Role of SMEs in Pakistan

Role of SMEsB Y: SHA Z IA SA L E E M

ME HR E E N

Definition of SMEsA generalized definition small and medium size

firms.

• Small: Among 10 to 35 employees and productive assets ranging 2 to 20 million.

• Medium: Among 36 to 99 employees and productive assets range of rupees 20 to 40 million.

History of SMEs

• Small business was discovered about more than 4000 years ago.

• HAMMURABI, the king of Babylon introduced the first 300 business laws.

• These laws known as Code of HAMMURABI.

• The time when the SMEs was discovered on 28th October 1998 4:10 PM.

Role of SMEs in PakistanPakistan has emerged as the second rapidly growing economy in Asia after China. Even though the large scale manufacturing registered 15.4% growth but small and medium enterprises (SMEs) is the core issue in the country’s progress and especially for the prosperity of masses that are surviving with low scale income due to which Pakistan ranks 135th out of 174 countries oh Human Development Index. The assessment of the role of SMEs in Pakistan is of vital importance.SME produces the income stream for masses located in the countryside and the capitalists associated with this activity that is generally medium or small as the name suggests. SMEs will be the main source of poverty reduction in Pakistan that will create the value and innovation for the country in the days to come. The thing that really needs serious attention is to remove the unnecessary bureaucratic procedures.

Scale of SMEsA business in which minimum one and maximum 9 human

Resources involved engaged that is called Micro business or

entraprices. If in any business 10 to 35 peoples are engaged or

employed with 2 to 20 million working Capital involved these

kinds of business is Called Small Scale that also Shows if less then

2 million working Capital is involved it Count in micro business at

the Same time if the business is employing 36 to 99 H.R with 22

to 40 Capital that business is Called medium Scale businesses.

According to the Published definition of Smeda March 2008 but

here in Pakistan we have multiple Concept of SMEs some

Institutions 250 HR Count as SME.

Structure of scale of SMEs

Micro Small Medium

Diagram of Scale of SMEs

Medium

Economy

MicroSmall

Graph of Scale of SMEs

20-40M

2-20M

Less than 2M

Finance

Micro

Small

Medium

1-9 10-35 35-99

It is the process of estimating and generating finance that is required and estimated the

contribution of each source.

Sources of startup Capital/Financial

Structure of Sources of startup Capital/Financial

Primary Secondary

Self

Family

Friends

Loan

Banks

Partnership

Diagram of Sources of startup Capital/Financial

Business

Financial

Sources

Primary

Self

Family

Friends

Secondary

Partnership

Banks

Graph of Sources of startup Capital/Financial

SoSC

ECFES ( Expected Capital From each source )

Partnership

Banks

Loan

Friends

Family

Self

Par

tner

ship

Sel

f

Fam

ily

Fri

en

ds

Lo

an

Ban

ks

Where SMEs Operate?

SMEs operate in all five sectors of Economy

• Agriculture Sector

• Industrial Sector

• Service Sector

• Infra-structure Sector

• Communication Sector

Sectors of SMEs

Sector of SMEs

Agriculture Sector

Communication Sector

Service Sector

Industrial Sector

Infra Structure Sector

Structural Representation

Agriculture Sector

Industrial Sector

Service Sector

Infra Structure Sector

Communication Sector

Economy

Diagrammatical Representation of SMEs Sector

0

A

I

S

I

C

1 2 3 4 5

Graphical Representation

Provincial Share in the SME Sector

• The number of SME in Pakistan is estimated to be 3.2 million, with the SME sector's contribution to the national gross

domestic product GDP

• Being 40%. With a share of 30% in Pakistan’s total exports.

There are two of closing the Business or Course:

Business Shutdown/closing

BUSINESS FAILURE

Main reason financial loss to a

creditor

1. Ineffective & inefficient

management.

2. Inadequate financing.

3. Industry weakness. (Internal &

External)

4. Inexperience (Owner,

Management, Employees)

5. Inadequate Management

(limited management not on the

bases of business requirement)

BUSINESS TERMINATION

No longer exist for any reason

1. The owner may have an

opportunity to sell his or her

business to some one else for

healthy profit.

2. The owner may be move on to

new business or to retire.

3. The market of Business Product

or Service may have changed.

4. The owner decided it was more

attractive to work for some one

else.

5. In cause of losing control on

business or dependent on others

for management, & financial

matters.

Structure of Business Shutdown/closing

Termination Failure

Shift

SellingBank Default

High Payable

Owner Death

Owner Change

Lack of employee

Depending on Single Idea

Fraud

High Receivable

Financial losses

Delts

High Credits

Diagram of Structure of Business Shutdown/closing

Depending on single idea

Lack of Employee

Owner Change

Owner Death

Selling

Shift

Fraud

Bank Default

High Receivable

High Payable

Financial Losses

High Credits

Delts

Graph of Structure of Business Shutdown/closing

+-

BT BL

BF

No Profit No Loss

Shift

Selling

Owner Death

Owner Change

Lack of Employee

Depending on single idea

Ba

nk D

efa

ult

Hig

h P

aya

ble

Fin

an

cia

l Losse

s

Hig

h C

red

its

De

lts

Fra

ud

•Legal and commercial arrangement concerning the successful business of a

franchisor.

•Use of franchisor’s trade name format system and/or procedure under license.

•Means to raise capital and expand quickly

•Assistance to franchise

• Marketing, management, advertising, store design, standards specifications

•Payment by franchise by way of royalty license fee or other means.

What is Franchising?

Singer Sewing Machine – first franchise (mid-19th century)

Automobile (e.g. Ford), petroleum products (e.g. Shell), soft drinks (e.g. Coca Cola)

Food and restaurants (e.g. McDonald’s, Starbucks)

History of Franchising

Singer Sewing Machine

McDonald’s

Automobile Industry

History of Franchising

3 main types of Franchise:

Product distribution franchise;

Business format franchise;

Management franchise.

Types of Franchising:

StructureFranchising

Product Distribution Business Format Management

Franchiser Franchisee Franchise Franchising

Classification

Domestic International

Home Country

Host CountryKinds

Product Distribution Franchising

A product distribution franchise model is very much

like a supplier-dealer relationship.

Typically, the franchise merely sells the franchisor’s

products. However, this type of franchise will also

include some form of integration of the business

activities.

Examples of famous product distribution franchise:

Product distribution Franchises

Produces the syrup concentrate

Sells the syrup

concentrate

FRANCHISEE Produces the final drink

Retail Stores

Restaurants & F&B OutletsVending Machine

Operators

Product Distribution

Franchises

In a business format franchise, the integration of the business ismore complete.

The franchisee not only distributes the franchisor’s products andservices under the franchisor’s trade mark, but alsoimplements the franchisor’s format and procedure ofconducting the business.

Business Format Franchising

Famous Examples

Outlet in Sale, Australia

Outlet in Marseille, France

Business Format Franchising

Management Franchise

A form of service agreement.

The franchise provides the management expertise,

format and/or procedure for conducting the business.

Famous Examples

Leveraging on a recognized brand name

Enhancing business image

Ensuring consistent quality

Attaining higher productivity/better motivated staff

Access to good locations

Economies of scale

Reducing risks of failure

Why is franchising important to

SMEs?

Franchising is classified according to its Function Into

Following two categories

• Domestic Franchising

•International Franchising

Classification of Franchising

Franchising

InternationalDomestic

Home Country Host Country

Structure of Classification

Franchising

Domestic International

Diagrammatical Representation

Franchiser Franchisee Franchisor Franchisy

Merits and De-MeritsEstablish

Market Name

T H R

Time Saving

Environment

Technology Formation

License Fee

Sharing Profit

No Name

Local Business Effected

No Innovation

Dependent

Thanks