Small scale industries have a low gestation period, are
labour intensive, and can generate a larger output per unit of investment compared
to the large scale manufacturing sector. Therefore the rapid growth of small scale
enterprises would not only accelerate economic growth in the medium term at relatively
low levels of investment, but would also increase employment for given levels
of GDP growth. The key strategic issue in accelerating the growth of SSEs is to
enable them to shift to the high value added, high growth end of the product market.
In this article on the basis of my research we will identify the key constraints
to the rapid growth of SSEs, and an institutional framework for overcoming them.
field visits to a large number of small scale enterprises (SSEs) in the Punjab
and Frontier province have revealed that they have considerable potential for
growth and high value added production such as components for engineering goods
or components of high quality farm implements for the large scale manufacturing
sector. Yet they are in many cases producing low value added items like steel
shutters or car exhaust pipes. This results in low profitability, low savings
and slow growth.
(1) Constraints to the Rapid Growth of
My research for an earlier ILO study shows that,
small-scale enterprises in small towns of Pakistan face the following major constraints:
Inability of small units to get vending contracts for the manufacture of components
from the LSM sector.
(ii) Due to lack of expertise in
production management the frequent inability to achieve quality control, and to
meet tight delivery schedules.
(iii) Lack of specific
skills like advanced mill work, metal fabrication, precision welding, all of which
are needed for producing quality products with low tolerances and precise dimensional
control. In other cases accounting and management skills may be inadequate.
Difficulty faced by small units in getting good quality raw materials, which often
can only be ordered in bulk (for which the small entrepreneurs do not have the
working capital), and from distant large cities.
(v) Lack of specialized
(vi) Absence of fabrication facilities such as forging, heat
treatment and surface treatment which are required for manufacture of high value
added products, but are too expensive for any one small unit to set up.
Lack of capital for investment and absence of credit facilities.
Overcoming the Constraints to the Growth of SSEs
the aforementioned constraints would involve providing institutional support in
terms of credit, quality control management, skill training and marketing. This
could be done by facilitating the establishment of industrial support centers
(ISCs.) located in specified growth nodes in selected towns where the entrepreneurial
and technical potential as well as markets already exist. Such support institutions
(ISCs.) while being facilitated by the government and autonomous organizations
such as SMEDA can and should be in the private sector and be market driven.
concept of the Industrial Support Centers is based on the fact that small scale
industrialists in Pakistan have already demonstrated a high degree of entrepreneurship,
innovation and efficient utilization of capital. The ISCs would provide an opportunity
for rapid growth to SSEs through local participation in extension services, prototype
development, and diffusion of improved technologies, equipment and management
procedures. The ISCs would constitute a decentralized system which ensures continuous
easy access to a comprehensive package of support services such as credit, skill
training, managerial advice and technical assistance. The ISCs could also be linked
up with national research centres, and donor agencies for drawing upon technical
expertise and financial resources of these agencies in the service of SSEs.
ISCs would be located in specified growth nodes where there exists a potential
for major rural industrialization activities.
The Industrial Support Centres
could have the following functional dimensions:
of orders from the large scale manufacturing sector for components, and from farmers
for farm implements. These orders would then be sub-contracted to the cluster
of SSI units that the ISC is supposed to serve. The individual order would be
sub-contracted to the SSI on the basis of the skills and potential strengths of
the unit concerned.
(ii) Monitoring and Quality Control
the sub-contract, the ISC would then monitor the units closely and help pinpoint
and overcome unit specific bottlenecks to the timely delivery and quality control
of the manufactured products. These bottlenecks may be specialized skills, equipment,
good quality raw material or credit.
(iii) Skill Training and Product Development.
training for technicians could be provided by the new good quality vocational
training institutes (VTIs.) that have emerged since the late 1990s, in the Punjab
under the auspices of the Vocational Training Council and similar VTIs. could
be established in other provinces. The ISC would provide specialized supplementary
skill training on its premises to workers in the satellite SSE units when required.
At the same time, it would provide advice on jigs, fixtures, special tools and
product development where required.
(iv) Forging and Heat Treatment Facilities
ISC's would establish at their premises plants for forging, heat treatment and
surface treatment. The SSI units could come to the ISC to get such fabrication
done on the products they are manufacturing on sub-contract, and pay a mutually
agreed price for this job to the ISC.
The ISC would provide
credit to the SSI's for purchase of new equipment and raw materials. In cases
where raw materials are available in bulk supply, the ISC could buy it from the
source, stock it on its premises and sell at a reasonable price to units as and
when they need the raw materials.
process of economic revival requires not only an increase in investment, but also
a change in the composition of investment to accelerate growth of employment and
exports. In the achievement of this objective, small scale industries with a market
driven institutional support system, could play a key role.