Opportunities and Challenges for SMEs

Opportunities and Challenges for SMEs

This article makes an effort to emphasize the significance and difficulties that SMEs currently face.

Importance of SMEs

Small and medium-sized businesses (SMEs) are thought to be a major development of an economy and the foundation of a nation’s GDP. SMEs are mostly a source of employment creation. Large companies are typically seen as the greater contributors to economic growth and foreign exchange profits, but currently, this viewpoint has altered as a result of nations like Korea, Taiwan, and Japan, the Small and Medium Enterprises (SME) sector, which has grown and strengthened its economies.

Goals of the thesis

This article aims to explore the problems and weaknesses of Pakistan’s Small and Medium-Sized Enterprises (SMEs) as well as prospective future prospects for the businesses. The goal is to analyze the SME market, emphasize the difficulties and barriers they experience, and propose solutions based on international best practices and recommendations from Pakistan’s Small and Medium Enterprises Development Authority (SMEDA). The data is based on preliminary research, primarily from current pertinent literature on the performance of SMEs and small-scale manufacturing firms over the past three decades in Pakistan. The method for analyzing small businesses is to look at the problems, difficulties, and initiatives taken by the Pakistani government. This essay addresses Pakistan’s present small business climate, which is troubling when viewed through the lens of the country’s manufacturing small company sector. The conclusion will be helpful to the government and policymakers in comprehending the intricate problems faced by Pakistan’s small enterprises in relation to SMEs and their future course.

Introduction

Small and medium-sized businesses (SMEs) are recognized by governments around the world, particularly in developing nations where they contribute to economic growth and stability through employment, the creation of new jobs, social cohesion, and development. SMBs are acknowledged as the core of any industrial structure in the majority of developing and developed nations.

In order to withstand the economic downturn, the SME sector is crucial. Small and medium-sized firms (SMEs) are responsible for between 90% and 95% of all businesses worldwide and produce between 60% and 70% of all employment opportunities, primarily in developing nations.

Prior to now, the crucial function of small and medium-sized businesses had not been taken into account. Only large corporations were expected to contribute to the nation’s economic expansion and play a significant role in building up significant foreign reserves.

Economists are optimistic about the future of SMEs, particularly in several Asian nations like Taiwan, Korea, and Japan whose economies depend heavily on SMEs.

Similar to this, SMEs play a role in the economic development of other nations, including Taiwan, Korea, Japan, and many more.

Although small and medium-sized businesses are crucial to the economic development of every state, their importance is undeniable, especially in emerging nations.

SMEs are essential for the economic development of developing countries in the current competitive and dynamic global context. Additionally, it is claimed that SMEs are regarded as strategically significant in nations in the Asian region. For instance, SMEs contribute significantly to the economy of Japan, where they account for 99.7% of firms, 71% of jobs, and 55.3% of GDP.

In China, SMEs account for 99% of all business establishments, provide 75% of all employment, and contribute 56% of GDP; in Indonesia, SMEs account for around 99.7% of all business establishments, produce 99.6% of all employment, and contribute 57% of GDP. About 90% of businesses in Malaysia are SMEs, which account for 56% of all employment and 32% of the country’s GDP.

Similar statistics indicate that SMEs in Malaysia provide 19 percent of Malaysia’s exports. An investigation was made in 2010 to assess the effectiveness of SMEs in Malaysia. Conclusion: SMEs make up more than seventy-six percent (76%) of the economy overall.

SMEs play a significant role in the region of South Asia’s economic growth and prosperity. For instance, in Nepal, SMEs account for roughly 98% of all enterprises and 63% of the value-added sector.

In Bangladesh, SMEs account for 50% of the industrial GDP and 82% of the workforce in that sector. Additionally, 30% of India’s GDP is contributed by SMEs. 

Additionally, SMEs play a significant part in the industry of India’s economy. In India, the SMEs sector had greater development than the country’s overall industrial sector. There were 12.8 million businesses in India in 2003 that employed about 31 million people. Additionally, it was estimated that the labor intensity in SMEs was four times higher than that of major corporations. After that, though, SMEs are thought to employ 59.7 million people across 26.1 million businesses.

This article mainly focuses on the Pakistani SMEs industry. Pakistan is a country in South Asia with a population of more than 200 million people. Pakistan is one of the developing countries whose economies are influenced by many business sectors, both in terms of its contribution to GDP and labor force employment.

The government of Pakistan established the “Small and Medium Enterprises Development Authority” to promote SMEs due to the significance of trade and commerce (SMEDA). SMEDA’s primary duty is to create policies that would support and assist SMEs. Additionally, it aids in the delivery of education and training to entrepreneurs.

According to Pakistani economic statistics, the 2017–18 per capita income is $1641, based on preliminary results from the population census 2017 that was conducted in March 2017. (Ministry of Finance Pakistan, 2018). Further, it is noted that Pakistan’s economy is primarily driven by three sectors: agriculture, industry, and services.

The primary economic sector is thought to be the agricultural industry. This sector, which is the cornerstone of the rural economy and a crucial component of the nation’s financial system, contributes 18.9% of the country’s GDP and 42.3 percent of employment, according to Pakistan Economic Survey (2017–18). (Pakistan Ministry of Finance, 2018).

Consequently, ensuring food security and aiding in the reduction of poverty with the aim of increasing overall economic development The Pakistani government has also made a number of measures to increase the productivity and efficiency of the agricultural industry (Jabeen, 2014). According to Pakistan Economic Survey (2017–18), the manufacturing sector as a whole accounts for 13.6% of the nation’s GDP.

In Pakistan, the industrial sector is divided into four sub-sectors: manufacturing, gas distribution, construction, electricity generating, and mining and quarrying. Each industrial sector’s subsector has a unique function and economic significance.  

The government has started extensive policy measures to put the restoration of the industrial sector on track (Pakistan Ministry of Finance, 2018). Numerous academics have noted that global economic patterns are changing from the agricultural sector to manufacturing and from manufacturing to services, including Fuchs (1980), Kuznets (1957), and Clark (1941).

According to Jabeen (2014), the share of the services sector in Pakistan’s economy has been growing over time relative to other economic sectors. The services sector is thought to be the largest and fastest-evolving sector in the global economy today, contributing the most to GDP and creating the majority of jobs worldwide.

In the past two years, the services industry has grown by 6.43 percent, according to Pakistan Economic Survey (2017-18). (Pakistan Ministry of Finance, 2018). Comparatively to the agricultural and manufacturing sectors, the services sector is expanding more quickly.

Due to its close ties to the manufacturing and agricultural sectors of the economy, the service sector contributes essential and necessary input to both of these industries. In a similar vein, the service sector significantly contributes to economic expansion, commerce, and job creation. The service industry consistently supports and significantly contributes to Pakistan’s economic growth, acting as a backbone and playing a critical role.

All of these statistics demonstrate how crucial SMEs are to Pakistan’s economic growth. There is still little study on small businesses, and it is advised that it is crucial in Pakistani settings to conduct more entrepreneurship research. Finally, this study adds to the body of knowledge already written about small firms.

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