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THE DEVELOPMENT OF SMES IN PAKISTAN:The Industrial History of Pakistan

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SME Management (MGT-601)
VU
Lesson 6
This lecture is about the history of industrial growth in Pakistan and its related factors; the factors for
adopting an SME based industrial system, the institutional support of government in the shape of long term
and short-term policies.
THE DEVELOPMENT OF SMES IN PAKISTAN
The Industrial History of Pakistan:
Pakistan's industrial history has been dominated by a single-minded emphasis on industry and
that too of large-scale enterprises.
The fall out of that development strategy was formally adopted in the 60's as conscious policy step in the
start of second policy plan period (1960-1965) has been large scale industrial holdings, accounting for much
of the country's assets and capital. The feeling among the masses that a few families control 70 to 80
percent of the country's assets, led to political rebellion. That rebellion also culminated in the
dismemberment of the eastern part of the country. The primary causes for that tragedy, were basically
economic in nature.
The upheaval also generated a parallel economic thought, exclusive to the peculiarities of
Pakistan's economy. That economic thought advocated across the board nationalization of economic assets
as a vehicle for ensuring social justice in the society.
The fall out of that strategy was two pronged:
·  Inefficient labor
·  Shaken Business Confidence.
The reaction to that policy mix in the early 1980's was a revert back to the Ayubian model of economic
development.
The model was characterized by:
1. Promotion of large-scale units.
2. Expansion of large-scale enterprises.
3. Banking sector turned to cater to large loans.
The IMF conditions and poor recovery rate of huge borrowings played a major role in creating
a negative point for the progress curve. These constraints further pushed the economy towards
recession, industry towards sickness and individual units towards default.
All these factors precipitated the rethinking of a strategy to revive the growth of economy.
It was due to dis-involvement that medium scale and small-scale enterprises has got the
attention of the stakeholders i.e. the economic managers and the private sector. The
development of SMEs suits the current situation on account of the following factors.
1. Low overhead cost, low level of financing.
2. Lesser pressure on the banking system.
3. Employment generation.
4. Entrepreneurial development.
5. Vendor based development.
6. Development of large-scale industry on firm basis.
7. A more just distribution of resources and profits.
The pre-requisites for the development of SME sector rest heavily on an infrastructure
tuned to support such development that includes:
A banking system customized for SME development.
One window operation.
Currently, our banking system continues to be the large sector banker. Despite talk of SME
development under the auspices of SMEDA and development of SME Bank and Khushali Bank, the
financial sector's general response has been influenced by the security issue, i.e. against which asset the bank
would be advancing loans to the small and medium scale business entity. In the absence of a customized
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SME Management (MGT-601)
VU
banking setup, the development in the SME sector so far has been evolutionary and not the result of any
conscious activity.
The turning up of the system for development of the SME also includes an enabling
environment. Though the need for an enabling environment is not exclusive to the SMEs and is a pre-
requisite for all types of economic activity. That includes a one-window operation culture, where the
investor does not have to go from pillar to post to get his task done.
A conscious effort by the state to reform the banking setup and the attitude of the
government functionary and the bureaucracy will set into motion the mechanics of change in the
development strategy priorities of our economy.
The development of SME hold within its mechanics of expansion the growth of economy
coupled with a more just distribution of wealth. The social justice aspect of it ensures that the development
will not compromise the distribution of wealth issues.
To begin with, the SME development does not depends upon the expansion of the family
enterprises; rather, it is the outcome of the initiative of the single individual or asset of individual. Unlike the
development of family concerns, where the emphasis on the particular group's interests, the SME never
seeks to totally control the market, rather, it only identifies its place in the market and sustains it. The
modus operandi of most of the vendors in the auto sector is like this. They do not control a major chunk of
the market. What they are doing is to maintain their share as a sustainable vendor. Thus the market is not
blocked for the new entrant unless there is saturation point already experienced by the industry.
The small overheads involved in fixed and running cost structure of a SME unit means that
each unit does not need excessive financing. As a result a large section of society benefits from the available
resources. There is no accumulation of wealth in few hands and the money circulates in a fashion, where
people are able to derive the needed benefit.
The availability of resources for the SME unit means that the opportunity to develop are not
confined to a restricted section of society, rather anyone with a idea and plan can create a place for himself.
The success of venture capital in the United States and the likes of Yahoo and Hotmail are indicative of
the development of SME as a vehicle for equal opportunity, besides technological development.
The other success stories like Microsoft, Linux owe their development to the practical
implementation of the idea, which was presented by individuals or a set of individuals with not so privileged
backgrounds. Yet they made it big. Bill Gates was not a Kennedy scion, but the opportunity to develop
from a SME allowed him enough room. Even today, developers jointly own Microsoft. In the process the
above-mentioned advantage of technological development as also been realized.
A more just distribution of wealth and prospects of technological development set
the pace for the growth of economy. New technologies generate economic activity on industrial scale. That
is not exclusive to developed countries. We have experienced in the context of the Information Technology
that it did generate economic activity in the affiliated sectors and provided employment opportunities to
many hardware engineers and software developers. The development of IT sector had a more egalitarian
character to its credit allowing professionals to prosper, without having to be a large enterprise or scions of
big families.
The recipe of SME development infects does two things. On one hand the processes are
developed at a grass root level. Vendors are identified and the production process takes off. As small-scale
vendors characterize most of the development, the profits are naturally divided according to the
contribution to the process. There are no new big families appearing in the process, rather, it is the matter
of fact stages of production line, which are identified. The Japanese and Italian economies are increasingly
modeled on the basis of SME development.
These societies are characterized by the dignity of work, not for the huge amount of sweat, the
worker sheds, but for the rewards, which are ensured in this setup. The vendor knows the respect he earns
and the rewards he is insured. For that very cause, peace and almost no records of militant trends have
characterized the developed societies like Japan.
The debate in the support of the SME can be unending. The prescriptions for the societies and
economies like Pakistan in the context of the best possible economic solution are simple. There is a need to
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SME Management (MGT-601)
VU
retune the priorities of the state, if the results are to be realized, in the absence of which our efforts would
remain devoid of any tangible results.
Reference:
1-Small and Medium enterprises development (A recipe For development and just distribution) A research
paper by SMEDA Research cell
2-The A to Z of healthy small business by Amer Qureshi (international edition Australia)
3-50 years of Pakistans economy (traditional topics and Contemporary Concerns by shahrukh Rafi Khan
(Oxford Press)
Recommended Book
.50 years of Pakistan's economy (traditional topics and Contemporary Concerns by shahrukh Rafi Khan
(Oxford Press)
Key terms
Modus operandi (the way in which something is done)
Overheads (a regular cost of running a business i.e. rent.wages, gas, elecric bill etc)
One window operation (provision of all facilities at one place)
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Table of Contents:
  1. THE HISTORY:Cottage Industry, CONCEPT OF SMALL BUSINESS
  2. THE RELATIONSHIP BETWEEN SMALL AND BIG BUSINESS:The SME’S in Pakistan
  3. THE ROLE OF ENTREPRENEURSHIPS IN SMEs:Focus and Perseverance Guide the Entrepreneur
  4. THE ROLE OF ENTREPRENEURSHIPS IN SMEs:Kinds of Entrepreneurs
  5. SMALL ENTREPRENEURS IN PAKISTAN:National Approaches
  6. THE DEVELOPMENT OF SMES IN PAKISTAN:The Industrial History of Pakistan
  7. GOVERNMENT’S EFFORT TOWARDS SME DEVELOPMENT:Financing Programs
  8. THIS LECTURE DEFINES THE ROLE OF NGOS AND SMEDA:Mission Statement
  9. ISSUES AND POLICY DEVELOPMENT FOR SME:Monitoring Developments
  10. ISSUES IN SME DEVELOPMENT:Business Environment, Taxation Issues
  11. LABOR ISSUES:Delivery of Assistance and Access to Resources, Finance
  12. HUMAN RESOURCE DEVELOPMENT:Market and Industry Information, Monitoring Developments
  13. MARKET AND INDUSTRY INFORMATION:Measuring Our Success, Gender Development
  14. LONG TERM ISSUES:Law and Order, Intellectual Property Rights, Infrastructure
  15. THE START UP PROCESS OF A SMALL ENTERPRISE:Steps in Innovative Process
  16. TECHNICAL FEASIBILITY:Market Feasibility, Market Testing
  17. FINANCIAL FEASIBILITY:Financial resources and other costs, Cash Flow Analysis
  18. ASSESSMENT OF PERSONAL REQUIREMENTS AND ORGANIZATIONAL CAPABILITIES:Analysis of Competition
  19. Post Operative Problems of a New Enterprise:Environmental Causes
  20. HOW TO APPROACH LENDERS:Bank’s Lending Criteria, Specific Purpose, Be Well Prepared
  21. WHAT A BANK NEEDS TO KNOW ABOUT YOU:General Credentials, Financial Situation
  22. COMMERCIAL INFORMATION:Checklist for Feasibility Study, The Market
  23. GUARANTEES OR COLLATERAL YOU CAN OFFER:Typical Collateral
  24. Aspects of Financial Management:WINNING THE CASH FLOW WAR, The Realization Concept
  25. MEANING OF WORKING CAPITAL:Gross Working Capital, Net Working Capital
  26. RECRUITMENT, SELECTION AND TRAINING:Job Description, Job Specification
  27. SELECTION AND HIRING THE RIGHT CANDIDATE:Application Blank, Orientation
  28. TRAINGING AND DEVELOPMENT:Knowledge, Methods of Training
  29. CONDITIONS THAT STIMULATE LEARNING:Limitations of Performance Appraisal, Discipline
  30. QUALITY CONTROL:Two Aspects of Quality, Manufactured Quality
  31. QUALITY CONTROL:International Quality Standards, MARKETING
  32. MARKETING:Marketing Function, MARKETING PROCESS - STEPS
  33. MARKETING:Controllable Variable, Marketing Uncontrollable, Marketing Mix
  34. MARKETING:Demerits of Product Mix, Development of new product, SMEDA
  35. ROLE OF TECHNOLOGY:Training programmes, Publications
  36. ROLE OF TECHNOLOGY:Measure to Undertake for Promoting Framework.
  37. EXPORT POTENTIAL OF SME IN DEVELOPING COUNTRIES I:Commonly Seen Assistance Programme
  38. EXPORT POTENTIAL OF SME IN DEVELOPING Countries. II:At the national level
  39. WORLD TRADE ORGANIZATION (WTO):WTO Agreements: Salient Features
  40. WTO MINISTERIAL CONFERENCES:PAKISTAN AND WTO
  41. WORLD TRADE ORGANIZATION (WTO) PAKISTAN & WTO. II:International Treaties
  42. WORLD TRADE ORGANIZATION (WTO) PAKISTAN & WTO. III:Agriculture
  43. WORLD TRADE ORGANIZATION (WTO):PAKISTAN & WTO. III
  44. WORLD TRADE ORGANIZATION (WTO):CONCLUSIONS AND RECOMMENDATIONS
  45. SUMMARY & CONCLUSIONS:Financing Tool, Financing Tool