Role of SMEDA in Developing SME’s in Pakistan

Submitted to: Sir Imran Ali Submitted by: Ali Zahid Kashif Aslam MBE-SP08-003 MB
E-SP08-028
COMSATS Institutes of Information Technology M.A.Jinnah Campus Lahore. Departmen
t of Management Sciences.
Introduction
Developing a group of diverse and competitive small and medium enterprises (SMEs
) is a central theme towards achieving sustainable economic growth. SMEs are cru
cial to the economic growth process and play an important role in the country’s ov
erall production network. Some advanced economies have succeeded because SMEs fo
rm a fundamental part of the economy, comprising over 98% of total establishment
s and contributing to over 65% of employment as well as over 50% of the gross do
mestic product. Although the numbers might be lower in Pakistan, SMEs have the p
otential to contribute substantially to the economy and can provide a strong fou
ndation for the growth of new industries as well as strengthening existing ones,
for Pakistan’s future development.
Definition of SMEs
1. SMEDA Definition Small & Medium Enterprises are defined as follows, as approv
ed in SME Policy 2007.
Enterprise Category Small & Medium Enterprise (SME) Employment Size (a) Up to 25
0 Paid Up Capital (b) Up to Rs. 25 Million Annual Sales (c) Up to Rs. 250 Millio
n
2. State Bank of Pakistan According to State Bank of Pakistan, SMEs are organiza
tions which Fulfills one of the following criteria: A trade / services concern w
ith total assets at cost excluding land and buildings up to Rs 50 million. A man
ufacturing concern with total assets at cost excluding land and building up to R
s 100 million. Any concern (trade, services or manufacturing) with net sales not
exceeding Rs 300 million as per latest financial statements.
Importance of SMEs
The ideology behind the promotion of SMEs comes from the perceived failure of la
rge enterprises in creating adequate productive jobs to absorb a significant sha
re of the rapidly growing labor force in many developing countries. This percept
ion inspired emphasis on the development of small industries by stressing benefi
ts such as income generation, dispersal of economic activities to small towns an
d rural areas, and mobilization of entrepreneurial talents. Following are some p
oints which will reveal the importance of SMEs. SMEs are more labor-intensive th
an large enterprises. SMEs are as efficient as LEs or more efficient than large
enterprises. SMEs are more equitable in distributing the income they generate th
an large enterprises. SMEs are more likely to play a higher role in rural develo
pment than large enterprises. The significance of SMEs is associated primarily w
ith their role in stimulating economic growth. SMEs create employment opportunit
ies as they are labor-intensive. SMEs enhance regional development. Create more
equitable income distribution. SMEs play a complementary role in relation to lar
ger firms--as suppliers and distributors. SMEs serve as a training ground for de
veloping the skills of workers and entrepreneurs. The presence of SMEs curbs the
monopoly power of larger firms. A country can reduce its vulnerability to finan
cial crises by strengthening its SMEs. SME’s are the backbone of a national econom
y, particularly in developing countries. SME provide the platform for small & me
dium entrepreneurs to work as an arm taking of economic and social indicators of
a country.
Objectives of SMEs
Following are some broad objectives of SMEs. Economic Growth Economic Developmen
t Poverty Reduction Employment Social and economic sustainability
Characteristics of SMEs
Following are some common characteristics of SMEs. Owner is the manager & few em
ployees Owned & operated independently Relatively small investment, production,
sales, dealings etc. Inadequate efficiency of business operations. No relationsh
ip with other firms or parties for Investment, Management, finance, tax
Statistical facts regarding SMEs
1. ACCORDING TO THE ECONOMIC CENSUS OF PAKISTAN Sales below Rs.0.5M Sales below
Rs.1.0M SMEs less than 5 Year old Survive beyond 25 years Business enterprises n
ation-wide SMEs Household Units 84% 93% 19% 4% 3.2M 2.96M 0.18M
2. Province wise Distribution of SMEs Name of Area Pakistan Punjab Sindh Khyber
Pakhtunkhwa Baluchistan SME Units 2.96 Million 65% 18% 14% 3%
3. Distribution of SMEs According to the No. of Employees Total SMEs units SMEs
employing 1-5 Persons SMEs employing 6-10 Persons SMEs employing 11-50 Persons S
MEs employing over 50 Persons 2.96 million (100%) 2.85 million (96.6%) 79,000 (2
.67%) 26,000(0.87%) 1617(0.054%)
4. Economic Contribution of SMEs Employment GDP Value Addition Exports 78% 40% 3
5% 25%
5. SMEs Share in Sub-Sector Sub-sectors Cotton Weaving Other Textiles Metal Prod
ucts Carpets Art Silk Grain Milling Jewelry Wood & Furniture Others Percentage S
hare of SMEs 13% 6% 7% 4% 5% 16% 4% 10% 35%
Barriers to SMEs Growth
SMEs are facing various barriers in the way of their growth and development. Fol
lowing are some main barriers SMEs are facing these days. Govt. & SME
n Taxation Finance Labor Legislation Human Resource Development Technology Marke
t & Industry Information Lack of Infrastructure Environmental issues & complianc
e Social compliance issues Intellectual Property Rights
Small and Medium enterprise development Authority (SMEDA)
Premier institution of the Govt. of Pakistan under Ministry of Industries and Pr
oduction, SMEDA was established in October 1998 to take on the challenge of deve
loping Small & Medium Enterprises (SMEs) in Pakistan. With a futuristic approach
and professional management structure it has focus on providing an enabling env
ironment and business development services to small and medium enterprises. SMED
A is not only an SME policy-advisory body for the government of Pakistan but als
o facilitates other stakeholders in addressing their SME development agendas.
SMEDA Vision
Growth of globally competitive SME sector through a conducive and facilitating e
nvironment and support services as an engine of growth and sustainability to nat
ional economy.
Mission Statement
To function as the promoter & facilitator of SME sector in Pakistan by creating
a conducive and facilitating environment as well as providing and facilitating s
ervice delivery to SMEs for enhancing their capacities and competitiveness.
SMEDA Objectives
1. Formulate Policy to encourage the growth of SMEs in the country and to advise
the Government on fiscal and monetary issues related to SMEs. 2. Facilitation o
f Business Development Services to SMEs. 3. Facilitate the development and stren
gthening of SME representative body’s associations/chambers. 4. Set up and manage
a service provider’s database including machinery and supplier for SMEs. 5. Conduc
ting sector studies and analysis for sector development strategies.
6. Facilitation of SMEs in securing financing. 7. Strengthening of SMEs by condu
cting and facilitating seminars, workshops and training programs. 8. Donor assis
tances for SME development of SMEs through programs and projects. 9. Assist SMEs
in getting international certifications (such as UL, CE, DIN, JIS, ASME, KS, et
c.) for their products and processes. 10.Identification of service opportunities
on the basis of supply/demand gap.
SMEDA Services
SMEDA is currently offering following services to promote regulate and enhance S
MEs in Pakistan. Consultant Services Training Services Business Plan Divisi
nancial Services Information Resource Centre (IRC) Intellectual Property for Bus
iness Success Legal Services Policy and planning
1. Training services SMEDA organizes training programs, seminars, workshops and
conferences of short duration in major cities across the country for raising awa
reness and capacity building of SMEs. These need based training programs are aff
ordable, appropriate and innovative. These programs are aimed at improving knowl
edge, skills and competencies in the technical, marketing, financial, compliance
, policy, regulatory, legal, and commercial and other important functions. These
programs help to improve major performance indicators such as productivity, qua
lity, competitiveness and sustainability etc. The results include improvement in
export potential, investment promotion, business transparency, human resource d
evelopment, managerial capacity
building etc. These programs help decreasing the level of SME mortality and incr
easing efficiency. 2. Business Plan Division Business Plan development services
is one of the key services provided to enable existing as well as potential inve
stors to make well researched and informed investment decisions. 3. Financial se
rvices Financial Services Group (FSG) is one of the support units of SMEDA. As t
he name suggests, FSG is responsible for all financial consulting and advisory s
ervices that SMEs may require. As for all the support functions, FSG caters to b
oth internal sector teams as well as any external walk-in SMEs. In addition to s
uch consulting services, FSG also acts as coordinator of government schemes, whi
ch involve financial institutions. 4. Information Resource Centre (IRC) SMEDA In
formation Resource Centre (IRC) has been established to cater to the information
needs of SMEs and stakeholders from both the public and private sectors. IRC ma
intains a collection of more than 3400 books and CD-ROMs/DVDs besides subscribin
g leading newspapers and more than 20 journals of international repute on divers
e business sections and related fields. A number of full text online journals ar
e also available for SMEs and researchers on different fields of knowledge. IRC
collection consists of databases, directories, reports, yearbooks, annual report
s, and loose-leaf material that are available for easy retrieval through latest
library management tools. Hard format of training programs conducted by SMEDA ar
e also available in IRC. SMEDA IRC collection is increasing by an aggregate 10 %
every year. 5. Policy and planning Policy & Planning Division of SMEDA has dual
focus internal & external. It plays a key role in devising and coordinating pol
icies, action plans and strategies for SMEDA operations. On the other hand it ha
s a mandate to carry out research, communicate with stakeholders and advocate po
licies with
different tiers of the government with an ultimate objective of creating a condu
ctive business environment for SMEs in Pakistan. P&P is the hub of policy and re
gulatory research that provides SME specific policy input to all tiers of govern
ment, government agencies and institutions, SME associations, industrial cluster
s and individual entrepreneurs. 6. Intellectual Property for Business Success In
tellectual Properties (IPs) are intellectual assets that are intangible such as
knowledge, creativity and inventiveness. Intellectual property in its essence is
that information which has economic value when put into use in the marketplace.
The rationale of protection also rests on the premise that both forms of assets
(tangible & intangible) have potential of wealth creation. IPs generally falls
into two categories; industrial property and copyrights. The rights of invention
s, industrial designs, trademarks, integrated circuits and geographical indicati
on are protected under industrial property while the copyrights include literary
work such as novels, poems, plays, films and also artistic works etc. 7. Legal
services We add value to the business of Small and Medium Entrepreneurs (SMEs) t
hrough facilitation in:

Resolving legal problems through service providers. Creating awareness of legal

rights & responsibilities by disseminating information on existing regulatory/co
ntractual requirements through sample contract templates, business guides and se
minars. Enhancing capacities for improved compliance of laws, rules and regulati
ons through training programs. Legal opinions to your business queries, and Inte
raction with regulatory authorities and service providers for removing legal imp
ediments.

8. Consultant services SMEDA also provide various consultancy services.

SMEDA Business Development
SMEDA is currently facilitating SMEs with the followings services. 1. Pre-feasib
ility Studies Pre-feasibility studies are well researched yet generic due dilige
nce reports that facilitate potential entrepreneurs in project identification fo
r investment. The main objective of the pre-feasibility studies prepared by SMED
A is to provide information about investment opportunities to the small & medium
enterprises (SME’s). A typical pre-feasibility study provides: 1. Comprehensive i
nformation for investment opportunity in a business. 2. Specific information reg
arding different business areas like, marketing, technical, industrial informati
on etc. for the existing entrepreneurs to improve their exiting setup. 3. Projec
t investment information and financial projections to support viability of the b
usiness. 2. Regulatory Procedures SMEDA Regulatory Procedures have been develope
d to disseminate information and to assist Small & Medium Enterprises on existin
g regulatory environment, through user-friendly systems, providing detailed desc
ription of laws & regulations, including processes required for compliance while
doing business in Pakistan. 3. Sector briefs One of the objectives of SMEDA is
to provide fresh impetus to Pakistan’s economy through an aggressive Sect oral Dev
elopment program. Its role in this regard will be recommending policy guidelines
to the government for development of small & medium businesses.
4. SMEDA Publications Small & Medium Enterprise Development Authority, SMEDA, ha
s initiated a process of articles, books & other publications to create awarenes
s among the general public on optimal business practices, regulatory issues, GOP
schemes, new business concepts, etc. 5. Commercial Contracts Templates for Busi
ness to Business Contracting is at the heart of business development. Any busine
ss firm interested in outsourcing any of its functions, looks for good sources a
nd secures its interest through commercial contracts. Documenting the business a
rrangements and for consistent standard of transactions, appropriately worded co
ntracts add security and value to the business. In line with SMEDA mandate to fa
cilitate Small and Medium Enterprises sample contract forms for various business
to business activities have been developed by SMEDA Legal Services . The purpo
se of these Business to Business Commercial Contract templates is to provide SME
s, Service Providers, Companies and Firms with information pertaining to requisi
te format and content of a Business to Business Commercial Contract. 6. Guidelin
es for SMEs on Compliance and ISO Certification In post WTO era, sectors of Paki
stani economy particularly industry, agriculture and services are increasingly e
xposed to various challenges. One of the major challenges for low income countri
es towards adopting the path of sustainable development is the limited enterpris
e capacity to comply with the international buyers’ requirements. International bu
yers are increasingly demanding compliance on quality, safety, environment and s
ocial standards. Compliance to international and national standards promotes ent
erprise efficiency and competitiveness through international trade, protects con
sumers’ rights of health and safety and in turn leads to socio economic developmen
t of economy. Non compliance to these requirements often results in loss of busi
ness.
SMEDA Projects
Following are some of the finished and ongoing projects of SMEDA. 1. Women Busin
ess Incubation Center Women Business Incubation Center (WBIC) is an initiative o
f SMEDA being funded by Government of Pakistan to provide ‘hands-on support’ to Wome
n Entrepreneurs (WEs) in an exclusive female oriented environment. It is the fir
st of its kind center in Pakistan wherein, Offices, Exhibition/Display facility
and Business Development Services (including training programs) are being offere
d to Women Entrepreneurs (WEs) less than one roof. The entire effort is focused
at encouraging new business start-ups and support to existing businesses includi
ng the right environment for nurturing women owned and managed businesses to an
extent that these become sustainable; more specifically, in start-up period (fir
st five years) when they are most vulnerable. WBIC is a supportive entrepreneuri
al community designed to help grow small businesses. The center is established f
or providing assistance to home-based businesses or those in earlier stages of d
evelopment. 2. Industry Support Program SMEDA initiated an Industry Support Prog
ram in 2003 for technical support of different industrial sectors in Pakistan. S
MEDA has collaborated with different international organizations like Japan Inte
rnational Cooperation Agency (JICA) and Gesellschaft für Technische Zusammenarbeit
(GTZ). These organizations provide foreign experts to enhance the capabilities
and operational techniques of local industry in different ways. For the success
of these development initiatives an Industry Support Cell (ISC) at SMEDA has bee
n established. The main objective of establishing this cell is the capacity buil
ding of SMEDA staff and to ensure the continuity of different initiatives. ISC c
onsists of professionals who work closely with foreign experts for the developme
nt and up gradation of local industry.
3. Industrial Information Network The Industrial Information Network (IIN) www.i
in.com.pk connects and facilitates businesses in Pakistan. IIN is the first dual
purpose portal, providing Business-to-business (B2B) and information services t
o businesses from various industrial sectors in Pakistan. 4. Cluster Development
Clusters are geographical concentration of enterprises which produce and sell a
range of related or complementary products and are, thus, faced with common cha
llenges and opportunities. Cluster development is basically supporting and stren
gthening the clusters by creating networking among the stakeholders to reduce th
e cost of doing business, bringing them on a single platform for more voice amon
g policy makers, create new business opportunities, reducing risk of doing busin
ess and capacity building of the enterprises. Cluster development has also prove
d its contributing in employment generation and poverty reduction worldwide.
Sector development
SMEDA is currently working to develop the following main sectors which are backb
one in stimulating SMEs in Pakistan. Dairy sector Jem & Jewelry sector Agri Busi
ness services
SMEDA Business opportunities
Following development. is glance on SMEDA’s business opportunities
International Business Opportunities Service SMEDA is providing a unique service
to facilitate SMEs by promoting business-to-business relationships. SMEDA s rol
e is that of a matchmaker and we provide a platform for SMEs to come together an
d explore different areas of cooperation using SMEDA s databases and web-site. N
ow anyone can look for joint ventures, buy running business, form equity
partnership, and look for agents or distributors franchises and other business i
nvestment opportunities through this initiative. Business Matchmaking Service SM
EDA is providing a unique service to facilitate SMEs by promoting business-to-bu
siness relationships. SMEDA s role is that of a matchmaker and we provide a plat
form for SMEs to come together and explore different areas of cooperation using
SMEDA s databases and web-site. Now anyone can sell their business, look for joi
nt ventures, buy running business, form equity partnership, and look for agents
or distributors through this initiative.
Conclusion
It is a fact that SME sector is really at its developing stage in Pakistan. We n
eed a lot of effort to develop it and make it parallel to the developing countri
es. SMEDA is also working very good to enhance the potential of SMEs.