Small and medium enterprises (SMEs) are considered engine of growth throughout the world. Between 97 to 99 per cent of the enterprises in Asian developing countries are SMEs. This scale could be slightly different for different Asian countries. On the lowest side about 97.3 per cent of enterprises in China and Malaysia are SMEs. In Kazakhstan and Vietnam those are 97.5 and 97.7 per cent. On the highest side, they are 99 per cent in Bangladesh and 99.4 per cent in Singapore, 99.5 per cent in Sri-Lanka, 99.6 per cent in the Philippines, 99.7 in Thailand and Japan and finally, 99.9 per cent in the Republic of Korea. SMEs are playing a vital role in employment generation of these countries. For example, they are generating 87.7 per cent industrial employment in South Korea (Republic of Korea), 80.3 per cent employment in Thailand, 75 per cent non-agricultural employment in Bangladesh, 71.8 per cent in Cambodia etc. Similarly, SMEs are contributing to promotion of GDP growth and increase in export earnings of respective countries. SMEs are generating 60 per cent of Indonesian and Chinese GDP; similarly they have a 47.6, 45 and 43.7 per cent share of the GDP of the Republic of Korea, Singapore and Japan respectively. In Bangladesh SMEs are contributing 25 per cent of GDP. In terms of export earnings, about 42.4 per cent of Indian export earnings come from SMEs, similarly 41.5 per cent is earned by China, 26.3 per cent by Thailand, 20 per cent by Sri Lanka and 18.8 per cent and 15.7 per cent by the Republic of Korea and Indonesia respectively from this sector.
Although SMEs are a specific segment / class of enterprises in a country, they are defined with different indicators by different countries. Bangladesh consider a particular number of employment and replacement cost as indicators. A few countries consider revenue and asset as indicators. Definition of SMEs in different Asian countries is given in Table-1:
Governments of the Asian countries have their respective policies to promote and develop SMEs. With some similarities different countries put emphasis upon different incentives and supports to help flourish their SMEs. Common policy supports are offering tax concession, providing repayable loan facilities, priority sector declaration etc. But few countries are providing equity supports and grants to foster SME growth. For example, Thailand, Malaysia, Singapore and Taipei offer credit guarantee scheme for SMEs whereas Bangladesh and Sri Lanka are missing this option. Beside these internal and external R&D facilities, product innovation, process innovation, patent licence, internal financing, external financing, public support, NGO and foreign institutional support have direct impact on SME development in a country.
There is a positive correlation between innovation and SME development. Innovation could be in terms of product innovation (inventing a new product), process innovation (inventing a new way to manufacture a product with minimum resources / higher quality), improving product quality and standardisation, ensuring efficient use of inputs to save resources, using alternative materials / substitute to produce a goods, inventing new machines / technology etc.
Innovation could facilitate increased volume of production, access to new markets, improve quality and solve social problems or needs. It may result in increased production capacity, production flexibility, saving per unit cost and per unit resources etc. Innovation is expected to be the outcome of internal research, national level academic research, acquisition of new companies, recruitment of new human resources, formal research of government or foreign-funded projects.
There are some specific barriers to innovation by the Asian SMEs. Major barriers are lack of skilled / qualified manpower, scarcity of funding for R&D, absence of institutional environment, shortage of information, administrative and infrastructural barriers as also market factor barriers to innovation etc. A recent study shows that, about 80 per cent of the South Asian SMEs are depending upon internal resources for innovation. Only 4.0 - 6.0 per cent of the SMEs are used to purchasing new ideas for fostering innovation. About 30 per cent SMEs have idea about use of journals, research findings and other sources of innovation. About 13 per cent of innovative small and medium ?rms use government funding for innovation. But sometimes various government policies and strict monitoring play a negative role for innovation in many South Asian countries.
Availability of long-term low-cost financing has a positive correlation with SME development of a country. Credit guarantee scheme is playing a significant role in SME development in many Asian countries. For example 70-80 per cent risk of SME loan is taken by credit guarantee scheme and rest 20 - 30 per cent is borne by the lending banks in Indonesia. The Philippines provided about 1.6 billion local currency guarantee for lending to SMEs. The Thai Credit Guarantee Corporation guarantees 100 per cent of the payment stated in each letter of guarantee issued to participating banks, when prosecuted. However, it is done under the condition that the non-performing guarantee does not exceed 16 per cent of the average guarantee outstanding in each portfolio that pools all guaranteed SME loans from the participating bank every year.
SME dominating countries of Asia in terms of SMEs are the Republic of Korea and Indonesia (99.9%), Cambodia (99.8%), Japan, Vietnam and Thailand (99.7%). But most employment generating (by SMEs) countries are Korea, Thailand, Bangladesh, Cambodia, and Japan. SMEs are contributing to GDP of China, Indonesia, Japan, Singapore and Korea etc. The Asian countries lagging behind in SME development are Kazakhstan, Bangladesh, and Sri Lanka etc.
The National Industrial Policy 2016 of Bangladesh emphasises SMEs development as a means of poverty alleviation and employment generation. The SME Policy Strategy is geared to guiding development of the sector. There are a good number of organisations working for entrepreneurship development and promotion of SMEs in Bangladesh. But the above discussion indicates that the country still has to go a long way before promoting and developing its SMEs. Because it does not have share in terms of innovation, it is lagging behind on account of low-cost financing, credit guarantee facility so on and so forth.
Therefore, it is time for capacity building of stakeholders in Bangladesh to foster promotion and development of SMEs. It has limitation in terms of human resources capacity, financing ability, innovation, standardisation of products, managerial and technological know-how both in public and private sector. The European Union funded a project (recently completed) titled INSPIRED initiated a few capacity-building activities for SME stakeholders. Hopefully, another EU-funded project called PRISM will start soon. This project could put emphasis on capacity-building of human resources, establishing appropriate infrastructure, R&D capacity building, promoting innovation, facilitating financial access to SMEs, establishing testing laboratories, product designing and product invention, focusing on target international market for fostering exports etc. Thus the government and development partners could play a vital role in strengthening SME stakeholders’ capacity for promoting development of SMEs to the level of Asian and even global standard.
The writer is Deputy Manager,
SME Foundation, Bangladesh
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