a brief report on msme’s
TRANSCRIPT
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A Brief Report on MSMEsin the Developing World
and
Strategies for the
promotion of MSMEs
Context
Back ground and Need for Promotion of MSMEs& Current ScenarioStrategies for Promotion of MSMEs
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A BRIEF REPORT ON MSMES in the DEVELOPING WORLD
and STRATEGIES for the PROMOTION of MSMES
CONTEXT:
MSMEs (Micro Small and Medium Enterprises) are a fundamental part of the economic fabric in
developing countries, and they play a crucial role in furthering growth, innovation and prosperity. It is
estimated that 365 million to 445 million formal and informal MSMEs in the developing world.
The term MSME encompasses a broad spectrum of definitions. Different organizations and countries
set their own guidelines for defining MSMEs, often based on headcount, sales or assets. While Egypt
defines SMEs as having more than 5 and fewer than 50 employees, Vietnam considers MSMEs to have
between 10 and 300 employees. The World Bank defines SMEs as those enterprises with a maximum of
300 employees, $15 million in annual revenue, and $15 million in assets. The Inter-American
Development Bank, meanwhile, describes SMEs as having a maximum of 100 employees and less than
$3 million in revenue.
The European Union definition: The category of micro, small and medium-sized enterprises is made up
of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50
million euro, and/or an annual balance sheet total not exceeding 43 million euro. Small and medium
enterprises are thus defined as firms with 10 to 250 employees, and more than 10 million euro turnover or
annual balance sheet total. This definition is more encompassing, and much larger, especially with
regards to turnover, than some others. The precise definition however, does not impact the overall
conclusions and findings of this report
Enterprise Category Head count Turnover Balance sheet total
medium-sized < 250 50 million 43 million
Small < 50 10 million 10 million
micro < 10 2 million 2 million
Table.1 Def in iti on of micro-, small - and medium-sized enterpr ises
BACK GROUND AND NEED FOR PROMOTION OF MSMES and CURRENT
SCENARIO
SMEs include a wide range of businesses, which differ in their dynamism, technical advancement and
risk attitude. Many are relatively stable in their technology, market and scale, while others are more
technically advanced, filling crucial product or service niches. Others can be dynamic but high-risk,
hightech start-ups. Researchers and practitioners agree that SMEs are crucial contributors to job
creation and economic growth in both high and low-income countries
It is acknowledged worldwide that Micro small and medium enterprises (MSMEs) are the engines of
economic development and industrial growth, solving the twin problems of unemployment and poverty.
They are said to account for approximately 95 per cent of all the companies in the world.
In most countries, the contribution of micro small and medium manufacturing, service and business
enterprises is significantly greater than that of large enterprises when it comes to innovations, productive
employment including self-employment and optimum utilization of latent resources.
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F ig.1 Number of SMEs by segment and formal ity F ig.2GDP contributi on by sector
F ig.3 Employment contributi on
Most MSMEs are either owned by individuals or run by families. They play a great role in generating
employment and harnessing local resources. Because of their essentially local nature, they have emerged
as one of the most effective sources of employment globally.
Barriers to Entrepreneurship and MSME Growth
The World Bank Enterprise Surveys dataset was used to identify the biggest obstacles for firms
worldwide. According to The World Bank Enterprise Surveys dataset, firms are divided into the
following categories: small (5 to 9 employees), medium (10 to 99 employees), and large (100 or more
employees). Although this categorization may not match the country-level definitions used in the MSME
Country Indicators database, the information presented in Enterprise Surveys can still be indicative of the
key obstacles facing small and medium-sized firms.
Electricity Access to Finance
Practices of the Informal Sector
Tax Rates
Political Instability
Corruption
Their local approach, however, also means that MSMEs may not have access to the skilled manpower
needed to sustain them in an increasingly competitive global environment.
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SMEs also lose out to bigger businesses when it comes to:
Efficiencies of cost
Structured processes
Management skills needed to survive, and win, in a competitive environment
The SME sector suffers from inherent weaknesses largely because of its inability to furnish suitable
security for obtaining adequate credit. The sector is also hamstrung by the inability to hire skilled and
technically qualified personnel for management, marketing and other crucial functions.
The challenge for small enterprises is to survive in a highly-competitive business environment and adapt
to the rapid changes which globalization and advances in technology are bringing about.
It is imperative for them to have access to the latest information about market conditions and new
technology so that they can seize an opportunity when it presents itself.
STRATEGIES FOR PROMOTION OF MICRO MEDIUM AND SMALL ENTREPRISES
With the global youth population reaching an historical high of 1.5 billion, economies world-wide are
increasingly unable to provide young people with jobs. The situation has reached critical proportions in
developing countries where 1.3 billion youth reside. As youth employment grew by only 0.2 percent over
the past decade while the global youth population grew at a rate of 10.5 percent , the world is
experiencing a employment crisis and the challenges surrounding youth livelihoods have become
increasingly complex. Innovative and sustainable approaches are therefore necessary to ensure these
young people are able to lead healthy and productive lives that contribute to socioeconomic development
in their communities.
Governments, international organizations, support agencies and an increasing number of training andresearch organizations have begun focusing on the need to address these issues and find effective
solutions to ensure the sustainable development of the MSME sector. The following strategies can be
adopted for their promotion and development of MSMEs.
Strategic 1: Improving the business environment
Comprehensive reform of regulations.
Creation of a more favourable business environment
Assessment of the effects of regulations on the business of SMEs
Peace and stabil i ty is a key requirement for the development of SMEs and for attracting foreign
investment. Studies show that war and crime are main deterrents of private investment, in particular for
foreign investors.
SME development requi res a crosscutt ing strategy,(i.e. its success depends on the ability of
governments to implement sound macroeconomic policies, the capability of stakeholders to
develop conducive microeconomic business environments, and the ability of SMEs to implement
competitive operating practices and business strategies). Good policies come in clusters. Thus,
SME development strategy must be integrated into the broader national development strategy
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and/or poverty reduction and growth strategy of transition and developing countries.
Strategic 2: Strengthening Financial Support
Improve access and availability of loans and strengthen capacities of SMEs to manage finances
Establish a system for issuing credit guarantees
Improve access to grants
Facilitate access to credit by creating a stimulative regulatory framework Stimulate the use of available financial instruments
Initiation of programs that aims to identify challenges and issues in an area/industry/cluster and its solutions
based on technological interventions and innovative approaches. Identified solutions needs to be further aligned
with entrepreneurial opportunities to generate socio-economic development and must aim to demonstrate better
avenues for creation of sustainable enterprises, and generation of jobs connected with the proposed technological
solutions. The projects would also target to demonstrate sizeable impact creation in five year time frame.
Ex: i-STED (innovation , Science and Technology based Entrepreneurship Development) initiative of
National Science and Technology Entrepreneurship Development Board(NSTEDB) of the Department of
Science and Technology (DST) in India.
Credit L ink Capital Subsidy Scheme for Technology Upgradation: The Schemes aims at facilitating technology
upgradation by providing upfront capital subsidy to SSI units for modernisation of their production equipment
(plant and machinery) and techniques.
Strategic 3: Strengthening SME competitiveness and promoting entrepreneurship
Establishing the necessary institutional support for development of SMEs
Education and consulting services for SMEs
Strengthening innovation within SMEs
Stimulating exports from SMEs
Dialogue and partnership between public andprivate sectors Statistical monitoring and promotion of SMEs and entrepreneurship
Dialogue and partnerships between the stakeholders is essential(public sector, private sector and civil
society) Dialogue and partnership foster ownership of SME strategies, engenders them more
implementable (by better addressing SME needs), politically more credible, and more
sustainable.
Enhancing womens ability to participate in SME development should be taken into account at every
stage and level, as women account for an important share of private sector activity and contribute most
to poverty reduction. Gender dimensions need to be mainstreamed throughout SME development
strategies and programs, with additional specific, targeted initiatives directed at critical roadblocks.
I ni tiati on of Marketing assistance schemes:Marketing, a strategic tool for business development, is critical for
the growth and survival of micro, small & medium enterprises. Marketing is the most important factor for the
success of any enterprise. Large enterprises have enough resources at their command to hire manpower to take
care of marketing of their products and services. MSME sector does not have these resources at their command
and thus needs institutional support for providing these inputs in the area of marketing.
Cluster Development Programme:cluster development approach as a key strategy for enhancing the productivity
and competitiveness as well as capacity building of Micro and Small Enterprises (MSEs) and their collectives in
the country. Clustering of units also enables providers of various services to them, including banks and credit
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agencies, to provide their services more economically, thus reducing costs and improving the availability of
services for these enterprises.
Strategic 4: Support for beginners in business - start-ups
Strengthening institutional infrastructure to support start ups
Improving the quality and availability of the financial support
Improving the quality and availability of the non-financial support
I nvestments in physical in fr astructur e and business services and the implementation capacity of policy
makers, local level administrators and support structures determine success. Access and integration of
SMEs into local, national, regional and global markets require substantial investments in sustainable
physical infrastructure development and business service delivery to SMEs in all areas, including those
that are rural and/or remote. Continued dialogue and partnerships between stakeholders into
implementation and review of supportive measures, particularly, those related to capacity building in
institutions at all levels, yields improved outcomes.
I ncubatorsAn incubation facility is always a blessing for SMEs due to its various advantages. For starters it helps
to promote newbie ventures of young entrepreneurs, provides a wide range of entrepreneurship developmentinitiatives such as training, nursery incubator space during the initial gestation period, central common machining
facilities, systems and networking support, catalogue library, funding schemes etc. As a result of these facilities
there is considerable reduction in the initial investment commitments of the entrepreneurs thereby reducing his
risk quotient to a large extent. Other usual but useful facilities such as workshops, computer networks with internet
facilities etc., have proven to be a boon for upcoming enterprises. The instant availability of common facilities for
new ventures motivate the entrepreneurs to confidently set-up their own ventures and relieves them of start up
tensions thereby enabling them to focus their full attention on core competency development.
Moreover, most entrepreneurial incubation centers have ready availability of on-line consultancy in the form of a
team of management professionals, to analyze various business propositions. This team helps to develop suitable
business strategies and providing newbie entrepreneurs greater impetus.
MSME Density across the World
Sources: MSME Country Indicators.Note:Name of region [#] signifies the number of economies from the region included in the analysis. The figure uses the mostrecent data available after the year 2000. The figure use data for 116 economies.
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Sources:
1. Report on Support to SMEs in Developing Countries Through Financial Intermediaries,
November 2011.
2. Review of the most recent literature on Entrepreneurship and SMEs
3. Promoting Entrepreneurship And Innovative SMEs In A Global Economy: Towards A More
Responsible And Inclusive Globalisation4. http://www.nasme.me/eng/documents/SME%20Development%20Strategy%202011-2015.pdf
5. Micro, Small, and Medium Enterprises, Khrystyna Kushnir, Melina Laura Mirmulstein, and RitaRamalho,2010
http://www.nasme.me/eng/documents/SME%20Development%20Strategy%202011-2015.pdfhttp://www.nasme.me/eng/documents/SME%20Development%20Strategy%202011-2015.pdfhttp://www.nasme.me/eng/documents/SME%20Development%20Strategy%202011-2015.pdf