SME’s form the bedrock of Sri Lanka’s economy. As the economy moves from low- to mid-income status, the economic relevance of SME’s will also grow further, with SME’s accounting for an increasing share of both gross national income and employment. Ensuring that SME’s have access to high quality business development services is central to supporting their growth, and by extension, the growth of the whole economy.
Due to the continuous and fierce struggle to preserve their narrow profit margins, small-scale entrepreneurs are often locked in their routine work and unable to introduce innovative improvements to their products and processors and cannot look beyond the boundaries of their firms to capture new market opportunities.
- Individually, SME’s are often unable to capture market opportunities which require large production quantities, homogenous standards, and regular supply.
- They experience difficulties in achieving economies of scale in the purchase of inputs (such as equipment, raw materials, finance, consulting services, etc.)
- Small size constitutes a significant hindrance to the internalization of functions such as training, market intelligence, logistics and technology innovation all of which are at the very core of firm dynamism.
- Small & Medium scale prevents the achievement of specialized and effective internal division of labor that fosters cumulative improvements in productive capabilities and innovation.
Provide networking assistance to SMEs so that they can escape these limitations through co-creative efforts. For this purpose, we should create active SME consortiums & networks.
- Mentoring & Training
- Business Development Services
- The term ‘consortium‘ refers to a group of firms that cooperate on a joint project – like joint raw material purchase , joint marketing through common brand, cost sharing , capacity utilization , joint participations in exhibitions & marketing tours etc. thereby complementing each other in order to overcome common problems, achieve collective efficiency and conquer markets beyond their individual reach. Market access success is key to technological up gradation. Once they know the market, they will themselves invest in upgrading their processors in order to tap the markets.
- The term ‘cluster‘ indicates a sectoral and geographical concentration of enterprises which produce and sell a range of related products and are, thus, faced with common challenges and opportunities.
Once they are convinced of the huge market, they also understand that individually they will not be able to target these markets & may not be able to supply also in large quantities.
Based on these facts, they will agree to work together on joint marketing under a common brand & order sharing concept, the model of which differs from cluster to cluster & even from consortium to consortium within the same cluster.
- Economies of scale – such as joint sourcing of inputs/raw materials and joint marketing efforts. This reduces cost.
- Economies of skill – hire one professional manager for the group who is competent to liaise with buyers and manage contracts. This individual should be able to communicate in English.
- Quantity – meet demand for large quantity orders.
- Variety – offer a wider range of products than is possible individually with information buyers want.
- Learning – hands on experience of the advantage of business to business co-operation.
- Cost Sharing – such as cost of booth, travel, marketing for a trade fair or buyer meetups.
- Spot light – can generate attention through media and buyers.
Threat to SMEs and the Solution
What will happen to Small & Medium Enterprises ( SME’s ) in case big companies & import products enter Sri Lanka in a big way. Will the SME’s , which generates large employment, collapse ? Will the crime rate go up due to unemployment? Will the social fabric of Sri Lanka get disturbed?
One of the probable solutions is that SME’s need infrastructural, technological & marketing support. Cluster development approach should not run in isolation, but as a science backed by real time data analysis with believable fact & figures on local/international market size.
The cluster development approach envisages consortium initiatives as components of a broader spectrum of support measures to SMEs. This is because such initiatives are frequently much more effective and sustainable if they involve the entire range of actors with whom the SMEs commonly interact. Among such actors are:
- Suppliers of raw materials , plant & machinery
- Consumers of goods and services from the SMEs Testing laboratories
(both private and public)
- Research and development institutions
- Industrial Associations
- Technical , Marketing and management consultancy organizations
- Training Institutions
- Regulatory bodies enforcing/monitoring rules and regulations
- Local Government
- Financial Institution
Business Development Services (BDS) for the Micro, Small & Medium businesses
Business Development Services (BDS) are services that improve the performance of the enterprise, its access to markets, and its ability to compete in global market. Business Development Services include training, consultancy and advisory services, marketing assistance, networking, information, financial services, technology development and transfer, and business linkage promotion.
A distinction is sometimes made between “operational” and “strategic” business services.
Operational services are those needed for day-to-day operations, such as information and communications, management of accounts and tax records, and compliance with labor laws and other regulations.
Strategic services, on the other hand, are used by the enterprise to address medium and long-term issues in order to improve the performance of the enterprise, its access to markets, and its ability to compete. For example, strategic services can help the enterprise to identify and service markets, design products, set up facilities, patents advisory and seek financing.
However, there is a long way to go still. It is just the beginning of a journey !!!