Business activity by Small and Medium Enterprises (SMEs) has cast its highly positive impact on the economic growth on state economies in all parts of the world. This dynamic achievement has been ensured through introduction of innovative products and processes, productivity gains due to increased competition and knowledge spillover effects. Irrefutable evidence of these effects are to be found in the double-digit economic growth of the leading economies in Asia, new product introductions in Latin America and the enhanced productivity of the economies in Eastern Europe in the late 1990s and early 2000s.
Recognising the critical contributions that they make to national economies, SMEs in general have in recent years attracted considerable attention from scholars of entrepreneurship, strategy and international business. A majority of the studies to date, however, have focused on SMEs in industrialised countries presumably due to ready availability of reliable secondary data on these firms in the public domain and/or relative intractability of emerging markets for collecting primary data on small businesses. Additions to the body of knowledge on SMEs in emerging markets based on either kind of data are, therefore, invaluable as they fill an existing gap in the literature on entrepreneurship and understanding of small business strategies in emerging markets.
In Pakistan SMEs, are the core issue in the country’s progress especially for the prosperity of masses that are surviving with low scale income due to which Pakistan ranks 135th out of 187 countries on Human Development Index. A layman’s concept of SMEs is of a one-man unit, but according to Small and Medium Enterprise Development Authority (SMEDA) Small Enterprises should possess ten to thirty five employees with two to twenty million rupees capital intact in equity. Similarly, Medium Enterprises should possess thirty six to ninety nine employees with twenty to forty million capital. High penetration of SMEs in rural and urban societies is the true economic indicator of the well being of low income streams. The assessment of the role of SMEs in national economy is more important than considering GDP or per capita income. Before getting content with high GDP or per capita income we have to keep in mind that the possessors of this growth rate are in fact the business tycoons of the country instead of the masses. Therefore, it is a misconception to link the GDP with the well being of a common man in a country. Size and strength of SMEs, on the other hand, are a sure shot towards the eradication of poverty in the communities.
According to SMEDA, SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40%, approximately. Punjab, having 60% of the total population, is home to more than 65 percent or 1.9 million SMEs businesses in Pakistan. In India, it is estimated that SMEs account for almost 92% of industrial units in India and 40% of value addition in the manufacturing sector. They contribute 35% to India’s merchandise exports. It points out the enhanced role and clear visibility of SMEs as integral players in India’s economic growth story.
Pakistan needs to have a reorientation on the role of SMEs in order to bridge the productivity gap and strengthen its national economy. This is the major source of poverty reduction in the country through the creation of employment opportunities that (if taken seriously) can go a long way to prosperity. We need to intensify efforts to bring together experts with first hand knowledge of the emerging markets to share their thoughts and insights on this important topic of interest to academics, practitioners and policy planners alike. The genesis of debating on SMEs is to encompass a rich repertoire of ideas in emerging markets and employ a variety of data and methodological approaches to strengthen our understanding of this vital area of growing interest in international business markets.
It is unfortunate to note that Pakistan SME sector’s potential for employment, income generation and poverty reduction remains largely untapped mainly due to lack of resources. SMEs in Pakistan are facing shortages of funds mainly due to the fact that conventional banking is located in the urban areas and mega cities while a significant number of these units are operating from rural areas. There is still an immense potential from development point of view as SMEs are an untapped segment of the country. It has been neglected by government for a longtime resulting a social disparity, economic imbalance and inequality and discrimination between urban and rural societies. A major constraint for the development of SME sector in Pakistan is the absence of linkage between financial institutions and the SMEs. According to sources there are 2 millions SMEs in Pakistan including 400,000 manufacturing units, 600,000 service sector units and 1,000,000 trade sector units. They constitute 90% of all enterprise in the country in terms of numbers, but Small Enterprises being small by name their share in GDP is not as quite dominant (11 percent to GDP) whereas Medium Enterprises employ 80 % of the non agriculture labour force. Informal Financing is the main source of their support. The sources break down comprised 61 % from friends and relatives, 30% from shopkeepers and merchants, 2 % from professional money lenders and the rest of it is through banking.
We have a plentiful surplus manpower that can be accommodated in industrial sectors such as Agriculture, Fisheries, Textiles, Handloom Weaving, Transport, Leather, Marble & Granite, Carpets and Light Engineering. This manpower, if properly developed and engaged, can be turned into a valuable asset but our government is taking it as a liability. This is all due to lack of understanding, misplaced priorities and loss of economic direction. Any one who believes that any great enterprise of an industrial character can be started without labour or manpower must have little experience of life.
In a mess of political rat-race, billions of hard earned resources have been wasted on Sasti Roti and Benazir Income Support Program to alleviate poverty but the facts speak opposite. The total sum of both these schemes is more than one trillion Rupees. This is a huge amount which if invested in SMEs might create thousands of new jobs in the country. This would have gone a long way to break up the vicious circle of poverty and the multiplicated beneficiaries may have crossed the figures unsuccessfully targeted in BISP and Sasti Roti. The late US President Ronald Reagan had rightly said, “Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States”.