MGT601

SME MANAGEMENT

Lesson 37

Export Potential of SME in

Developing Countries I

Chapter Learning Objectives

Definition
Role in Economy
Public Policy Approaches to the SME
Sector

Definition

The SME sector is a varied one and

plays a predominant role in the
economies of most developing
countries. It comprises factories,
workshops, traders and other
service facilities.

Continued.

It ranges from the most modern

and up-to-date to the simple and
traditional, from independent
enterprises to ancillaries and
subcontractors, and from units
mainly catering to the domestic
market to exporters.

Role in Economy

SMEs are a key component in economic

life, not only because of their number and
variety but because of their involvement
in every aspect of the economy, their
contribution to regional development, the
complementary role they play in support
of the large sector, and their role as
proving ground for innovations and
adaptations.

Role in Economy..

They can be seen as a kind of

industrial breeding ground, a source
of constant renewal of industry and
commerce, and a wellspring of
competition and dynamism.

Public Policy Approaches to the

SME Sector

Small and medium-sized enterprises

play a predominant role in the
economies of most developing
countries.
For valid socio-economic reasons
relating to employment creation,
income distribution, dispersion of
industries etc. many govt.

Public Policy Approaches to the

SME Sector..

Specialized SME development

agencies have long been engaged in
providing assistance for the
establishment of SMEs and for their
growth and development.
The range of assistance has
included training and
entrepreneurial development
activities.

Public Policy Approaches to the

SME Sector..

SME support programs have been in place

in many developing countries for a
number of years. Framework legislation
and articulated government policies also
exist in many countries.
Observers have generally concluded that
even when there is no policy bias in favor
of large units, the operational systems

Public Policy Approaches to the

SME Sector..

The well-known difficulties of SMEs

in gaining access to support
institutions for their inputs-finance,
raw materials, approvals, etc.
render the policy framework biased
in favor of large units.

Public Policy Approaches to the

SME Sector..

SMEs have an inherent handicap in

dealing with institutions because of
their smallness. thus, even in
industrialized countries the need for
special intervention in favor of SMEs
has been acknowledged. Even
proponents of laissez-faire policies
concede these needs

Public Policy Approaches to the

SME Sector..

Public policy in developing

economies typically includes
recognition of the importance of the
sector and measures to stimulate
the establishment and to encourage
the growth of this sector.

Commonly Seen Assistance

Programme
Some commonly seen assistance
programs, implemented with widely
varying degrees of efficiency and
success, relate to establishment of;
1. Institutional Support Infrastructure
(Like Small Industry Boards or
Small Industry Corporation).

Commonly Seen Assistance

Programme

Physical Infrastructure Facilities( Like

Industrial Estates, Common facility
centers)
Initiative in Field of Financing (Creation of
Small Industry Finance Programme,
Credit guarantee Scheme, Preferential
financing Rates).
Entrepreneurship development
Programme and so on.

Commonly Seen Assistance

Programme

SME promotion programme of most of the

countries potential markets are assumed
to exist and thus a marketing dimension
is not taken into consideration.
However, growth of SME sector is possible
only when the SMEs are assisted in
entering existing markets or in new
market creation.
In certain situations an individual SME or
a production sector can create new
markets.

A Favorable Climate

A Favorable Climate is Required,

Which Depends on.
A variety of Macro-Economic Factors
International Factors
Government Policy

Levels of Exports from SMEs in

Developing Countries
The products of SMEs find their way to
export markets through three different
channels:
Direct Export
Indirect Export through agencies acting as
middlemen such as merchant export and
trading houses.
Physical Incorporation of SME produced
components/ subassemblies in exports by
larger manufacturers.

Workshops conducted by the

International Trade Centre

Only a very small proportion of their

manufacturing SMEs participate in
the export trade.
It was estimated that in India not
more than 5% of all registered
small units participate in export
trade directly or indirectly regularly
or sporadically.

Information compiled by ITC on the shares of

SMEs in exports of some developing
countries

In Pakistan over 30% exports of

manufacturers are by small
manufacturing units (World Bank Studies,
1982) (Figure does not include
contribution of medium scale units).
In Thailand, Sri Lanka small locally-owned
traders and manufacturers account for
approximately 35% of total national
exports.

Continued

In India number of registered small units 526,035

(1981) (only a very small proportion of these is
participating in exports). and 46% of total
national exports were accounted for by organized
small-scale units and by the cottage industry
sector.
In Republic of Korea the share of small units in
total exports is39% in 1983.
In Singapore between 1973 and 1981, the
average annual increase of direct exports from
small firms was 48.5% as against 25% for large
firms during the same period.

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