MGT601 SME MANAGEMENT

Lesson 11 Short and Medium Term Issues for SME Policy Formulation – I

Chapter Learning Objectives We are dealing with the short and medium term issues for SME policy formulation. In fact this whole issue is inter- related in lessons No 10,11,12,13 and 14.

Labour Policy Since creation of Pakistan, five labour polices have been announced by the governments in the year 1955, 1959, 1969, 1972 and All these policies basically laid-down the parameters for the growth of trade unionism; the protection of workers’ rights; the settlement of industrial disputes and rights of worker grievances.

Labor Issues Labour Laws and regulations in Pakistan are considered to be one of the most complicated areas with which any business enterprise deals. The present set of the labor laws was the result of checkered initiative of various governments to create a healthy business environment for the labor.

Continued……. Consequently, enterprises have to deal with fifty six (56) labor laws with some of them being industry specific. The existing plethora of labor laws has made compliance impossible for the enterprises due to their inherent inconsistencies.

Continued…… Numerous labor inspections under these laws are yet another obstruction that holds up the growth of SME.

Government Efforts towards Labour Issues It was proposed that existing labor legislation be simplified and rationalized into six basic laws. In addition, for promoting bilateralism among government employer and employees, government established a forum Workers Employers Bilateral Council of Pakistan (WEBCOP).

Continued……..  The only issue highlighted thus far through direct interaction with SME is that of co-ordination.  The business and labor community at large has been supporting the reforms.

Delivery of Assistance and Access to Resources Competitive advantage is determined by the productivity with which a country, region or cluster uses its human, capital and natural resources. Pakistan’s international competitiveness markedly declined over past few years.

Continued….. The evidence reveals that median labor productivity, as measured by annual value added per worker, is 25 percent lower in Pakistan than in India and 35 percent lower than in China.

Trade Liberalization Trade liberalization at the global and regional levels and the new information and communication technologies have entwined to create rich opportunities as well as formidable challenges to all independent countries and enterprises.

Competition Competition has become increasingly fierce among the global and regional economies and enterprises. The structure of markets and their demand17 is increasingly complex.

Pakistan’s SMEs Despite operating locally, Pakistan’s SME need to be increasingly aware of the world market. They cannot escape it even in their local economy. To meet this challenge, there is growing need for information on global technology trends, rules and compliance cost including facilitation services regarding global issues.

Continued…. Training, research and development, labor productivity enhancement, technology transfer and up- gradation and support to business startup through business incubation and various other business support services, including finance, are issues that need to be addressed separately by the SME policy.

Finance Access to equity and formal debt financing has repeatedly been identified as recurring constraint to SME growth and development. Commercial banks apply conservative policies in lending to SMEs.

Continued….. The existing structure of financial sector was developed to serve medium to large enterprises which are organized as a formal business.

Continued…. Most banks prefer to hold risk free-income generating assets and lending to SME is unattractive due to a range of objective and subjective factors.

Continued…. These include high transaction cost, inability to do away with tangible collateral requirement, no linkage of financial products with sector needs and the inability to structure/ offer and manage risk-prone SME specific medium to long term financing options.

Continued…… It has been observed that 57% of new investment for small and Medium Enterprises and 67% of working capital finance come from internal finance or retained earnings; only about 7% of funds for investment or working capital come from banks or other financial institutions.

Continued……… The government of Pakistan had originally responded to the growing needs of the sector by introducing a Self Employment Scheme through Small Business Finance Corporation (SBFC) in SBFC continued to grant loans to small business and catering to the needs unemployed persons.

Government Schemes The schemes for SME development or employment generation included;  The Youth Investment Promotion Society,  Yellow Cab scheme.

Thanks you Happy Learning, Keep Learning