Professional Documents
Culture Documents
a.) “An understanding of innovation supports sound business decision making and
attracts young people into innovative and entrepreneurial careers. Above all,
innovation is a major factor in adding value to manufacturing and industrial
processes, improving the range and delivery of services and creating new jobs.”
c.) “Innovations may be used as a strategy for growth or survival. Growth may be
achieved if innovation enables the expansion of existing markets or entry into new
markets. On the other hand, firms may be forced to match the innovation of rivals to
maintain market share.”
d.) “The initial success of ‘born global’ SMEs is often based on technologically
unique products.”
g.) “SMEs exploiting niche overseas markets inevitably face sales ceilings and so
need to innovate in order to enter new niches and continue to grow.”
i.) “Through innovation-led manufacturing strategies, the nation can provide value-
added exports to the ever-changing, competitive world.”
Australian SME innovation initiatives also provide some problems in the process due
to the business climate.
c.) “The quality of critical innovation skills, particularly those of Australian managers,
is less than optimal.”
d.) “The manufacturing sector accounts for an extremely low proportion of GDP
compared to many OECD countries and continues to shrink. This affects innovation
because manufacturing still contributes most of Australia's R&D and propensity to
innovate. The composition of Australia's manufacturing sector is under-represented in
high and medium technology sectors.”
e.) “The low and falling commitment of employers to staff training is seriously
undermining Australia's innovation efforts because of the importance of skills in
transforming information into knowledge and knowledge into innovations.”
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Our next papers meanwhile provide insights on how to foster the innovative initiatives
among SMEs in Australia.
a.) “Recognize that Australian Industry, particularly SME's, needs up-front access and
support to conduct Innovation Ready audits, establish programs for them to acquire
required skills, capabilities and technologies and as appropriate seek partners and
form alliances.”
b.) “Support companies with a mentoring program that replaces and extends the
unofficial system that used to exist with Utilities”
d.) “Promote the development of Innovative products and services by overcoming the
industry critical mass problems through networks, alliances and clusters.”
The article we have mentioned earlier shows the following programs that could help
innovation in Australia.
Doing things differently, better, quicker and more cost efficiently are all what
innovation is about in small businesses. Unfortunately too many see innovation as
only the application of new technologies or the carrying out or application of formal
research and development. This reflects one of the main difficulties when discussing
innovation in relation to its application to small businesses – what exactly do we mean
by innovation and what do we mean by innovation in small business?
Drucker (1985) defined innovation as ‘the means by which the entrepreneur creates
new wealth producing resources or endows existing resources with enhanced potential
for creating wealth’. Drucker in his definition clearly relates innovation to
entrepreneurs and states clearly that innovation is a specific instrument of
entrepreneurship. Innovation is that process by which companies seek to gain a
competitive advantage in the market place and to increase their capacity to generate
wealth.
For the purpose of this article the definition of innovation which we will use is as
follows “the identification, application and exploitation of a new product, process or
marketing opportunity by the business which increases its capability to generate
wealth and strengthens its competitive position” (Frances 2001). Thus for a firm to
engage in innovation it will require the ability to access new information, have the
capability to turn this information into knowledge, and have processes, procedures
and resources to apply this knowledge to exploit the opportunity or opportunities
arising. It is also likely that the capability of a firm to innovate will change as it
grows and develops.
Innovation has now become one of the key elements within a business. As
competition for customers and resources become more and more intense the ability of
a company to innovate is often more important than any other factor in its
sustainability. Innovation therefore needs to transcend all areas of operation -
production, finance, planning, human resource management and marketing. However
in the small business many of these functions are carried out by the owner manager
and thus often leads to a lack of realization of the processes needed to implement
innovation within the small business.
However for the small company a critical issue to be considered is where innovation
will come from. Within any business or organisation innovation generally comes
from five areas as indicated in the diagram below:
Top Down: this is where innovation is driven by the owner manager of the small firm.
Side - In: through formal research and development which leads to new products or
processes which are then manufactured or implemented within the business.
MUD
R&D
2 Side In
4 Spin Out
5 Bottom Up
1 Top Down
Middle – Up - Down (MUD): this is where innovation occurs within the business
either through the development by either incremental improvements, applications of
new ideas and creativity by staff or through an internal culture which supports and
drives innovation.
Bottom-up: where the innovation is driven from the workshop floor up through the
business. This may be a result of formal processes such as quality circles, lean
manufacturing, or other such management techniques.
For the small business, irrespective of the source of innovation, the small business can
develop an innovation strategy specific to its needs and the needs of its owner
managers and staff. Examples of such strategies could be as follows:
For the lifestyle (static) small business - “if we just continue as we are that’s ok”.
In this type of business innovation can be used to maintain profitability and reduce
dependency on the owner. Targets for this type of innovation strategy would include
labor saving techniques, improved and simplified processes, new processes to be
owned by others within the business thus being less dependent on the boss or owner
manager and increased visibility of problem areas which need to be addressed.
Generative small businesses - “We don’t want to be big but we want to be better and
make more money!”
The innovation strategy in this type of business is to increase profitability and build
strategic and operational robustness. The targets for innovation in this type of
business would include new or improved products developed and offered to
customers, the development of lean processes, the development and implementation
of new management techniques and being open to best practice ideas and external
influences.
These are but two possible strategies but in reality for the small business it is likely
that an innovation strategy will reflect some if not all of the elements within these
possible strategy scenarios. Irrespective of the scenario of the strategy adopted by the
small business it is imperative that the small business implements a formal process for
the implementation of innovation. A simple process would have six stages - defining
the strategic intent, searching for ideas and pathways, mapping the development
process, application of decision making processes, implementation of the decision/s
and reviewing to learn. Each of these steps are worthy of more detailed discussion
which is outside the scope of this article.
Obviously if innovation is an in built process within a small business this formal six
step innovation process would be ongoing within the business. Indeed in many small
businesses it is an unconscious process engaged in by the owner manager, but if
implemented as a formal process, it is likely to have a higher level of success and
greater positive effect on the sustainability and competitiveness of the business.
For small businesses the key advantages relating to innovation is their entrepreneurial
dynamism, their internal flexibility and responsiveness to changing circumstances i.e.
their behavioral advantages. However many small firms are put off by the very idea
and word innovation, not to mention the over emphasis by agencies and policy-
makers on formal research and development which so often has become the yardstick
for measuring the levels of innovation in the small business community. While the
advantages of the small businesses in relation to innovation are those which relate
specifically to their size – dynamism, internal flexibility, short lead times and
responsiveness to change, the barriers to innovation have been identified in general
as:
A general lack of suitably qualified technical specialists within small firms. Thus the
small firms are generally unable to support a formal R & D effort on an appreciable
scale.
Small businesses often lack the time and resources to identify and use external
sources of information, technical and scientific expertise. Thus small firms in general
are unable to access formal R & D Programmes and generally engage in product and
process improvement rather than radical or new technological developments.
Small businesses often experience great difficulty in attracting capital, especially risk
capital. Innovation, especially new product development, will generally represent a
disproportionately large financial risk for the small firm and therefore more often than
not becomes impossible for small firms to fund. Added to this is the inability of the
small firm to spread the risk over a portfolio of projects due to their limited resources.
In some areas/sectors the scale of economics forms a substantial entry barrier to small
firms, as small firms experience an inability to offer integrated product lines or
services.
Small firms experience difficulty in acquiring external capital necessary for rapid
growth and many entrepreneurial managers are often unable to cope with the
increasing complex organizational and decision making processes necessary to
manage such growth.
“Innovation tempered with the ability to think and manage strategically, are the key
factors that distinguish the innovative entrepreneurial firm from the small business
venture” (Beaver and Price, 2002). The capacity and capability of a firm to innovate
can and does lead to substantial and profitable business development. Provided that
these are the objectives of the firm and its stakeholders, small firms need to grasp the
opportunities which innovation can offer. For the future development and
sustainability of small firm it is essential that they are fully supported in doing so.
1. have begun spontaneously from just one idea or new product and may
continue to be an incubator for innovative ideas and products
2. have an owner/manager with little formal business experience or few generic
business skills
3. have begun because the founder/owner has a particular technical expertise
4. comprise the founder/owner and up to four employees (often with an unpaid
family member providing administrative support)
5. have the owner as the only person in a managerial position, and no board or
formal governance arrangements
6. operate on trust, rather than on systems and contracts
7. have a tight family-like culture where the values of the owner are strongly
shared by the staff and workplace practices are flexible and suited to
individual employees' needs
8. focus on a small range of products or services sold mainly on the local
domestic market
9. have all personal assets, including the owner's home, committed as security for
the business
10. acknowledge the owner's time as one of its scarcest and most valuable assets
11. operate flexibly, on a "reasonable person" basis, rather than on an informed
and strict observance of regulations
12. have a vision and outlook that is bounded by the horizons, skills and
experience of the founder/owner, the pressures of day-to-day management and
tight resource constraints (i.e. a tactical rather than a strategic approach)
13. endeavor to operate independently of other businesses and institutions and to
favor self-help over seeking advice
14. not be aware of the regulations to which it is expected to adhere
15. in provincial areas, be a key part of the social fabric of the community
16. Close within three years of its inception, not infrequently in circumstances that
could easily have been prevented.
Strength
1. Highly intelligent and skilled manpower can perform skillful
manual operations to produce good quality items.
2. Local workshop expertise available for fabricating process
equipment those are mechanical and electrical in nature. Most
of the existing industries depend on such equipment.
3. Producing quality products need measuring and calibration
equipment which are expensive if imported. Expertise to
develop such equipment (which are mostly electronic) at low
cost exist within the country, which if tapped, may result in
significant improvement in quality.
4. Large domestic market.
5. Existence of an efficient chain of independent marketing
network for reaching the whole of the country.
6. Low labor cost.
7. Experienced laborers can form new enterprises after they
have learned the skill.
8. Indian products that are marginally better than local ones
have occupied a substantial market in Bangladesh. This
market can be taken up through achievable improvement in
quality.
9. Bangladeshi people have a strong mental ability to visualize
the actions of unseen abstract designs as demanded by
Electronics. In other words our people have a natural ability
for electronics which gives it a strong advantage over many
nations.
10.This sector has been initiated by relatively educated group of
people, particularly people with science and engineering
background. This is a good sign for potential product
innovation and quality.
11.As mentioned before, having a natural mental ability, laborers
are easy to train. They can produce high quality products
given necessary facilities and incentive.
12.Potential exists for high quality indigenous product design.
Existing local products are better in quality than many items
imported from neighboring countries, which is the reason for
their survival in spite of negative Tax and VAT policies that
favor importing and goes against local production.
13.Needs a very small fixed investment.
14.Products needed for calibration or automation of other
process industries can be designed and fabricated.
15.Mostly innovators have turned into entrepreneurs. This is
behind all significant industrial growth in the global history.
16.Local support industries for transformers and cabinets help
reduce the cost of products. (Transformers are relatively
heavy, and cabinets are bulky, so freight charges in import are
high for both these items). In spite of lack of required
infrastructure for producing world class cabinets, innovative
use of existing capabilities have produced designs that are
reasonable, and better than those produced in many exporting
countries.
17.Existence of large domestic market, if properly tapped, and if
some degree of protection is provided against similar finished
imported products.
18.Scope for innovating products matching the needs of local
population. Customer design is possible if an innovator
becomes an entrepreneur himself. This is also one of the
reasons for survival of such groups in spite of fierce
competition from cheaper and better looking products from
abroad.
19.Some local products are better in quality and service,
compared to imported products. Particularly, local Voltage
Protectors and Stabilizers are better suited to our conditions
than the imported ones.
Weakness
1. Lack of adequate scientific and technical knowledge. Cannot
improve quality beyond a certain level.
2. Do not have adequate funds. Entrepreneurs do not know
about collateral free loan providers. Since banks usually ask
for collateral, most entrepreneurs avoid banks.
3. Majority does not have proper accounting knowledge required
for project evaluation, pricing, etc. They mostly work through
crude mind – calculations which may result in failure,
particularly when receiving loans.
4. The independent marketing network is beyond the control of
the enterprises, rather these distributors play control over
them.
5. The pressure from the distributing firms for greater margins to
themselves and lack of consumer awareness leads to cheaper
and low quality products flooding the market, even though
capability exists for producing better quality items. This
pressure also makes the local enterprises label products with
the names of popular foreign brands. Thus bad products drive
good products away damaging the reputation of local
products. This eventually makes road to import of better
quality foreign products.
6. Existing Government laws relating to tax and VAT at
production level, where corruption is also rampant,
discourages these enterprises to expose themselves through
exhibitions and advertisements, and in establishing own
brands. This keeps them under the control of the distributors,
which inhibits efforts to enhance quality as mentioned above.
7. Attitude of customers to go for foreign products, thinking that
quality products are not produced in own country. This also
results in manufacturers putting labels of foreign brands on
local products for easy marketing.
8. There is a high end market in the country where quality rather
than price is sought.
1. However, it would be difficult for SME’s to enter this market
unless quality brands are established.
9. Government is a big buyer in the country. Vested interest
groups manipulate policies to make it difficult for local
products to enter.
10.Needs a large working capital.
11.Lack of infrastructure for fabricating high quality cabinets.
World-class cabinets mostly use plastics or die shaped sheet
metal. Both of these need huge investments and are
economically viable for a very large volume for each individual
product. Since the existing volume is small the necessary
infrastructure has not grown in Bangladesh so far.
12.At a very small scale the industry is very profitable, as
marketing is limited within acquainted people around. As soon
as one wants to grow to middle tier, restricting
13.Government policies come into play and Marketing becomes
difficult as it needs going beyond personal acquaintance level.
Show rooms and sufficient advertising are needed which a
large working capital and it needs take a while to catch on.
14.No large scale marketing chain exists as is there for electrical
products. The manufacturers have to negotiate with retailers
directly and the dealers take advantage of the situation. The
manufacturers do not get the price regularly and this sector
suffers from cash flow crisis.
15.Because of low volume, manufacturers cannot import
components directly from component manufacturers abroad.
They have to depend on the components brought in by bulk
importers. This leads to some reliability problems. Besides,
minor design changes have to be made for each batch if
components are not available to exact specifications. This
needs the presence of an expert in every industry which are
based on local design.
16.The above is not a problem with Radio and Television
assembly industry since they get all their parts and
components in a kit form. However, such assembly-only
industries do not build up local technological capability and
cannot grow. Therefore such assembly-only industries should
get less importance than those based on indigenous
technology.
17.Existing Government laws relating to tax and VAT at
production level, where corruption is also rampant,
discourages these enterprises to expose themselves through
exhibitions and advertisements, and in establishing own
brands. This keeps them under the control of the retail
dealers, which inhibits efforts to enhance quality and to
sustain a regular cash flow.
18.Though there is an attitude of customers to go for foreign
products, efforts of some capable innovators turned
entrepreneurs have changed the scenario to a great extent.
People have now more reliance on domestic electronic
products.
19.Government is a big purchaser in the country. Vested interest
groups manipulate purchase procedures with illegal behind
the scene negotiations, where quality is sacrificed for
kickbacks. This results in a race which results in quality
deterioration.
20.Government purchases often favor foreign products,
categorically mentioning places of origin excluding the local
ones, even in cases where local products have demonstrated
their quality and reliability
Opportunities
1. A large domestic market exists for low priced products, which
is increasing gradually as people come out of poverty through
various Government and Non-Government initiatives.
2. The customers are not yet conscious about consumer rights.
This is helpful for start-up enterprises.
3. If the Government policies regarding tax and VAT can be
changed so that corrupt officials cannot disturb the
entrepreneurs, some enterprises will come out of the shell by
trying to improve quality, advertising, and establishing
brands. This will initiate a healthy competition. When quality
improves, a large export market, both in the Economically
Developing countries and in the Economically Advanced
countries, can be tapped as well.
4. If favorable policies are adopted (as suggested above) youths
with technical education will enter this arena. This will pave
the way for producing high quality products in the country.
5. Government can be induced to make purchases from local
manufacturers through appropriate lobbying and public
opinion formation.
6. A large domestic market exists for low and medium priced
quality products, which is increasing gradually as people come
out of poverty through various Government and Non-
Government initiatives.
7. The customers are not yet conscious about consumer rights.
This is helpful for start-up enterprises.
8. There is ample scope for export. The quality of some of the
local products is already of international standard. In fact
some products that are imported into this country are inferior
to local products.
9. If the Government policies regarding tax and VAT can be
changed so that corrupt officials cannot disturb the
entrepreneurs, some enterprises will come out of the shell by
trying to improve quality, advertising, and establishing
brands. This will initiate a healthy competition. When quality
improves, a large export market, both in the economically
developing countries and in the Economically Advanced
countries, can be tapped as well.
10.If favorable policies are adopted (as suggested above) more
people youths with technical background will enter this arena.
This will pave the way for producing high quality products in
large volumes within the country.
11.Government can be induced to make purchases from local
manufacturers through appropriate lobbying and public
opinion formation.
Threat
1. Better quality products from India and China at reasonable
prices.
2. Possibility of dumping from these countries when local
producers try to improve quality.
3. Unfavorable Government policies may be taken up due to
lobbying of powerful vested interest groups when the local
entrepreneurs become a challenge to imported products –
both in quality and in price.
4. Most of the products depend on imported raw materials. A
large scale disruption abroad may affect the local production,
though it is a remote possibility in the present day world.
5. Cheaper and better looking, not necessarily of better quality,
products from China.
6. Possibility of dumping from these countries.
7. Unfavorable Government policies already exist against local
products, and may continue in future due to lobbying of
powerful vested interest groups.
8. Most of the products depend on imported raw materials. A
large scale disruption abroad may affect the local production,
though it is a remote possibility in the present day world.
No of Units
Employment
21%
47% 19%
49%
32%
32%
Proshika,
Association for social advancement (ASA).
SME banking
Six commercial bank primarily provide loan for SME in Bangladesh. The functional
description of this six bank are given below –
Comparative Analysis of 06 SME bank -
Mode of finances and Portfolio Size (According to loan provide) needed for 06 SME
banking -
Note,
TL = Term Loan
WCL = Working Capital Loan
Guarantee needed for 06 SME banking-
Dutch Bangla Bank Limited Personal CSP (forced sale value 12-.25
times of loan amount
Note,
CSP = Collateral security Provision