Business Environment of Sme in Bangladesh: an Empirical Estimation

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Introduction

In a country like Bangladesh, Small and Medium sized Enterprises (SME) plays a significant role in boosting up the overall health of the economy. Their contribution towards the economy includes generation of large scale employment, investment, improvement of indigenous skill and technology, promotion of exports and opportunities for entrepreneurship and innovativeness. Bangladesh has around 27,000 medium-sized enterprises and 150,000 small-sized enterprises (defined by the government of Bangladesh as registered enterprises). Different countries and organizations define SME’s in different way. The SMEs are defined on the basis of two criteria across the world: volume of turnover and number of person employed in a particular organization. Small firms cover a wide variety of firms ranging from the single proprietor business, independent business owners who employ a handful of workers. The central bank of Bangladesh defines any business having a “Net-Worth” of up-to Tk. 10 Million or number of employees between 10 to 50 persons as small and business having a “Net-Worth” between Tk. 10 to 100 Million, or employees between 50 to 100 persons as Medium enterprises (Ahmed at al, 2011) 1. The Government of Bangladesh has categorized SME into two broad classes: Manufacturing enterprise and Non Manufacturing activities. The International Consultancy Group (ICG) of the UK, in collaboration with the Micro Industries Development Assistance and Services (MIDAS), conducted in 2003 the National Private Sector Survey of Enterprises in Bangladesh with funding from the Department of International Development (DFID) of the UK Government, the United States Agency for International Development (USAID), the Swiss Agency for Development and Cooperation (SDC) and the Swedish International Development Cooperation Agency (SIDA).The survey found that the industrial structure of SMEs consisted of primarily wholesale and retail trade and repairs (40 per cent), production and sale of agricultural goods (22 percent), services (15 percent), and manufacturing only (14 per cent) 2. Trading based SMEs face less problems in comparison to the manufacture based SMEs. Trading has limited risks and ensures the return of the capital within short span of time. Therefore, in Bangladesh majority of the business people like to be involved in trading than manufacturing. But the manufacturing sector can create sustainable jobs at a faster rate than the population growth; promote competition and lower prices, supply vital agricultural inputs, and process primary agricultural products (Ahmed at al, 2011) 3. In spite of SME’s uncountable economic and social benefits, its growth in Bangladesh undergoes serious constrains. The restrictions faced by the SME’s mainly includes political instability, availability of raw materials and utilities, competent employees, access to the market, high transportation cost, technological support, attracting potential investors, overall export and fulfillment of social responsibilities. This research thus intends to discover the difficulties faced by the SME’s and direct it to a better business environment for its long survival.

Literature review

SME’S Condition in Bangladesh:

The economy of Bangladesh is at the crossroads. Rapid liberalization has put most existing Industries under severe strain because of their inability to compete with consumer goods being Freely imported after the withdrawal of quantitative restrictions and the drastic reduction of Import tariffs. For the fiscal year 2004-2005, the erstwhile 4-tier duty structure of 7.5, 15, 22.5 And 30 percent has been cut down to 3 tiers, 7.5, 15 and 25 per cent, the weighted average being 16.44 percent.

According to the budget speech of the Finance minister, this would cause an estimated Bangladesh taka (BDT) 11 billion (US 186 million) loss of revenue to the government, but there are no estimates yet about likely losses to the domestic trade and cosmetics...
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