Small Enterprises with reference to the small-scale manufacturing industries in Pakistan have grown at a rate of more than eight percent during the Seventies and the Eighties. The rapid growth in the presence of the heavily subsidized large-scale manufacturing sector suggests relatively higher levels of efficiency in the small-scale industries but surprisingly enough very few small enterprises have graduated to medium and large-scale enterprises. The inability of the small firms to graduate raises serious questions about the level and the sources of efficiency in the small-scale industries. While some of the small-scale industries may be efficient because the divisibility of technology and the processes leads to specialization in sub-processes at the small scale, yet the efficiency in a number of industries may be more apparent than real; the inefficient enterprises may have survived just by avoiding taxes or exploiting labor. Obviously, such firms would find it difficult to expand to the size where tax and labor regulations would apply. On the other hand the failures of even the efficient firms to graduate to medium or large firms indicate that the growth of small industries may have been constrained by some extraneous factors as well.
A number of studies have examined different aspects of small enterprises in Pakistan. The main focus of these studies has been on labor absorption, training facilities for technical workers, and availability of technology. The sources of efficiency, management practices, and relationship marketing in small enterprises have rarely been examined in these studies.
This study makes an attempt to analyze the different aspects of small-scale firm in Pakistan. Considering the scarcity of resources and growing unemployment problem, various five-years plans have accorded the highest priority of the expansion of the small scale industries and the self reliance objectives repeatedly put forward in the annual development plans and other policy documents but it appears hollow as the local capability has been ignored. A special feature of this study in an in-depth analysis of government policies, present status of small indigenous firms, general outlook of the enterprises, their relationship with vendors (both subcontractors and suppliers) and developmental institutions. This study highlights various problems of small-scale industries and examines the level and sources of efficiency and constraints on the growth of small firms in Pakistan. The viability of some marketing activities and inter-firm relationship have also been examined by taking into consideration for fact that small enterprises were exempted from the payment of sales/service taxes and excise duties in the past and that the labor laws are still not applicable to small producers which tend to reduce the wage costs and allow the entrepreneurs to exploit the workers in terms of work for longer hours.
A pluralistic approach is adopted to design the research work and with a view to analyzing the factors involved in the enterprise development. This covers the two phases; consisting of in-depth survey of thirty units located in a cluster (Mian Channu), and three detailed case studies, one each micro, small, and medium categories. These three cases were further analyzed by adopting SWOT analysis. This study identified the possible factors for success that are: Good Management, Consistent government policies and satisfactory support, Marketing factors, Entrepreneur’s level of education, training, and prior experience in business, Access to finances and level of initial investment, Entrepreneur’s Personal qualities and traits such as self-confidence, charisma, perseverance, local reputation, and trustworthiness.
In this statistical tables along with detailed case studies and analysis with figures and graphs provided for quick appreciation of the problems have clearly explained the existing situation hard to deal with these industries that identified the following critical variables and influencing factors:
The most serious problems are those related to finance, product marketing, and commercial bank reluctance to offer loans to small enterprises that cannot provide security.
Systematic government policies and commitments to exploit the potential of the small scale industries, state political stability and cultural effects play very important role in small firms not only for their upward growth but also for their survival.
It may be true that chronic shortages of working capital reflect poor production planning and/or other serious management deficiencies. But the fact is that if no help is forthcoming, nothing can be done to save an operation from closing down. Research findings show that many such firms must depend on sales in order to get sufficient funds to pay their workers and to acquire raw materials.
The findings of the study reveal that educated and uneducated as well as trained and untrained entrepreneurs had no significant difference in terms of availing facilities and incentives. However, entrepreneurs with some education and training were better in terms of entrepreneurial vision and future plans.
The demand for export commodities is highly competitive both in price and in quality of the product. Small-scale industries in Pakistan on their own simply cannot compete successfully with more established competitors. There is a case for adopting a positive export policy in this regard. Subcontracting is one particular area, seldom present in the Pakistani setting, which demands close attention to reduce manufacturing cost with the availability of skilled labor at low wage rates for serial production and maintaining standards of other developing countries competing for engineering exports. This would definitely be a major cost advantage to exporters of similar products in Pakistan.
Finally, seasonal demand, customer credit, delivery deadlines, and keen competition all add up to hinder the small operator in marketing efforts, But the roots of marketing problems are mainly due to poor designs, which are both inefficient and inartistic, poor quality of finished products due to use of cheap quality raw material, and a lack of quality control. This is further aggravated by a lack of after-sale service and a lack of precision due to inadequate equipment and shortage of skilled and trained personnel. Above all, the entrepreneur’s competence in management, and skill in marketing are the major constrains to understand these related issues of their growth, which unless the state gives a helping hand and participates, with fullest commitment, cannot succeed in isolation.