s Me Overview

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An Overview of SMEs in Bangladesh

Mohammad Ayub MiahAdditional Secretary to the Government of Bangladesh

&Project Director,

Small & Medium Enterprise Sector Development ProgramMinistry of Industries

September 2006


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Introduction

The objectives of the survey is to take stock of experiences ondevelopment of entrepreneurs of small and medium enterprises (SMEs) in

APO member countries and to analyze the set of initiatives, strategies,programs, policies, and competencies that lead to competitiveness ofAsian SMEs.

The survey therefore aims to: Examine the various entrepreneur development initiatives,

policies and programs being implemented by many agenciesinvolved at the national level;

Examine the various entrepreneurship development initiativesand experiences of some exemplary individual SMEs in thecountry and analyze how these initiatives have contributed totheir success;

Undertake comparative analyses at the regional level and toidentify commonalities and differences among the experiencesand practices of SME development by the countries beingsurveyed;

Identify and elicit a common framework at the regional level forentrepreneur development initiatives and strategies that willeffectively work in instilling a productive and competitive mindsetfor the entrepreneurs of the small enterprises of APO membercountries.

PART A:

COUNTRYS DEVELOPMENT STRATEGY AND OVERVIEW OF THE SMEs IN THECOUNTRY

A. A BRIEF ECONOMIC REVIEW OF THE COUNTRY

Discuss the profile and the major economic indicators of the country.

The macro economic reforms and management in key economic sectors havesignificantly influenced the growth in different economic sectors of thenational economy. Bangladesh, mainly backed by the growth of industry and

service sector has achieved a GDP growth of 5.38 percent in the year 2004-05. Per capita GDP and GNI stood at US $445 and US $470 respectively. Therate of national investment rose to 24.43 percent, which is the ever highest.

The contribution of private sector to this investment is 18.53 percent. Thecontribution of the private sector to the economy is increasingly becomingprominent. In the year 2004-05, the growth of credit to the private sectorstood at 17.20 percent. The average inflation stood at 6.49% in the year2004-05. The population growth rate (as percentage) for the year 2004 standfor 1.5 and the literacy rate for this year 2004-2005 stand for 62.66 percent.


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b. NATIONAL DEVELOPMENT STRATEGY

Describe the countrys national development strategy/economic plan. Brieflycomment on the implementation of this strategy till to-date.

Implementation of poverty alleviation action programs and strategies is asystematic and continuous effort in Bangladesh. For that purpose, thePoverty Reduction Strategy Paper (PRSP) of 2004 has clearly identified somecore principles and parameters both at macro and micro levels for reducingthe existing poverty level at least half with in 2015 as targeted in theMillennium Development Goals (MDGs). Rapid and sustainable growth ofSMEs is undoubtedly one vehicle for accelerating national economic growthto the point of having a measurable impact in the way of reduction of povertyand unemployment, generation of more employment. The Government hasexpressed her commitment in the PRSP and as well as Industrial Policy 2005to consider SMEs as vehicles for quality of life improvement, economicgrowth and poverty alleviation of the common people. The government will

play the role as a facilitator removing policy obstacles and neutralizingmarket failures and, secondly, will provide necessary promotional support toSMEs.

c. OVERVIEW OF THE SMES IN THE COUNTRY

There is great interest in small and medium enterprises (SMEs) as a majorplank of poverty reduction in Bangladesh. Government of Bangladeshformulated a comprehensive Industrial Policy-2005 by putting specialemphasis for developing Small and Medium Enterprises (SMEs) as a thrustsector for balanced and sustainable industrial development in the country tohelp deal with the challenges of free market economy and globalization.

With multilateral trade negotiations often leading to improving marketaccess, and with developing countries also being a lot more willing thanbefore to participate in globalization, rich country government and the aidagencies have apparently decided to focus on the SMEs as one importantingredient of private-sector development. A number of donors are working inBangladesh in the interest of fostering SMEs. Some, like the GTZ, areworking not with entrepreneurs but with the chambers and industryassociations building their capacities to deliver needed services. Some, likethe Katalyst, are putting together a comprehensive base of knowledge andinsights about living production clusters, not all of them in manufacturing,namely, plastics, agricultural tools, textiles, pond culture, and vegetable-raising. Yet others such as the SEDF are building enterprise-level capacities

through training programs, efforts to upgrade project management skills,enhancing the appraisal and evaluation capacities of financial institutionsconcerned with SMEs.

Industrialisations link to poverty reduction is through (a) charging-up thegrowth rate of the country; (b) enhancement of the productivity of theworker(s) in employment; (c) providing employment to the unemployed; (d)expanding consumer spending (and thus the confidence level) by sharinglower costs from scale economies via lower prices. The extent to which


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industrialisation actually pitches up as in this virtuous scenario depends onhow the promoters allocate resources with the aims of going for theseeffects. In particular, the impact will depend on which product groups and/orspatial clusters are targeted; on how technical-assistance resources arestacked up between technology know-how, management and secretarialknow-how, market-access networking, etc. Either way, having

measureable impact will often put a premium on knowing the customerwell, the customer in this case being the entrepreneurs who have put theirmoney where their mouths are.

Intimate knowledge about the industrial classification of the SMEestablishments, the spatial distribution of those establishments within eachindustry between rural and urban locations, the distribution of theseestablishments in order of fixed investment size should all be of relevance.Such a foundation of empirical knowledge is needed so as to articulatepriority among competing industrial groups, production clusters, resourcereceptacles, interventions time-frame of varying length, etc.

Given the availability of SME-related data in the public domain, it is onlypossible to discuss SMEs industrial structure in two major ways, viz based onthe number of establishments and the number of persons employed.1

Bangladeshs Development Strategy and Overview of the SMEs

SMEs Defined

From the vantage-point of industrial assistance policy, a classification ofestablishments based on employment of labour---the abundantly availablefactor of production---may not have a great deal of policy relevance, as theamount of capital that is combined with a given level of employment maywidely vary. Bangladeshs Small and Medium Enterprises Taskforce (SMETF),that reported to the Government in September 2004 defined size based onfixed investment, defined size of establishment based on fixed-investment.2

SMEs in Bangladesh are defined for purposes of industrial policies by theMinistry of Industries (MOI). Historically, this definition has been in terms offixed-investment brackets, and a dual-mode definition is in place, separatefor manufacturing establishments, and service establishments. Formanufacturing enterprises,For manufacturing industries, the Taskforce defines:

(a) an enterprise would be treated as small if, in todays market prices,the replacement cost of plant, machinery, building, structures, andother parts/components, fixtures, support utility, and associatedtechnical services (such as turn-key consultancy), etc, were to up to

Tk. 10 million;

1It is not as yet possible to carry out this structural discussion based on measures of

output. It remains the hope of the TA Grant Team to also do so in a future date.2Head-count would nevertheless be an useful measure of size for statistically purposes.


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(b) an enterprise would be treated as medium if, in todays marketprices, the replacement cost of plant, machinery, building,structures, and other parts/components, fixtures, support utility,and associated technical services (such as turn-key consultancy),etc, were to up to Tk. 100 million;

(c) From both definitions above, land is excluded.

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

(d) an enterprise would be treated as small if it has less than 25workers, in full-time equivalents;

(e) an enterprise would be treated as medium if it has between 25 and100 employees;

From both definitions above, land, once again, is excluded.

Having said that, an alternative, albeit informal, definition, of SMEs is used bythe Bangladesh Bureau of Statistics, using head-count for its basis.Enterprises with upto 9 employees are treated as micro; with between 10

and 49, as small; with between 50 and 99, as medium, and all the rest, aslarge. For statistical purposes, this is the definition that we use in this paper.

Some data with a national scope that are pertinent to characterizing SMEs inBangladesh as of 2001/2003 are presented in Table-1.3 The highlights of thistable is the following: (a) there are some 78,440 private-sectorestablishments of various size in Bangladesh with some 3.5 million workersemployed in them.4

Of this, urban Bangladesh accounts for some 60% of units and 76% ofemployment overall in the private-sector enterprise sector, with ruralBangladesh accounting for the rest. Ninety-three point three (93.6%) of allunits in Bangladesh belong in the SME category, ie have between 20 and 99employees. However, SMEs account for only 44% of the total employment ofthe enterprise sector.

Legal status: The proportion of SMEs that are incorporated as proprietorshipis a high 81% according to data obtained from the Registrar of Joint StockCompanies. Private companies limited by liability account for strictly a verysmall proportion of the total number of SMEs in Bangladesh.

Table-2 shows the average employment per establishment within eachof the small and medium classes for urban and rural Bangladesh in2001/2003. The following results are worth highlighting. Let it be noted thatthese are weighted averages. First, where small establishments areconcerned, the average employment size per establishment clusters arounda narrow range, namely, 17 20 workers, across the six divisions. We find a

3Of course, establishments smaller than head-counts of 10 are excluded from this body of

data.4BBS data on enterprises include some units under the sub-sectoral captions of public

administration and defence, for instance. Clearly, these units do not belong in the private-sector.


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similar clustering of average employment size for medium enterprises in anarrow range of between 65 69 employees. Also, taking the administrativedivisions individually, measures of average employment levels dont differvery greatly as between urban or rural Bangladesh: the values are strungtogether.

Table-1Number of units and levels of employment in small and medium enterprises,2001/2003

(All numbers are in thousands)

Des-Crip-

Tions

Urban Rural Total

Small

Medium

Large Small Medium

Large Small Medium

Large

No. of Units 39.9 3.17 4.036 29.0 1.29 0.88 68.96 4.46 5.01

% of totalnumber ofunits

50.9 4.0 5.1 38.1 1.6 1.11 87.9 5.7 6.4

Employment

740.4

211.5 1712.67

516.8 85.85 234.669

1257.2

297.4 1947.3

% of totalemployment

21.14

6.0 48.9 14.8 2.4 6.7 35.9 8.5 55.6

Table-2Average head-count per establishment across Bangladeshsindustries, 2001/2003


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Small Medium SME Large All

Food and tobacco 18.6 65.1 21.0 470.5 38.9

Textile manufacturing 19.1 66.2 21.9 490.9 56.6

Ready-to-wearapparels

17.8 70.3 22.9 512.7 249.6

Wood, leather &paper_printing

17.0 66.8 19.7 373.9 38.0

Chemicals andPlastics

19.1 67.0 22.7 367.2 58.0

Non-metallic mineralproducts

26.0 70.3 41.5 196.8 83.4

Fabricated goods,electricals and meansof transport

17.0 65.7 20.3 282.5 35.1

Mining andmanufacture nes

24.6 65.5 32.7 227.7 58.9

Various personalservices

17.5 66.0 19.9 293.3 28.2

Education/healthcare 18.1 65.5 20.3 292.4 26.7

All industries 18.2 66.7 21.2 388.5 44.6

Source: BBS Census of Enterprises, 2001/2003

Table-3The structure of industries in Bangladesh with respect to size of firms,

2001/2003 % of establishments % of total personsemployed

Small Medium Large Small Medium Large

Food and tobacco 6.7 0.4 .03 2.8 0.5 3.1

Textilemanufacturing

14.2 0.9 1.2 6.0 1.3 13.2

Ready-to-wearapparels

1.8 0.2 1.7 0.7 0.3 20.1

Wood, leather &paper_printing

2.9 0.2 0.2 1.1 0.2 1.4

Chemicals andPlastics

1.7 0.1 0.2 0.7 0.2 1.7

Non-metallicmineral products

1.6 0.9 0.9 0.9 1.3 4.0

Fabricated goods,electricals andmeans of transport

4.3 0.3 0.3 1.6 0.5 1.7

Mining and 0.2 .. .. 0.1 0.1 0.2


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manufacture nes

Various personalservices

23.6 1.2 0.8 9.3 1.8 5.1

Education/healthcare

31.1 1.5 0.8 12.6 2.2 5.2

All industries 87.9 5.7 6.4 35.9 8.5 55.6Note: These percentages are relative to the total number of establishments,and total employment by the private-sector SME sectorSource: SME Cell, using data from BBS Census of Enterprises, 2001/2003

Table-3 shows the percentage importance (in terms of both number of unitsand the employment levels) of SMEs in the overall world of enterprises. Themain result to report is that the number of SME units simply dwarf the

number of large enterprises, with typically more than 90% of all enterprisesbeing in the SME class. However, the percentage share of SMEs in totalemployment controlling for the location is almost always less than for thenumber of units. In particular, in Dhaka, Chittagong and Khulna divisions, onefinds SMEs share in employment is lower than for the economy as awhole.

Table-4 essentially shows that the relative importance of SMEs---both interms of the numerical importance of establishments or employment---withinthe entire world of enterprises remains roughly similar in both urban andrural Bangladesh. The role of SMEs in production is therefore a-spatial.

Table-5 then presents some idea as to the percentage structure of small and

medium enterprises, taken separately, across a large number of industries.5Like in the discussion of Table-3, we again see the quantitative importance offood, beverage, textile manufacturing, non-metallic mineral products amongmanufacturing subsectors as providing the basis for small and mediumenterprises in Bangladesh. Once again, the importance of services ishighlighted.

Table-4: Proportion of SMEs in enterprise population, and in employment, byadministrative Divisions of Bangladesh, 2001/2003

DivisionsUrban (%of SMEs inthenumber ofurbanunits)

Urban (% ofSMEsemploymentin urbanareas )

Rural (%of SMEsin thenumberof ruralunits)

Rural (% ofSMEsemployment in ruralareas)

5Entries in each column add to 100, except for rounding errors.


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Dhaka 93.8 61.2 95.6 65.3Chittagong 93.7 54.2 92.4 69.1Rajshahi 95.3 65.9 97.9 81.3Khulna 93.8 59.1 95.8 70.5Sylhet 96.6 68.6 91.9 41.5Barisal 95.7 69.4 97.8 82.7All divisions 94.8 63.1 95.2 68.4


Table-5: Industrial structure of small and medium enterprises in Urban andRural Bangladesh, 2001/2003

Sectors Proportion of smallenterprises in the total

Proportion of mediumenterprises in the total

Ruralenterprises

Urbanenterprises

Ruralenterprises

Urbanenterprises

Mining 0.4 0.2 1.2 1.0Food & tobacco16.6 9.3 7.4 9.0

Textiles MFG 58.7 8.4 29.2 17.5

Wearing apparels0.3 4.6 1.0 3.3

Wood products0.2 2.6 .4 1.8

Tanning, etc 1.1 0.8 .1 0.2

Paper & printing0.1 3.3 .4 3.4

Chemicals &plastics

0.4 4.2 .7 4.6

Non-metallicmineral pr.

6.1 1.1 47.9 3.1

Fabricatedproducts

0.7 3.9 .6 5.8

Electricalequipment

0.0 0.7 .2 0.7

Mfg. Transportequipment

1.6 0.5 .9 0.7


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Utility services0.2 5.0 1.9 3.0

Construction 0.1 0.5 .6 1.8

Trade 2.4 4.9 .5 4.4

Eateries 1.4 7.1 .3 5.2

Transport &Comm.

1.2 22.0 2.8 7.6

Finance & Banking8.4 16.9 3.8 13.5

Real Estate 0.2 3.9 .3 7.5


Type of human resource and management structure

Production workers can be grouped by skills, and those skills are relative tothe industrial or product groupings of which their establishments are part.

Table-2 presents a distribution of the SME establishments according to BSIC4-digit classification of all industries in Bangladesh. Naturally enough,industries are differentiated by the skills, and specific specialization of theworkers at various levels. Therefore, a distribution of the establishmentsaccording to the industrial groups is also about a decomposition of the SMEsin Bangladesh.

The SMEs in Bangladesh has never been explicitly categorized with regard tothe underlying management structure of the constituent establishments.However, that is just as well. This is because management structure cant bean absolutist concept: the structure that makes sense must be seen to berelative to the product the unit makes, and the technology it uses. One sizeor type can not aspire to fit all. That said, it is fair to say that most of theSMEs in Bangladesh have a relatively flat---as distinct from hierarchical---management structure. By flat structure, we mean one in which themanagement functions of strategy, systems, skills, structure, Staff, Style, andSubordinate goals---which we shall call shared values---are all concentrated inone management suite, and the suite does not traverse more than onemanagement tier.

Level of education and skills and management systems

In mature industrial structures, industries are sharply characterized by theextent and character of the median educational levels of their workers. Aswell, sometimes, industries are also differentiated by the kind (generalist asopposed to specialized) of education of their typical workers. Some productsare R & D-intensive; some others are capital-intensive. That said,Bangladeshs SMEs dont evince that degree of maturity in its industrial


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structure. The average extent of education in ready-to-wear apparelsindustry---one of the heavy-weights of the industrial structure--- comparedwith say the plastics industry is not sharply different. Consequently,educational levels and skills levels are not really much of a differentiator.

Technology and machinery installed

Perhaps, there is room for some discussion about the situation about thechoice of technology and the type and sourcing of machinery installed in theindustries. Bangladeshs textiles and apparel-export industry has a strongEuropean predisposition: Bangladeshs spinning industry wears an almost anEuropean dcor in that virtually all the spinning mills have chosen Europeanequipment. Some of the spinning mills are very highly mechanized, withemployment size less than 100 and thus eligible to being considered ofmedium in size. The ready-made garments industry---the focal point of themedium enterprises in the economy---labour intensity is higher. In fact, theratio of wages and salaries to value added in the RMG industry is one of thehighest among all manufacturing industries in Bangladesh.

A look at Table shows that the SMEs as an industry has as many as 11product groupings. The most important industrial category which reallydominates the SMEs as enterprises is ready-to-wear garments, and thesecond most important category is textiles weaving. The 3rd most significantindustrial grouping is about food processing. Clearly, the number and thetype of machinery in each of the industries being discussed here arecategorically different from each other. For instance, in the ready-to-weargarments industry, the dominant type of equipment comprises sewingmachines. Typically, these sewing machines are of Japanese Juki brand, orBrother brand: standard kinds of industrial sewing machines which sew atvery high speed. Other comparatively peripheral equipments are (i) stitchingmachines; (ii) cutting machines; (iii) lining machines, etc. The typicalgarments mill is not really characterized by labour-intensive technology, asthe typical capital-labour ratio is understood to be US dollar 3000. The textileweaving industry is slightly more labour-using, with a capital-labour ratio ofUS $ 2600. Textiles spinning is the most capital-intensive, with capital-labourratio of more than US $ 4000. Capital-labour ratio in food processing---at US$ 2400--- is significantly lower compared with either garments industry ortextiles industry. The tendency increasingly is towards choice of more andmore mechanized technologies in manufacturing industries.

Access to finance and markets

Table-6 gives an idea of the role of small and medium enterprises asdestinations for bank credit in 2004 and 2005. Bangladeshs classification ofbank advances lumps medium enterprises with the large enterprises, whilesmall units are lumped with cottage-based units. As such, unfortunately, it isnot possible to speak of the access to finance issues for SMEs per se. Weknow however separately that SCIs corresponds to more than 99% of allproductive establishments in Bangladesh.


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Out of 3.8 million establishments of all kinds in Bangladesh, only 10798, orjust about 0.3% happen to fall in either medium or large establishment sizeclass based on employment size. The percentage is even much lower inmanufacturing or trade---the two subsectors from which the case studies inthis paper are drawn. And yet, such staggering smallness of the proportionof medium and large establishments is coupled with a preponderance of large

and medium enterprises in total credit disbursements from the bankingsystem. It is quite safe to assume that of total credit disbursed to large-and-medium class, an overwhelming majority ---perhaps, 80% or so---is arrogatedby large establishments. It becomes quickly clear that SMEs, for all theirnumerical superiority among establishments, receiving bank credit is theexception and not the rule.Why is the access to finance for the SMEs in Bangladesh not even based onneutral ground, not to speak of rosy or good? This is because the issue ofbank credit is based on the ownership of collateral: bankers insist onimmoveable property for collateral. Only about 15-20% of the owners ofSMEs own any immoveable property at all in which the bankers areinterested. This automatically excludes about 80% of SMEs from being

among the privileged client of a bank loan.

Table-6Percentage distribution of advances made by PCBs, FCBs and NCBs in 2005and 2004: By receiving sectors

(Numbers are percentages; last row shows the disbursements in Tk.crores)

Name ofSectors andtypeOf financing

PrivateComm-ercialBanks,2005

PrivateComm-ercialBanks,2004

ForeignComm-ercialBanks,2005

ForeignComm-ercialBanks,2005

StateComm-ercialBanks,2005

StateComm-ercialBanks,2005

Agriculture 0.8 0.6 0.1 0.1 56.7 10.8Large &Mediumindustry 14.0 11.4 10.9 11.1 17.9 21.1SCI 0.7 .6 .6 .6 .9 1.1WClarge/mediumindustry 17.2 14.4 27.2 26.3 7.1 17.9WC for SCI .9 .7 1.4 1.3 .4 .9


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Construction 8.7 15.7 0.9 0.8 1.6 6.7Transportation 1.8 7.8 2.2 1.0 0.2 0.8Storage 0.2 1.6 0.0 0.0 3.0 1.3

Trade financing 46.6 39.0 24.9 21.2 7.7 30.2Miscellaneous 9.1 8.2 31.7 37.6 4.6 9.3

Total 100.0 100.0 100.0 100.0 100.0 100.0

Total advances 53029 402987819.8 6629 10637 37662

Note: SCI stands for small and cottage industry; WC stands for workingcapital

Access to markets

No custom study has ever been done in Bangladesh of the division of theoutput of SMEs into domestic sales and those overseas. However, some

broad-brush idea of this issue can be provided here.Of the industry that are clearly export-oriented in Bangladesh, the followingstand out (Table-7).

Table-7Importance of SMEs in export receipts of Bangladesh, 2004/05

Name of subsector(s)producing industrialgoods that areexported

Exportsduring2004/05, US

$ Million

Exportsduring2004/05,US $

MillionDue toSMEs

Proportion ofexportsaccounted forby SMEs

Definitionof SME

a) Woven garments 3598 450 12.5 Between10 and 99workers

b) Knitwear 2819 352 12.5 Between10 and 99workers

c) Leather 221 94 42.5 Between10 and 99workers

d) Jute goods 307 12 3-5 Between10 and 99workers

e) Fertilizer andchemical products

197 0 0 Between10 and 99workers


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f) Footwear 88 44 50 Between10 and 99workers

g) Ceramic products 29 0 0 Between10 and 99workers

h) Engineering goods 85 20 22-25 Between10 and 99workers

i) Petroleum by-products

35 0 0 Between10 and 99workers

j) Handicrafts 5 5 100 Between10 and 99workers

k) Others 621 n.a. n. a. Between10 and 99

workersTotal exports 8652 977 11.3

Source: All estimates are based on trade estimates, and not based ondetailed survey(s).

Use of Information Technologies (IT)SMEs have very limited use of information technology (IT). Accountingpackage is used by 1-2% of the SMEs. The use of computers is revealed bysay 15% of the SMEs, while the use of the Internet for business purposes

applies to say 8-10% of SMEs.

The role of quality certification is minimal among SMEs in Bangladesh. Thereis no SMEs that has received ISO 9001:2000 certification except in thesoftware, footwear, apparel, cycle-manufacturing industries. Whereverexporting is one of the drivers of the firm, quality-assurance certificationbecomes an imperative. However, SMEs have ways to go before one can citethis aspect of management of quality as a role model in any seriousdiscussion.

Some SMEs in Bangladesh have availed of 5-S model of productivityenhancement. This is particularly true for a small number of medium-sized

enterprises in the pharmaceutical industry of the country. MICRO---one of thepioneers of electronics-goods production with inspirational leadership---hadavailed of the entirety of Total Quality Management (TQM) and also Just-in-

Time (JIT) inventory policies.

Major problems and issues challenging competitiveness of SMEs inthe country?


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According to the Japan Center for Economic Research, which has producedCompetitiveness Index for 50 countries of the world for four years since1980, there are eight determinants of competitiveness for nations, namely,internationalization; enterprise; education; governance; science andtechnology; infrastructure; finance; and IT(http://www.jcer.or.jp/eng/pdf/potential2005.pdf).

According to the World Economic Forum, the following question highlight theingredients of the business environment that positively impinge uponproductivity of SMEs. Does the government maintain an arms-lengthrelationship with respect to the private sector, or does it play favorites? Doesthe judicial system allow for the reasonable, expeditious, transparent, andlow-cost settlement of disputes, or is justice for sale? Is tax revenuechanneled back into the economy through productivity-enhancinginvestments in human capital and infrastructure, or is the money wasted oninefficient projects, or, what is worse, is it mostly stolen? Is the regulatoryenvironment hampered by unnecessary layers of bureaucracy and red tape,reducing competitiveness and raising the costs of transactions andoperations? How efficiently are new technological innovations absorbed, and

is attention being paid to constantly upgrading the countrys educationalsystem? Does the country engage with the outside world with openness andself-confidence, or with fear and ambivalence? What is the role of propertyrights and institutions?

With a slight paraphrasing of the above, the following five appear pertinent toenterprise competitiveness vs. SMEs, namely, (a) modernization of thetechnology and management processes in the enterprise; (b) workereducational and training attainment; (c) the scope and quality of theinfrastructure; (d) commitment to innovation, product quality and customersatisfaction; and (e) the harnessing of information technology (IT) to servethe customer well and to shave marketing and communications costs.

Unfortunately, it is not possible to write authoritatively about how wellBangladeshs SMEs fare with regards to these competitiveness drivers,because the country has never carried out nationally representative samplesurvey(s) to probe these questions.6 Having said that, successful SMEs of thekind that we have included in our roster of case studies amply shows that inspite of the overall relative backwardness of both the level of managementand technical expertise, and of the physical infrastructure, some individualfirms respond creatively and effectively. They innovate amid leanness ofresources, demonstrating in the process a significant amount of creativeinitiative, an innovative bent of mind. These are the people who can turn ona dime while finding solutions to their own production and technologyproblems. We have provided some instances in our case studies.

6With financial assistance from the Asian Development Bank (ADB), the SME Cell in the

Ministry of Industries (MOI) is now slated to run a set of nation-wide surveys which will samplea representative collection of SMEs in Bangladesh. An incisive questionnaire will beadministered for this purpose and, it is believed, will generate information about all of theforegoing correlates of productivity and competitiveness by SMEs in all industrial groups in thecountry. The survey is expected to commence sometime in 2006 now.
http://www.jcer.or.jp/eng/pdf/potential2005.pdfhttp://www.jcer.or.jp/eng/pdf/potential2005.pdf


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Development public Initiatives, policies and programmesimplemented

The Policy and Institutional Framework for SME Development

An exclusive focus on small and medium enterprises (SMEs) in Bangladesh is

a relatively new concept. For much of the past, it was Small and CottageIndustries (SCIs) which were the operative category in the mindset for publicinterventions for industrialization. The focal point of the delivery of publicservices for that stated purpose was Bangladesh Small and CottageIndustries Corporation (BSCIC), a parastatal that was created in 1957 on thebasis of an Act of the Parliament. A brief description of the BSCIC will bemoot at this stage.

BSCIC

The operating divisions of BSCIC in decreasing order of importance are (i)promotion and extension; (ii) projects; (iii) marketing, technology and design.

Because roughly 63% of the revenue budget of BSCIC is allocated to the P &E division, it follows that this is the flagship division. The main activity of thisdivision is to provide pre- and post-investment counseling of manufacturersand tiny producers. Pre-investment counseling consists of spotting timelyand potentially profitable small-business opportunities, profiling potentiallyviable projects based on such opportunities; identifying and matching upentrepreneurs with such projects; and then supporting such establishmentsthrough the provisioning of credit and some infrastructural facilities. In the1980s and 1990s, the supply chain of industrial entrepreneurs for the P & E torun up big performance scores used to be managed and mobilized by anextensive project Development of Rural Industries (DRI). The DRI wassubsequently absorbed into the regular, revenue budget of the country,inside the P & E division. The mandate of this P & E division is one of twomajors interfaces between BSCIC and entrepreneurship development.

The number of industrial entrepreneurs rose from 34219 in 1998/99 to 64,704 in 2002/03-- The other BSCIC major entrepreneurial involvement ofBSCIC has been with the Women Entrepreneurship Development Programme(WEDP). While the first was about spurring entrepreneurship among SCIs ingenerally, WEDP worked with women only. WEDP was an extensiveprogramme. Over a period of some 20 years starting from the early 1980s,WEDP created more than 40,000 female-headed establishments in suchsectors as custom rice-milling, goat rearing, poultry-raising, and the like. Formuch of its life, the project received good billing from evaluations on accountof a reasonably good repayment of the credit distributed.

The other important programme of BSCIC is about the Industrial Estates (IE).Under this IE programme, BSCIC develops land and some essentialinfrastructural support services from a greenfield environment and theninvites entrepreneur applicants to come and set up shop aboard its premises.After an initial screening, BSCIC sends a short-list of the names of aspiringentrepreneurs to the District Evaluation Committee (DEC) where the finalselection of awardees is made. These latter are then invited by BSCIC to take


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possession of the industrial plots. BSCIC does fork out significant up-frontsubsidies to the awardees.

The entrepreneurial development that BSCIC has brought about is not of aSchumpeterian type where a break-through idea or a commercially keeninsight, which was so far not spotted by anyone, is somehow spotted by

someone. When followed up and implemented in the form of a commercialventure, such a breakthrough becomes a torrent from a trickle. In stead,BSCICs contributions to entrepreneurship development has more been in thenature of every-day infusion of counseling, credit, some small input of designand market-intelligence to men and women of small and tiny means so thatthey could start their own business, howsoever puny, lowly and initiallychallenging. This has undoubtedly made a not insignificant contribution tothe emergence of small and tiny businesses in Bangladesh owned by menand women who would otherwise have had no opportunities to open theirown businesses.

Efforts of the Government to promote small and medium enterprises

The Government of Bangladesh has announced the Industrial Policy 2005.This policy document states: "the SME sector has been given priority as aprivileged sector". The PRSP states:"The Government will pursue anemployment intensive industrialization with emphasis on SMEs and export-oriented industries". The Government is committed to pave forindustrialization led by the private sector amid a business environment thatcan bring out the best among all SME stakeholders. It is in the evolution of

just such a business environment--- good and available infrastructure, well-trained and broad-based human resources, vigorous entrepreneurship bredout of an entrepreneurial culture, performing credit, insurance, venture-capital markets, and markets for complementary expert services---that we atthe Ministry of Industries would like to take advantage of the TA resourcesthat ADBs financial assistance has made possible in the corpus of SMESDP.

The Government created a Small and Medium Enterprise Cell (SME Cell) inthe Ministry of Industries (MOI) in 2003 so as to provide a focal core forimplementing policies and interventions that selectively take care of SMEs inBangladesh. Subsequently, government constituted in October 2003 an SME

Taskforce which was based in the office of the Prime Minister, with thePrincipal Secretarty to the Prime Minister in the Chair. The SME Taskforcewas appropriately blended with participation from the Government, theprivate sector, academia and the civil society. The Taskforces report wasapproved by the Cabinet of ministers, early in 2005. Based completely onthe contents of the report of the SME Taskforce, the Government ofBangladesh issued, for the first time, Small & Medium Enterprise PolicyStrategies, 2005---which will provide the framework for interventions andpolicy strategies for the development of SMEs in Bangladesh. One of thehighlights of the Policy Strategies is that the Government constituted a Small& Medium Enterprise Advisory Panel as an independent and meritocraticbrains-trust for the MOI for all developmental, technical and structuraladvisories. The SMEAP comprises again participation from the private sectorand the civil society, and at the moment is prestigiously headed. The


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Ministry of Industries is very responsive to the SMEAP, and the two haveforged a real synergy in the interest of the development of SMEs.

In the private sector, the following four have been important projects for thefostering of entrepreneurship in Bangladesh: (i) the JOBS project, funded byUnited States Agency for International Development (USAID); (ii) Katalyst,

funded by a consortium comprising DFID, Swiss Development Corporationand the GTZ and implemented by SwissContact, a Swiss consultancy; (iii)South Asia Enterprise Development Fund (SEDF). We confine ourselves tothe Katalyst and SEDF for the moment.

Private sector activities in the field of SME promotion

Any account of the promotion of SMEs through private sector would beincomplete without a proper treatment of the activities of two substantively-

funded BDS effort in the country, namely, Katalyst and SEDF. Katalyst is a 5-year project funded by DFID, SIDA and Swiss Development Corporation (SDC),and is worth US dollar 25 million in funding between 2002 and 2007. It isthe largest project of its kind funneling embedded services to what theproject calls SMEs. The project has a head-count of 45.With a funding of US dollar 5 million annually, and with a total funding of theequivalent of US dollar 25 million, it is clear that this project had verysubstantial funding on its hands.

The first important strategic decision Katalyst took was that it established aworking lien versus the Ministry of Commerce. The primary locus ofresponsibility of the MoC is spurring of Bangladeshs exports or deemedexports. The industrialization of Bangladesh was not a subject-matter ofdirect relevance to the MoC.

KATALYST has developed an integrated approach based on the sub-sectorservices methodology. It consists of five stages:

1.Research2.Analysis3.Service market identification4.Interventiondesign5. Monitoring & Evaluation

The key characteristic is that prior to the interventions in the markets, theirconstraints and the opportunities need to be understood and analyzed withrespect to the possible relevance for business services.

KATALYST's goal is to increase the competitiveness of small and mediumenterprises in selected areas and sectors with a purpose to develop moreeffective markets for business services in the Bangladesh economy. An


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indicator of KATALYST's growth will be an increase in employment and inincomes in SME sector of the economy.

KATALYST has focused its activities on the development of some of the SMEsectors in Bangladesh.

The first subsector to engage the attention of Katalyst was the aromatic ricesubsector. The exports from aromatic rice in Bangladesh rose from a 100tons to 3000 tons only over a fifteen year period. In 2003, the two nextsubsectors to engage the attention of Katalyst are agro-tools and pondfisheries. In 2004, furniture, plastics and vegetables have engaged theattention of this project. Clearly, Katalyst has worked with a fairly wide rangeof sub-sectors, with very highly varying densities of SMEs within them.

The following shows the most major output from Katalyst since 2002, andgives an idea of the evolving focus of the project:

(a) Subsector Market Assessment of the Aromatic Rice Subsector, DFID & IDE Bangladesh, 2002(b) Subsector Market Assessment of the Aromatic Rice Subsector, DFID & IDEBangladesh, 2002 Pond Fishery Subsector Service Market Assessments, Bangladesh, IDE &KATALYST 2003(d) Assessing Supply of and Demand for Quality Management Services in Bangladesh, Katalyst, 2004(e) The Accounting, Financial Advisory, and Taxation Services Market inBangladesh, Katalyst, 2004(f) Design of the Katalyst project, Bangladesh, June 2004.

Crop diversification in agriculture, fisheries, manufacturing, cross-cuttingsupport services, business process improvements---are in the mix of activitiesso far undertaken by Katalyst.

Katalyst has tasked itself to make a difference, inter alia, by making industrialand rural services available mainly for the following seven product areas,namely, agro-tools, furniture, plastics, vegetable, fisheries and bamboo. Aswell, Katalyst has a center of expertise and regulations to offer advocacyservices to the Government in advisory capacity.A typical subsector project consists of (i) donor identification of a sub-sector;(ii) SBS mapping and constraints analysis by a consulting team; (iii) selectionof service market and service-market assessments; (iv) start of projectactivity (or not); (v) intervention design; (vi) intervention(s); (vii) monitoringand evaluation.Katalyst has so far initiated project activity in this fashion in vegetablesproduction, plastics, agro-tools. Detailed monitoring and evaluation ofproject will be launched in the near future. According to Katalyst, a mid-termevaluation of itself found results to be broadly positive.
http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=261&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=261&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=261&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=261&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=264&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=264&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=370&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=370&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=371&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=371&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=330&p_lang=en&p_phase_type_id=2http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=261&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=261&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=261&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=261&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=264&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=264&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=370&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=370&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=371&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=371&p_lang=en&p_phase_type_id=1http://www.bdsknowledge.org/dyn/bds/bdssearch.details?p_phase_id=330&p_lang=en&p_phase_type_id=2


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Of late, Katalyst has gone into the territory of partnering with twoBangladeshi companies to develop accounting, financial management andtaxation training packages for small enterprises. Under the agreement, CECand Skill Plus will develop a package and give training to SME entrepreneurson accounting, financial and taxation management. The training package willbe promoted under the 'More business' campaign, which is a joint initiativeamong Banglalink, Standard Chartered Bank, The Daily Star---three ofBangladeshs most successful corporate icons--- and Katalyst. Katalyst clearlyhas strategic partnerships with some of best brands in Bangladesh, althoughthe nexus between these brands and the task of spurring of productivity andcompetitiveness of SMEs in Bangladesh remains, at the moment, unclear.

The project is one year shy of its completion.

SEDF

The SouthAsia Enterprise Development Facility (SEDF), a newly launchedinitiative funded by the IFC and other donors, which has targeted its effortstowards greater SME financing from local Bangladeshi banks. In June 2002SEDF kicked off operations with a conference where it brought to Dhakaseveral SME finance experts and officers from highly successful SME lendinginstitutions worldwide like Business Partners of South Africa, PlantersBank ofthe Philippines and the National Development Bank of Sri Lanka. Local bankshave, according to SEDF literature, since responded very positively to SEDFsaccess to finance program: Dhaka Bank Limited has already signed an

agreement with SEDF to collaborate on training and TA on informationtechnology (IT), marketing, human resource development and creditmanagement. SEDF is also working with numerous other local financialinstitutions to make them aware of the profitability potential of Bangladeshslarge SME sector. Between 2002 and to-date 13 banks have entered into thestatus of what SEDF called partner financial institutions (PFIs).


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SEDF undertakes technical assistance programs for partner financialinstitutions (PFIs) revolving around four strategic pillars; commitment,knowledge, efficiency and tools.

Commitment: to be measured through strategic allocation of resourcesto SME finance; can be achieved through advocacy, strategicinteraction, benchmarking with peer financial institutions.

Knowledge: to be spread at various levels of the institutions; can beachieved through training, exposure to the best practices, institutionaldevelopment programs.

Efficiency: an imperative for sustainability of the SME finance program;to be measured in reduced time and costs of SME loan processing; canbe achieved through instituting performance-based HR polices, processautomation and procedural streamlining.

Tools: measured through the number of financial products available toSME finance; can be achieved through introduction of new productssuch as factoring.

The underlying principle driving all technical assistance programs issustainability.

Enhancing Commitment to SME Finance

Financial institutions are working with the SEDF on a 50:50 cost-sharingbasis.

Advocacy: SEDF staff members keeps PFIs abreast of the latest developmentsin SME finance techniques, benchmarks and trends.

SME strategy formulation: SEDF has helped two PFIs in the process of SMEstrategy formulation through conducting institutional diagnostics andstructured strategy workshops. This is in addition to the four PFIs whichreceived assistance from SEDF on SME strategy formulation last year. Thenumber of PFIs that come to SEDF for SME strategy formulation consultationhas fallen from 4 in 2003 to 2 in 2004.

Spreading Knowledge of SME Finance

SEDF organized study tours for PFI senior management to best practice SME

finance institutions in India and Sri Lanka.

SEDF has organized a training program on Sales Leadership in order toenhance selling skills of the field level PFI professionals.

SEDF organized five 5-day training programs on the Fundamentals of GoodManagement. One of the training programs was conducted by the Singapore


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Institute of Management and the remaining four by a local consulting firm.Over 110 PFI professionals attended these programs.

Improving Efficiency in SME Finance

SEDF has developed Credit Scoring modules at three PFIs as pilot programs.This will enable these PFIs to reduce the time requested for screening SMEloan applications.

SEDF has assisted a PFI in its automation through implementation of a corebanking software. The first phase of business process re-engineering hasbeen completed by SEDF consultants. The bank, along with its 18 branches,is expected to go online by the end of 2004.

A comprehensive risk grading framework has been developed for a PFI whichwill enable the company to better manage its lending risks and adopt risk-based loan pricing policies. The assignment was carried out by the leading

Indian credit rating agency, CRISIL.

IT Diagnostics: SEDF conducted IT diagnostics for five PFIs. The diagnosticswas aimed at identifying gaps in software and hardware infrastructure forcatering to the SME client segments.

Redefining the HR policy: SEDF has helped a PFI in instituting a performance-based human resources policy which encompasses recruitment, jobdescription, assessment, incentives and development of the bank staff. Thestudy was carried out by a local consulting firm.

ISO diagnostics: with a view to streamlining processes/procedures and

promoting efficiency, SEDF has carried out an ISO diagnostics of a PFI. Thefirst phase of this on-going project has been completed. The PFI aims for anISO 9001 certification audit by the end of 2004.

PROBLEMS AND CHALLENGES FOR SME DEVELOPMENT

1. Intense competitiveness of the global and domestic market-place inwhich the SMEs have to compete;

2. Secularly-increasing quotient of specialised knowledge and codified R& D that have become defining characteristics of products andcompetitors in globally-integrated markets;

3. Inequalities in the distribution of wealth, including human-capital, that

lead to a crowding out of SMEs in general, and small enterprises inparticular, from participating in markets for venture capital and credit;

4. Deficient foundation of policy-relevant knowledge and information of akind that can make a difference to the pro-poorness of thedevelopment strategy for SMEs growth;

5. Inadequate level and uneven distribution of execution, design andimplementation capacities in the facilitators and providers so as tospur competitive growth of their clients in the shortest possible time;


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6. The inherent difficulties of dealing effectively with all governmentfailures, market failures and enterprises own failures in the interest ofexpeditious development of SMEs.

SOME IMPORTANT STEPS TO BE TAKEN FOR SME SECTOR

1. A two-stage stratified random sampling of SMEs throughoutBangladesh slated to start early in 2006, so as to bench-mark, for thefirst time in Bangladesh, SME comprehensively;

2. The crystalisation of keen policy-relevant insights from this surveywhich will hopefully input substantively into the formulation of astrategic plan of action;

3. A conscious design to embed all policy planks into BangladeshsPoverty Reduction Strategy Programme;

4. The formation of an SME Foundation within the next 18 months or so,comprising the SME Advisory Panel and SME Cell to become anindependent private-sector Foundation created expressly by

Government action, and tasked comprehensively with all matterspertaining to the development of SMEs throughout Bangladesh in athoroughly pro-poor manner;

5. An well-orchestrated effort to funnel much-needed provisioning ofdebt-capital and R & D funds into the world of innovative anddeserving SMEs;

6. Upgrading of all relevant kinds of capacities in the SME sector.

PART B:

DEVELOPMENT INITIATIVES, POLICIES AND PROGRAMS BEINGIMPLEMENTED BY THE VARIOUS AGENCIES IN THE COUNTRY

Initiatives, Programs,Policies

Public SectorOrganizations/Donors

Private SectorOrganizations

Results(Success/Faile)

A Promotion of Entrepreneurial Culture1 SME promotional

Councils/bodiesSME CellSME AdvisoryPanel

Just formed

2 Entrepreneurship developmentpromotional campaigns

Bangladesh Small& Cottage

IndustriesCorporation3 Awards for Successful SMEs

Small Business Entrepreneurof the Year

Dhaka Chamberof Commerce &Industries

4 Quality Awards for SMEs


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5 President/Prime Ministersmention aboutentrepreneurship in his/herspeeches/statements andbudget statements

Prime Minister, inher speech,mentioned aboutSMEs.

6 Entrepreneurship Development

Action Plan at the nationallevel

Very recently an

Action Plan hasbeen preparedand approved bythe government

7 Governments vision promotingentrepreneurship, innovationand competitiveness at thenational level

SME PolicyStrategies havebeen adopted bythe government

8 Promotion of EntrepreneurshipProfile for SMEs

9 Promotion of benchmarkingand best practice networks

To be done Model beginninghas been madeon this score bythe efforts ofsuch private-sectors effortsas Katalyst.

10

Promotion of Women andYouth entrepreneurship

Government hasbeenimplementingdifferent projectsfor womenentrepreneurship

development

Women tradebodies areworking forwomenentrepreneurship development

11

Promotion of e-business andICT development

Government hasbeenimplementing ICTprojects

Private sectorICT business isgrowing fast

12

Promotion of technologicalinnovation for SMEs

Trade bodies

13

Promotion of financial productsand schemes for SMEs

ADB loan for SMElendingState-owned SMEbank

Privatecommercialbanks andfinancialinstitutions

14 Productivity promotionalcampaign for SMEs NationalProductivityOrganization

15

Promotion and availability ofSME database, SMEpublications, SME web-basedportals for information andbusiness matching

BangladeshBureau of StatisticsSME Websitelaunched by SMECell

Katalyst/SEDF/GTZ/ JOBS/MIDAS


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16

Provision of infrastructuralfacilities

BSCIC IndustrialEstates

B Regulation and Policies1 Laws/Regulations/Policies for

SME development at thenational level Availability of aSME Framework

Industrial Policy2005 and SMEPolicy Strategies2005

2 Policies /Regulations to supporttechnological development

3 Policies/Regulations for ICTdevelopment

Project onICT/web-portal isunderimplementation

4 Policies/Regulations for SMEsaccess to markets

5 Policies/Regulations for SMEsaccess to financial facilities

6 Policies/Regulations forEntrepreneurship Development(separate policy in addition tothe SME Policy, if any)

Industrial Policy2005

7 Bankruptcy laws whichsmoothens the exit of enterprises that are notsustainable or competitive

Bankruptcy Law19===

8 Labor Laws and employmentregulations affecting SMEs

Yes

9 Infrastructurefacilities/exemptions provided

to SMEs

BSCIC provides

10

Specialized PrudentialRegulations for financing toSMEs

Not yet

11

Regulations on FinancialIncentives for SMEs i.e. taxexemptions/benefits, dutyconcessions for SMEs

Nothing special

12

Policy/Regulation forProductivity Development inSMEs

Not yet

C Administrative

Environment/Framework1 Availability of permanent or

ad-hoc units/cells mandated torepresent SME views in theregulatory process

SME Cell underMinistry of Industries


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2 Councils/Consultativebodies/Task Force for SMEdevelopment and/or to takeSMEs views into considerationwhile formulating policies andprocedures

NationalTaskforce on SMEDevelopment

3 Experts Advisory/AdvisoryBoard/Specialized Boards setup to develop SMEs (in generalor in specific sectors)

SME AdvisoryPanel

4 Availability of Productivityimprovement programs for theSMEs

yes

5 Availability of EntrepreneurshipProfile/EntrepreneurshipIndicators for the country

Yet to bedeveloped

6 Systems/programs to monitorthe entrepreneurial profile,entrepreneurial activity andentrepreneurial businessenvironment (EBE)

7 Programs/focus on developingEntrepreneurial Mind-sets,corporate vision and corporateentrepreneurship

Bangladesh Bank-the Central bank

8 Procedures for development ofSMEs:

a Registration of firms, formationof a new company, listing

requirements

Yes

b Exit of uncompetitive firms Noc Compliance and reporting No.d Licensing No.e Accounting standards Yesf IT driven communication

through web portalsNo

g Taxation Yesh Utilities Yes, but patchyi Standardization No.

j Quality certificates, ISOcertification

Essentially no

D Entrepreneurship Training and Education


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1 Entrepreneurship Curriculum atuniversities and colleges(covering start-up strategies,entrepreneurial behavior,application of marketing andfinance to start-up,

entrepreneurial finance suchas venture capital and angelinvestors, intellectual propertyrights, franchising, corporateentrepreneurship/entrepreneur, prototyping, technologytransfers, etc.)

Entrepreneurshipis taught at someof the bestprivateuniversities aspart of BBA and

MBA courses.

2 Internshipprograms/attachment withenterprises for developingentrepreneurial skills

No

3 Linkages between SMEs andcolleges/universities

Very little

4 Institute of Entrepreneurship (separately discuss model ofthe institute and servicesprovided, if applicable)

Bangladesh doesnot have anyinstitute of entrepreneurship

5 Entrepreneurship Trainingprograms i.e. technicaltrainings, managementtrainings; trainings oncorporate socialresponsibilities,entrepreneurship ethics,productivity and qualityconsciousness, use of information technology, ICTdevelopment, developinginternal synergies andalliances with their employees,etc

Entrepreneurshipdevelopment isincluded incourses offeredby BangladeshInstitute of Management(BIM), which isunder theMinistry of Industries.NationalProductivityOrganization(NPO), also in theMOI, activelyseeks to enhancethe standards of

quality-administration inpractice in thecountry


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6 Other Skill DevelopmentTraining Programs andInstitutes (directed towardsself-employment andentrepreneurshipdevelopment, etc)

More than 100Vocational

Training Institutes(VTIs), which arevariously underthe

administrativeoversee of several ministries(Labour, Textiles,Education), existto offer relativelyshort-term re-skilling trainingprogrammes

7 Quality Standardization andTesting Institute

No

8 Other Training Institutes forhuman resource developmentof SMEs

No

E Network and Linkages for SME Development1 Availability of Enterprise

Cluster (separately discussparameters and dynamics ofthe cluster model, if applicable)

There arebetween 30 and40 clusters basedon one or theother products, inthe country.


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2 Availability of businessdevelopment and businesssupport service providers(Separately discuss specificmodels of these serviceproviders, specific services are

being provided, and how arethese services marketed to theSMEs)

BSCIC used toperform a lot ofprofiling and thendisseminating,among its ownnetwork of SCI

entrepreneurs, ofpotentially viablebusiness andindustrialventures.However, itessentially nolonger does that,due to fundingproblems.Similarly,technologyuniversities suchas BUET is oftenapproached byespeciallyengineeringindustry ownersfor support interms of assessing steelstrength, and theneeded degree oftempering inmetals, for anagreed fee.

3 Availability of businessadvisory/consultancy servicesfor SMEs

No. There are someconsulting firmswho sell suchexpert services

4 Strategic alliances and jointventures within domesticand/or international markets inSMEs

No No

5 Sub-contracting support for

SMEs by larger enterprises

Yes, in apparel

and knitwearindustries6 Availability of business

incubators (separately discussthe model of incubators mostcommonly used)

No No


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7 Linkage programs for marketaccess /programs, productdevelopment, technologicalaccess, etc for improvingdomestic and internationalmarket access for SMEs

No No

8 Supply chain and value chainnetworks in the country andinternationally

Yes Yes

F Technology and ICT1 Initiative for cross border

technological cooperation (jointR&D, joint commercialization),regional association fortechnology-led enterprises

No No

2 Technology businessincubators

No No

3 Availability of back-up/pilot anddemonstration projects whichfoster innovation andtechnological development

No No

4 Facilities for developingtechnopreneurs availability ofknowledge centers, researchand development centers, andtesting laboratories, etc

No No

5 Facilitation of benchmarkingexercises and sharing of bestpractices Best Practice

Networks

Benchmarkingfacilities exist indesultory manner

in BUET and othertechnologyuniversities

6 Availability and facilitation of e-business and e-commercepractices, use of internet andother e-market, e-businessmethodologies

7 Availability of web-based SMEportals, SME database,information networks

G Financial Support

1 Support and role of the CentralBank in providing financialaccess to SMEs

2 Availability of specializedFinancial Institutions for SMEs

3 Specialized financial productsand incentives for smallenterprises


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4 Availability of SME Fund,Technopreneurship orIntrapreneurhsip Fund, etc

5 Availability of Venture CapitalFunds or risk financingmechanisms, risk mitigation

fund, credit guaranteeschemes

6 Grants for SMEs fortechnological assistance,market access, productivityimprovements, research anddevelopment, innovations,product development, e-business, ICT development,supply chain networks, etc

# Question ResponseA Basic Background Information of the SME1 Name of the SME (organization) Corbel International Limited2 Name of the Proprietor/CEO M. Saiful Alam3 Date of Formation 19954 Legal Status Limited-liability company

registered by the Registrar, JointStock Companies, Bangladesh

5 Economic Sector Agro-chemicals6 Main Products Distributing insecticides,

fungicides, weedicides, etc

B Business/Operations/HR Strategies (Internal)1 Does the firm has a corporate vision and

mission statementBe a market leader; ensureopportunities for growth farmersthrough the route of high yieldand low costs; contribute toachieving self-sufficiency in food.Corporate mission is to achieveyearly, quarterly and product-wise targets.

2 Has the firm chalked out short term andlong term objectives/goals

Yes, short-term objective isabout achieving yearly salestargets. Long-term objective is

about achieving and maximizingshareholder value over a horizonof some 15 years.

3 Are annual action plans developed inaccordance with these objectives? Arethe employees opinions and feedbackmade part in determining annualobjectives and targets? Does the firm

Annual budget meeting, planningand feedback meeting areconducted with respect to short-and long-term objectives.Mid-level managers and division


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practices the concept of managementby objectives/corporateentrepreneurship?

heads work in a group to setobjectives and targets.Company follows the MBO toachieve the vision and mission

4 Is emphasis placed on individualresponsibility and reward based on

results

Individuals are of courseresponsible to produce

assigned/settled results, whichthe management considers thebasis for reward.

5 Does the management organizes itshuman resource in venture teams todeliver the objectives

Management trained its HumanResources (HR), follow orfeedback to achieve theobjectives and organizationgoals.

6 What is the organizational structure ofthe firm. Is it a flat hierarchy? How iswork managed amongst differentdepartments/units. Is there coordinationamongst different departments andprocess of operations? How is thismanaged?

The organizational hierarchy ofthis company is quite flat, in thesense that keeping costs to thebarest minimum is a priority.With five functional divisions---Finance, Marketing, R & D, HR,and Production---all reporting tothe CEO, there is amplecoordination at work.

7 Does the firm believe in innovation andcreation of new ideas for products andservices? How is this managed?

Company systematicallyencourages innovation andcreativity. It organizes zonalworkshops with a view to

8 Has the firm taken initiative to developnew products/diversify into new

products/business opportunities to matchmarket needs or to enter into newmarkets. Is this done on a continuousbasis. Get examples of these initiatives

Company took initiatives ofrelated diversified business to

fulfil the markets need, iemosquito coil-FMCG.

9 What is the firms policy on pricing itsproducts/services. Are competitorsprices kept into account whendetermining price levels

Management adopts best pricingstrategies which competitive andwithin buying capability of users.Pricing strategies deeplyanalyzes competitors price tofind out the best price level

10

Does the firm explore new markets, bothdomestic and international on a

continuous basis. What are its currentmarkets and how did the firm reach thisstatus. Has the firm adopted e-marketingor e-business techniques. Does the firmuses internet facilities for sharing itsinformation and expanding marketpotential

CIL continuously explore newmarkets in domestic areas.

Current markets are agro-chemicals within which nichesegments are continuouslyexploring new opportunities toreach the status. E-marketing isnot applicable for our agro-chemical business. CIL shareinternet facilities gathering andtransferring information from


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local and global sources.11

What marketing strategies are used bythe firm to sell its products. Are the 4Ps of marketing considered. Are thesestrategies revised from time to time.

CIL provides best cost,differentiation and nichestrategies as per nature ofmarkets. CIL always considerproduct, price, place, promotion,

which it revises from time totime per the needs of themarket.

12

Is the firm conscious of providing qualityproducts/services and maintaining it.How is this ensured. Has the firmacquired ISO certifications

Quality is CILs commitment.So, CIL provides quality productsand service to our valuedcustomers and CIL seeks tomaintain it at all costs. CILensures quality by practicing

TQM in all of our activities ofproduction, sales, marketing,customer service, R & D, HR, etc.

13

Has the firm taken the initiative toreplace old plant andmachinery/technologies or technologicalmethodologies for improving production.How were new technologies acquired.Were the human resource trained to usenew technologies

All of CIL equipment andtechnology platform have not asyet reached a stage whenreplacement is imperative. CILcontinually welcome newtechnologies for cost-effectiveproduction. CIL launched re-skilling of its human resourcesper the requirements of upgrading of its equipmentstock.

14

Has the firm adopted any productivityimprovement technique to effectivelyenhance its operations i.e. kaizen, 5 S,total quality management, quality controlcircles/work improvement teams, balancescorecard, Just in Time, business processreengineering, etc. If yes, how are theseimplemented and managed

CIL had adopted TQM, KAIZEN(eliminating unnecessaryactivities) through innovation inall of its activities such asproduction, sales, HR and R & D.

TQM is sought by achievingclose-to-zero defects duringproduction, KAIZEN in CILs dailyactivities.

15

How does the firm monitors and managesthe cost of its operations/cost ofproduction. Has the firm devised

methodologies for reducing cost ofoperations/production and overheadcosts i.e. bulk purchases, maintainingoptimal level of inventories, timelyshipments/delivery of products,managing utility consumption, humanresource placement, business process,reducing reworks and rejects, improvingcommunication and selling

CIL monitor operation cost andproduction cost by setting targetand by comparing actual with

targeted cost. CIL reduces thecost by adopting economies ofscale, discount during bulkpurchase, by maintainingminimum inventories, minimizingrework and rejects, improvingcommunications, and sale skillsof its sales force.


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methodologies, etc. Does the firm benefitfrom economies of scale

16

Is the firm familiar with business controlsystems such as accounting, recordkeeping, financial analysis, book keeping,profit center, collections, forecasting, etc.

Are these systems used in themanagement of the business

CIL does practice BusinessControl System (BCS) both in itsAccounts (Financial analysis)and marketing (forecasting). All

its divisions are familiar with BCS

17

Does the firm have a computer softwareto manage its business operations. AreHR working on the system beenappropriately trained/skilled. Is the firmfamiliar with ICT development. Has anyinitiative taken in regard of implementation of ICT. If yes, how havethese initiatives helped in the businessgrowth

CIL does use computer softwarein the interest of more timelyand cost-effective managementof its business operations. HRmanagers are appropriatelytrained in terms of theinformation systems. CIL hasalready deployed custom-developed application softwarein warehouse, in the interest ofhaving an instantaneousenterprise-wide view of mission-critical variables of seniormanagement interest.its

18

Does the firm compare its performancei.e. business/production growth, salesgrowth, cost of production, profit growth,return on investment, market share, staffretention, etc with its competitors in themarket (industry indicators)

CIL compares businessperformance, ie growth in sales,profit, return on investment,market shares versus its industrycomparators.

19

Does the firm have a HR recruitmentpolicy. Is the recruitment policy followedwhen hiring employees. Are internalemployees given opportunities to fill in

job vacancies before advertising/freshhiring

CIL has a HR recruitment policyby which management hireemployees. CIL preferspromotion of suitable in-housecandidates to fill new vacanciesbefore it advertises.

20

Are there explicit job descriptions foreach employee

Every employee has a specificjob description approved by thedepartmental head.

21

Is there a performance appraisal systemin the firm. How often is performanceappraised in one year. Is there anincentive and reward policy based on

performance appraisal

CIL developed a semester-wiseperformance appraisal guidelineto evaluate employees, and suchevaluation is the basis for award

of incentives bonus22

Is there a promotion policy in the firm. Isthe performance linked to the promotionpolicy

Promotion is linked withperformance.

23

Are the salaries of the employees marketbased. How are the salary packages andincentives compared to other firms in thesector. How are the salary packages andincentives compared within the firm with

Salaries are market-based:packages and incentivesproposals are submitted by fieldmanagers comparing with similarindustry, then department head


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peer groups approves by keepingremuneration package in linewith the organization. Salarypackage and incentives of thepeer group are set in view ofnature of jobs.

24

Does the firm has policy of giving annualbonuses and other financial incentives toits employees

CIL gives two Festival Bonuses,and a performance bonus to itsemployees

25

Is human resource developmentconsidered important for enhancingproductivity of the firm

Management consider proactiveHR policies essential toachievement of high staffproductivity.

26

Does the firm have a training policy forits employees. Does the firm allocatesannual budget to training of employees

CIL organizes semester-wisetraining program for employeesto upgrade skills. The companymakes specific allocation in itsannual budget on account ofstaff training.

27

Are internal training programs organizedfor the employees; if yes, how often inone year. Which level of employees aretrained internally

Internal training is provided toemployees twice a year (in Juneand December). Staff inproduction, marketing andquality-control department are apriority in training.

28

Are employees sent on external trainingprograms; if yes, how often. Which levelof employees are sent on externaltraining

Employees trained by externalinstitutes such as BangladeshInstitute of Management (BIM),Dhaka. Operations staff receive

priority in such external training.29

Does the firm focuses on motivationalprograms for its employees. Does thefirm focuses on building staff morale andretaining its employees

The firm focuses on motivationalprogram such as CEO andDepartmental Heads visit thefield associates to build rapportand to boost morale of the fieldforces.

30

Is there any employment security offeredto employees.

CIL attaches great significance tostaff job security.

31

Are employees provided employmentgrowth opportunities/career paths withinthe firm

Employees are offeredopportunities for professionalself-advancement through the

route of external and internaltraining, on-the-job training.Promotion is alwaysmeritocratically determined.

32

Other initiatives: The best performer hasopportunity for responsibility ofdiversified business.

C Business Development/Support Mechanism (External)1 Did any government The Department of Agricultural


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regulation/policies/procedures supportthe growth of the enterprise. Yes/No,please elaborate

Extension (DAE) has helped CIL,recommending its products tofarmers.

2 Has any government intervention interms of support organizations, councils,consultative groups, task forces, advisory

bodies, incubators, export promotionfacilitation, etc facilitated thedevelopment of the firm

Governments subsidies have inparted helped.

3 Has the firm accessed/not accessedformal financing. How has this facilitatedin the business development

Firm has accessed institutionalfinance. Without such start-upfinancial intermediation, CILcould not have reached where itis now.

4 Has the firm benefited from any grantfund

CIL never got any grant moneyfrom any source.

5 Does the firm have access toinfrastructural facilities

CILs repacking unit is located inone of the BSCICs IndustrialEstates, located some 60 milesfrom the capital city of Bangladesh. This access toBSCICs fairly developedinfrastructure has certainlyhelped.

6 Has the firm benefited fromentrepreneurship development programsand other trainings offered byuniversities and training institutes

Yes, from BSCIC.

7 Has the firm benefited from any

technological network, fund or facilitation

CIL has benefited from the

Internet: it manages its entiresupply chain using the Internet8 Does the firm know about the ways of

working with bankers, accountants,attorneys, utility providers and taxauthorities. How does it handles this

CIL has retained services of aprofessional Chartered Accoutant(CA) so that its workings withbankers and accountants are onsolid footing.

9 Others: CIL organizes customer-education program, excursionprogram for distributors andretailers, foreign tour, specialreward for the best marketing

performance.

# QUESTION RESPONSEA Family Background1 Do you come from a family that owned a business Yes2 As a child, did you sell anything to earn money No3 Do you have a relative who is in business No4 Are you between the ages of 16 and 45 Yes


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5 Are you married or single Yes6 If you are married, is your spouse supportive of the

personal and financial risk involved in the businessNo

7 Were you the first-born child in your family No8 Have you suffered the death/divorce of a spouse or

parentNo

9 Do you belong to a middle class family Yes No10

Do you have a lot of family obligations/liabilities Yes No

B Personal Characteristics1 Are you inquisitive, creative, innovative and

aggressiveYes

2 Do you enjoy solving problems Yes3 Do you like to make things happen Yes4 Do you enjoy taking personal and financial risks Yes5 Do you consider yourself free and independent spirit Yes6 Do you have high need for achievement Yes

7 Do you take rejection personally Yes8 Do you like to move around a lot Yes9 Do you feel you are more lucky than hardworking Yes10

Do you use advice of external consultants No

11

Do you believe that you can control your own destiny No

12

Are you a consistent goal setter and result-orientedindividual

Yes No

13

Can you make quick decisions Yes

1

4

Do you have high energy level Yes

15

Do you follow through with implementation when adecision has been made

Yes

16

Do you believe in your own power to accomplishgoals

Yes

17

Do you have high moral and ethical standard Yes

18

Are you dedicated and committed to being inbusiness for yourself

Yes

19

Can you inspire and motivate other individuals Yes

20

Do you know how to multiply your talents Yes

21

Have you ever made an assessment of yourpersonality characteristics

No

22

Do you believe in the power and success of self-directed learning

Yes

23

Do you wake up happy 99% of the times Yes

2 Do you consider yourself ambitious No


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425

Do you provide a period during each day for thinking,studying, planning or relaxation

No

26

Do you enjoy power, control and authority No

27

Do you consider yourself enthusiastic, imaginativeand tenacious

Yes

28

Do you know how to protect your ideas from thieves Yes

29

Do you have a personal bank account Yes

C Business Experience/Knowledge atCommencement

1 Did you have specific experience in the area ofbusiness you undertake

Yes

2 Did you have personal funds to start up your ownbusiness

Yes

3 Did you have managerial skills when you started yourbusiness Yes

4 Were you willing to work longer hours for a minimalamount of money to set up your own business

Yes

5 Did you have a college degree or special skills andknowledge from a vocational or technical institute atthe start of your business

Yes

6 Did you know how to raise money for starting abusiness or expanding it

Yes

7 Did you know how to develop a business plan forpresentation to a group of investors/bankers

Yes

8 Did you know the four Ps of marketing Yes

9 Did you know how to explore for markets to sell yourproduct

Yes

10

Did you know how to determine break-even point.Do you know now

Yes

11

Could you read financial statements, project cashflows

Yes

D Business Practices/Knowledge at Present1 Do you know how to enter into a franchise, JV,

technical collaboration, strategic alliances, etc forbusiness growth

Yes

2 Are you familiar with current business and taxlaws/regulations and policies

Yes

3 Do you know how to get free publicity for yourproducts or service

Yes

4 Are you familiar with differences and benefits of aproprietorship, partnership and a company

Yes

5 Are you aware of the different government and non-government programs supporting SMEs in yourcountry

Yes

6 Have you benefited from any of these programs No


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7 Are you aware of different entrepreneurshipdevelopment training programs offered in thecountry. Have you benefited from them

No

8 Are you accessing formal financing Yes9 Can you read financial statements Yes10

Do you know what motivates customer behavior andbuying habits

Yes

11

Do you have experience in organization, planning,budgeting, personnel, marketing, advertising,administration, or evaluation

Yes

12

Are you respected by your peers at work and by yourfriends in other areas of your life

Yes

13

Do you constantly explore new technologies, marketsand business opportunities

Yes

14

Do you strive to learn for better businessmanagement practices and cost effectivemethodologies

Yes

15 Do you adopt e-business methodologies in yourbusiness No

16

Do you believe in employee training, motivation andretention

Yes

Case Study of Akbar Engineering Works for SME Survey

# Question ResponseA Basic Background Information of the SME1 Name of the SME

(organization)Akbar Engineering Works

2 Name of the Proprietor/CEO Md. Ali Akbar3 Date of Formation 19864 Legal Status Proprietorship5 Economic Sector Light Engineering (Sub-Contacting)6 Main Products Jute and Textile Mills Spare partsB Business/Operations/HR Strategies (Internal)1 Does the firm has a corporate

vision and mission statementVision: Contribute for the growth ofLight Engineering Sector in a greater

extent.Mission:Supply better quality of Spare parts to

Jute ant Textile Mills with competitivecost.

2 Has the firm chalked outshort term and long termobjectives/goals

Short Term objective:a) Collect more orders from Parentsenterprises for generating cash flow.


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# Question Responseb) Maintain Lead time for orderprocessing and delivery the output totheir parent enterprises.Long Term objective:a) Modernization of product

diversification.b) Increase volume of outputs.

3 Are annual action plansdeveloped in accordance withthese objectives? Are theemployees opinions andfeedback made part indetermining annualobjectives and targets? Doesthe firm practices the conceptof management byobjectives/corporateentrepreneurship?

a) There is no structured action plan forbusiness development.b) The management normally preparetheir action plans according to thedemand driven order from the parententerprises.

4 Is emphasis placed onindividual responsibility andreward based on results

The enterprise has individualresponsibility and reward based onresults.

Does the managementorganizes its human resourcein venture teams to deliver theobjectives

The management informed that toproduce such type of engineeringoutputs management / proprietor shouldhimself technically capable to produceoutput as per demand submitted /

collected from parent enterprises.Therefore, the management himselforganizes and mange on-the-job trainingfor human resource development at theshop floor level.

What is the organizationalstructure of the firm. Is it a flathierarchy? How is workmanaged amongst differentdepartments/units. Is therecoordination amongst differentdepartments and process of

operations? How is thismanaged?

Yes, the Enterprise maintains flat levelhierarchy through coordinating andparticipatory approach among manager,supervisor and worker level.

Does the firm believe ininnovation and creation of newideas for products andservices? How is thismanaged?

Yes, management has always maintainedthe innovative system for designing andprocessing of outputs as per demandfrom the parent enterprises.

Has the firm taken initiative todevelop new

The management informed that withouttaking initiative to develop new


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products/diversify into newproducts/businessopportunities to match marketneeds or to enter into newmarkets. Is this done on acontinuous basis. Get

examples of these initiatives

products / diversify into new products /business opportunities to match marketneeds or to enter into new markets, it isnot possible to survive in this competitivemarket.

What is the firms policy onpricing its products/services.Are competitors prices keptinto account when determiningprice levels

The management determines their firmspricing policy on its products keepingpricing information in the market andthereby fixing up the product price assub-contacting discipline.

Does the firm explore newmarkets, both domestic andinternational on a continuousbasis. What are its currentmarkets and how did the firmreach this status. Has the firmadopted e-marketing or e-business techniques. Does thefirm uses internet facilities forsharing its information andexpanding market potential

The enterprise has maintained itsdomestic market only. The Managementhas also plan to take initiative forpracticing ICT Network in their business.

What marketing strategies areused by the firm to sell itsproducts. Are the 4 Ps ofmarketing considered. Arethese strategies revised fromtime to time.

Yes, the enterprise always maintain thesystem and operation of 4Ps in itsmarketing policy from its productionprocess to delivery system.

Is the firm conscious of providing qualityproducts/services andmaintaining it. How is thisensured. Has the firm acquiredISO certifications

Yes, the enterprise has not acquired ISOcertification yet but without ensuring andsatisfying the quality of output theynever met the demand of their parententerprises. The enterprise alwaysensure guarantee certificate on qualityafter sales services.

Has the firm taken theinitiative to replace old plantand machinery/technologies ortechnological methodologiesfor improving production. How

were new technologiesacquired. Were the humanresource trained to use newtechnologies

a) The enterprises has no broad basedinitiative for changing machinery /technology but they have replaced theirsmall units of machine/ technology in theproduction line.

b) The enterprises adopted their changedin the technology process by changingcapa

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