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Economic Growth Through Small Scale Enterprises
Dr.Akmal Hussain
Newspaper: Daily Times
Dated: 20th June 2002

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.

My 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 SSEs

My research for an earlier ILO study shows that, small-scale enterprises in small towns of Pakistan face the following major constraints:

(i) 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.

(iv) 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 equipment.

(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.

(vii) Lack of capital for investment and absence of credit facilities.

(2) Overcoming the Constraints to the Growth of SSEs

Overcoming 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.

The 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.

The 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:

(i) Marketing

Provision 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

Having given 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.

Skill 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

The 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.

v) Credit

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.


The 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.

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