There may be a number of approaches to making policies for small and medium-sized enterprises (SMEs).
A study conducted by David Smallbone et al. (1995) summarised such approaches from a historical perspective in the 1980s and 1990s.
They identified them as: A political economy approach under which policy measures have been introduced on a piecemeal basis in response to pressure from small business lobby groups, short term fluctuations in macroeconomic conditions, and political expediency in contrast to a wider strategy for developing the SME sector.
According to Birch P (1979), contribution to employment generation by the SMEs together with government emphasis on the creation of an enterprise culture in the UK led to a series of measures encouraging the formation of new businesses. This is termed as an untargeted approach to promote SME development.
In the 1990s, there was a significant change in the policy approach where greater emphasis was placed on the increased competitiveness of SMEs, along with increased priority placed on supporting established businesses.
Finally, through changes in the institutional support structure, the SME sector came to be highlighted as an important partner in the overall process of national economic development, particularly as an important source of innovation, as a seed-bed of development of large scale enterprises.
At the end of this transition process in the design of SME policies, this was the conclusive agreement that was reached: There is to be a serious attempt to maximise the potential contributions of SMEs to contribute to economic development.
Thus a proactive and comprehensive approach is certainly required, because of huge differences within their growth due to their extreme heterogeneity.
Rationale and objectives of SME Policies
The overwhelming presence of SMEs in the industrial sector and non-farm activities (NFAs) is a normal phenomenon.
Their role and contribution in the process of economic growth and social progress is on the global record.
Studies and research galore to document them empirically was conducted; to quote some broad evidence, a few statistical figures are presented in this context.
An OECD (2015) study highlighting the contribution of SMEs in developed and developing countries showed that SMEs contribute to over 55% of GDP and 65% of total employment in high-income countries.
In low-income countries, they contribute over 95% of industrial enterprises, 60% of GDP and over 70% of total employment.
They contribute over 95% of total employment and about 70% of GDP in middle-income countries.
Hence, not much needs to be said to advocate for policies that promote the growth of the sector. However, it is important to clearly focus on the objectives to be pursued by the types of policies and strategies formulated.
Given the nature and extent of SME development in an economy, the promotion of entrepreneurship and increasing the conversion rate of potential entrepreneurs into active businesses may be a priority.
Achievement of this objective critically depends on the changes in social attitudes and values towards entrepreneurship particularly in developing economies.
Next, a related focus has to be on the problems faced by start-up firms so that they can survive, grow, and sustain.
Some sub-sectoral targeting within the SME sector may also be important in the context for every country.
For example, in Bangladesh, prioritising faster growth of the manufacturing component needs to be emphasised to enhance overall manufacturing growth which directly impacts overall industrial development and national economic growth.
Against this background, let us now focus on the SME development strategies required to boost the growth and dynamism of the sector.
Development strategies of SMEs
One of the most important thumb rules of SME development policies and strategies has to be country and context specific, though lessons may be drawn from the best practices available elsewhere. Each country must have its own challenges, priorities, and opportunities.
Next, resources available for implementation of the policies and sound assessment of the overall capacities especially in developing countries may be another important guideline.
Based on the experiences of pioneering developed countries (i.e. SME development initiatives taken by the European countries in the 1980 and 1990s), developing countries can make their choices, again by carefully assessing their own contexts.
A successful SME development strategy requires a 'cross-cutting' strategy which consists of the following ingredients: (a) Political will and ability of the government to implement sound macroeconomic policies; (b) capability of the stakeholders to develop conducive microeconomic business environments, and (c) ability of SMEs to adapt and implement competitive operating practices and business strategies (which critically depend on their organisation and managerial capacities).
Thus, this SME development strategy must be integrated into the broader national development strategy, and/or particularly that of poverty reduction and overall growth strategies of the emerging countries, such as Bangladesh.
Dialogues and partnership between the key stakeholders (i.e. public sector, private sector, and civil society is needed to ensure and sustain long-term ownership of SME strategies; and make them effectively implementable (by better understanding and addressing SME needs, and making them more credible and sustainable, especially in developing countries).
Investments in physical infrastructure and economic/business development services (EDS), and more importantly in the implementation capacity of local level administrations and support structures determine the efficacy of the policy implementation process.
Access and integration of SMEs into local, national, regional, and global markets require sustainable infrastructure facilities and the effective delivery of EDS to SMEs in all areas, including rural and remote areas where SMEs are spread apart.
Yet another important dimension of an integrated SME policy making is to empower women to participate in the SME development process as women account for a considerable share of private sector activities and contribute to sex-based poverty alleviation.
The Bangladesh scenario in light of the experiences of developed countries
SME policy making in Bangladesh is a top-down process hardly involving all concerned stakeholders. The line-ministry, the Ministry of Industries (MI) sometimes constitutes a National Committee of the MI's own choice, not representing professional participation and /or that of SME specialists.
Predominantly, the bureaucrats and the running president of the National Association of Small and Cottage Industries of Bangladesh (NASCIB) represents the private sector. It should be broad-based to help formulate a nationally integrated SME policy.
Yet another compulsion in making such a policy is to empower women to participate in the SME development process as women account for a considerable share of private sector activities, especially running SME enterprises. In this way, women contribute to gender-based employment creation and poverty alleviation.
SME policy making thus tends to remain as a top-down process. Instead, it should essentially be a bottom-up process to benefit SME owners operating in the rural and remote areas where SMEs have spread apart and contribute to industrial dispersion.
SME development policies and strategies should be nationally integrated as it cuts across multiple stakeholders, and requires concerted actions by the public and private sectors.
SME development strategy needs to be mainstreamed into national policies and into the national framework which is important to support SME development.
As macro and microeconomic environments influence market signals, building an appropriate institutional set-up is needed.
Enhancing SME competitiveness requires the creation of institutional set-up, legal, proprietary ownership, and most importantly human capital and a sustainable pro-SME environment.
Alongside national governments, donors have much to contribute to the process of capacity building of the emerging countries to help expedite the learning process by sharing good practices.
They can technically and financially assist emerging countries in overcoming policy implementation barriers. Most importantly, they can also ensure market access to help improve the competitiveness of SMEs.
The author is a former professor and chairman at the department of Economics, University of Dhaka