SME MANAGEMENT

Lesson 02
The Regional Concept of SMEs
Learning Objectives
This lecture will throw light on the:
 Relationship between small and big
business
 Concepts of SME’s in our region
 Differentiating the variable factors
of labor, investment and production
volume
 Government’s effort towards SME
development
The Relationship between Small and
Big Business

 Small businesses powerfully

effected by developments within the
big business sector this relationship
serves the interest of general
economic disequilibria.
 Small business is less affected by
economic disruptions and is more or
less self-adjusting.
The Relationship between Small and
Big Business………

The nature of interlink age between small

and medium business is;
 Job subcontracting i.e. the large
business provides materials and
components to small units who process
the same into finished goods.
 Purchase subcontracting i.e. in this
case the material is procured by small
unit who manufactures a specific part or
component needed by a particular large
unit.
The Relationship between Small and
Big Business………
 Complementary: in this case the
product manufactured by small company
is purchased by a big unit as accessory
like plastic dust covers for video
recorders, electronic passive components,
packaging etc.
 Merchandising or commercial
trading: in this case the small units
manufacture the goods and big units on
the strength of their financial power
market it with their own brands like fans,
washing machines, refrigerators etc.
The Relationship between Small and
Big Business………

 Maintenance and repair

services: many large enterprises
give the operation and maintenance
contract to the small companies due
to being more economical and
helpful
 Social benefits: employment
generation, decentralization of
industrial benefits etc.
The regional Concepts of SMEs’
 The countries generally try to
identify their SME sector in order to
target it for special assistance.
 The definition of an SME depends to
a greater extent on local conditions.
 An enterprise considered an SME in
one country might well be bigger
than many large countries in
another.
The regional Concepts of SMEs’……

 Countries have widely different

definitions of SME’s for example, in
India; the criteria for determining
SME status are based on investment
while
 In South Africa; SME eligibility
depends on the number of
employees and turn over.
The regional Concepts of SMEs’……

There are three parameters that are

generally accepted in defining SME’s in
most countries, these are:
1. Number of workers employed which is
the most widely used criteria
2. The level of capital investments or
assets
3. The volume of production or business
turnover.
The regional Concepts of SMEs’
from Pakistan perspective

Pakistan does not have a single definition

of Small and Medium Enterprises. Various
Government agencies, e.g., State Bank of
Pakistan (SBP), Federal Bureau of
Statistics (FBS), Provincial Labour Depts.,
etc. use their own definition. Absence of a
single SME definition makes it difficult to
identify target firms, align development
programs, collect data and monitor
progress.
The regional Concepts of SMEs’……

GoP may adopt a single SME

Definition that is accepted by all
public and private agencies. SME
definition is as follows:
“SME: employment size should be
to up to 250 and paid up capital up
to Rs. 25 million and annual sales
up to Rs. 250 million”.
The Government’s Effort towards
SME Development

 The Government of Pakistan

keeping in view the importance of
SME’s has adopted multi pronged
approaches at the regional, sub
regional and national levels.
 Initiatives at the national and sub
regional levels include efforts to
strengthen economic integration
and cooperation.
The Government’s Effort towards
SME Development…….

 The Government of Pakistan is

taking a number of measures for
private sector development
including liberalization of economy,
investment promotion; export
facilitation, financial sector reforms,
capital market reforms and creation
of a conducive business
environment.
The Government’s Effort towards
SME Development…….

 SMEs led private sector growth

strategy is also in line with the
lessons learned in the 60s
industrialization process during
which although GDP growth rates of
6.0+ were achieved but the skewed
income distribution resulted in
rising poverty.
SME Development – Recent Steps
by the Government

 In the recent past Small & Medium

Enterprises Development Authority
(SMEDA) stands out as a significant step
towards GoP commitment to SME
development.
 SMEDA works under the Federal Ministry
of Industries and Production and it was
established in October 1998 to take on
the challenge of developing Small &
Medium Enterprises (SMEs) in Pakistan.
SME Development – Recent Steps
by the Government……

SME definition defined by SMEDA

Micro:
• Less than 10 people employed
• Productive assets limit of 2 million rupees.
Small:
• Between 10-35 people employed.
• Productive assets limit of 20 million.
Medium:
• Between 36-99 people employed
• Productive assets limit of 40 million.
SME Development–other Institutions
defined the definitions of SME

Definitions by Provincial Level Institutions

a) Punjab Small Industries Corporation (PSIC):
b) Sindh Small Industry Corporation (SSIC):
c) Small Industries Development Board (SIDB)
d) Directorate of Industries Balochistan (DIB)
These organizations defined the small industries
as under:
“An industrial undertaking with fixed
investments up to 20 million excluding the cost
of land and no limit of people employed”.
SME Development–other Institutions
defined the definitions of SME……

Definition by Small Business Finance

Corporation (SBFC)
Small:
• No limit of people employed.
• Productive assets limit of 20 million
Medium:
• No limit of people employed.
• Productive assets limit of rupees 100
million.
SME Development–other Institutions
defined the definitions of SME……

According to The State Bank of Pakistan

 MICRO: The State Bank’s federal credit scheme
(small loan scheme) for micro and small scale
enterprises, defined their target group in year
1972 –1973 as enterprise with assets of less than
rupees one million (excluding the cost of land and
building). This limit was redefined in the year
1992 and increased to rupees 20 million.
 SMALL: Assets up to rupees 20 million (excluding
the cost of land and building)
SME Development–other Institutions
defined the definitions of SME……

Youth Investment Promotion

Scheme (YIPS)
According to the concept paper on
SME’s in Pakistan, developed by
YIPS, small-scale industry was
defined as industrial enterprise with
fixed assets of up to rupees 10
million (Excluding the cost of land
and building).