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ContentSerial no. Title Page no.

1 Summary

2 History of small and medium enterprises (SME)

3 Introduction

4 Practice of SME in different countries

5 SME in Bangladesh

6 Present situation of SME in Bangladesh

7 Changes in the size and structure of SME over time

8 Identifying the successive factors of SME

9 Table-1

10 Table-2

11 Identifying successive factors of SMEs in Bangladesh

12 Table-3

13 Table-4

14 Conclusion

15 Reference

Summary

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Small and Medium Enterprises (SMEs) are accounting for 25 percent of GDP, 80 percent of

industrial jobs, and 25 percent of the total labor force in Bangladesh even though the

prospective sector gets negligible facilitation from different support service providers. There

are various constraints that hinder the development of SMEs in Bangladesh, such as lack ofmedium to long-term credit, limited access to market opportunities, technology, and expertise

and business information. Lack of suitable incentives, inefficient and limited services from

relevant government agencies as well as poor capacity of entrepreneurs are other reasons for

the slow growth of SMEs. So, the present study has been undertaken in order to identify the

factors contributing to the success. The study has collected and used only primary data; and

consulted available literature for designing the questionnaire and study. The study has 10

variables contributing to the success of entrepreneurs. The study has identified factors

responsible for success of Entrepreneurs of SMEs: Relationship Factor; and Organization

Factor in order of magnitude. The study has suggested entrepreneurs of SMEs to consider

these factors while developing policies and strategies for SMEs.

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History of small and medium enterprises (SME)

Small and medium enterprises, short form (SME), are the forms of entrepreneurship business.

Since the dawn of human race, we can see that to fulfill ones need, we have to depend on

other. Therefore people began to exchange things with one another. Some people had

something large amount, so he they shared it with other and fulfill others need. So sharing

were the main business at the initial stage of earth and human survival.

Then money was introduced. People become conscious about the value of different things

according to their availability. In this part, people shared different things in exchange of

money. Different things were supposed as money then, for example, salt, peanuts etc. So we

can say that when people introduced money or the medium of exchange and began to use

them to exchange with things, self employed businesses and later on, enterprises were

introduced also.

Therefore, the history of SME is so rich to describe in short. It is related with our origin of

survival and development of earth. SME are liberal and low risky type of businesses, and so

they are getting populated day by day.

Introduction

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Small and medium Enterprises are the businesses that are organized by individual personal

effort; sometimes two or more people may be involved. The abbreviation of SME was first

used by European Union and World Bank.

Sometimes these businesses can be turned into large companies or public limited companies.

Now a day it is practicing almost every country in the world.

Small businesses need a little capital to establish and the most amazing part is that owner

owns all the profit from it. But the worst part is that all liabilities and losses also have to be

taken by the owner.

Bangladesh is developing country with a huge population. Most of the people are under the

poverty line. Therefore this type of business is preferable for them. There are no hard and fast

rules for establishing these types of businesses. So SME is easy and suitable for Bangladesh.

Practice of SME in different countries:

In Europe:

EU member states have had individual definitions of what constitutes an SME. For example,

the definition in Germanyhad a limit of 255employees, while in Belgiumit could have been

100.

In July 2011, the European Commission said it would open a consultation on the definition of

SMEs in 2012. In Europe, there are three broad parameters which define SMEs: micro-

entities are companies with up to 10 employees; small companies employ up to 50 workers,

whilst medium-sized enterprises have up to 250 employees. SMEs are also defined as firms

with either revenue (turnover) of 1050 million or a balance-sheet total of 1043 million.

In India:

In India, SME is divided into-

Small enterprise

A small enterprise is one where the investment in plant and machinery is more than

Rs.25 lakhs but does not exceed Rs.5crore.

Micro-enterprise

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A micro-enterprise is one where the investment in plant and machinery (their original cost

excluding land, building and items specified by the Ministry of Small Scale Industries in its

notification No. S.O. 1722(E) dated October 5, 2006) does not exceed Rs.25lakh.

Medium enterprise

A medium enterprise is one where the investment in plant and machinery is more than

Rs.5 crorebut does not exceed Rs.10 crore.

The definition of MSMEs in the service sector is:

Micro-enterprise: Investment in equipment does not exceed Rs.10 lakh

Small enterprise: Investment in equipment is more than Rs.10 lakh but does not

exceed Rs.2 crore

Medium enterprise: Investment in equipment is more than Rs.2 crore

The Indian micro- and small-enterprises (MSEs) sector plays a pivotal role in the country's

industrial economy. It is estimated that in value, the sector accounts for about 45 percent of

manufacturing output and about 40 percent of total exports. In recent years, the MSE sector

has consistently registered a higher growth rate than the overall industrial sector. The major

advantage of the MSE sector is its employment potential at a low capital cost. According to

available statistics (4th Census of MSME Sector), the sector employs an estimated 59.7

million people in 26.1 million enterprises;labor intensityin the MSE sector is estimated to be

nearly four times that of large enterprises.

In United States:

In theUnited States, the Small Business Administration setssmall business criteria based on

industry, ownership structure, revenue and number of employees (which in some

circumstances may be as high as 1,500, although the cap is typically 500). Both the US and

the EU generally use the same threshold of fewer than 10 employees forsmall

offices (SOHO).

In Kenya:

In Kenya, the term is SME (for "small, medium and micro enterprises"); elsewhere in Africa,

MSME stands for "micro, small and medium enterprises". Maximum number of employees

=? Maximum revenue or turnover

http://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Labor_intensityhttp://en.wikipedia.org/wiki/Labor_intensityhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Small_Business_Administrationhttp://en.wikipedia.org/wiki/Small_businesshttp://en.wikipedia.org/wiki/Small_businesshttp://en.wikipedia.org/wiki/Small_officehttp://en.wikipedia.org/wiki/Small_officehttp://en.wikipedia.org/wiki/Kenyahttp://en.wikipedia.org/wiki/Kenyahttp://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Labor_intensityhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Small_Business_Administrationhttp://en.wikipedia.org/wiki/Small_businesshttp://en.wikipedia.org/wiki/Small_officehttp://en.wikipedia.org/wiki/Small_officehttp://en.wikipedia.org/wiki/Kenya

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In Canada:

Industry Canada defines a small business as one with fewer than 100 employees (if the

business is a goods-producing one) or fewer than 50 employees (if the business is service-

based), and a medium-sized business as one with fewer than 500 employees.

In Nigeria:

The Central Bank of Nigeria defines small and medium enterprises in Nigeria according to

asset base and number of staff employed. The criteria are an asset base between N5 million

and N500 million, and a staff strength between 11 and 300 employees.

In Israel:

In Israel, a business is considered small if it has no more than 50 employees. A medium

business holds among 50 to 250 workers.

SME in Bangladesh

Until recently, public policy did not distinguish medium enterprises as a separate category

and instead lumped it with large enterprises. Thus,industrial policies prior to 1999 divided the

industrial sector into three categories large,

small and cottage. The cut-off limit of these size

categories was determined on the basis of the size

of fixed assets. Thus, the Industrial Policy 1991

defined Small Industry as industrial

undertakings whose total fixed investment

excluding the price of land, expenses for inland

transportation and commissioning of machinery

and appliances, and duties and taxes, was limited

to Tk. 30 million (US $800 Thousand) including

initial working capital, while the upper limit on the

investment level in Cottage Industry was Tk.

500,000 (US $13 thousand).

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In contrast, the Industrial Policy 1999 distinguished medium from large industry and defined

the size categories in terms of both capital and employment size. Thus, Large Industry was

defined to include all industrial enterprises having 100 or more workers and/or having a fixed

capital of over Taka 300 million (US $6 million). Medium industry covered enterprisesemploying between 50 and 99 workers and/or with a fixed capital investment between Taka.

100-300 million (US $2-6 million). Small Industry meant enterprises having fewer than 50

workers excluding the cottage units and/or with a fixed capital investment of less than Taka

100 million (US $2 million). Cottage Industry covered household-based units operated

mainly with family labor.

However, in the latest industrial policy announced in 2005, significant changes have been

brought about in the definition of the various size categories. In the Industrial Policy 2005, a

distinction has been made between manufacturing and non-manufacturing enterprises. In the

case of the manufacturing enterprises, sizes have been defined in terms of the value of the

fixed assets while in the case of the non-manufacturing enterprises the cut-off line has been

identified in terms of employment size.

Thus, large industry is now defined as units with fixed capital of more than Tk. 100 million

(US $1.6 million) excluding the value of land and building while non manufacturing largeenterprise is defined as units having more than 100 workers. Medium industry is defined as

units with fixed capital of Tk. 15-100 million (US $246 thousand - $1.6 million) excluding

the value of land and building while non 4 manufacturing medium enterprises are those with

employment size between 25 and 100 workers. Manufacturing enterprises with fixed assets of

less than Tk. 15 million excluding the value of land and non-manufacturing enterprises with

fewer than 25 workers are to be treated as small enterprise. While the definition of SME has

changed overtime in different Industrial Policy pronouncements, Bangladesh Bureau of

Statistics (BBS), which is the prime national organization responsible for generating and

compiling various types of statistics in the country has been consistently using an all together

different classificatory scheme. Thus, BBS defines enterprises having 10-49 workers as

Medium industries while those having 50 or more workers are identified as Large

industries. For industrial GDP data, the medium and large industries are lumped together

under Large category. The rest of the industrial enterprises including cottage industries are

grouped under the Small category.

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Present situation of SME in Bangladesh

Because of the definitional problems mentioned above, information on SME is not readily

available in Bangladesh. BBS conducts annual surveys of the manufacturing sector, called the

Census of Manufacturing Industry (CMI), but as mentioned earlier the BBS lumps under the

Large category information on all units with 50 or more workers and hence the information

cannot be separated in most cases for the 50-99 workers size category, which is the more

commonly used cut-off size limit for medium enterprises. Moreover, there is quite a bit of

backlog in the processing of the CMI data. The latest available published CMI report is for

the period 1999-2000. The prime agency for the promotion of small and cottage industries in

Bangladesh is the Bangladesh Small & Cottage Industries Corporation (BSCIC). BSCIC is

required to maintain information and data bank on small and cottage industries in Bangladesh

and accordingly the agency carries out nation-wide surveys of the sector at some time

intervals. However, the latest such survey by BSCIC was conducted in the late 1980s and it

was based on the definition of small and cottage industries given in the earlier industrial

policies that used capital rather than employment size as the cut-off limit. Fortunately, BBS

carried out a nationwide census of all non-farm economic activities in 2001 and 2003 and a

preliminary report based on the census has been made available recently. The report presents

data by employment size category but there is no information on the size of fixed assets. The

previous such national census of non-farm economic activities was carried out by the BBS in

1986. Information available from the recent BBS report has been presented in table-2. The

following appears to be the main features of this sector in Bangladesh:

Changes in the size and structure of SME over time

A comparison of the data from the Economic Census 2001 & 2003 with the data from the

previous census of 1986 (Table 3) suggests that the importance of the SME sector has

changed marginally during the inter-census period.

The share of SME in the number of establishments in the 10+ size group has slightly

declined from 95.6% in 1986 to 93.4% in 2001/03 while the share in employment

came down from 49.8% to 43.9%.

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The urban SME employment grew at an annual rate of 4.6/ raising the share of urban

SME in the employment in 10+ size group from 57% in 1986 to 63.8% in 200.

Non-manufacturing SME grew at a higher rate during the period causing the share of

manufacturing n SME employment to decline from 41, 3% in 1986 to 37.5% 2001/03.

Identifying the successive factors of SME

Successful Entrepreneurship is not an unmixed pleasure and blessing. The success of

business depends not only internal and external condition; but also on the capability and

quality of entrepreneurship. The study has consulted different literatures (Khan, 2000; Hold,

2002; Khanka, 2001; Ahmed, 1994 and www.google.com) for identifying the Key factors for

successful entrepreneurship. It has collected opinion of 23 entrepreneurs of SMEs on these

factors on five point liker scale. The study has expressed the collected opinions of the sample

entrepreneurs in terms of percentage weight as follows:

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Table-1: Size and Composition of SME in 1986

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Source: Economic census 2001 & 2003 national report (Preliminary), Bangladesh Bureau

of Statistics July 2005

Table-2: Size and Composition of SME in 2001/2003

Micro

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Micro

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a business, ability to take risk, professional network, and business management skills are key

successful factors for entrepreneurship. This implies that these entrepreneurial factors are

most important for entrepreneurship. The entrepreneurs have to concentrate more on to these

entrepreneurial factors in order to have a profitable niche in the competitive businessenvironment.

Identifying successive factors of SMEs in Bangladesh

Apart from entrepreneurial factors as have been mentioned following the success of an

entrepreneur depends on both internal and external factors. A Study (Ahmed 1981) has

segmented the various factors for the success into four categories. They are: a) psychological

factors,b) socio-cultural factors,c) personal factors, and d) opportunity factors. A summaryof the success factors of entrepreneurs based on available literature is shown as follows:

Table-3:Key factors of success for Entrepreneurship

Factors Most

Important

Important In Difference Less

Important

Least

Important

Prior work experience 508 30 - 12 -Lesson learned from

failure

48 20 11 05 16

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Own work 41 30 03 18 8Professional Network 36 41 12 06 05Availability of

financing

36 30 14 12 08

Lack of ability to takerisk

48 30 12 06 04

Ease of management 58 18 10 08 10Difficulty in raising

capital

56 16 08 08 12

Business management

skill

36 40 06 12 08

Knowledge about how

to start a business

56 26 04 04 10

Industrial and market

knowledge

30 56 - 14 -

Pressure to keep a

traditional and steady

job

32 30 20 18 -

Note: Data compiled by the researcher

On the basis of available literature and counseling with the experts, the present study has

selected a set of factors (shown in the table under section 1.3) that influence the success ofentrepreneurs of SMEs. The study has collected opinion of 23 sample entrepreneurs of SMEs

on five point liker scales; and employed multivariate technique Varimax Rotated Factor

Analysis for analysis of data. So, the analysis is subject to correlation analysis, principal

component analysis, rotated factor analysis, and finally factor score for ranking the factors

derived from principal component analysis.

Table-4: Successive factors of Entrepreneurship

Factors R.Cantillon

75

D.

Mcleland

61

A.Rahman

79

S.U.

Ahmed

81

J.A.

Hornday

82

J.J.

Koo

89

Risk taking

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Innovativeness

Well-

Coordinates

Self awareness

Self

confidence

Personal

initiatives

Knowledge

and

Information

Dynamism Long- term

involvement

Perseverance

and

determination

Opportunity

seeking

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Summarizing the findings of various major studies the SMDF lists the following important

positive changes taking place in the situation of the SMEs in Bangladesh:

SMEs have diversified their activities

Entry and exit into the sector has become easier

The RMG industry has contributed significantly to SME development by providing

them with orders for accessories and packaging materials

The development of the footwear industry has increased subcontracts to SMEs

Small-scale entrepreneurship has grown significantly in agro-processing in general

and in poultry in particular.

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Conclusion

The inference of the study is confined to the economies of SMEs in Bangladesh. The present

study has been an explorative one. It has tried to explore the variables contributing to the

success of entrepreneurs of SMEs by employing sophisticated multivariate technique-

Varimax Rotated Factor Analysis. The study has found following factors as significant for

entrepreneurial policies and strategies:

Factors Responsible for Success of Entrepreneurs of SMEs:

Relationship Factor; and

Organization Factor.

The study has suggested present and future entrepreneurs to take above factors into

consideration while making policies and strategies for SMEs. This is expected to give

entrepreneurs a competitive and sustainable advantage of understanding and doing business

in the globally competitive business.

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Referance

Determinants of Success and Failure of Entrepreneurs ofSMEs in

Bangladesh- An Explorative Study by S.M. NazrulQuadir.

SMEs in Bangladesh and Their Financing :An Analysis and Some

Recommendations by Md. ShamsulAlam and Md. Anwar Ullah.

FACTORS AFFECTING BUSINESS SUCCESS OF SMALL & MEDIUM

ENTERPRISES (SMES by) Dr. Mathew Philip

THE SMALL AND MEDIUM ENTERPRISES(SME) IN BANGLADESH: AN

OVERVIEW OFTHE CURRENT STATUS by Dr. MomtazUddin Ahmed.

The Business Bangladesh (a monthly English magazine of

Bangladesh), Vol. 3, Issue 9, June 2006.

The New Nation (a national daily English newspaper of Bangladesh),

June 7, 2005.

The Bangladesh Observer (a national daily English newspaper of

Bangladesh), December 26, 2005.

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