entrepreneurship development in bangladesh
TRANSCRIPT
Policy Brief
Strategies for Entrepreneurship Development in Bangladesh:
Unleashing the Potentials of SMEs
Prepared by:
Khondaker Golam Moazzem
Senior Research Fellow, CPD
28 July 2008
B A N G L A D E S
CENTRE FOR POLICY DIALOGUE (CPD)
a c i v i l s o c i e t y t h i n k - t a n k
House 40/C, Road 11, Dhanmondi R/A, Dhaka 1209 Tel: 9141734, 9141703, 9145090; Fax: 8130951
E-mail: [email protected]; Website: www.cpd-bangladesh.org
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Contents
1. Introduction 2
2. Literature Review 3
3. SMEs in Bangladesh: Composition, Trends, Policies and Institutions 6
Composition
Trends
Gross Output, Value Added and Profitability
Policies for the Development of SMEs in Bangladesh
Institutional Set Up for SME Development
4. Major Challenges Confronting SMEs 16
5. Entrepreneurship Development in Bangladesh 21
6. Actions to be Taken for Entrepreneurship Development 26
Actions to be Taken at Domestic Level
Actions to be Taken at Regional Level
Actions to be Taken at International Level
7. Conclusion 32
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1. Introduction
The economic development of Bangladesh in the last three decades is the resultant effect
of structural change in the economy leading towards considerable growth of the
manufacturing and service sectors, various reforms of domestic economic policies,
changes in international policies, and in this process the emergence of a group of
entrepreneurs. During this period, GDP growth doubled from a mere 3.7% in the 1980s to
more than 6% after 2000, with Bangladesh now ranked 33rd out of 191 countries (in terms
of GDP). However, because of its huge population (150,448,340), Bangladesh is ranked
8th out of 191 countries (in terms of population), and is consequently regarded as one of
the poorer countries (150th out of 191 countries in terms of per capita GDP). On its path
towards economic reform, the economy has gradually been liberalized over the last three
decades, and it has been integrated into the global economy - in 2007, the degree of
openness (international trade as % of GDP) reached 43.3% compared to 16.8% in 1991
and 13.5% in 1981. The degree of global integration, as measured through the external
sector including FDI and debt accounts in relation to GDP, was 55.6% in 2007 compared
to 21.2% in 1981. Global market forces therefore affect most economic activity, which
needs to be taken into consideration when formulating policies and action plans.
Against the backdrop of a huge population, an abundance of low and semi-skilled
workers, and large-scale unemployment, the government’s major development objective
is to create more employment in order to secure incomes and thereby reduce poverty.
Because of the structure of small and medium enterprises (SMEs) in Bangladesh, which
are mainly labor-intensive and low-skill, the development of SMEs is considered to be
the most effective contribution to the eradication of poverty. 1 According to BBS, there
were about 78,300 SMEs operating in Bangladesh in 2003, in which roughly 3.5 million
workers were employed. However, despite their broad dissemination, SMEs in
1 According to SME Policy 2005, an enterprise with capital (replacement of plant, machineries etc. and associated technical services excluding land and building) up to Tk.15 million (about US$215,000) is regarded as a small enterprise, and with capital up to Tk.100 million (US$1,433,000) as a medium enterprise. In the case of non-manufacturing units, enterprises with less than 25 workers are considered to be small, while those employing between 25-100 workers are considered to be medium sized enterprises. In view of reducing the variations in operational definitions applied by other organizations including banks, the government has recently announced a new definition for all operational purposes.
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Bangladesh could not fulfill the critical role of entrepreneurship development and thereby
contribute to the faster industrialization of the country. The objectives of this policy brief
are to identify the major challenges confronted by SMEs; to explore possible
explanations for entrepreneurship development in the case of successful SMEs; and
suggest an action plan for unleashing the potential of SMEs.
2. Literature review
Small and Medium-sized Enterprises (SMEs) play a pivotal role in terms of economic
growth, employment generation, and industrialization (e.g. through entrepreneurship
development). Although the role of SMEs varies at different stages of economic
development, their role is particularly important in developing countries and LDCs. Beck,
Kunt, and Levine (2005) have found a strong correlation between SME development and
GDP per capita, but the relationship between growth and the overall business
environment for SMEs overshadows the former relationship.
SMEs need low capital investment per unit of output and give rise to greater
opportunities for direct or indirect employment. In a positive environment, SMEs offer
sustainable business solutions that simultaneously fight poverty and accelerate economic
growth (Agbeibor, 2006). In developing countries, SMEs traditionally play an important
role with respect to poverty alleviation, while at the same time contributing significantly
to economic growth as the development initiatives targeted at them create jobs and
increase productivity (Agbeibor, 2006).2 For developing countries or LDCs, the problem
of rural unemployment, which results in an unhealthy rural-urban migration, can be
solved through SME development in rural areas.3 Rural SMEs generate significantly
more jobs than urban SMEs. This indicates a different relationship between SME growth
and employment generation in different geographical environments (North and
Smallbone, 1996). 2 SMEs are also considered as the backbone of the European economy and are the best potential source of job creation and economic growth (Verheugen, 2006). In Japan, some 70 per cent of Japanese workers are employed by SMEs and half the total value added in Japan is generated by SMEs (Lichiro, 2006). 3 Carl Liedholm, Michael McPherson and Anyinna Chuta (1994) showed that the percentage of job growth coming from enterprise expansion in rural areas is significantly higher than that of urban areas in Africa.
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Small and Medium-sized Enterprises are the seeds for a vital entrepreneurial economy. In
many economies, SMEs nurture large-scale industrialization through entrepreneurship
development. One of the hypotheses on the role of SMEs in the course of economic
development is their vertical and horizontal expansion over time in large-scale
industrialization by fostering entrepreneurship (Juneja, 2000).
Global experiences show that an efficient SME sector is conducive to fast industrial
growth (Hill, 2001). Llyod (2002) analyzed the South African SME sector over the 1980
to 2000 period and found that expanded small businesses were playing an increasingly
important role in the manufacturing, construction and trade sectors in South Africa, but
their role was declining in the agriculture, transport and storage sectors.
However, the poor performance of SMEs in terms of growth, product diversity, and
expansion of markets, indicates that SMEs could not reach the expected level. More
importantly, unlike in many economies, SMEs in the current environment lack the
capacity to nurture the process of large-scale industrialization through vertical and
horizontal expansion by fostering entrepreneurship (Hal Hill, 2001). It is extremely
important to analyze the possible reasons for this lack of entrepreneurship development
through SMEs and investigate successful entrepreneurs and the possible causes of their
success in order to provide policy suggestions for the development of the sector.
Although SMEs play a vital role in any economy, they are very vulnerable to the effects
of globalization in the absence of some economic criteria. For example, under the
avalanche of low priced Chinese product’s imported in Japanese, Korean and Taiwanese
markets, the SMEs of these countries adopted different strategies: some firms relocated
plants to the Chinese mainland, some exited the market, others protected their market by
switching to more capital intensive technology so as to produce more differentiated high-
tech products (Croix, 2006). These countries have the capacity to overcome their
vulnerabilities by adopting different strategies while developing and least developed
countries often lack the capabilities to facilitate such transformations.
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The degree of vulnerability is very high in most developing countries and LDCs in the
absence of sound business environments and the existence of weak business strategies.
Moreover, SMEs in developing countries are vulnerable to international trade due to their
comparatively low productivity and lack of competitiveness (Deshaies and Julien, 1994).
The countries that are better prepared in terms of solid business environments and
strategies can reap the benefits of globalization by scaling up their SMEs to large-scale
industries.
One of the positive implications of globalization on SME expansion in developing
countries and LDCs is the possibility of FDI inflows and soaring export opportunities:
there is a powerful relationship between internationalization and SMEs. In investigating
the linkage between internationalization and SME growth, Lu and Beamish (2002)
examined the impact of exporting products and FDI on SME growth. They came to the
conclusion that FDI is more effective for SME growth. In India, a very big economy with
a large number of consumers, trade liberalization and investment liberalization gave an
impetus to the development of SMEs, which in turn led the Indian economy towards
large-scale industrialization. Juneja (2000) further demonstrates that small industry
growth rates have increased rapidly compared to the growth rate of the total industrial
sector of India since 1991. Juneja also shows how Maruti–Suzuki’s capacity building in
India’s automobile industry attracted FDI from Japan, South Korea, Germany, UK, and
USA.
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3. SMEs in Bangladesh: Composition, Trends, Policies and Institutions
3.1 Composition: According to BBS Census of Enterprises, 2001/2003, there were some
78,440 SMEs in Bangladesh, which comprises 93% of all industrial units, and these
enterprises employed about 3.5 million workers (i.e. 44% of all industrial workers).
Among these enterprises, 60% of the units were in urban areas and 40% in rural areas.4
However, urban enterprises employ relatively more workers compared to rural
enterprises (Figure 1). Liedholm, Mcpherson and Chuta (1994) showed that the
percentage of job growth coming from enterprise expansion in rural areas of Africa is
significantly higher than that of urban areas. Because of low levels of job growth in rural
enterprises in Bangladesh, rural SMEs have a lesser impact on the reduction of rural-
urban migration.
According to SEDF (2006), food, textile and clothing units accounted for over 60% of
registered SMEs (Figure 2). In rural areas, textile manufacturing, food, tobacco, and
banking (especially by NGOs) covered the major share of small enterprises, while in
urban areas the major share of small enterprises were found in transport and banking
(Figure 3). Within the medium enterprise category, non-metallic mineral products and
textile constituted the major share of rural enterprises, whereas textile, banking, and food
and beverage that of urban enterprises. However, SMEs have undergone significant
structural changes overtime in terms of product composition, degree of capitalization and
market penetration in order to adjust to changes in technology, market demand and
market access brought about by globalization and market liberalization (Ahmed, 2001,
ADB 2001). Industries such as light engineering, readymade garments, printing and
publishing, wood and wood products, plastic products, electrical goods, electronics,
artificial jewellery, wooden and steel furniture, television and radio assembling, and
soaps and detergents have emerged as major industries in recent years.
4 Average employment per establishment for small enterprises was 17-20 workers, while for medium enterprises the range was 65-69 workers.
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A total of 103,858 micro-, small-, medium-, and large enterprises were headed by female
entrepreneurs, of which 71 per cent were located in rural areas. Most of these are micro
enterprises where less than 10 workers are employed. It appears that most of the rural
based female-headed enterprises operated at small scale. In proportionate terms, these
enterprises constituted 3 per cent of total enterprises in the country. Women
entrepreneurs are found in self-employment, enterprise ownership, manufacturing, family
trade, agricultural activities, subcontracting, partners in businesses, traders, contractors,
and large and medium industry owners. Despite many barriers, women entrepreneurs
were found to take on work and entrepreneurial challenges in a male-dominated,
competitive and complex economic and business environment.
Figure: Share of Different Types of Units and Employment under Different Categories
0
20
40
60
80
100
Sm
all
Med
ium
Larg
e
Tot
al
Sm
all
Med
ium
Larg
e
Tot
al
Sm
all
Med
ium
Larg
e
Urban Rural Total
Per
cen
tag
e
% of total number of units
% of total employment
Source: BBS Census of Enterprises, 2001/2003
Figure 1
8
0
10
20
30
40
50
60
70
80
90
%
Small M edium Large
Figure: Share of Units and Employment in Different Types of Enterprises
Education/Healthcare
Various personal services
Mining & Manufacture
Fabricated goods, electrical andmeans of transportNon-metallic mineral products
Chemicals & Plastics
Wood, leather & Paper printing
Ready-to-w ear apparels
Textile Manufacturing
Food and Tobacco
0
1020
30
4050
60
7080
90
%
Small M edium Large
Figure: Share of Units and Employment in Different Types of Enterprises
Education/Healthcare
Various personal services
Mining & Manufacture
Fabricated goods, electrical andmeans of transportNon-metallic mineral products
Chemicals & Plastics
Wood, leather & Paper printing
Ready-to-w ear apparels
Textile Manufacturing
Food and Tobacco
Source: BBS Census of Enterprises, 2001/2003
Figure 2
Figure 3
9
0
20
40
60
80
100
120
%
Proportion ofsmall
enterprises in the total
Proportion ofmedium
enterprises in the total
Proportion ofsmall
enterprises in the total
Proportion ofmedium
enterprises in the total
Rural enterprise Urban enterprise
Figure: Proportionate share of SME Units Located in Rural and Urban Areas Real Estate
Finance & Banking
Transport & Comm..
Eateries
Trade
Construction
Utility services
Mfg. transport equipment
Electrical equipments
Fabricated products
Non-metallic mineralproductsChemicals & plastics
Paper & printing
Tanning, etc
Wood products
Source: BBS Census of Enterprises, 2001/2003
3.2 Trends: The comparative dynamics of growth of establishments between 1986 and
2003 for different enterprise categories in urban and rural areas reveal that small and
medium enterprises grew at a relatively slower pace than large enterprises. However
employment growth for small enterprises evolved at a relatively higher rate (Table 1 and
2). Interestingly, medium enterprises were being marginalized both in terms of
employment and the number of establishments. The number of small enterprise
establishments and employment increased simultaneously while medium and large
enterprise growth rates for these two indicators did not evolve at the same pace, to the
extent that in large enterprises employment growth in rural areas was negative. This
indicates that there is an agglomeration in the number of establishments and employment
in urban areas.
A huge number of enterprises established during and after the 1990s were mainly in
wholesale and retail trade, manufacturing, hotels and restaurants, health and social work.
This implies that a large number of enterprises established during this period emerged in
Figure 4
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the period of faster trade liberalization as well as in the regime of quota phase out under
the Agreement of Textile and Clothing (ATC).
Table 1: Changes in the number of establishments between 1986 and 2003
1986 2001 and 2003 Growth Rate
Total Urban Rural Total Urban Rural Total Urban Rural
Small (10-49 persons) 46909 25361 21548 72935 39127 33808 2.7 2.9 2.7
Medium (50-99 persons) 2409 1520 889 3266 2193 1073 1.9 2.5 1.1
Large (100+ persons) 2299 1648 651 3689 2930 759 2.9 3.9 0.9
Total 51617 28529 23088 79890 44250 35640 2.7 3.0 2.6
Source: BBS, Economic Census 2001 and 2003, National Report
Table 2: Changes in the number of permanent employment between 1986 and 2003
1986 2001 and 2003 Growth Rate
Total Urban Rural Total Urban Rural Total Urban Rural
Small (10-49 persons) 778761 430956 347805 1304935 725378 579557 3.2 3.5 3.0
Medium (50-99 persons) 163900 103147 60753 221123 150350 70773 1.9 2.5 0.9
Large (100+ persons) 949114 698387 250727 1314428 1082979 231449 2.0 3.0 -0.5
Total 1891775 1232490 659285 2840486 1958707 881779 2.5 3.1 1.7
Source: BBS, Economic Census 2001 and 2003, National Report
It has to be underlined that enterprise growth differs according to sectors. Between 2002
and 2006, although the total number of enterprises and total employment increased
irrespective of enterprise size, their performance varied widely from sector to sector
(Table 3). The increase in the number of small-scale enterprises was substantially higher
than that of medium and large-scale enterprises due to growth in specific economic
activities such as education. In contrast, growth in the number of establishments of small-
scale enterprises was negative in sectors like trade, transport and manufacturing, while
medium size enterprises performed well only in the manufacturing sector. It can therefore
be deduced that different factors are responsible for the growth of different types of
enterprises under different categories.
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Table 3: Change between 2002 and 2006 in number of establishments and Total Person Employed
No. of establishments in 2005/2006 Total persons employed in 2005/2006 Sectors
Small
(10-49
workers)
Medium Large
(100+
workers)
Total
(10+
workers)
Small
(10-49
workers)
Medium
(50-99
workers)
Large
(100+
workers)
Total
(10+
workers)
Mining 6 -9 -9 -12 269 -529 -1279 -1539
Manufacturing -248 481 615 848 -5172 32592 281660 309080
Electricity 25 41 17 83 615 3293 3918 7826
Construction -172 -18 -57 -247 -3922 -1331 -15230 -20483
Trade -2436 -54 5 -2485 -39568 -3696 -4047 -47311
Eateries -306 -10 -14 -330 -7207 -715 -2104 -10026
Transports -428 -17 -2 -447 -6967 -1326 -16834 -25127
Bank, Insurance 752 5 3 760 9931 38 -15782 -5813
Real estate -19 -17 3 -33 -628 -1177 -3684 -5489
Education 6809 198 36 7043 121009 12409 -3386 130032
Health -17 98 37 118 -2572 8409 -2908 2929
Personal service -720 -75 -34 -829 -14313 -4703 -20172 -39188
All BSIC groups 3246 623 600 4469 51475 43264 200152 294891
Source: Bangladesh Bureau of Statistics, 2004; BBS Business Registry, 2006
3.3 Gross Output, Value Added and Profitability: Comparison of gross output, value
added, and profitability between small, medium and large enterprises points to different
scenarios (Table 4). Large enterprises - because of the capital-intensive nature of
production - ensure higher value added in the percentage of gross output compared to that
of medium and small enterprises. However, value added per worker in small enterprises
is much higher than in medium and large enterprises. The same is true when looking at
gross profit per worker and gross profit as a percentage of gross output. Small size
enterprises are found to perform better than medium size ones. This could be one of the
reasons behind the higher growth of small enterprises compared to medium enterprises.
However, the overall performance of SMEs in Bangladesh in terms of productivity and
efficiency is much lower compared to countries like India and China. According to
Rahman, Debapriya and Moazzem (2007), the productivity of readymade garment units
(US$1563 in 2005) was found to be lower than that of China (US$5000 in 2001) and
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India (US$2600 in 1998). Under the dynamics of increased global market competition, it
is challenging for small firms in Bangladesh to remain competitive.
Table 4: Gross output, value added, and average profitability, SMEs vs. large firms, 2005
(Tk. millions)
Indicator variables Small firms Medium firms SMEs Large firms All firms
Gross output (GO) 23801
(55.1)
34034
(83.8)
26892
(63.7)
183541
(73.3)
135067
(61.0)
Value added (VA) 3642
(46.7)
5337
(84.5)
4185
(56.8)
36080
(51.5)
26112
(43.5)
VA as % of GO 15.3 15.7 15.5 19.6 19.3
VA per worker
(Tk. 000s)
106.3
(54.7)
76.4
(91.1)
96.7
(57.9)
94.65
(57.3)
96.3
(57.6)
Gross profit (GP) 2430
(33.4)
2497.5
(46.1)
2452
(36.6)
16058
(2954)
11806
(25.88)
GP per worker
(Tk. 000s)
66.6
(35.9)
33.2
(44.0)
55.9
(35.2)
43.7
(28.8)
47.5
(30.9)
GP as % of GO 10.2 7.33 9.08 8.74 8.74
Source: Bangladesh Enterprise Institute’s Enterprise Survey, data from 6th round
3.4 Policies for the Development of SMEs in Bangladesh
SME Policy 2005: The major objectives of the SME policy are to embed the strategies of
this policy into those of the Poverty Reduction Strategy Paper (PRSP); encourage FDI in
SMEs; establish physical and ICT networks of infrastructure and institutional delivery
mechanisms; re-orient the existing fiscal, regulatory and governmental support
institutions; take measures for creating avenues to mobilize debt without collaterals;
harness information and communication technologies; internet protocol (IP)-based
infrastructure and electronic governance.
This policy provides directions for SME development in the short, medium and long-
term. On top of the establishment of a government sponsored ‘SME Foundation’ that will
cater to the needs of SMEs over the medium term and beyond (see 3.5 below), it will act
as a pivotal platform for the delivery of all planning, developmental activities, financing,
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awareness-raising, evaluation and advocacy services. The SME policy has identified
eleven booster sectors with a list to be reviewed every three years: electronics and
electrical, software development, light engineering and metal-working, agro-
processing/agro-business/plantation-agriculture/specialist-farming/tissue-culture and
related businesses, leather making and leather goods, knitwear and RMGs, plastics and
other synthetics, healthcare and diagnostics, educational services,
pharmaceuticals/cosmetics/toiletries, fashion-rich personal effects, wear and consumption
goods.
In its tactical plan of action, the SME policy provides direction on strategic skill
upgrading, the establishment of an enabling business environment, fostering supply chain
for technopreneurship, developing an SME webportal, establishing a virtual SME front-
office, access to information on export-oriented SMEs, development of a high-
performance communications backbone, and international technology-exchange
programs.
Industrial Policy 2005: Under the industrial policy, fiscal incentives are offered to all
categories of enterprises irrespective of the size of the manufacturing/service units.
Industries will enjoy tax holiday facilities for a period of 5 to 8 years depending on the
locations. As an alternative to tax holidays, industrial enterprises receive depreciation at
the rate of 100 per cent in the first year. If these facilities cannot be provided, then a
reduced rate of taxation will be considered. Export oriented industries will have import
facilities without any duty. Imported machinery and spare parts are exempted from
payment of VAT. Duty structures of imported raw materials, intermediate goods and
finished goods are set at gradually escalating rates. The activities of the Equity and
Entrepreneurship Fund (EEF) will be intensified to give priority to entrepreneurs of
under-developed areas and entrepreneurs of the BSCIC industrial units in receiving loans
from this fund. Special facilities will be provided to 31 industries marked as “thrust
sectors”. Industrial enterprises registered with the Board of Investment need not pay any
transfer fee or tax to purchase land for setting up new industries or to transform an
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industry into a limited company provided that no changes can be made in the ownership
structure after that transfer.
It is frequently argued that the incentives and facilities for different enterprises as
mentioned in these policies are often inadequately provided to the enterprises. The scope
of these facilities, especially financial facilities, needs to increase to cover as many
enterprises as possible.
3.5 Institutional Set Up for SME Development
SME Foundation: The SME Foundation is acting as a pivotal platform for the delivery
of all planning, developmental activities, financing, awareness-raising, evaluation and
advocacy services. It is a limited company licensed by the Ministry of Industry as a non-
profit organization. In its action plan for 2007-08 the following activities are listed:
research, policy advocacy, gender equality, database and ICT Development, credit whole
selling program, business support services, technology development, extension and
diffusion, as well as public- private partnership initiatives.
Bangladesh Small & Cottage Industries Corporation (BSCIC): BSCIC is also acting as
a state-run policy coordinator, service developer and distributor of facilities in the SME
sector. A major responsibility of the Corporation is to mobilize policy support for an
improvement in the economic environment, particularly to the benefit of SMEs. Its
services include inputs in the areas of land development (estate building), technology
transfer, credit rationing, training, and design development. Unfortunately, the BSCIC
could not perform as expected although its achievement in physical terms, particularly in
estate building over the past 40 years, is impressive. Eighty-one percent of the developed
plots (7069 out of 8763) had been allotted to entrepreneurs as of October 2003. But only
2495 i.e. 30% of the plots have been used for actual industry building. There has been a
substantial waste of public money in idle investments in BSCIC.
Bangladesh Industrial Technical Assistance Center (BITAC): BITAC was set up by the
government as an autonomous body under the Ministry of Industries. Its mandate is to:
15
(a) train industrial personnel to upgrade their skills; (b) render technical advice to
industries; (c) disseminate modern know-how and improved techniques among industrial
personnel; (d) manufacture and supply spare parts, tools and machines; and (e) develop
equipments tools and processes. Since its birth BITAC has played an important but
limited role by facilitating the transfer of technology to the country’s industrial sector and
developing human resources through its skill development training programs. However, it
has suffered from a chronic paucity of funds necessary for conducting training and
modernization.
Bangladesh Council for Scientific & Industrial Research (BCSIR): BCSIR has also
remained an underutilized organization in spite of its potential. Its regional
establishments in Chittagong and Rajshahi should have been fully used to undertake
research in locally available materials, which can be used as inputs by SMEs.
Other Institutions: Over the years a number of semi governmental and private sector
institutions have become active in the SME area. Bodies such as the NASCIB, BASIC
Bank, MIDAS, CARITAS, WEAB, and BWCCI, to name a few, are some of the
organizations that have emerged in the private sector and are contributing to the
promotion and development of the SMEs.
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4. Major Challenges Confronting SMEs
The country’s SMEs confront various types of structural, managerial, financial,
infrastructural, marketing, and social problems (Table 5). The extent of the problems
faced by SMEs differs according to their size, location, and market linkage. Some of the
problems such as financial, infrastructural, and political unrest are considered to be acute
as they have a substantial impact on business activity and hinder their competitivety.
Table 5: Different types of problems faced by SMEs
Nature of problems Frequency Percentage
Poor transportation facilities 50 83
Lack of entrepreneurship education and training 40 66
Financial assistance 35 58
Hartal (strikes) 60 100
Law and order situation 50 83
Bureaucracy 45 75
Lack of control of corruption 50 83
Lack of adequate investment 50 83
Lack of government support and assistance 35 58
Lack of research and development 50 83
Inadequate information 50 83
Inability to forecast demand 40 66
Frequent power failure 60 100
Inadequate telecommunication services 50 83
Fear of failure 50 83
Lack of technology 45 75
Source: Chowdhury, 2007
a) Lack of Sufficient Financial Support: Small entrepreneurs require various types of
financial support to cover their expenses, such as “initial capital” to cover preliminary
expenses, “working capital” to cover running expenses, “reserve capital” to meet
expenses not only for unexpected contingencies but also for personal and family
maintenance. In most cases, these enterprises receive ‘working capital’ from the financial
institutions, but ‘start up capital’, which is crucial to cover preliminary expenses, is often
17
not supported by financial institutions. Various policies such as the SME policy or
Industrial Policy do not give any guidelines regarding the financial coverage required to
meet the initial expenses and unexpected requirements.
Although the government has tried to enhance support for SMEs by providing credit
through different banks and other institutions including the recently established ‘SME
Foundation’, the coverage of these support programs is found to be inadequate. In the
budget of FY2008, the government has allocated an endowment fund of Tk.100 crore for
the SME Foundation to provide credit to SMEs through private commercial banks under
the Foundation’s credit wholesaling program. The government has continued allocating
resources in the fiscal year FY2009 (Tk.100 crore) to support SMEs. The SME
Refinancing Scheme of Bangladesh Bank has been allocated Tk.500 crore, up from
Tk.300 crore the previous year. The allocation of EEF in the FY2009 has been targeted at
IT related industries; in FY2008 the EEF allocation was targeted at agro-based industries.
A total of Tk.469.6 crore has been disbursed as of April 2008 in 215 agro-based projects
and 34 IT related projects (Bangladesh Bank, 2008). Major projects included fish
hatchery (93), shrimp hatchery (50), software development (32) and poultry and fish feed
projects (18). However, the EEF covered only about 38.1 per cent of the total cost of the
projects. This needs to be increased to provide adequate support to the eligible business
activities. Thus far, 82 projects have received full financial support, while another 145
projects received partial support costs of projects. 22 projects did not claim for support.
Poor legal and regulatory framework: Although various policies in support of SMEs are
currently in operation, there is a problem of ambiguity, non-transparency, and
inconsistency in these policies, which ultimately reduces entrepreneurs’ confidence in the
legal and regulatory framework of the country. For example, there is a lot of disparity in
the definition of SMEs between the different operational agencies: SMEs as defined in
the SME policy emanating from the government differs from the one disclosed by the
commercial banks in their guidelines to provide credit, and the World Bank has its own
definition. For the sake of clarification, the government has announced a new definition
and revised the existing one. According to the new definition, an enterprise with either
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capital (replacement of plant, machineries etc. and associated technical services
excluding land and building) within the range of Tk.50,000 to Tk.15 million (about
US$215,000) or total employment of 50 is regarded as a small enterprise. On the other
hand, enterprises with either capital of up to Tk.200 million (US$2,866,000) or
employment of 150 are regarded as medium enterprises. In the case of non-
manufacturing units, enterprises with fewer workers than 25 or with capital of Tk.50,000
to Tk.5,000,000 are considered to be small, while those with employment between 25-50
workers or with capital of Tk.5,000,000 to Tk.100,000,000 are considered to be medium
sized enterprises. Besides, inconsistencies in enforcing laws, bureaucratic interpretation
of rules, lack of firm political commitment, lack of accountability, hooliganism and
political brinkmanship, lack of rule of law, and lack of control over corruption, offers an
eloquent list revealing how poor the legal and regulatory framework is, and how badly
the development of SMEs is hindered in the country.
Poor infrastructure: Poor physical infrastructure increases the cost of production and
reduces the competitiveness of SME products. Major problems related to infrastructure
include frequent power failures and poor transport facilities, which seriously hamper the
smooth production and delivery of products. Small enterprises suffer more from frequent
power failures because of lesser captive power generation facilities in their production
units. According to Rahman, Bhattacharya and Moazzem (2007), the profitability of
readymade garments declines (although not significantly), due to poor power supply
conditions.
Lack of skilled workers: In order to enhance productivity and manufacture high end
products, entrepreneurs often demand an adequate supply of skilled workers. An upgrade
of technologies, important for manufacturing better products, always requires skilled
workers. Huge public investment is necessary to develop human resources. A number of
public and private initiatives were undertaken in order to upgrade workers’ skill. The
government allocated Tk.50 crore in the 2007 national budget for skilled development
training of garment workers. The Bangladesh Garment Manufacturers and Exporters
19
Association (BGMEA) also took the initiative of training workers and supplying them to
various factories.
Political unrest: Political structures remain confrontational in the country. Personal and
political enmity between rivals, frequent hartal (strikes), and the lack of respect for
elementary principles of democratic governance have become the principal
characteristics of the country’s political system. A series of prolonged hartal affect the
socio-economic and political conditions of the country. The average cost of hartal during
the 1990s to the Bangladesh economy was 3-4 percent of GDP (UNDP, 2005). These
syndromes have given birth to a culture of corruption, bribery, hooliganism, and
brinkmanship, and discourage the development of entrepreneurial talent and initiative in
the country through the non-adherence of any rule of law. Under the present caretaker
regime, such political practice is largely inexistent.
Absence of a favorable social/cultural environment: The concept of entrepreneurship is
not native to every culture or society. Starting a business requires courage: the courage to
assume the risks of putting money into ideas and the courage to take a leap into an
unknown future. Throughout the world millions of entrepreneurs display such courage.
But the fear of failure produced by the highly volatile socio-politico-economic conditions
of Bangladesh has deepened into the minds of potential entrepreneurs. Consequently,
new and energetic entrepreneurs are not emerging in the market. The traditional and
cultural values of the country tend to keep women inside family homes while women
shoulder the burden of the poverty (Chowdhury, 2007). The SME policy of the country
needs to work on building awareness at the socio-cultural level to develop a favourable
environment for creating new entrepreneurs.
Poor quality and standards: Bangladesh has limited capacity to ensure the quality of
products and services to consumers not only in the domestic market but also in
international markets. There is no national quality policy or adequate support system that
provide assistance to all enterprises to understand the principles of quality and to develop
quality consciousness in business behavior. Currently, the Bangladesh Standards and
20
Testing Institution (BSTI) formulates national standards for industrial, food, and
chemical products. However, BSTI lacks credibility and importers from North America
and Europe do not accept the certificates it issues (Haque, 2003).
Inefficient marketing practices: SMEs in Bangladesh, especially the small enterprises,
do not have enough marketing capabilities or networks. An overwhelming majority of
small firms do not have resources to invest in marketing. Export-oriented SMEs have
very little marketing activities and most of them try to survive by linking up with
multinational buyers or setting up subcontracting relationships with them. In the domestic
market, SMEs are confronted with cheap imports and are hard pressed to hold on to their
market share. On top of this, a lack of resources and skills make it difficult for SMEs to
take advantage of market promotional activities.
Lack of entrepreneurship and management skills: Many owner-managers and
entrepreneurs often lack wider managerial skills, which hinders their long-term success.
Strategic planning, medium to long-term vision, marketing, commitment to quality,
knowledge of quality systems, communicating in foreign languages, cash-flow
management, and information technology are a few critical elements of management
required to meet the challenges of the market economy, especially in the global market
environment.
Challenges faced by women entrepreneurs: Women are handicapped in the current
centralized wholesale market set-up controlled by men. Home-based women
entrepreneurs suffer from a lack of access to inputs and services like credit, input
supplies, markets and new technology that could increase their productivity. Women
often lack the legal knowledge to protect their industries and often fall victim to illegal
threats or criminal offences. Due to the lack of market facilities, women do not get the
proper prices for their products, which are under priced by the customers or wholesalers
who order their products. Bank loan procedures are not that easy because of bureaucratic
obstacles. Commitment based problems are yet further challenges that women
21
entrepreneurs face. The absence of advisory help and a lack of patience are also a
hindrance to woman entrepreneurship.
5. Entrepreneurship Development in Bangladesh
Despite all the constraints and challenges mentioned in the previous section, there are
SMEs in all sectors that manage to overcome these problems successfully and operate
efficiently. The reasons for their success are manifold: the successful exploration of
markets at the bottom of the pyramid, access to financial support on favorable terms and
conditions, the use of marketing techniques to tap into domestic and international
markets, and the extensive application of modern technology. The factors contributing
towards the success of very small enterprises are different to those of relatively bigger
enterprises. Beyond the reasons mentioned above, a major factor for the successful
operation of any enterprise is entrepreneurship.
A significantly high rate of growth attained in sectors like readymade garments, agro-
based & agro-processing industry, pharmaceuticals, telecommunication (mobile
telephony), computer, software & ICT goods, poultry industry, leather goods, ceramics
and tourism, indicate that there are enterprises which can provide exemplary evidence of
successful entrepreneurship. A short list of these enterprises include: Pran Group, Nestle,
BRAC, Grameen Danone Foods Ltd in agro processing; Dohatec, Cell Bazaar in ICT;
Bengal Travels and Tours in tourism; Grameen Phone in telecommunications; Map Agro
and Waste Concern in waste management. On top of these examples, there are many
enterprises that operate successfully in urban and rural areas and can provide guidance to
other enterprises with respect to entrepreneurship and operational aspects.
In this context, social entrepreneurship is emerging as an innovative approach for dealing
with complex social needs (Johnson, 2000). The term social entrepreneurship is used to
refer to the rapidly growing number of organizations that have created models for
efficiently catering to basic human needs that existing markets and institutions have
failed to satisfy (Seelos and Mair, 2005). Researches like Seelos and Mair (2005) and
22
Alvord, Brown and Letts (2002) have mentioned Grameen Bank and BRAC of
Bangladesh as renowned examples of ‘social entrepreneurship’. Grameen Bank was
established in 1983 on principles of faith, hope and togetherness. Starting with only 5
people, Grameen bank had 7.24 million borrowers (97 percent of whom are women) as of
July 2007. Grameen Bank provides services in 79,152 villages, covering more than 94
percent of the total villages in Bangladesh with its 2452 branches. Its loan recovery rate is
98%. The Grameen Bank model is now applied in projects in 58 countries (including the
US, Canada, France, The Netherlands and Norway). Grameen phone, established by Dr.
Mohammad Yunus, is the largest phone company in Bangladesh.
BRAC today protects and provides for the livelihoods of 100 million of the 141 million
people living in Bangladesh. The BRAC Non Formal Primary Schools were established
in 1985 to take education to poor, rural students, especially girls who have either dropped
out or are left out of the formal educational system. It has several initiatives such as
BRAC Industries Ltd. (Cold Storage), BRAC BDMail Network Ltd. (Internet Service
Provider), BRAC Services Ltd. (Hospitality), BRAC Concord Lands Ltd. (Land and
Housing), Delta BRAC Housing Finance Corp. (Housing Finance), BRAC University
(Tertiary Education), BRAC Bank (Small & Medium Enterprise, Finance & Banking),
BRAC Tea Companies (Tea Plantation & Production), Documenta TM Ltd. (Software
Development). It has commercial enterprises such as Aarong Shops, Printing Press, and
Dairy & Food Project. It also has different programs supporting enterprises: Poultry
Farms & Hatcheries, Feed Mills, Prawn Hatcheries, Fish Hatcheries Seed Processing
Centres, Seed Production Farms, Sericulture, Silk Reeling Centres, Grainages, Nurseries,
Bull Station, Iodized Salt Industry, all of which generate job opportunities and lift
individuals out of poverty.
In contrast to the usual assumptions on entrepreneur perceptions regarding the BOP such
as a low level of profitability, the low level of affordability of poor consumers, the lack of
capacity to utilize new technologies, less viability, the lack of scope for
commercialization, or the minor interest of management personnel to work with these
ventures, successful entrepreneurs rate these markets with high businesses potential
23
rather than simply humanitarian activities. These firms, unlike other firms, endeavor to
break the negative assumptions surrounding the BOP and to solve major structural,
financial and management challenges while embarking on initiatives to develop their
markets.
CPD has conducted a rapid assessment of a number of successful enterprises, which was
reported at different times in the national Daily Prothom Alo as “Saturday’s Special
Feature” (Table 6). Most of the enterprises reported in the national daily, are small-scale
operations and are located in rural and peri-urban areas. These enterprises have
established their businesses with small amounts of capital and a number of these SMEs
are still facing shortages of capital. The majority of these enterprises are targeting the
BOP market, which indicates the availability of the market at the domestic level. Most of
these enterprises have plans to expand their operations through the development of new
technologies and new markets. Some of the major reasons behind the success of these
enterprises, as reported by the entrepreneurs, are hard work and devotion, new designs,
customer focused work, good quality, technical skill, and reasonable prices.
When looking at enterprises that operate at larger scale, the success originates from a
different set of factors. Firstly, the management of these firms is highly professional as
they are managed and operated by a set of skilled professionals. They are either locally or
internationally appointed and they have experience in market operations at the BOP level:
the optimization of profits, the management of risks originating at that level, and the
creation of branding at the local level. Secondly, the ownership of these firms is of
different types depending on the nature of participation and allocation of resources.
Thirdly, these firms set their strategic objectives by keeping in mind the social needs
which help to create a good reputation with financiers, suppliers and customers. For
example, one of the strategic objectives set by these firms is to ensure the generation of
more employment to reduce national poverty, which helps them garner the confidence of
financiers who like to focus on social issues. These types of strategies also help firms to
gain the confidence of customers, who are attracted to the social commitment of
businesses. By taking this approach, firms get access to various tangible and intangible
24
resources that help them operate businesses at low cost. For example, these firms get
access to low cost funds from local and international financial organizations with the aim
of using this business development for employment generation and poverty alleviation.
25
Table 6: Sample Case Studies on Successful SMEs
Case No
Name of owner
Male/Female Entrepreneur
Type of business
Products produced
Major Market
Source of capital to initiate business
Major problems at the time of initiation
Major problems faced at present
Major factors for success
Plan for expansion and development
1
Abdur Rahim
Male Electronics I.P.S Domestic Taking loan Tk 10,000
Capital, family assistance
Lack of capital Curiosity about electronics & hard labour
Develop a system for I.P.S which will run by solar energy
2
Abdul Kader Golap
Male Foundry Threshing Machine
Domestic 1.Lack of high technology 2.Increased price of scrap 3.No assistance from Govt.
Initiating foundry using gas instead of coal.
3
Amir Hossain
Male Foundry Threshing Machine
Domestic Father’s workshop
1.Lack of high technology 2.Increased price of scrap 3. No assistance from Govt. 4. Lack of electricity
Hard labour and wisdom
Initiating foundry using gas instead of coal.
4
Shaheda Begum
Female Sewing Cap International
Only a niddle as own capital
5
Manjulika Female Weaving Clothings & household items
Domestic Own savings Tk. 500
Capital & raw material
Exporting Hard work
6
Aesha Hanif Female Designing & making cloths
Cloths, handicrafts, home made food, home accessories
Domestic
1. Every single piece is unique in design, there is no duplication
2. Involvement of family members
Reach out to the market outside Bangladesh, mainly to expatriate Bangladeshis
7
Ms. Sayeda Anowara Begum
Female Designing & making readymade garments
Sarees, Salwar, Kameez, Panjabi, Fotua, Children wear, Bed sheets
Domestic A sewing machine
Capital & family assistance
She does not have distribution system.
1. Customer focused work
2. Good quality 3. Reasonable price 4.Technical skill 5. Inspiration of
relatives
To establish a training institute
Source: Daily Prothom Alo, Different Issues.
26
Fourthly, successful SMEs usually try to develop new business ideas, which differ from
traditional ideas. New ideas can be developed in manufacturing, business operations, the
marketing of products, and management techniques. Entrepreneurs can be cautious about
the selection of agents to whom they rely upon for various kinds of services. They are
careful about providing additional services or products for the customers in order to get
their confidence and satisfaction. It is also important to have good networks with
different stakeholders, including government, as this helps entrepreneurs gather various
types of tangible and intangible resources at low cost, which favors the development of
an enterprise.
It appears that foreign firms are more and more interested in the BOP of developing
countries, mainly to find a way out of fierce competition in the markets of developed
countries under liberalized trade regimes. Various joint venture initiatives, which
combine the resources and management of foreign firms with the market information and
reputation of local firms, could create successful ventures for the BOP market. A number
of examples already exist, such as Grameen Phone - a joint venture between Grameen
Telecom, Bangladesh, and Telenor, Norway; Waste Concern - a foreign led initiative
with support from Map Agro. These ventures can be looked at from the angle of ‘social
entrepreneurship’. The success of these enterprises resides in their capacity to overcome
significant hurdles in order to serve the poor and build resources and capabilities to
achieve social objectives.
27
6. Actions to be taken for Entrepreneurship Development
6.1 Actions to be taken at the domestic level
a) Special SME Development Fund: Access to resources, especially financial resources,
is one of the major requirements to develop successful SMEs in the country. Improved
access would help develop better products/services, disseminate new technical
skills/knowledge and improve management techniques. Financial resources should be
offered at a reduced price, which would help small entrepreneurs invest in the
development of new products and ideas. Without these resources it is difficult to pursue
such innovations. Financial resources are required not only for the financing of working
capital requirements, but also for ‘start up’ capital. There is an absence in the market of
financial instruments such as ‘venture capital’, which could favorably provide resources
to innovative products and new ideas. The funding of SMEs by Bangladesh Bank under
EEF seems inadequate and requires wider coverage at a higher scale. Commercial bank
lending operations at the SME level need to be widened. The initiative of the SME
Foundation through ‘credit wholesaling’ should focus on these issues while financing
commercial banks in order to provide credit to enterprises. Women-led SMEs need more
attention as women entrepreneurs face various types of hurdles in securing loans from
banks. A number of commercial banks have opened windows for women entrepreneurs,
mainly in their urban branches. These are commendable initiatives but they need to be
extended to sub-urban and rural areas.
b) Develop New Ideas, New Products, and New Services: There is always a demand
for new products/services if those products meet the demand of the customer. This means
that entrepreneurs should focus on ‘customer satisfaction’ when developing new
products. Investment in ‘R&D’ is of great importance when looking at product
development, process improvement, or technology upgrading. Resources should be
allocated on preferential terms and conditions to enterprises for investment in ‘R&D’.
However, for the many enterprises that are not yet ready to take on large-scale investment
in ‘R&D’ (especially SMEs), public and private sector institutions such as BCSIR,
BSCIC, or BITAC could assume the initiative to develop new products and processes that
could be sold commercially. Various private sector based associations could embark on
28
initiatives with private and public universities/research organizations for product
development or process improvement.
c) Encourage FDI in the SME sector: Foreign investment needs to be encouraged,
especially in areas such as new product and process developments, new management
techniques, and new services. FDI should be encouraged in developing diversified
products and services with better management and marketing techniques. In view of the
increased competition in developed country markets, foreign firms are interested in
investing and exploring the BOP markets of developing countries. Bangladesh could be
considered a potential option for them.
d) Setting strategic goals: Successful SMEs usually set strategic goals in view of getting
support from the government and other organizations. These goals usually target the
social needs of the country in which the firm operates its businesses. One of the country’s
major social needs is to create new jobs in order to ensure income for more citizens.
These strategic objectives help firms convince organizations under their network of their
commitment to society and encourage the latter to take positive decisions in favour of
small enterprises.
e) Develop networks with important market agents: Successful firms working in
value chains usually maintain a good network, which in many cases reduces transaction
costs and market risks while ensuring financial and other tangible and intangible
resources if required. These networks are not limited to production agents. They extend
to various business-related agents such as government agencies. Through these networks
firms may get access to various types of critically important resources.
f) Develop local product standards: In order to improve the standards of local products,
a strict application of standards needs to be ensured. Without this local products cannot
be accepted in international markets. Local testing laboratories, with their existing
facilities, can hardly ensure a proper level of product standards. The improvement of
local testing laboratories is therefore required. Bangladesh should work jointly with
29
South Asian countries in order to develop a harmonized standard system for their
products. To this end, the mutual recognition of standards is required. In cases where the
improvement of standardization is required, the government should allocate sufficient
funds to improve the testing system at the Bangladesh Standard & Testing Institute
(BSTI).
g) Improve banking rules and regulations: Banking regulations are not always
considered to be favourable to entrepreneurs, especially those who operate small-scale
businesses. Firstly, small-scale businesses face relatively higher interest burdens against
their loan, although banks argue that there are higher risks involved in the financing of
SMEs. Secondly, small businesses, in most instances, do not follow formal accounting
practices, which makes it difficult for banks to assess the financial condition of these
businesses. Hence bank officials are often reluctant to make the extra effort to formalize
the accounting practices of these business units for the provision of credit. Thirdly, it is
more difficult for women entrepreneurs to get credit from banks. Fourthly, entrepreneurs
often cannot obtain credit from the international market due to some restraints in banking
rules and regulations. In order to ease the problems and constraints confronted by SMEs,
adequate attention and support is required from financial institutions.
h) Disseminate the Information of Successful Enterprises: New and potential
entrepreneurs are often constrained by a lack of access to adequate information on
successful enterprises, possible means for overcoming various challenges, or factors
contributing to the success of these enterprises. Such information should be disseminated
through different channels including print and electronic media, information services, and
NGOs. This information could encourage potential entrepreneurs to understand markets,
value chains, production techniques, and marketing mechanisms, thereby preparing them
to take on new challenges.
6.2 Actions to be taken at the regional level
i) Improve the custom services: The government has undertaken various initiatives to
reduce different types of hassles faced by entrepreneurs in the export and import of
30
goods. The number of forms required for export and import has been substantially
reduced, which has brought down the overall time for processing customs related
activities. Under the policy of trade liberalization, the government has substantially
reduced tariff rates from as high as 350% in 1991 to 25% in 2008. The number of tax
slabs has declined from 15 in 1993 to 4 in 2008. These initiatives have substantially
improved the customs system in the country. Yet despite these improvements, additional
charges have been collected on the import of goods in the form of supplementary duty or
regulatory duty. The automated customs system, which was initiated a few years earlier,
has yet to be fully operational. In this context, Bangladesh can learn lessons from Ghana,
which has developed its customs system within a shorter time period (two years) by
embarking on effective customs reform measures.
j) Enhance Regional Trading Arrangements: Although South Asian countries signed
the SAFTA accord in 2006 there is no noticeable improvement in intra-regional trade and
investment within the region. It is argued that long negative lists that include member
countries’ major exportable products hamper the basic drive towards enhanced intra-
regional trade. South Asian countries should immediately reduce the number of products
from these negative lists in order to sustain the momentum towards increased trade. There
are a number of potential export areas in which Bangladesh has a comparative advantage
over other South Asian countries. In certain products Bangladesh enjoys unique
potentiality, while other Bangladesh products have complementarity with neighboring
countries. The government has to make the effort to attract more FDI from South Asian
countries by offering them the comparative advantage of the country. Trade facilitating
measures, especially in border customs points, need to be improved. Shade facilities to
load goods, truck parking facilities, laboratory testing facilities (especially for perishable
items) need to be provided and ensured at the border points.
Under the SAFTA accord Bangladesh is currently enjoying duty free market access for a
number of products, but most of these products are not major exportable items. India has
provided a tariff rate quota (TRQ) facility to Bangladesh for clothing products under the
S&D treatment facility. Under the TRQ arrangement 8 million pieces of readymade
31
garments will be exported to India every year. In spite of these arrangements, Bangladesh
is facing various types of non-tariff barriers in the export of products to the Indian
market. These are mostly technical barriers that are related to standards, quality, and
sanitary and phyto-sanitary requirements. The mutual recognition of standards could
reduce the barriers to trade. India is currently in a situation of integration with ASEAN
and partial integration with China, where Bangladesh is perceived as a regional hub for
trade and investment.
k) Energy cooperation between South Asian Countries: In view of the growing
demand for energy in the country, Bangladesh should put a strong emphasis on the
development of domestic energy resources, especially gas and electricity. However, in
consideration of the country’s long-term energy security, the government should lay
stress on regional cooperation in energy resources; essentially the development of
resources and supply through a regional grid. A regional power grid could be established
in which additional amounts of electricity could be generated by and for member
countries. Energy generation in Nepal and Bhutan, for example, could be transferred onto
a regional grid for consumption in other countries like Bangladesh.
6.3 Actions to be taken at the international level
l) Get SMEs voice heard at the international level: There should be one-voice for
SMEs, which should be heard at international forums in order to get support from the
international community. The responsibility of raising the voice of SMEs is not only that
of government, but also that of major stakeholders including various associations and
institutions. The expectations of SMEs should be properly articulated and their demands
and challenges should be accumulated. National trade policy debates should ensure that
entrepreneur representatives are heard as inclusively as possible. It is important to create
mechanisms that ensure SME participation in national and international policy-making
processes so that the local and international communities hear their voices.
32
m) Improve the image of the country: In order to help increase the inward flow of
investments,5 international efforts could be taken to raise the image of the country by
highlighting the country’s potential, its achievements in human development, GINI
index, stable growth, and the development of the readymade garment sector for example.
Run a promotional campaign (like “Incredible India” & “Malaysia truly Asia”),
underlying the dynamism, reliability, resilience of the Bangladeshi people, which could
include testimonies of managers (both locals and expatriates) praising their Bangladeshi
employees, and interviews of enlightened Bangladeshi individuals.
n) Harness foreign aid towards SME promotion: In order to promote development and
associated business opportunities “…larger aid project should focus on supporting the
economic reforms, laws and policies that will stimulate development from the bottom up.
It is therefore in the interest of entrepreneurs that aid organizations themselves take a
more entrepreneurial approach to development ….” (Global Entrepreneurship Monitor,
2007 Executive Report, p. 49)
o) Encourage policy coherence: One effective tool towards fostering an enabling
environment is to highlight the issue of trade facilitation in the WTO negotiations. With
the gradual liberalization of the trade regime, the development of trade facilitation could
be the most important mechanism for countries to enhance their trade. The outcome of
trade negotiations at the WTO has to be coherent with other international policies,
especially foreign aid. It is important to ensure a unified donor approach for initiatives in
specific sectors.
5 Anecdote of a billionaire from HK approached by a Bangladeshi Diplomat to invest in the country who publicly declared that a lot should be done to improve the national image of Bangladesh which is only linked to poverty, corruption and natural disasters.
33
7. Conclusion
The development of SMEs is to be considered a major policy objective of the
government. Unfortunately, the goals and targets related to SME development as
mentioned in the policy document (the first Poverty Reduction Strategy Paper) were not
achieved because of various limitations and constraints including financial,
administrative, monitoring, and the commitment of donors. The challenges confronted by
SMEs are not new. They are well known by all stakeholders including the government
and international development partners. Because of various limitations, the growth of
SMEs has been relatively slow compared to that of large-scale enterprises. However,
there are successful enterprises that have achieved commendable progress in different
sectors over the years by overcoming all the challenges and limitations. The reasons for
their success according to entrepreneurs who operate small businesses are hard work,
product development, marketing, and customer based operations. During the period of
initial establishment entrepreneurs were constrained by small amounts of capital. The
scarcity of capital was also found to be a problem for these enterprises when they
embarked on expanding or upgrading their ventures. In the case of relatively large
enterprises, success depends on the positive outcome of a complex web of relationships
between different factors. The factors include: the pattern of ownership based on a
strategic partnership in terms of sharing resources; know-how on the one hand and
sharing market information and the reputation of the local firm on the other; access to
tangible and intangible resources including financial support; setting strategic objectives
in relation to the social commitment of the firm; special skills in accessing and working
with the poor, mainly those working in management positions; providing complementary
services beyond major services; the identification of new products and processes in order
to mark a differentiation with the products and processes available in the market; good
networks with government and other agencies in order to garner the support of tangible
and intangible resources. It seems that enterprises need to clearly assess their
shortcomings in the case of network development, taking joint initiatives to reap the
benefits of strategic components or the development of new products and processes.
34
At the regional level, the government should work on developing customs services,
especially the simplification of customs documents and a reduction in the number of
forms. Trade facilitation measures at the border point needs to be improved in order to
speed up the process of bilateral trade between Bangladesh and India. There are a number
of potential export areas where Bangladesh has comparative advantage over other South
Asian countries. In some products Bangladesh enjoys unique potentiality, while in other
products Bangladesh has complementarity with other countries. The government has to
take the initiative to attract more FDI from South Asian countries by exploiting the
comparative advantage of the country. In order to secure the long-term sustainability of
the energy sector, the government should take the initiative, along with other regional
partners, to develop a regional grid that will ensure electricity supply for the industrial
sector’s growing demand. Entrepreneurs should express their concerns and expectations
in one voice, which should be heard at the international level in order to ensure a better
commitment of the international community towards the development of the country’s
SMEs. There needs to be a harmonization of national and international policies on trade
and investment in developing countries, as well as development initiatives in order to
guarantee more effective results.
35
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