities for development of technology: Small-scale industries have
tremendous capacity to generate or absorb innovations. They provide ample opportunities
for the development of technology and technology in return, creates an environment
conducive to the development of small units. The entrepreneurs of small units play a
strategic role in commercializing new inventions and products. It also facilitates the
transfer of technology from one to the other. As a result, the economy reaps the benefit of
improved technology.

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Indigenization: Small-scale industries make better use of indigenous organizational and

management capabilities by drawing on a pool of entrepreneurial talent that is limited in
the early stages of economic development. They provide productive outlets for the
enterprising independent people. They also provide a seed bed for entrepreneurial talent
and a testing ground for new ventures.
Supports the growth of large industries: The small-scale industries play an important
role in assisting bigger industries and projects so that the planned activity of development
work is timely attended. They support the growth of large industries by providing,
components, accessories and semi-finished goods required by them. In fact, small
industries can breathe vitality into the life of large industries.
Better industrial relations: Better industrial relations between the employer and
employees helps in increasing the efficiency of employees and reducing the frequency of
industrial disputes. The loss of production and man-days are comparatively less in smallscale industries. There is hardly any strikes and lock out in these industries due to good
employee-employer relationship. Of course, increase in number of units, production,
employment and exports of small- scale industries over the years are considered essential
for the economic growth and development of the country. It is encouraging to mention
that the small-scale enterprises accounts for 35% of the gross value of the output in the
manufacturing sector, about 80% of the total industrial employment and about 40% of
total export of the country.

Bring out the problems faced and remedies available for small scale units.
The management of small industrial units has to face certain problems these are:
Shortage of Raw Materials and Power: The small scale industrial suffer from acute
shortage of basic raw materials. For instance, the handloom industry is wholly dependent
upon the supply of yarn which is generally in short supply. Besides, there is also a
considerable lack of reliability in the quality of raw materials available in the market.
Shortage of power is another factor which materials available in the market. Shortage of
power is another factor which leads to under-utilization of plant capacity.
Inadequate Financial Resources: Every business enterprise needs sufficient funds to
finance the purchase of plant and machinery, building, raw materials, etc., and to meet
day-to-day expenses including wages, rent, power and water charges and administrative
and selling expenses. Small firms are sometimes not able to raise sufficient money to
provide for fixed and working capital.

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Old Techniques of Production and Lack of Latest Technical Knowledge: Most of the
small firms are using old techniques of production because they cannot afford new
machines are equipment which are necessary for modernizing production. Thus, small
business enterprises are not in a position to make use of the latest techniques of
production. It is because of this reason that the cost of production of small units is higher
than that of large scale units. The margin of profit of small units is higher than that of
large scale units. The margin of profit of small units is usually law due to which they can
neither compete with the large scale units nor undertake innovative activities.
Lack of Trained Personnel: There is a lack of entrepreneurs with both knowledge and
vision who can see development in true perspective and can spot a potential industrial
opportunity, evaluate its soundness, and put together all the building blocks of a project
to make it a feasible proposition. There is not only a dearth of entrepreneurs with the
requisite initiative, motivation and the seed capital, but also of personnel with adequate
managerial skills and qualities. If such personnel are available, they lock for better
opportunities in the large scale industries. Thus, small industrial unit get the personnel
rejected by the large scale units
Difficulties in Marketing: Small scale industries face many difficulties in marketing their
products because of many reasons. Firstly, their cost of production is higher because of
which they cannot compete with large scale units. Secondly, they cannot afford to have
their own suitable marketing organization. Finally, many small firms manufacture goods
which are not of uniform quality. They do not follow quality control because of which
they cannot offer standardized products. This creates a problem in marketing. Sometimes,
they have to sell their products oat throwaway prices because they have poor bargaining
power and require money immediately.
Imperfect Management: In most of the small enterprises, the ownership and
management functions are not separated. They are performed by the owners of the
enterprise. It generally happens that the persons who finance the business operations do
not possess the necessary skills which are required for the efficient planning,
organization, and control of various operations of the enterprise. There is no proper
division of work among the people working in the organization. Such enterprises cannot
reap the benefits of specialization as are available to big enterprises. Managing is no
more a simple job. It requires a lot of knowledge, farsightedness and training which are
often not found in case of small business units.

Remedies for small scale industry:

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SMEs will continue to be the major driving force for income and employment generation in
Bangladesh. The future for entrepreneurship appears to be very bright. We are living in the age of
the entrepreneur, with entrepreneurship endorsed by government, business community,
educational institutions, society, and corporations. Development of SMEs in Bangladesh is the
need for the raise of the standard of living of the people of our country. The modest suggestions
and recommendations are given below:
Enhancing Access to SME Finance: Access to institutional finance for SMEs is still
greatly limited. Less than 30% SMEs have access to institutional loans. Enhancing access
to institutional finance by 50% of SME entrepreneurs may be a target within next five
years through strengthening SME foundation, motivating institutional sources of
financing to provide access to the deserving loan applicants.
Development of SME Infrastructure: Infrastructure development is a prerequisite to
efficient development and financing of SMEs Currently, the most severe constraint that
hinder the development of SMEs is the lack of infrastructure (e.g., roads, gas and
electricity), limited access to market opportunities, technology, expertise and business
information and communication. Providing appropriate infrastructure for SME growth
should be given priority.
Quality of SME Products: Poor quality of products is a big setback for expansion of
SME business and SME sector as a whole. Measures for quality improvement and
standardization of SME products have to be one of the targets. The BSTI may be made
more effective in monitoring quality of product both for domestic market and for exports.
Training Facilities for SME workers and Entrepreneurship: Bangladeshi workers are
very good at learning production skills and copying them. However, training facilities for
SME workers and development of entrepreneurial skills are not adequate in our country.
Some training Institutes like the Training Institute of BSCIC impart training but it is not
utilized properly. Special programs are to be undertaken for the establishment of training
institutes regarding entrepreneurship development.
Organizing Trade Fairs, Symposiums, Workshops on SMEs on Regular Basis: At
present workshops and symposiums on SMEs are held by different organizations and
think tanks, but these are held infrequently and not in any systematic manner. A plan for
holding seminars, workshops, trade fairs, etc. on a regular basis should be formulated.
Setting Help Desks in Banks and Business Promotion Bodies with Internet Facilities:
To extend the outreach of SME development particularly in respect of women
entrepreneurs, a Help Desk with computer and internet facilities should be set up in bank
branches dealing with SME finance as well as in all chambers of commerce and industry
and other trade promotional bodies.

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Challenges for SME Development in Bangladesh

A number of challenges have been identified that still confront the SME sector in its effort to
Intense competitiveness in the global and domestic marketplace in which the SMEs must
Steadily increasing quotients of specialized knowledge and codified R&D that have
become defining characteristics of products and competitors in globally integrated
Inequalities in the distribution of wealth, including human capital, that lead to a crowding
out of SMEs in general, and small enterprises in particular, from participating in markets
for venture capital and credit.
Deficiency in policy-relevant knowledge and information of a kind that can make a
difference in the pro-poor focus of a development strategy for SMEs growth.
Inadequate level and uneven distribution of execution, design, and implementation
capacities in the facilitators and providers who can spur competitive growth of their
clients in the shortest possible time.
The inherent difficulties of dealing effectively with government failures, market failures,
and enterprises own failures in the interest of expeditious development of SMEs.

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