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The Development Of SMEs In Bangladesh

Disclaimer: This work has been submitted by a student. This is not an example of the work written by our professional academic writers. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Mon, 5 Dec 2016

There is great interest in small and medium enterprises (SMEs) as major tool of poverty reduction in Bangladesh. Government of Bangladesh formulated a comprehensive Industrial Policy-2005 by putting special emphasis for developing Small and Medium Enterprises (SMEs) as a thrust sector for balanced and sustainable industrial development in the country to help deal with the challenges of free market economy and globalization. With multilateral trade negotiations is often leading to improving market access and with developing countries also being a lot more willing than before to participate in globalization, rich country government and the aid agencies have apparently decided to focus on the SMEs as one important ingredient of private-sector development. Small and Medium-sized Enterprises (SMEs) have been playing a pivotal role in terms of economic growth, employment generation, poverty reduction and industrialization (e.g. through entrepreneurship development) in Bangladesh. Industrialization’s link to poverty reduction is through – charging-up the growth rate of the country, enhancement of the productivity of the worker(s) in employment, providing employment to the unemployed, expanding consumer spending and thus the confidence level by sharing lower costs from scale economies via lower prices. As a result SME in Bangladesh takes several strategies to grow itself & economy of this country. Such as Market development strategy, product development strategy, diversification strategy etc. The Government of Bangladesh constituted the taskforce to monitor and operate Small & Medium Scale Industries late in 2003. Present era is totally technology based; there is no any scope to operate business vigorously without technology. So each and every business sector in developed countries is using modern technology whereas our business mainly SME is using ancient methods which are not consistent with present up rising competition. Most of the small businesses in Bangladesh are not able to export goods to other countries after meeting the demand of own country. But it is also true that our SME sectors are developing day by day and it is contributing more in economics in Bangladesh than previous time.

Chapter -1: Introduction

1.1 Background of the report

There is no chance to deny the fact that Bangladesh needs a sustained level of development of small and medium enterprises (SMEs) in order to reduce poverty. Having predominance of agro-based economic activities, low level of technological development, lack of availability of highly skilled laborers, small scale businesses have been suitably developed in the country. Considering the country’s level of economic growth, composition of resources or natural resources, level of international integration, and growing urbanization, industrialization there is huge scope for developing diversified and new SMEs in agriculture, manufacturing, service sectors etc.

Scope of employment can be enlarged or widened both in rural and urban areas, which will help to reduce income inequality between urban and rural areas by SMEs. SMEs’ contribution to the economy is well-known.

According to BSCIC (2009), small and cottage industries accounted for 90.91 per cent of total industrial establishments in 20082009. About 90 per cent of total employment and more than 55 per cent of total manufacturing value added originated from SMEs. In another estimate, there are around 66000 small industry units and 611,612 cottage industry units, which provide employment of nearly 3.5 million people. When handlooms are added, the number of cottage industry units alone shoots up above 700,000 (BSCIC, 2009).

SMEs achieved considerable growth in different sub-sectors like, paper, printing and publishing; non-metallic mineral products; metal products; chemical; food, beverage tobacco etc. SMEs growth in Bangladesh is comparable with the growth achieved in different large scale industries in Bangladesh. However, a number of challenges have slowed down the development or growth of SMEs. In spite of its extensive coverage in manufacturing and service related activities, productivity of SMEs is not good in our country.

In a number of sectors, there is no well-structured value chain developed between upper stream and lower stream.

It is true that growing urbanization in the country and rising per capita income at urban level have been creating demand for relatively ‘better’ quality products at a higher price, instead of ‘low’ quality products at lower price.

Currently, a larger part of this demand has been met up by low-priced, low quality imported products, because local SMEs are not able enough to provide satisfactory amount of better quality products.

Though SME is becoming gradually a rising industrial sector in our country and contributing more and more in export, this sector faces several problems like- lake of technical know-how, shortage of long term financial support, lack of skilled workers, marketing link, research and development. Naturally, development of competitiveness of local SMEs is the major challenge that has to be met in order to sustain and enlarge the growth of this sector.

The major objective of this report is to show the development of SME, present status of SME, problems faced by SME and government policies to operate SME in our country.

1.2 Objectives

The major objective of this report is to explore the:

Current development status of SME in Bangladesh

Problems faced by SMEs

Government policies to operate SME in our country

1.3 Limitation

Although it has been tried on the level best to make this report based on facts and complete information available, there are some limitations that are inevitable. They are following:

This study is limited to only the development of SME in Bangladesh;

There was a time limitation as three months internship period is not enough to study the growth of SME;

Primary data is collected from different SMEs’ owners by questionnaires. So without trust on owners’ answers there is no any way to justify these answers.

Chapter -2: Methodology

To explore the growth of SMEs in Bangladesh others terms such as current status of SME, problems faced by SME, Government policies etc are described in this report. This report basically focuses on the development of SME in Bangladesh.

2.1 sampling design

Sampling size is 20

2.2 Methods of collecting data

For completing this report data is collected from two sources…

primary

Secondary

Primary data Sources:

Primary data is collected by questionnaires from direct respondents (small business owners). Questionnaires are also adjusted with this report.

Secondary data sources:

Secondary data is collected from different…

News papers,

Web sites,

Different articles,

Report, etc.

2.3 Analytical tools

Simple equation is used to analyses this questionnaires.

Chapter -3 Literature review

In the business world, small and micro-businesses form an absolute majority worldwide. Bangladesh as a developing country has started refocusing its attention on SME to enhance its economic stability.

Though there is no any standard definition of SME in the world, we can say that small business is a business which starts its activities with small amount of capital, small amount of land, few numbers of employees & to serve small numbers of customers it is known as small business.

This paper sets out to analysis the small business growth in Bangladesh. The terms “growth”, “success” are often very closely linked and are sometimes even used as synonyms. Traditionally they are all measured by hard financial measures, such as turnover, or by increased numbers of Employees.

This report tries to show the roles of SMEs for overall development of Bangladesh. Such as economic growth, poverty alleviation, employment generation, and the growth dimensions in three major sectors – agriculture, industry, and service. The study also shows the bottlenecks of SMEs and the effect of globalization on its development in Bangladesh to the success of SMEs in exploiting, surviving, rapid globalization of markets. In this paper the final pursuit is to develop a framework to illustrate a sustainable business solution that simultaneously fight poverty and accelerate economic growth through SMEs.

SME takes several strategies to grow itself & as well as economic development of Bangladesh. Such as Market development strategy, product development strategy, diversification strategy etc. Small and Medium-sized Enterprises (SMEs) are playing a pivotal role in terms of economic growth, employment generation, and industrialization (e.g. through entrepreneurship development).

Many authors expressed their opinion about SME growth in developing country like Bangladesh. These are given below…

Beck, Kunt, and Levine (2005) in “SMEs, Growth, and Poverty states that Cross-Country Evidence” have found a strong association between SMEs development and Gross Domestic Product in per Capita.

Harvie (2004) in “East Asian SME capacity Building, competitiveness and Market Opportunities in a Global Economy” postulates that developing economies are especially seeing small business as potential instruments for the alleviation of poverty.

Carl Liedholm, Michael, McPherson and Anyinna Chuta et al show that “The percentage of job growth coming from enterprise expansion in rural areas is significantly higher than that of urban areas in developing country.”

Above mentioned opinions of different authors show the growth trend of SME in developing country like Bangladesh.

Actually SME helps poor people to develop their position. This report tries to shows that the SMEs’ activities & its impact on our economic growth. For developing the sense about SME & its impact this report is based on field survey.

Though SME is an important component of economic growth so it has to keep relation with others factors such as knowledge, capital mobilization, creativity, ability to take initiatives, record keeping, financial control, industry & management experience, etc which are very important to enhance economic growth of this country. This report also focuses on these factors.

In our country majority percent of entrepreneurs take decisions by their own sense. Small business brings great opportunity for small capital owners. They can easily use this small capital & can remove poverty.

Though small business owners are poor, they need support from external and internal sources. Here relatives & different financial institutions play important roles in this case.

Considering all these, the governments of many developing and less-developed countries are adopting separate SME policies. Bangladesh government has developed rules & regulations to run the SME in Bangladesh. Tax rebate, interest of loan, location of this business etc are main factors have great impact on economic growth which taken by the government to run SME.

After the independence of Bangladesh governments of different tenures took a long time to realize the need of entrepreneurship development. We may get the scenario if we analyze the development by deferent government tenure. …….

1972-1975 Period:

During this period trade policy of the country was mainly project-oriented. As the country was just free from an autocratic reign of Pakistani juntas and the industrial infrastructure was damaged by the war of liberation, so, government of the then period had no alternative but to initiate by itself. Private participation over the industrial sector was totally stopped. Government initiated to establish large number of nationalized industries. As a result entrepreneurship development concept was totally lost.

1975-1982 Period:

From this time government realized the need of entrepreneurship development for economic growth. Government started to privatize it’s seek industries and introduced deregulation policies in industrial sector. New private entrepreneurs were created with new enthusiasm. These governments introduced mixed economic system.

1982-1990 Period: Privatization and deregulation policies started in some specific sectors. Selling the seek industries to private sector got momentous. Entrepreneurship was encouraged by formulating appropriate fiscal policies.

1991-2004 Period: Governments of these periods introduced market economy to a significant extent. Initiated policies to liberalize the trade policies. Privatization board was constituted to explore the environmental opportunities. Export-oriented privatization policy was introduced. GATT, WTO established took up some issues in this country by the international policies and to provide some ways and strategies.

It is another factor that, how many numbers of SME in our country it is not easy to say. So, no one knows for sure how many SMEs are in Bangladesh today. In 1975 BSCIC (Bangladesh Small and Cottage Industries Corporation) surveyed to find out the actual numbers of SME in our country, but until today actual numbers of SME are not found out.

SME growth is also affected by the environment -external & internal. External environment is very important to internationalize SME. Environment is major component of development without it development cannot move away. So SME has to maintain the rules and regulation of environment.

To grow SME financial & non-financial indicators are very important. The combination of these two factors brings the economic success of a country.

To develop small business there are many institutional arrangements, which vary degrees of effectiveness in the following areas……

Financial support: Long-term financing are generally provided by Bangladesh Bank, other specialized bank and financial institutions. Commercial bank provide short term loan to business enterprise regardless of the size in the form of general credit, industrial credit, rural credit program, micro credit, special credit, etc at varying interest rate of 11-16% depending on the purpose of development.

Human resource development: Small business needs skilled manpower for production, management and accounts. A number of organizations are engaged in these activities such as BUET, BIT, Polytechnic and Vocational Training Institutes, etc for making skilled manpower.

Policy instruments: Government has been supporting small business through various policy formulations and their implementation. Ministries of industry, Ministry of Finance and Planning, Ministry of Commerce and Bangladesh Bank have developed necessary policy to develop SME.

Business development Services: Business Development Services are designed to help micro, small and medium enterprises overcome these barriers to increased productivity, profitability and access high value markets so that they can realize their potential help to poor people work their way out of poverty, grow local economies and creates jobs.

In Bangladesh SME faces many problems. As a developing country these problems should be overcome. Otherwise our SME sectors will not be able to see the success. To overcome these problems & to develop small business in our country in future below mentioned factors should be accepted:

Training, motivation, Loan facilities, application of rules, appropriate location, etc

Chapter-4 SME in Bangladesh

4.1 Definition of SME

Small business is any business that independently owned and operated, is not dominant in its own field and does not engage in any new or innovative practices. It is an integral part of the total business scene in any country. It means the size of which is not big – the size again depends on the yardstick one uses to measure.

According to industrial policy

For manufacturing industries, the Taskforce recommends that, an enterprise should be treated as small if, in today’s market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc, were to up to Tk. 15 million;

an enterprise would be treated as medium if, in today’s market prices, the replacement cost of plant, machinery, and other parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), etc, were to up to Tk. 100 million; from both definitions above, land is excluded.

For non-manufacturing activities (such as trading or other services), the taskforce defines:

An enterprise should be treated as small if it has less than 25 workers, in full-time equivalents;

An enterprise would be treated as medium if it has between 25 and 100 employees; from both definitions above, land and structures, once again, are excluded.

4.2 Government policies of SME in Bangladesh

As a developing country to develop its economic status and to reduce the poverty rate, SME is very important sector in Bangladesh. But unfortunately, until today Bangladesh could not make separate SME policy to operate this sector significantly. Some very simple polices are included in the industrial policy in 2005. These are…

The Industrial Policy-2005 states: “the SME sector has been given priority as a privileged sector”.

The PRSP states: “The Government will pursue an employment intensive industrialization with emphasis on SMEs and export-oriented industries”.

The Small and Medium Enterprise Cell (SMEC) was created in the Ministry of Industries (MOI) in 2003, and was tasked to take specialist interest in SMEs’ development.

October 2003 saw the constitution of the SME Taskforce (SMETF), with the Principal Secretary to the Prime Minister as the convener. The SMETF blended the Government, the private sector, academia and the civil society as participants.

The Taskforce’s report was approved by the Government early in 2005. On the basis of the report of the SME Taskforce, “the Government of Bangladesh issued Small & Medium Enterprise Policy Strategies, 2005” to provide a framework for interventions and policy strategies for the development of SMEs.

The Government constituted a Small & Medium Enterprise Advisory Panel (SMEAP) as an independent and meritocratic brains-trust for the MOI for all developmental, technical and structural advisories in the name of SME development.

According to Industrial Policy 2005, there are special fiscal incentives for SMEs. Since

Industries will enjoy tax holiday facility for a period of 5 to 8 years depending on the locations;

Agro-processing and computer software industries will receive income tax relief for a fixed period;

Industrial enterprises engaged in the production of RMG will receive taxation facility at a reduced rate of 10 per cent on their export income;

Special revenue facilities will be provided to industries marked as “thrust sectors”, SMEs and cottage industries;

Industrial enterprises registered with the Board of Investment need not pay any transfer fee;

The Government is committed to develop industrialization led by the private sector amid a business environment that can bring out the best among all SME stakeholders

It is also pointed out in the industrial policy that Bangladesh government has taken initiatives to make separate SME policy. But when this policy will be made and implemented it is a big question today. Without appropriate SME policy SME sector will not be able to contribute more on economy in Bangladesh.

4.3 Strategy for Small Business development in Bangladesh

Four strategies we can follow to grow the Small Business in our country.

Penetration strategy

A Penetration strategy focuses on the firm’s existing product in its existing market, and entrepreneurs try to develop the product and market by encouraging existing customer to buy the more of the firm’s current product.

Market development Strategy

It is a strategy which grows small business by selling the firm’s existing product to the new customers.

There are several strategies under the market development strategy these are:

B.1) Geographical Market: This simply suggests selling the existing product in new location.

B.2) Demographic market: demographics are used to characterize customers based upon their income, where they live, their education, age, and sex; and so on.

B.3) Product use: An entrepreneur might find out that people use its product in a way that was not expected. This new knowledge of product use provides insight into how product may be valuable to the new group of buyers.

C) Product development strategy

Product development strategy for growth involve developing and selling new product to people who are already purchasing the firm’s existing product.

Diversification strategy

This strategy involves selling a new product to a new market.

4.4 Opportunity and challenges for SME of Bangladesh

Opportunities:

Bangladesh is an agricultural country. 85% populations of Bangladesh are Farmer. So agricultural gets the priority all times. But today people are becoming aware of industry. In this circumstance small business has huge opportunity to develop itself in our country. Some important opportunities of SME are described in below…

Education rate:

The education rate of Bangladesh is increasing day by day. Educated people are always tried to do something new, and they are not afraid of taking risk. So, new businesses are being launched day by day.

Industrial policy:

Industrial policy help people to do business correctly and it provides many facilities to new business owners. So, small business is seeing new sun of success.

Availability of resources:

In our country there are many resources to develop and operate small business significantly.

Foreign market potentiality:

Small business of Bangladesh produces many goods which have demands in foreign market, and can earn huge foreign currency. So, small business is developed day by day.

Honorable profession:

Many people imagine that Small Business is very prestigious profession. So, young people are developing small business day by day.

Environment:

Environment of Bangladesh is appropriate for business. Those businesses are not appropriate in ice-land area these are appropriate in our country.

Growth of domestic product

GDP of a country is very important to measure the growth of SMEs. In our growth rate is becoming good day by day. Current GDP (2010-2011) growth in our country is 6%.

Without above mentioned opportunities there are many other reasons for which Small Business is developing successfully day by day.

Problems of SME in Bangladesh:

There is a great prospect of SME in Bangladesh. It plays a pivotal role in the economic development of this country but SME of Bangladesh faces many challenges in different area…

Absence of clear cut government policy

Absence of integrated package assistance

Inadequate availability of raw materials

Irregular and inadequate supply of power

Lack of skilled technicians & workers

Failure to get loan

Neglected human factor

Lack of information or Information gap

Infrastructural problem

Marketing problem

Unskilled labor

Awareness of facilities

Training facilities

Incentive measure

Loan facilities

Security

Women entrepreneurship

Small capital,etc

Above mentioned points are considered as strong barriers of SME development in Bangladesh. So it can be said that to increase the contribution of SMEs on Bangladesh economy government, NGOs, commercial banks, others financial institutions have to put great emphasize on SMEs sector in Bangladesh.

4.4 Government budgetary measures for the development of SME in 2010

Bangladesh is agriculture based country. So main priority is given to this sector always, but comparatively business sector always gets little priority, though it has great contribution on our economy. To develop the SME sector Bangladesh government has to give great priority to this sector.

4.5 Role of SME on economic development of Bangladesh

The role of small and medium enterprises (SMEs) to economic development of a country is well organized. Across the globe it is strongly perceived that SMEs do play vital role in the industrial development, economic development of a country. Bangladesh is not lagging far behind in this respect. SME has great opportunity in this country. Environment, cheap labor, business strategy etc are the key features of SME.

In view all the favorable factors; there is an urgent need in development of SME in Bangladesh as a developing country.

SMEs are characterized on the basis of size, investment and employees in most countries across the world.

Here are small business are those which have employees less than 50 person and have an investment of less than tk. 250 million.

On the other hand, medium enterprises are those which have investment between tk.250 million and tk. 500 million with the number of employed workers ranging to 50 and 99.

Generally, hand loom, food processing, lather and tannery, ceramic, light engineering, electric and electronic, handicraft, specialized textile and garments etc are fall in the category of small and medium enterprise.

Information from MIDAS suggested that, around 88% of county’s total industrial workforce is employed in the SMEs and the sector manufactures over 33% of industrial value added goods. It can be said that more goods came from small and medium enterprises and huge employees are working in this sector to earn money.

Although there is no concrete information about number and types of SME in Bangladesh, an estimate of the Bangladesh small and cottage industries corporation (BSCIC) says that, there are over 42000 cottage industries in Bangladesh.

There are also tens of thousands of small industries and a large number of hand loom and power loom industries in this country.

Despite having huge potential to flourish, the growth of SME sector in Bangladesh is being impeded by multifarious problem, both at micro and macro levels.

Inadequate knowledge of many entrepreneurs about the existing lending system and absence of necessary training facilities for small enterprise, widespread corruption and extortion and high rate of value added tax and unnecessary harassment from taxvat officials, law enforcer etc are also seen as impediments for the growth of SME.

On the other hand absence of modern technology transfer policy, lack of infrastructure and support like port, power, gas, poor law and order, inadequate legal frame work, policy have been identified as the key macro level problem. Bangladesh SMEs’ have no enough exposure to international market.

Considering the above all situation, Bangladesh government along with donors support took some measures over the year to support the development of SMEs.

Various institutions including the BSCIC, BOI (Board of investment) Commercial banks, other financial institutions are working to promote the MSE sector, but their services and support are still inadequate.

Experts argue that all the institutions have to build up capacity and upgrade their attitudes to provide appropriate and quick service to entrepreneurs.

The government has already given special attention to the promotion of SMEs sectors. Though government and others financial institutions have given special attention to the promotion of SMEs sector, the contribution of non-government organization in this sector is still poor.

So it can be said that to increase the contribution of SMEs on Bangladesh economy government, NGOs, commercial banks, others financial institutions have to put great emphasize on SMEs sector in Bangladesh.

Chapter 05: Present status of SME in Bangladesh

5.1 Analysis:

This part is based on survey through questionnaires.

Calculation:

Number of respondent: frequency

Ã-100

Question 01: Age of entrepreneurs

From the above table we can state that, 31-35 years people are more interested to do own business like SME. Different age’s people are also doing business but not as like as 31-35 ages people.

Question02: Owners of SME are male or female

From above data we can conclude that male is more interested than female. Very few female are operating small business in Bangladesh.

Question 03: Marital status of entrepreneurs

From the above table we can state that, more small business owners are married. Young (age: 20-25) utilize their money in capital market. More young in this age are indifferent and they do what they want to do.

Question 04: Educational qualification

Though in early period uneducated people were owner of different business but today educated people like business more. From this table we can state that, university graduates are becoming interested to do small business more than any previous time.

Question 05: experience of entrepreneurs

Educated people don’t fear the risk. So from this table we can see that without any experience people are launching small business. They don’t wait for gathering experience.

Question 06: startup capital of business

From above data it can be concluded that, more small business owners in Bangladesh start business by tk.61, 000-100,000. Because, most of the time they use their own sources and get very few loan from bank.

Question 07: Monthly turnover

In our country small business owners start business by small amount of money, so return is not very good. More return is tk.10, 000-15,000. Low earners are engaging with others job to earn more.

Question 08: Number of employees

From above data it can be concluded that more small business owners have two employees. Most of the businesses are food, mobile accessories oriented. So, more employees are not needed. But SMEs are reducing the unemployment problems in Bangladesh.

Question 09: Facing problem

Political influence is playing a vital role as briers of small business development. In every place now politics is badly used. Without political problem others problems like economic problem, training are also very strong barriers to develop small business in Bangladesh.

Question10: Source of capital

According to this data it can be said that small business owners start their business with own capital. It is common scenario in our country that, People provide loan to go to abroad but not to do business. Financial institutions don’t provide loan to poor business men because they have no power to do anything.

Question 11: Types of business

­­­­­More small business in Bangladesh is engaging with retail business. Because whole sell business requires huge money and owners have no huge money to do it. Through retail business entrepreneurs can earn more moneys.

Question 12: Type of innovation in your company


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