SME cluster development yet to get due attention

Considering the importance of small and medium enterprises (SMEs) for economic growth, policy makers in most countries have been undertaking strategies to promote SME clusters most of which are industry-focused. In the context of the manufacturing SMEs, it is claimed that in SME clusters' geographic concentrations of interconnected companies, especialised suppliers, service providers, and associated institutions compete, cooperate and grow faster. The industrial cluster, as a form of the industrial layout, can also integrate into global supply chains and form competitive industry.
 Geographical proximity can produce significant beneficial effects for firm formation, productivity, innovation, profitability and growth. However, having a number of similar SME units together or creation of an SME cluster is not a sufficient condition to obtain positive outcome, rather upgrading and innovation are crucial determinants. In many instances, there are physical proximities of a good number of SMEs but the basic goals of having a cluster i.e., networks, linkages, competition or cooperation are completely missing. To obtain benefits, it is crucial for the policy makers and other stakeholders to intervene effectively. For identifying strategies by the policy makers and stakeholders, it is crucial to understand the current state of the clusters, performances, and their levels.
However, identifying generic indicators to understand the current status, performances and levels is a challenge itself. Because, although cluster concepts are gaining footing in economic development, there is no agreement on the necessary and sufficient conditions for cluster development.
As a strategy, SME clustering is relatively a new phenomenon. However, there are success-stories that show positive effects which can be obtained when cluster concepts and strategies are implemented correctly. Especially, SME clusters offer remarkable benefits to small manufacturing units both in the developed and developing countries. In several instances, it is proven that SME clusters are useful in effectively handling the asymmetries and other related problems and made positive differences in ensuring efficiency in SME financing. It is also recognised that the financial institutions and banks have a critical role to play to develop SME clusters.
Countries such as the Germany, USA, India, Italy, Chile, Hong Kong, Colombia, South Korea and Sri Lanka have been able to establish globally competitive industrial clusters. In the context of different global economies, the approach and status of SME clusters are not very similar, and their approaches and benefits also appear to be different. In Germany, innovation policy and enterprise policy were vital in creating strong clusters and attracting co-location of large firms and finance providers. In France, clusters are seen as a way of boosting competitiveness which helps to develop growth and jobs in key markets. In USA, clusters are found around large cities, with many trying to mimic the Silicon Valley model. In China, SME clusters are different from the way in which the western world understands the concept. In recent times, China introduced a specialist division within local government to support clusters. In India, clusters are seen as a way of developing skills collectively to promote competitiveness internationally that are supported by some support centrs. Clusters are a growing trend in South Africa and are seen as a way of building competitive advantage collectively. The business cluster environment in Nigeria is driven mainly by manufacturing and trade associations, rather than by government-run programmes.
SMEs are the 'employment generating machine' that contributes to higher economic growth, reduction of poverty. Bangladesh government has been active in promoting SMEs in the country. The government has declared its commitment to develop SMEs as one of the main pillars of economic growth to achieve the goal of becoming a middle income country by 2021. A National Taskforce on SME Development was constituted in 2004 to draw up a realistic strategy for promoting SMEs in Bangladesh; and a document on policy strategies for SME development was formulated in 2005. A SME cell within in the Industry Ministry is working with the objective of providing the SMEs necessary promotional support to accentuate and sustain their activities.
 The government has already initiated a few industry-friendly policies through the SME Foundation, Bangladesh Small and Cottage Industries Corporation (BSCIC) etc. Some of the initiatives are also providing good dividend. In a recent meeting of the Executive Committee of National Council for Industrial Development (ECNCID), it was decided to set up a total of 100 SME industrial clusters across the country and to bring these clusters under SME loan assistance. This is expected to find place in the 'National Industrial Policy, 2015' which is at the formative stage. Of the other stakeholders, Bangladesh Bank has been working to promote SMEs directly and through the commercial banks. Some of Bangladesh Bank's recent steps are really inspiring.
Though SMEs are getting increased priority to the policy makers, clustering the SMEs as a strategy received very limited attention. In the context of Bangladesh, most of SME clusters are concentrated in different locations. Identification of potential clusters based on geographical proximity of SMEs of all sectors is a primary job. It is important to have an in-depth analysis of the relevant information on small manufacturing clusters of the country.  This would be a true starter for undertaking effective cluster development strategies in different regions of the country. As per the draft Industrial Policy, the government is in favour of creating cluster villages for running industrial enterprises in special economic zones for a number of industrial sectors. For effective intervention, a cluster mapping for identification of potential clusters with their current status and performance level is the precondition. To perform the job, relevant government agencies may play due role with the support of specialists, or the government may consider establishing a separate authority. A coordination body is also needed with the participation of different stakeholders for formulating support strategies.
Most of the geographically concentrated SMEs in different regions are ill-organised, featured by low level of coordination, limited role of associations, lack of linkages, absence of the use of modern technology, absence of supply chain, absence of the involvement of universities and research organisations, lack of access to credit and absence of research and development activities.  In most clusters, middlemen are taking advantage of the product sales. Extensive support to these clusters can bring notable change. The role of the association is also crucial for obtaining benefits. Product research and development is a critical area to address; and thus SME clusters should be supported by universities with expertise and research institutes. A local level organisation in each cluster may help in coordination, linkages and sharing. There is high potential of developing clusters in SME industries like light engineering, leather, plastic, Jamdani, and handmade carpet (satoranji). A generic SME strategy would not work for sustainable cluster development. The country needs a separate SME Cluster Development Policy and Strategy. In addition, a generic SME Cluster Development Strategy must also identify industry specific strategies.
Dr. Shah Md. Ahsan Habib is Director-Training, BIBM.  ahsan@bibm.org.bd