Challenges and Issues of Setting Up New Small and

Medium Scale Business in Pakistan

A Project Work Report By

MUHAMMAD NADEEM
Registration Number
CIIT/FA17-BAF-064/LHR

Submitted to
AFFAN AHMED KHAN Lecturer

Department of Management Sciences

COMSATS University Islamabad, Lahore

Campus

In Partial Fulfillment of the Requirements for the Degree of BACHELOR

OF
SCIENCES IN ACCOUNTING AND FINANCE (BSAF)

Submission Month and Year

November 2020

i
ii
 Declaration

I, hereby, declare that the project work entitled Challenges and Issues of Setting
Up New Small and Medium Scale Business in Pakistan submitted to the
Department of Management Sciences, CUI, Lahore Campus, is an original piece
of work under the supervision of Prof. Mr. Affan Ahmed Khan submitted in
partial fulfillment of the requirements for the degree of Bachelor of Sciences in
Accounting and Finance (BSAF). This project work report has not been submitted
to any other university or institution for the award of degree.

Signature:

Name of Student: Muhammad Nadeem

Email: fa17-baf-064@cuilahore.edu.pk
Date; November 18.2020

iii
 Supervisor’s Recommendation

The project work report entitled Challenges and Issues of Setting Up New Small
and Medium Scale Business in Pakistan submitted by Muhammad Nadeem of
CUI, Lahore Campus, has prepared under my supervision as per the procedure and
format requirements laid by the Department of Management Sciences, CUI,
Lahore Campus, in partial fulfillment of the requirements for the degree of
Bachelor of Sciences in Accounting and Finance. I, therefore, recommend the
project work report for evaluation.

Signature

Name of Supervisor: Affan Ahmed Khan

Email: affankhan@cuilahore.edu.pk
Date:

iv
 Endorsement by Head of Department

I, hereby, endorse the project work report entitled Challenges and Issues of
Setting Up New Small and Medium Scale Business in Pakistan submitted by
Muhammad Nadeem of, CUI, Lahore Campus, in partial fulfillment of the
requirements for the degree of the Bachelor of Sciences in Business
Administration (BSAF) for external evaluation.

Signature:

Name of Head of Department:

Date:

v
 ACKNOWLEDGEMENT

Accomplishment of this project was only possible with the blessing of almighty
Allah, the most beneficent. Cooperative roll of my class fellows and colleagues is
acknowledged. It is deeply recognized that this work has been drawn on major inputs
from Mr. Affan Ahmed Khan, Lecturer at CUI Lahore Campus. Contribution
from Mr. Atif Ali, Manager Production at US Denim Mills Lahore and Fatima
Khalid master’s in human resource management is also remained strength for the
Paper. I acknowledge the discussion with owners and officers of small industries.
The inputs from Usman Ashraf owner of Real Denim Jeans are acknowledged.

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 Table of Contents
DECLARATION........................................................................................................III
SUPERVISOR’S RECOMMENDATION.............................................................IV
ENDORSEMENT BY HEAD OF DEPARTMENT...............................................V
ACKNOWLEDGEMENT.......................................................................................VI
ABSTRACT................................................................................................................1
CHAPTER 1...............................................................................................................2
1.1: INTRODUCTION.................................................................................................2
1.2: CHALLENGES FACED BY S.M.E.S IN PAKISTAN.............................................3
1.3: RESEARCH OBJECTIVE....................................................................................4
1.4: RESEARCH QUESTION......................................................................................4
CHAPTER 2...............................................................................................................5
LITERATURE REVIEW..............................................................................................5
2.1: INTERNAL OBSTACLES.....................................................................................5
2.1.1: Financial issues.........................................................................................5
2.1.2: Organizational Problems...........................................................................6
2.1.3: Training Difficulties..................................................................................6
2.2: SMALL- AND MEDIUM-SIZED ENTERPRISES EXTERNAL OBSTACLES..............7
2.2.1: Infrastructure.............................................................................................8
2.2.2: Corruption Issues.......................................................................................8
2.2.3: Economic and Technological Questions..................................................9
2.3: RESEARCH METHODOLOGY..........................................................................10
2.3.1: Sample......................................................................................................10
2.3.2: Instruments..............................................................................................11
1.3.3: Findings...................................................................................................11
CHAPTER 3.............................................................................................................21
FOCUSING ON EFFECTS.........................................................................................21
CHAPTER 4.............................................................................................................23
4.1: SUGGESTIONS.................................................................................................23
4.2: RESEARCH LIMITATION AND FUTURE:.........................................................24
CHAPTER 5.............................................................................................................26
Reference...............................................................................................................26

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viii
 Abstract

The purpose of this project is to discuss about the shortcoming, challenges and pitfalls of
Small and Medium Enterprises (SME) in Pakistan and discuss regarding better ways and
directions of run enterprises. The main objective of this paper is to highlight the issues and
challenges faced by SME and new entrepreneurs and provide those solutions and
suggestion by following the Small and Medium Enterprises Development Authority of
Pakistan (SMEDA). This project is prepared based on secondary data mostly from
previous relevant articles and research papers on SMEs. This project also discusses the
todays scenario about the small businesses in Pakistan specially alarming issues like
COVID19 and why new entrepreneur is too much confused to implement his/her idea.
Because in current days how COVID19 has affected the multinational and Pakistani
businesses. The project tells us how entrepreneur survive in this pandemic situation.
Although provided suggestion in this project are not enough to support SMEs but these
will help them to weather the storm.

Keywords: Small and Medium Enterprises, Small Business, Business Challenges,

Entrepreneurship, SMEDA, Pakistan Economy.

1
 Chapter 1
1.1: Introduction
The small business sector in Pakistan plays a vital role in the economy and is saw as
survival in much worse economic conditions. The small business sector in Pakistan is the
backbone of Pakistan's economy. Pakistan's economy is fair to say that it is an S.M.E.
economy. Around 90 percent of all business sectors make up this sector. The industry
accounts for 77% of the total employment in the industry. S.M.E.s make up 40 percent of
Pakistan's annual G.D.P (S.M.E.D.A.,2010). As per the Pakistan Economic Survey, almost
3.2 million small and medium-sized enterprises operate in the country and contribute to
the economy and contribute 24 percent to domestic manufacturing exports. In general, it is
recognized that the smallest features of S.M.E. economics in Pakistan are minimal and
that Pakistani researchers and practices have not been given sufficient attention to
improving small and medium-sized businesses' productivity. Entrepreneurs in Pakistan
face numerous obstacles that restrict sustainability and development for the long term.
Pakistan is a country where there is complete uncertainty in business. The rate of inflation
is much higher than that of others in Asia. Foreign direct investment is much discouraged
by terrorism and booming suicides. The whole economy has collapsed, and the livelihood
of people has fallen. The business sector, especially the S.M.E. sector, must flourish to
develop a prosperous economy.

The failure rate of small businesses' development in developing brokers is higher than that
of developed countries. Despite efforts made previously, the S.M.E. sector has not been
giving the priority it deserves and has not reached a targeted result. Also, the Government
does not focus much on supporting the S.M.E. sector. In the industry that is 85% of
entrepreneurship, mostly S.M.E.s face insufficient resources, low technology capabilities,
outdated manufacturing facilities, non-competitive products, and a lack of skilled workers,
according to 1998 estimates(Raouf, A.,1998). These characteristics of the S.M.E. sector
suggest that many small and medium-sized enterprises have a lower growth trap, deal with
old products, and cannot raise the ladder of technology. According to Pakistan's regulatory
and policy, the environment remains very favorable for S.M.E.s, and the Government's
overall efforts remain focused on developing large companies(Khawaja, S.,2005).Small
businesses usually do not have sufficient access to business resources. This environment
of obstacles for S.M.E.s in Pakistan will continue until the responsible authority has
introduced a new revolutionary politics.

2
1.2: Challenges Faced by S.M.E.s in Pakistan
According to (Ali, et al., 2011), insufficient information on external sources, inadequate
innovation, unfavorable government politics, high threats due to incertitude, lack of
intellectual resources, lack of institutional support, lack of adequate business strategies are
the main problems impeding the performance of S.M.E.s in Pakistan The low level of
technology and the lack of technological and managerial skills are also a restriction facing
the S.M.E. sector. The short technical level has reduced S.M.E.s' operating efficiency and
innovation activities directly. The inadequacy of intellectual skills minimizes the ability to
compete. Unfortunately, supporting government organizations and other organizations like
universities have been unable to improve technical and professional know-how in this
sector.

Moreover, many small and medium-sized enterprises in Pakistan lack intellectual abilities
and the relevant education to run their businesses (Ali, et al.,2005).These affect their
ability to monitor and plan effectively. Some small and medium-sized companies use the
company's loans. It is obvious when large numbers of small and medium-sized businesses
have been operational between one and five years. Some have disappeared between 6 and
10 years, and when small and growing companies in Pakistan are less than five to ten
percent(Ali, et al.,1998).Therefore, it is indicative of low growth and high mortality
amongst S.M.E.s in Pakistan. As a result, Pakistan's performance in S.M.E.s is lower than
expected from other mid-income regions. In the knowledge economy, the lack of
experienced and skilled workers in Pakistan is a significant obstacle to the decline in small
and medium-sized enterprises' performance. To reach a competitive edge on the market,
S.M.E.s need the concept and practical implication of intellective capital.

Also, innovation in S.M.E.s in Pakistan is regarded as a significant issue. Pakistan is

ranked 108th out of 128 countries in the Global Innovation Index report. There are over
3.2 million businesses in Pakistan, of whom 99% are S.M.E.s (Bilal et al., 2016).
However, the market share of non-competitive small and medium companies in local and
international markets has been lost. In the end, the overall performance of S.M.E.s has
declined. Bilal et al. (2016) further increased the lack of financial and expertise to enhance
Pakistani S.M.E.s' active and widespread participation in innovation activities and build
innovative capacity, thus creating barriers to satisfactory performance and creating value
for S.M.E.s' money.

3
Another reason for Pakistan's small and medium-sized companies' poor performance is
environmental turbulence. In Pakistan, the main hurdle impeding businesses and
preventing them from seizing opportunities in the turbulent environment. Therefore, the
textile industry's low growth rate is behind the other Asian counterparts, such as China,
India, and Bangladesh. Pakistani manufacturers face competition in just a few years.

According to the State Statistics Office of Pakistan, the country's commodity exports have
fallen to 10,322 billion dollars from 10,058 billion during the first seven months of this
year, while the number of regional players and the textiles market share continues to
decrease from 2.2 percent to 1.6 percent. The decrease is recorded as a percentage of
14.40%. The leading causes of reduced exports, such as outdated technology, lack of
intellectual capital, and the capacity for absorption cited, are reasons for decreased exports
of Pakistan's textile product.

1.3: Research Objective

It aims to analyze and examine critically the domestic and foreign binding obstacles that
S.M.E.s face in Pakistan. To explore the barriers in Pakistan for the S.M.E. sector, the
researcher used the primary component analysis (P.C.A.) approach. P.C.A. is often used to
group variables positively correlated into the main components, making the research more
straightforward. There were six variables, which were significant obstacles for Pakistan's
S.M.E. sector. Legal constraints and bribery barriers in Pakistan have dominated S.M.E.
companies. The study also focuses on improving the efficiency and sustainable
development of small companies in Pakistan.

1.4: Research Question

What are the impacts of domestic and foreign trade on SMEs?

What are the barriers in the formation of SMEs in Pakistan?

How to improve sustainability and efficiency in the SMEs?

4
 Chapter 2
Literature Review
2.1: Internal Obstacles
2.1.1: Financial issues
Large enterprises are only Pakistan's primary financial credit system beneficiaries. The
small and medium-sized business sector is wholly ignored. As per S.M.E.D.A., large
corporations in Pakistan accounted for 54 % of the total credit system, whereas small and
medium-sized companies receive only 19% of their share (Khan, et al., 1997). Fortunately,
the level of funding for S.M.E.s has now overgrown. By June 2004, the small and
informal financial lending sector had increased from Rs 145 billion to Rs 250
billion(Hamid, et al.,2006). Financial institutions in Pakistan are incredibly reluctant to
finance small and medium-sized businesses. It is argued that crediting is too hard on
S.M.E.s in Pakistan, as banks in Pakistan are risky and avoid S.M.E.s' uncertainty.

The Government's commitment to S.M.E.s in Pakistan is also tricky. The process for
obtaining credit is subject to delays when it comes to small business financing. The
permissions for banks' loans are delayed by 2-10 months, according to the S.A.M.D.A.
(2001) survey. These problems with access to credit also arise from the policy and
regulation of the State Bank of Pakistan, which restricts banks' ability to unsecured
lending to S.M.E.s. Due to their inefficient repayment capacity, the S.M.E. sector is
reluctant to obtain loans from banks.

This is also interesting because the S.M.E. sector's financing is low in official sector
loans. S.M.E. owners prefer to replace and use their savings or family savings for their
businesses. Rather than receiving a loan from banks, the equity finance costs are very low
for their friends and family than bank borrowing. However, in Pakistan, there remain
enormous obstacles to the lack of financing from the formal economy. One of the main
constraints for funding for small and medium-sized businesses in Pakistan is that S.M.E.s
do not have a complete history of their companies, making them have restricted bank
finance access. Some other limitation of financial institutions to lend money to small and
medium-sized companies in the small loans, usually applied for by small and medium-
sized companies, is to create enormous loan costs per unit for the banks (Salman, et
al.,2003).

5
2.1.2: Organizational Problems
Management expertise has a bearing on company performance. Less executive expertise is
available to S.M.E.s. Managers in S.M.E. have little awareness of how their financial
affairs can be managed. The business resources are, therefore, not used. Several studies
have revealed that in Pakistan, S.M.E.s' economic performance is greatly affected by
inadequate management capabilities, particularly in small companies (Murphy,et
al .,1996). In truth, it is risky to start a S.M.E. enterprise, but effective management skills
can be a successful enterprise. Management expertise is an important factor in S.M.E.s'
success and failure (Pearce, et al.,2000). There are also many factors to discourage
business success, including poor bookkeeping, lack of technical business knowledge, lack
of management skills, poor corporate planning, and lack of market research.

The fact that education, training, and experience among senior managers are significant
differences between high growth and low-growth companies of S.M.E.s has argued that
poor management skills have almost consistently caused a small business failure
(MacRae,et al ., 1991). Also, the company does not develop a fundamental internal
strength to support its company. Insolvent companies' managers have no experience,
knowledge, or vision to manage their businesses. As Pakistani S.M.E.s, most companies
are not well trained by the owners of companies.

2.1.3: Training Difficulties

Training issues are the ultimate internal barriers for S.M.E.s in Pakistan. In Pakistan,
employees' primary training for small and medium-sized enterprises is informal since
formal training in the S.M.E. sector is costly and unrelated. Proper training is the major
problem for S.M.E.s, as smaller companies are less likely to provide outside education to
all workers' grades than big companies (Aftab, et al., 1986). Assessment report (2002)
indicates that S.M.E. managers believe that informal training is a cost-efficient and
appropriate solution for small and medium-sized enterprises due to their limited resources.
However, other consensus points to informal training for the development of S.M.E.
managers not being instrumental.

These informal training courses are offered to the S.M.E. firm employees during work, job
rotation, and informal seminars. S.M.E.D.A. is responsible in Pakistan for training related
to small and medium-sized businesses (Nager,et al.,1999). S.M.E.D.A. says that Pakistan's
6
small and medium-sized enterprises are being hampered with financial and other resources
(Johnson,S.,1999). This inherent feature of an S.M.E. requires them to advance marketing,
finance, and human resources training and development to survive in the industry(Hendry,
et al.,1991). Further research concludes that all knowledge economists reduce employees'
conflict by well-trained and trained employees (Reid, et al., 2001). This area still received
little attention in the literature, despite all this importance.

EXTERNAL INTERNAL

OBSTACLES OBSTACLES

SMES
INFRASTRUCTURE
Obstacles
FINANCIAL
OBSTACLES

MANAGEMENT
TECHNOLOGY ISSUES
ISSUES

CORRUPTION TRAINING ISSUES

Fig. 1: Internal and external constrains for SME Businesses in Pakistan

Source: Adapted and modified Model from Okpara and Wynn Study (2007)

2.2: Small- and medium-sized enterprises external obstacles

In every country, small and medium enterprises make an enormous economic contribution
(Jennings,et al.,1995). Country infrastructure plays a critical role in improving short and
7
medium-sized businesses properly, and poor infrastructure cannot effectively support
S.M.E.s' development. According to a collective barrier for the growth and development
of Pakistan's industrial sector, inadequate energy and power are insufficient energy
workforce. Ladder drainage and the unreliability of the power supply are often emerging
and are a significant industry challenge. These energy crises raise production costs and
reduce the production factor. The analysis in additional survey reports mainly involves the
informal sector for S.M.E.s. However, this informal economy's developments have
fundamental problems such as a flawed transport system, shortage of storage, the crisis in
water and power provision, a lack of work environment in small enterprises, and poorly
developed physical markets. Recommend about 6 % of G.D.P. to be lost due to Pakistan's
wasteful transportation system. Power transmission and power supply losses, power theft
are extremely high compared with developing countries' standards. It is also important to
note that the problems are most elevated in Pakistan compared to South Asia.

2.2.1: Infrastructure
Not only is Pakistan's small and medium-sized enterprises a hindrance to the lack of
infrastructure necessary, but it is also indeed a significant problem in third countries and,
to some extent, a developing country problem too. Like an empirical research
study(Mambil, et al., 2002).conducted in Nigerian companies, it is also investigated that
Nigeria's infrastructure and services are insufficient to facilitate the Nigerian companies'
successes(Okpara, et al .,2011). Indeed, adequate infrastructure supports investor
investment in small and medium-sized companies in a country, although it is sad to say
very difficultly to establish a new business in Pakistan. The procedure is very complicated
to obtain a license in Pakistan. Pakistan considered the issuance of a transparent and
immediate company license as a poor rating country. This rating also demonstrates that its
fundamental infrastructure is lagging, which means that business costs are relatively high
(Khattak, et al.,2001).

2.2.2: Corruption Issues

There are many definitions of corruption. "Corruption is the abuse of the public office to
benefit privately," according to international transparency, the World Bank and A.D.B
(Baldwin,et al.,1997). In the numerous cases investigated by the National Accountability
Bureau, extensive corruption in Pakistan is revealed. Other critical issues for companies to
conduct business in Pakistan are identified by the Global Competitiveness Report (2007-

8
08), which recognizes, alongside govt, bureaucratic, and bribery(Ian McCartney, et
al.,2007).

The business owner in Pakistan sees that neighboring countries' palaces are somewhat
better at trading than Pakistan. Almost 40 % of companies owned decreased that their
corporate corruption was a significant concern. According to the World Bank's business
survey(World Bank.,2002),Pakistan is becoming high in the Asia Pacific, and the only
Maldives is corrupter than Pakistan. The second major and highly regarded corruption of
small and medium-sized enterprises is corruption. To give a public official an unfair
advantage to a person who does not qualify for those rights. Small and medium enterprises
often face additional payment requests and charges for services that they do not have the
right to in that respect. This approach affects those companies who honestly and fairly
conduct their business and creates a potential barrier to the profitability and growth of
companies that competes in the industry (U.N.U.N.,2007).

2.2.3: Economic and Technological Questions

Pakistan is the country with the highest inflation in Asia. In the end, this affects the
customer's buying power. In the recessionary economy, consumers avoid getting services
or purchasing products. This led to low production and services requirements and affected
small and medium-sized enterprises in Pakistan. The other economic problem is the high
government tax rate. Several empirical studies have concluded that informal economic
growth is discouraged by contribution to tax and social security as the direct tax burden in
Austrian companies influences taxpayers' behavior most because of the complexity of the
fiscal system. The main factor for Colombian S.M.E.s in keeping them under the shadow
of an informal economy is founded taxation and unemployment(Schneider, et al.,2007).
Another study found that tax is the main barrier to the development of business in
Ukraine(Naschekina, et al.,2005).

Ninety percent of companies within surveyed countries are ranked in the taxation system
in their countries as one of the top five barriers to doing business, according to World
Paying Tax report(Schneider, F.Torgler,2007). In Pakistan, S.M.E.s owner 67% of small
companies claim that the taxation regulation is the most difficult in Pakistan, and 28% for

9
small and medium-sized enterprises believe that the country's taxes are very high(World
Bank.,2002).

Dynamic and turbulent production conditions have forced small and medium-sized
businesses to compete worldwide to change their traditional business methods. Pakistan's
small and medium-sized enterprises rely on low and modern technology. Numerous
significant factors help sustainably develop small and medium-sized businesses, yet
advanced technologies must play a role in developing the S.M.E. sector. Advanced
production methods in small companies allow small and medium-sized companies to
change their established production processes to achieve their fair share of businesses in
the national and international markets.

2.3: Research Methodology

This research highlights the obstacles and challenges on the small and medium-sized
enterprises in this co-relational study.

This chapter will use quantitative research design. The results of the research are based on
the determinants from each sample or population element calculated. These findings assist
the researcher in selecting the appropriate sampling technique, data collection instruments
and data analysis. This helps in the results of the sample statistics that are likely to be used
in the Pakistan different sector.

2.3.1: Sample
Original information on S.M.E.s has been obtained from the Chamber of Commerce of
Islamabad and Rawalpindi. The survey provided the address, e-mail, telephone numbers,
and fax number of S.M.E.s. The Sample was taken from the membership lists of both
initial chambers. The Service and Manufacturing Sector selected 120 small and medium-
sized companies (Gunasekaran, et al.,2000). The Sample included importing and
exporting suppliers, gas stations (tanks), travel agencies, marble companies, builders, and
soft drinks suppliers (Dangayach, et al., 2005). The Sample was chosen randomly from the
existing chamber of commerce population to ensure all categories of size. Prior
appointments were made by telephone for each small and medium-sized enterprise based
in Islamabad and Rawalpindi. It was only agreed to answer our request by 107 SME
managers/owners. Of the 120 questionnaires selected, 107 were available for analysis. The

10
rate of the respondents was quite good. The overall quality of the respondents was 85%.
The data from the survey were analyzed using version 15 of S.P.S.S. software. The
researcher used an analysis method for determining barriers to the Pakistani S.M.E. sector
as a primary component factor.

2.3.2: Instruments
The measurement scale of an obstacle to the Pakistani S.M.E. sector was a 5-point scale
classification of the Likert sector where 1 was the least agreement, and 5 was the most
consensus. It was a two-piece instrument. The first section concerns S.M.E.s' demographic
area, and the second section refers to obstacles facing the small and medium-sized
enterprises industry. The scale was used in two major research studies in Africa(Olawale,
et al., 2010) to measure the challenges for S.M.E.s(Okpara, et al.,2007).  Some
instruments have also been adopted to gain a deeper understanding of the obstacles that
S.M.E.s face. A little change has been made for the S.M.E. managers to speak the easily
understandable language.

1.3.3: Findings
Principle Component Analysis: The data was analyzed using the factor analysis
technique (P.C.A.). This technique is known as data decline. P.C.A.'s objective is to obtain
a relatively small number of components that can account for the varying measures. Six
variables were identified for both internal and external S.M.E.s. By the expectation of
principal component analysis, each variable consisted of more than 3, with a hundred plus
questioners. The data reliabilities that fully meet P.C.A. assumptions and requirements are
shown in table 1 below.

11
 Table1: Characteristics and Demography of S.M.E.s in Pakistan

Characteristics % of Sample Frequency

Company Size (Employee 77.6
No)
Small (10 – 49) 22.4
Medium (50 -250)
Company Age
5-20 86.0 91
21-30 14.0 15
30-40 0 0
Industry
Travel agents 16.8 18
Marble firms 18.7 20
Gas and Petrol stations 14.9 16
Soft drinks dealer 15.9 17
Construction contractors 16.8 18
Import and Export dealers 15.9 17
Education Level
Higher secondary 62.1 64
Bachelor 25.2 26
Masters 12.6 26
M.Phil. 0 13
Table 2: Bartlett’s and K.M.O. test for obstacles to S.M.E.s in Pakistan

Bartlett’s test for Sphericity Approx. Chi-square 1863.127

Sig. .000
Df 528
Kaiser- Meyer-Olkin Measures of sampling adequacy. .727
Source: Survey

12
Kaiser-Meyer-Elkin and Bartlett's measurements are frequently used by different
practitioners and researchers to check data normality and sample advocacy. K.M.O. stats
vary from 0 to 1 and recommend an acceptable value greater than 0.5. Table 3 is the mean
classification of the impediment perceived by the companies of S.M.E.s.

The results of Table 3 show that finance and corruption variables are high-ranking barriers
in Pakistan for small and medium-sized enterprises where Infrastructure related items
Variables such as water and inadequate road supply constitute low barriers for S.M.E.s.

A varimax rotation was used in the study to convert the component into a factor. More
than that, one own value is often retained in P.C.A. S.P.S.S. identified the 33 linear parts
within the data set. The cost associated with each factor represents the difference in the
variance explained by the linear component and its value. Table 4 shows that five factors
that possess a total conflict of more than one own value account for 64,632%. The first
part has an Eigenvalue of 4.985 under Table 4, with a percentage of the variance of
15.107%. Component One is labeled as 'financial barriers' by name. According to Table 5,
the first component includes six facets that are "difficult to obtain government funding"
with the highest charge factor. (.857). The second items also have the highest loading
factor (.842), i.e., "serious to obtain a bank loan." The third article includes the loading
factor "Don't provide sufficient equity owners in business" (.837). The fourth item
includes 'no money to run' (.820); 'bank has a higher interest rate;' the final item includes
'our business cannot meet a repayment loan on time' with factor loading (.735). The last
things are: 'Not enough money to run this business.'

According to Table 4, the fourth component's Eigenvalue is 2.956, with a variance rate of
8.957%. The fourth component shall be labeled as "training barriers." According to table
5, the fourth component consists of six facets: "I don't have formal management training"
with the largest maximum load. (.828).

Table 3 is below

13
 S.
Items Alpha Mean
Deviation
1.      I do not have enough equity
0.929 0.865 0.497
contribution from the owner
2.      It is challenging to get the
  3.96 1.036
Government's financial support
3.      It is hard for me to get a bank
  3.78 1.058
loan
4.      I do not have sufficient
  3.85 1.058
money to run this business
5.      Bank's credit facility has a
  3.75 1.133
high-interest rate.
Management Hurdles   0.846  
6.      I do not know the
  3.45 0.974
economy/industry.
7.      I have no experience with the
  3.44 0.974
company
8.      No previous experience in
the management of this business   3.24  
type
9.      I have no experience in
attracting and retaining   3.42 1.116
appropriate personnel.
10.  I have no experience in the
  3.4 1.074
management of small businesses.
Training Hurdles      
11.  I have no formal corporate
0.944 0.85 3.68
management training
12.  Lack of H.R.H.R. / personnel
  3.55 0.893
management training
13.  Lack of formal financial
  3.33 0.855
management training
14.  I have no formal
  3.311 0.851
bookkeeping/accounting training
15.  I have no formal marketing
  3.58 847
experience
Technological and economic
     
barriers
16.  The low business
  0.804 2.93
telecommunications system
17.  High economic inflation rates
  3.21 1.149
are an obstacle for companies
18.  The business has a high cost
  3.14 1.161
of production.

14
 19.  The lack of availability of
  3.37 0.967
technology is an obstacle
20.  Government charges high
  3.39 1.097
taxes and other charges.
Obstacles to corruption      
21.  Government official’s
1.119 0.87 3.48
extortion companies' money
22.  Corruption as a primary way
  3.76 1.089
to get Govt. contracts
23.  Fraud is a big problem for
  3.5 1.193
companies in the country
24.  Bribery is a common fraud
  3.16 0.963
for company loans.
25.  To arrange things with
  3.39 1.016
informal networks.
infrastructure hurdle      
26.  Inadequate support from the
0.883   3.78
Government for companies
27.  Gas and water Business load
  3.92 0.891
shedding problem
28.  High registration costs and
  3.85 0.856
business licenses
29.  Bad roads are an essential
  3.74 0.904
obstacle for companies
30.  Low water supplies are also a
significant problem for   2.79 0.898
companies.

Extraction Method: Principal

Components Analysis

Table 4: Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared Loadings Rotation Sums of
Squared Loadings

15
Com % of % of % of % of
% of % of
pone Total Varian Cumulativ Total Cumulati Total Cumulat
Variance Variance
nt ce e ve ive

15.10
1 4.985 15.107 4.985 15.107 15.107 4.091 12.397 12.397
7
2 4.386 13.29 28.397 4.386 13.29 28.397 3.716 11.261 23.658
12.54
3 4.14 40.942 4.14 12.545 40.942 3.53 10.696 34.355
5
4 2.956 8.957 49.899 2.956 8.957 49.899 3.499 10.604 44.959
5 2.467 7.475 57.374 2.467 7.475 57.374 3.332 10.097 55.055
6 2.395 7.259 64.632 2.395 7.259 64.632 3.16 9.577 64.632
7 0.95 2.877 67.51            
8 0.897 2.719 70.229            
9 0.817 2.475 72.704            
10 761 2.305 75.009            
11 0.711 2.153 77.162            
12 0.68 2.061 79.223            
13 0.618 1.872 81.095            
14 0.558 1.692 82.788            
15 0.525 1.592 84.38            
16 0.498 1.509 85.889            
17 0.466 1.411 87.3            
18 0.427 1.294 88.594            
19 0.409 1.239 89.833            
20 0.378 1.144 90.977            
21 0.339 1.027 92.004            
22 0.323 0.979 92.983            
23 0.319 0.966 93.948            
24 0.298 0.903 94.851            
25 0.258 0.783 95.634            
26 0.246 0.746 96.38            
27 0.229 0.693 97.073            
28 0.22 0.668 97.724            
29 0.203 0.615 98.356            
30 0.197 0.598 98.954            
31 0.149 0.451 98.405            
32 0.117 0.354 99.759            

The second part is "I have no formal bookkeeping / accounting training" with a loading
factor (.748). The third item is "Missing H.R.H.R. / personnel management training" with
a factor loading (.744). The fourth item includes "no formal marketing training" (0.712),
and the fifth item, in the second component, "I do not have formal financial management

16
and planning training" (.688). In Table 4, the fifth component has an Eigenvalue of 2.467
and an Eigenvalue of 7.475 percent. Element 5 is labeled as "Management Barriers."

According to Table 5, the fifth element consists of the five facets with the highest factor
loading, including "I'm not familiar with the market / industry." (.872). The second item is
"I don't have attracting and retaining suitable personnel" (.798).

The central part is "I have no prior experience with factor loading management for this
business" (.795). Fourth part: "I don't have experience with factor loading" (.756); last
items include fifth part "I don't have any experience with S.M.E.s with factor loading
(.664). In the last six components of Table 5, the authenticity value of 2,395 is 7,259%.
Component 6 is named "infrastructure obstacles." In Table 5, the sixth element consists of
five facets: "Inadequate State Business Support" with the highest load factor. [.767]. The
second item consists of "Poor power supply and business loading problem" with factor
loading (.767). The third item comprises "narrow roads in this country are an important
barrier to businesses" The fourth item is "High registration costs and business licenses."
The fifth item includes "Poor drinking water is also a major problem for businesses" for
factor loadings (.586)

Table 5: Rotated Component Matrix

Items 1 2 3 4 5 6

17
Financial issues

I do not have enough equity .842

contribution from the owner

It is challenging to get the Government's .842

financial support

It is hard for me to get a bank loan .837

I do not have sufficient money to run .820

this business

Bank's credit facility has a high-interest .799

rate

Obstacles to corruption

Government official’s extortion .881

companies' money

Corruption as a primary way to get .854

Govt. contracts

Fraud is a big problem for companies in .851

the country.

Bribery is a common fraud for company .810

loans.

To arrange things with informal .722

networks.

Technological and economic barriers

The low business telecommunications .833

system

High economic inflation rates are an .829

obstacle for companies.

18
The business has a high cost of .828
production.

The lack of availability of technology is .808

an obstacle.

Government charges high taxes and .802

other charges.

Training Issues

I have no formal corporate management .839

training.

Lack of H.R./personnel management .748

training

Lack of formal financial management .744

training

I have no formal .712

bookkeeping/accounting training.

I have no formal marketing experience. .702

Management Issues

I do not know the economy/industry. .863

I have no experience with the company. .798

No previous experience in the .795

management of this business type

I have no experience in attracting and .756

retaining appropriate personnel.

I have no experience in the management .664

of small businesses.

infrastructure hurdle

19
Inadequate support from the .767
Government for companies

Gas and water Business load shedding .766

problem

High registration costs and business .586

licenses

Bad roads are an essential obstacle for .543`

companies.

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with

Kaiser Normalization. Rotation converged in 6 iterations. The cutoff point was 0.4

Chapter 3
Focusing on Effects
Results reveal that financial barriers like the inability to access financing from the formal
financial sector have significant problems in Pakistan's small businesses' management.
The issue of loaning money from the bank due to a lack of payout credit record,

20
inadequate government support, and financial institutions' lack of confidence in small and
medium-sized companies is one of the main reasons mentioned because of the lack of
capital.. More importantly, the data analysis found that banks avoid providing small and
medium-.zed enterprises that have poor documentation. Corruption is the second-largest
perceived impediment to S.M.E.s in Pakistan. The results s, how also that corruption is
negatively related to the failure of small companies. That finding would be unforeseen to
Pakistan's familiar corporations and political scenarios since Pakistan is one of the most
corrupt countries in the world (Transparence International, 2010). As regards obstacles to
the world's infrastructure, In the E.C.E.C. transparency electricity, transport regarding
water supply played an important role and provided better support for small companies'
successes. The final component of factor analyses that affect S.M.E. firms' production is
classified as the highest as the losses of power supply and gas (Khalique, et al.,2011).

Financial issues are ranked highest according to data analysis among the major S.M.E.
obstacles. Small business owners are always looking for cheap sources for low-interest
credit and seeking loans from microfinance companies. Politicians of S.M.E. banks in
Pakistan are recommended to identify ways and packages readily available for small and
medium-sized enterprises. The other cheap source for small and medium-sized enterprises
is to borrow from family and friends for investment in S.M.E.s. The collateral investment
raises interest amongst S.M.E.s' owners' social networks and encourages them to invest in
small and medium-sized enterprises. S.M.E. owners, therefore, have an enormous need to
negotiate to generate finance for their businesses with their social network community in
Germany. Pakistan has been ranked 89th in the world to get a license for small and
medium enterprises. Because of its low bureaucratic culture, the Asian countries rank
highest. It is recommended that the Government overcome corruption and adopt
technological and easy ways to register small and medium-sized enterprises with
transparent rules immediately. This may encourage investors to invest in small and
medium-sized enterprises.

Legislative framework: Government and appropriate authorizations should be obligatory

to purchase only locally produced products or give some quota to the government
organization to enhance and improve the country's entrepreneurial confidence and
productivity.

21
Power failure: Government needs to ensure that all industrial and other concentrated
manufacturing areas have a stable and sufficient power supply.

Easy credit: The Government needs more financial and human resources to enhance its
current authorities to help troubled small and medium-sized companies overcome their
economic issues. By facilitating, facilitating, and cheating, the Government can play its
role. It should also help businessmen to inform them of these facilities.

Center for business incubation: Government should also be aware of the situation create
incubation companies nationwide that promote entrepreneurship, innovation, and
technology in the development and sustaining of S.M.E. growth.

Government reforms: Government should implement reforms of the banking system about
interest rates, collateral requirements, and procedures for the loan application.
Furthermore, various financial facilities should be provided for S.M.E.s, such as financial
and operational leases. Similar tax reforms to raise fiscal bases rather than to overburden
small and medium-sized enterprises.

There is no question that the current economy is a knowledge-based and intellectual

capital economy. Therefore, the concept and applications of intellectual capital must be
revolutionized and adopted in Pakistan by S.M.E.s to dilute the emerging economic
challenges. The ideas and applications of intellectual capital in their organizations also
must be strengthened by S.M.E.s in Pakistan to achieve a competitive edge on the market.
The importance of intellectual capital to improve organizational performance is highly
recognized. There is currently limited literature in Pakistan to find the role of intellectual
capital in small and medium-sized businesses. The researcher believes that S.M.E.s can
benefit from research in intellectual capital.

Chapter 4
4.1: Suggestions
It is suggested that S.M.E.s across all organizations should be uniformly defined, and
Small Industries sales should reach a maximum of Rs 200 million per annum, while
Median Industries should be between Rs 200 million and Rs 1200 million per annum. The
new draught S.M.E. policy has suggested sales of RS 100 million per year for S.M.E.s,
while sales of Rs 150 million per annum for S.M.I.s by the State Bank of Pakistan.

22
Similarly, the medium industry's annual sales revenue is Rs 650 million, while the state
bank has annual sales revenues of Rs 800 million for medium sectors. The S.M.E. industry
is comprised of Textile garments, fruits, vegetables, information technology (I.T.I.T.),
surgical products, leather, branding, furniture and processing, and gems, and the
commercial banks can bear jewelry at the rate of 6% per annum. In contrast, the other
S.M.E. sectors typically have high-tech loans. The new S.M.E. policy would include all
industries based on the definition of annual sales transactions and credit for working
capital and B.M.R. of 6%. Stakeholders also suggested introducing credit guarantee
schemes to promote small and medium-sized businesses, including N.B.F.I. and
Modaraba, to finance small and medium-sized companies.

One primary reason why Pakistan does not promote the S.M.E. sector is that it does not
lend affordably. Two decades earlier, the state banking industry of Pakistan had to loan its
factories, assets, and machinery as security/collateral for credits from banks to the same
rules and regulations (Prudential) for corporate and S.M.E. loans. Because most small-
scale plants have rental rights and non-proprietary rights, these plants cannot mortgage,
preventing banks from obtaining loans. To address that issue, I asked the governor of
Pakistan's State Bank to develop separate loan rules for Small-scaled industries. The
Government should S.M.E.s granted cash flow loans rather than holding the
property/collateral to resolve it as the chairman of F.P.C.C.I.'s Standing Committee on
Banking. It makes me glad that the State Bank of Pakistan has announced several years of
fighting that the SMEs base on their feasibility report. Banks' ability to repay their cash
flow without a mortgage, can receive credit from the small and medium-sized enterprises.
Unfortunately, by keeping their assets in line with old legislation which could not allow
small and medium-sized industries to grow in Pakistan, banks still lend 18-20% for small
and medium-sized enterprises. Today, the Pakistan S.M.E. sector provides non-
agricultural jobs 80% and contributes 40% of G.D.P., while the S.M.E. sector accounts for
55% of global G.D.P. In the manufacturing industry, small and medium industries' growth
amounts to 8%, exports to 10%, and the service sector to 10%. To establish small and
medium enterprises and earn their lives, S.M.E.D.A. and S.M.E. banking should create
unique clusters, such as women shawls, motor pumps, and fan manufacturers, from pillars
to post-search companies.( Bhutta, et al.,2008).

23
The primary limitations include regulatory and other government issues, final issues, and
infrastructure. The problems of raw material, human resources, technological barriers, law
and order, and marketing. All these fundamental questions can be addressed because the
Government has a vital responsibility for building essential factors, such as roads, power
plants, systems, and procedures, such as necessary infrastructure. Sadly, the Pakistani
Government is currently doing very little to create all the related facilities. In educating
S.M.E.s on the incentives and other benefits offered to them in Urdu, Pakistan's
Government should play a significant role. This will help ordinary small businesses to
benefit.

The incentive provision should likewise be restricted to a limited number of distribution

channels such as S.M.E.D.A. and other entities. They can help because many channels
(like banks, institutions) can obscure the small and medium-sized companies and enable
individuals to gain undue profit. Pakistan's Government may develop specific training
programs, research and development efforts at industry-related universities, chamber of
commerce, etc. Such actions will eventually help establish the factors that ultimately
increase the small and medium-sized companies’ sectors and the whole economy. Also,
the Government of Pakistan can focus on R&D programs for S.M.E.s. Because small and
medium-sized businesses are unable to meet the considerable investment needed by
research and technology institutes solely for the growth of S.M.E.s. Governments and
institutions collaborate to organize programs focused on S.M.E. internationalization issues
and reduce internationalizing risks and barriers to reducing resources and availability of
information.

4.2: Research Limitation and Future:

The sample of studies does not represent the entire Pakistan S.M.E. sector. It is confined
to the federal and Rawalpindi territories. In Islamabad and Rawalpindi, most S.M.E.s'
services sector is present, and fewer manufacturing companies are available. Future
research may help better understand the obstacles faced by small and medium-sized
enterprises in Pakistan and include different Pakistani cities, especially industrial hubs
such as Faisalabad, Gujranwala, and Sialkot. Moreover, the study is not a causal study or
correlation study to find the impact of these obstacles. Research on this aspect can also be

24
conducted in the future to identify specific barriers in the performance of S.M.E.s in
Pakistan (Khalique,et al .,2011).

Chapter 5
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