THE RELATIONSHIP BETWEEN SMALL AND BIG BUSINESS:The SME’S in Pakistan

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SME Management (MGT-601)

Lesson 2

This lecture will throw light on the relationship between small and big business ,concept of SME's in our

region i.e. South East Asia and in Pakistan. It should give a student a clear idea about its definitions in these

areas and will help him in differentiating the variable factors of labor, investment and production volume of

our region in comparison with developed countries of Europe and USA.

THE RELATIONSHIP BETWEEN SMALL AND BIG BUSINESS

Small businesses powerfully effected by developments within the big business sector this relationship serves

the interest of general economic disequilibria. Small business is less affected by economic disruptions and is

more or less self-adjusting. It tends to act as cushion for economy .The nature of interlink age between

small and medium business is as under

1: Job subcontracting i.e. the large business provides materials and components to small units who process

the same into finished goods

2: purchase subcontracting i.e. in this case the material is procured by small unit who manufactures a

specific part or component needed by a particular large unit

3: Complementary: in this case the product manufactured by small company is purchased by a big unit as

accessory like plastic dust covers for video recorders, electronic passive components, packaging etc.

4: Merchandising or commercial trading: in this case the small units manufacture the goods and big units on

the strength of their financial power market it with their own brands like fans, washing machines,

refrigerators etc.

5: Maintenance and repair services: many large enterprises give the operation and maintenance contract to

the small companies due to being more economical and helpful

6: Social benefits: employment generation, decentralization of industrial benefits etc.

THE REGIONAL CONCEPT OF SME'S

The countries generally try to identify their SME sector in order to target it for special assistance. Yet,

the definition of an SME depends to a greater extent on local conditions. An enterprise considered an SME

in one country might well be bigger than many large countries in another. In some cases, the SME sector is

further broke down in to two separate groups

A generic definition is not easy to find, any definition of classification of SME can thus be considered

specific to the country in question. Countries have widely different definitions of SME's for example, in

India; the criteria for determining SME status are based on investment while in South Africa SME eligibility

depends on the number of employees and turn over. There are nevertheless three parameters that are

generally accepted, either signally or in combination, in defining SME's in most countries, these are

Number of workers employed which is the most widely used criteria

The level of capital investments or assets

The volume of production or business turnover.

In many countries, medium scale industry is not defined and is understood to include those that fall

between small and large industries

Table 1 criteria used to define SME's in south East Asian countries

Employees

Capital

Turnover

(Number)

(US $ `000)

Brunei

Small 1-10

Darussalam

Medium- sized 11-100

Indonesia

SME's <100

SME's <84

SME's < 1,000 (sales)

(Total assets)

Lao PDR

Small < 10

Depends on the

Medium- sized 10-29 number of

establishments in

sector

Malaysia

SME's < 76

Small < 198

Medium-sized 198-

939

Myanmar

Small <50

Small <167

Small 417

SME Management (MGT-601)

Medium-sized 50-100

Medium-sized

Medium- sized 17-

167- 835

1,670 (production)

Small 10-99

Small <570

Philippines

Medium-sized 100-

Medium 570-2,282

199

Singapore

Services sector

Manufacturing sector

SME's <100

SME's < 8570

Thailand

Labor-intensive

Capital intensive

industries:

Industries- fixed

Small <50

assets:

Medium-sized 50-200

Small 781

Medium-sized 781-

3,905

Viet Nam

Small < 50

Small <4

Medium-sized 50-100 Medium-sized 4-18

Source (United Nations, Small industry bulletin for Asia and Pacific (No, 30 page 44)

The SME'S in Pakistan

Pakistan's economy is an economy of SME's. Policies in the past have given a general perspective,

direction and defining broad parameters of activity within the macro economic framework, but efforts have

focused on the large enterprises, neglecting SMEs which are at the heart of our economy while SME's are

being mentioned in some of our socio-economic strategies and policy documents, measures are not

sufficiently specified and prioritized for us to be able to speak of any coherent SME policy or approach. SME

promotion is an important issue for many government departments and central offices. However, there is an

existing lack of coordination and regular information exchange mechanism among institutions that constrains

their collective ability to deliver in the SME development process.

The Government's Effort towards SME Development

The government of Pakistan keeping in view the importance of SME's has adopted multi

pronged approaches at the regional, sub regional and national levels. Initiatives at the national and sub

regional levels include efforts to strengthen economic integration and cooperation. At the national level,

structural adjustment programs have been inauguration along with attempts at re structuring and

diversifying the production base, integration the informal sector into the economic mainstream and

stimulating increased participation at the enterprise level. The development process was initiated in the 60's

and the concept of development derived its origin from within, "Indian model" of small enterprise

development. The basic idea behind this model is to develop infrastructure facilities such as industrial

estates, common facility centers and vocational training institutes which would to a great extent the

problems faced by SME's. Based on this model numerous provincial level organizations were setup mostly

with the help of foreign assistance in the shape of grants and soft loans. The definitions thus depend upon

the criteria set out by such provincial or federal institutions.

DEFINITIONS BY PROVINCIAL LEVEL INSTITUTIONS

Punjab Small Industries Corporation (PSIC):

Sindh Small Industry Corporation (SSIC):

Small Industries Development Board (SIDB)

Directorate of Industries Balochistan (DIB)

These organizations defined the small industries as under:

An industrial undertaking with fixed investments up to 20 million excluding the cost

of land and no limit of people employed.

SME Management (MGT-601)

DEFINITION BY Small Business Finance Corporation (SBFC)

Small:

No limit of people employed.

Productive assets limit of 20 million

Medium:

No limit of people employed.

Productive assets limit of rupees 100 million.

Youth Investment Promotion Scheme (YIPS)

According to the concept paper on SME's in Pakistan, developed by YIPS, small-scale industry was defined

as industrial enterprise with fixed assets of up to rupees 10 million. (Excluding the cost of land and

building).

It is pertinent to note that majority of the definitions have been formulated either by the national

institutions themselves or with the objective of meeting the financial requirements

The State Bank of Pakistan:

MICRO:

The State Bank's federal credit scheme (small loan scheme) for micro and small scale enterprises, defined

their target group in year 1972 1973 as enterprise with assets of less than rupees one million (excluding the

cost of land and building). This limit was redefined in the year 1992 and increased to rupees 20 million.

SMALL:

· Assets up to rupees 20 million (excluding the cost of land and building)

SMALL & MEDIUM ENTERPRISE DEVELOPMENT AUTHORITY (SMEDA)

The government to promote the cause of SME development in the country has recently established

SMEDA. Given the mandate of SMEDA, it was not possible to work in the absence of definition for

the target segment. At a broader level SMEDA's objective is not only limited to catering to the financial

requirements of the SME's whereas its mandate encompasses all other aspects such as marketing,

human resource development etc. SMEDA went one step ahead and used two variables to define

SME's in Pakistan. Following are the definitions of the SME's:

Micro:

· Less than 10 people employed

· Productive assets limit of 2 million rupees.

Small:

· Between 10-35 people employed.

· Productive assets limit of 20 million.

Medium:

· Between 36-99 people employed

· Productive assets limit of 40 million.

Definitions of SME's in Pakistan

The definitions of "small" and "medium" sized enterprises differ from one country to another. Each

country has adopted different criteria for defining SME's. such as the number of workers employed the,

volume of output or sales, the value of assets, etc. As far as the case of Pakistan is concerned no

concentrated efforts are observed at a macro level to define SME's. Numerous efforts have been made

to formulate basic policy guidelines limited to the small-scale industry while ignoring a vital component,

the medium sized enterprises.

As a result, inconsistent policies have been formed from time to time without taking into

considerations the overall importance of SME sector. The need for a uniform definition is crucial for

the successful development of this sector. Various organizations follow different definitions of SME's

SME Management (MGT-601)

according to their needs. Mainly these definitions are based on one variable, the fixed assets; key motive

is to cater the credit requirements of the small-scale sector.

References:

1-Pakistans Small industries entrepreneurs Gallup/BRB World Bank survey

2-Resarch cells LCCI (Lahore chamber of commerce and industry)

3-SMEDA (research Cell)

4-Small Enterprises in developing Countries By Dr. Asghar S. Nasir

5- State Banks circular for Micro credits

Book Recommended

Small Enterprises in developing Countries By Dr. Asghar S. Nasir

KET TERMS

1-Multi pronged (with many tips, branches)

2-generic (Belonging to a class or group)

3-Soft Loan (A loan with very low interest)

4-Grant (A non returnable helping money or commodity)

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