Policy Brief

Strategies for Entrepreneurship Development in Bangladesh: Unleashing the Potentials of SMEs

Prepared by: Khondaker Golam Moazzem Senior Research Fellow, CPD

28 July 2008

CENTRE FOR POLICY DIALOGUE (CPD)

B
a

c i v i l

s o c i e t y

t h i n k - t a n k

House 40/C, Road 11, Dhanmondi R/A, Dhaka 1209 Tel: 9141734, 9141703, 9145090; Fax: 8130951 E-mail: cpd@bdonline.com; Website: www.cpd-bangladesh.org

Contents
1. Introduction 2. Literature Review 3. SMEs in Bangladesh: Composition, Trends, Policies and Institutions Composition Trends Gross Output, Value Added and Profitability Policies for the Development of SMEs in Bangladesh Institutional Set Up for SME Development 4. Major Challenges Confronting SMEs 5. Entrepreneurship Development in Bangladesh 6. Actions to be Taken for Entrepreneurship Development Actions to be Taken at Domestic Level Actions to be Taken at Regional Level Actions to be Taken at International Level 7. Conclusion 32 16 21 26 2 3 6

1. Introduction
The economic development of Bangladesh in the last three decades is the resultant effect of structural change in the economy leading towards considerable growth of the manufacturing and service sectors, various reforms of domestic economic policies, changes in international policies, and in this process the emergence of a group of entrepreneurs. During this period, GDP growth doubled from a mere 3.7% in the 1980s to more than 6% after 2000, with Bangladesh now ranked 33rd out of 191 countries (in terms of GDP). However, because of its huge population (150,448,340), Bangladesh is ranked 8th out of 191 countries (in terms of population), and is consequently regarded as one of the poorer countries (150th out of 191 countries in terms of per capita GDP). On its path towards economic reform, the economy has gradually been liberalized over the last three decades, and it has been integrated into the global economy - in 2007, the degree of openness (international trade as % of GDP) reached 43.3% compared to 16.8% in 1991 and 13.5% in 1981. The degree of global integration, as measured through the external sector including FDI and debt accounts in relation to GDP, was 55.6% in 2007 compared to 21.2% in 1981. Global market forces therefore affect most economic activity, which needs to be taken into consideration when formulating policies and action plans.

Against the backdrop of a huge population, an abundance of low and semi-skilled workers, and large-scale unemployment, the governments major development objective is to create more employment in order to secure incomes and thereby reduce poverty. Because of the structure of small and medium enterprises (SMEs) in Bangladesh, which are mainly labor-intensive and low-skill, the development of SMEs is considered to be the most effective contribution to the eradication of poverty. 1 According to BBS, there were about 78,300 SMEs operating in Bangladesh in 2003, in which roughly 3.5 million workers were employed. However, despite their broad dissemination, SMEs in

According to SME Policy 2005, an enterprise with capital (replacement of plant, machineries etc. and associated technical services excluding land and building) up to Tk.15 million (about US$215,000) is regarded as a small enterprise, and with capital up to Tk.100 million (US$1,433,000) as a medium enterprise. In the case of non-manufacturing units, enterprises with less than 25 workers are considered to be small, while those employing between 25-100 workers are considered to be medium sized enterprises. In view of reducing the variations in operational definitions applied by other organizations including banks, the government has recently announced a new definition for all operational purposes.

Bangladesh could not fulfill the critical role of entrepreneurship development and thereby contribute to the faster industrialization of the country. The objectives of this policy brief are to identify the major challenges confronted by SMEs; to explore possible explanations for entrepreneurship development in the case of successful SMEs; and suggest an action plan for unleashing the potential of SMEs.

2. Literature review
Small and Medium-sized Enterprises (SMEs) play a pivotal role in terms of economic growth, employment generation, and industrialization (e.g. through entrepreneurship development). Although the role of SMEs varies at different stages of economic development, their role is particularly important in developing countries and LDCs. Beck, Kunt, and Levine (2005) have found a strong correlation between SME development and GDP per capita, but the relationship between growth and the overall business environment for SMEs overshadows the former relationship.

SMEs need low capital investment per unit of output and give rise to greater opportunities for direct or indirect employment. In a positive environment, SMEs offer sustainable business solutions that simultaneously fight poverty and accelerate economic growth (Agbeibor, 2006). In developing countries, SMEs traditionally play an important role with respect to poverty alleviation, while at the same time contributing significantly to economic growth as the development initiatives targeted at them create jobs and increase productivity (Agbeibor, 2006).2 For developing countries or LDCs, the problem of rural unemployment, which results in an unhealthy rural-urban migration, can be solved through SME development in rural areas.3 Rural SMEs generate significantly more jobs than urban SMEs. This indicates a different relationship between SME growth and employment generation in different geographical environments (North and Smallbone, 1996).
SMEs are also considered as the backbone of the European economy and are the best potential source of job creation and economic growth (Verheugen, 2006). In Japan, some 70 per cent of Japanese workers are employed by SMEs and half the total value added in Japan is generated by SMEs (Lichiro, 2006). 3 Carl Liedholm, Michael McPherson and Anyinna Chuta (1994) showed that the percentage of job growth coming from enterprise expansion in rural areas is significantly higher than that of urban areas in Africa.
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Small and Medium-sized Enterprises are the seeds for a vital entrepreneurial economy. In many economies, SMEs nurture large-scale industrialization through entrepreneurship development. One of the hypotheses on the role of SMEs in the course of economic development is their vertical and horizontal expansion over time in large-scale industrialization by fostering entrepreneurship (Juneja, 2000).

Global experiences show that an efficient SME sector is conducive to fast industrial growth (Hill, 2001). Llyod (2002) analyzed the South African SME sector over the 1980 to 2000 period and found that expanded small businesses were playing an increasingly important role in the manufacturing, construction and trade sectors in South Africa, but their role was declining in the agriculture, transport and storage sectors.

However, the poor performance of SMEs in terms of growth, product diversity, and expansion of markets, indicates that SMEs could not reach the expected level. More importantly, unlike in many economies, SMEs in the current environment lack the capacity to nurture the process of large-scale industrialization through vertical and horizontal expansion by fostering entrepreneurship (Hal Hill, 2001). It is extremely important to analyze the possible reasons for this lack of entrepreneurship development through SMEs and investigate successful entrepreneurs and the possible causes of their success in order to provide policy suggestions for the development of the sector.

Although SMEs play a vital role in any economy, they are very vulnerable to the effects of globalization in the absence of some economic criteria. For example, under the avalanche of low priced Chinese products imported in Japanese, Korean and Taiwanese markets, the SMEs of these countries adopted different strategies: some firms relocated plants to the Chinese mainland, some exited the market, others protected their market by switching to more capital intensive technology so as to produce more differentiated hightech products (Croix, 2006). These countries have the capacity to overcome their vulnerabilities by adopting different strategies while developing and least developed countries often lack the capabilities to facilitate such transformations.

The degree of vulnerability is very high in most developing countries and LDCs in the absence of sound business environments and the existence of weak business strategies. Moreover, SMEs in developing countries are vulnerable to international trade due to their comparatively low productivity and lack of competitiveness (Deshaies and Julien, 1994). The countries that are better prepared in terms of solid business environments and strategies can reap the benefits of globalization by scaling up their SMEs to large-scale industries.

One of the positive implications of globalization on SME expansion in developing countries and LDCs is the possibility of FDI inflows and soaring export opportunities: there is a powerful relationship between internationalization and SMEs. In investigating the linkage between internationalization and SME growth, Lu and Beamish (2002) examined the impact of exporting products and FDI on SME growth. They came to the conclusion that FDI is more effective for SME growth. In India, a very big economy with a large number of consumers, trade liberalization and investment liberalization gave an impetus to the development of SMEs, which in turn led the Indian economy towards large-scale industrialization. Juneja (2000) further demonstrates that small industry growth rates have increased rapidly compared to the growth rate of the total industrial sector of India since 1991. Juneja also shows how MarutiSuzukis capacity building in Indias automobile industry attracted FDI from Japan, South Korea, Germany, UK, and USA.

3. SMEs in Bangladesh: Composition, Trends, Policies and Institutions

3.1 Composition: According to BBS Census of Enterprises, 2001/2003, there were some 78,440 SMEs in Bangladesh, which comprises 93% of all industrial units, and these enterprises employed about 3.5 million workers (i.e. 44% of all industrial workers). Among these enterprises, 60% of the units were in urban areas and 40% in rural areas.4 However, urban enterprises employ relatively more workers compared to rural enterprises (Figure 1). Liedholm, Mcpherson and Chuta (1994) showed that the percentage of job growth coming from enterprise expansion in rural areas of Africa is significantly higher than that of urban areas. Because of low levels of job growth in rural enterprises in Bangladesh, rural SMEs have a lesser impact on the reduction of ruralurban migration.

According to SEDF (2006), food, textile and clothing units accounted for over 60% of registered SMEs (Figure 2). In rural areas, textile manufacturing, food, tobacco, and banking (especially by NGOs) covered the major share of small enterprises, while in urban areas the major share of small enterprises were found in transport and banking (Figure 3). Within the medium enterprise category, non-metallic mineral products and textile constituted the major share of rural enterprises, whereas textile, banking, and food and beverage that of urban enterprises. However, SMEs have undergone significant structural changes overtime in terms of product composition, degree of capitalization and market penetration in order to adjust to changes in technology, market demand and market access brought about by globalization and market liberalization (Ahmed, 2001, ADB 2001). Industries such as light engineering, readymade garments, printing and publishing, wood and wood products, plastic products, electrical goods, electronics, artificial jewellery, wooden and steel furniture, television and radio assembling, and soaps and detergents have emerged as major industries in recent years.

Average employment per establishment for small enterprises was 17-20 workers, while for medium enterprises the range was 65-69 workers.

A total of 103,858 micro-, small-, medium-, and large enterprises were headed by female entrepreneurs, of which 71 per cent were located in rural areas. Most of these are micro enterprises where less than 10 workers are employed. It appears that most of the rural based female-headed enterprises operated at small scale. In proportionate terms, these enterprises constituted 3 per cent of total enterprises in the country. Women entrepreneurs are found in self-employment, enterprise ownership, manufacturing, family trade, agricultural activities, subcontracting, partners in businesses, traders, contractors, and large and medium industry owners. Despite many barriers, women entrepreneurs were found to take on work and entrepreneurial challenges in a male-dominated, competitive and complex economic and business environment.

Figure 1
100 Percentage 80 60 40 20 0

Figure: Share of Different Types of Units and Employment under Different Categories

% of total number of units % of total employment

Medium

Medium

Medium

Small

Small

Small

Large

Large

Urban

Rural

Total

Source: BBS Census of Enterprises, 2001/2003

Large

Total

Total

Figure 2 Share of Units and Em ploym ent in Different Types of Enterprises Figure:
Education/Healthcare 90 80 70 60 50 % 40 30 20 10 0 Various personal services Mining & Manufacture Fabricated goods, electrical and means of transport Non-metallic mineral products Chemicals & Plastics Wood, leather & Paper printing Ready-to-w ear apparels Textile Manufacturing Food and Tobacco
Small M edium Large

FigureFigure: Share of Units and Em ploym ent in Different Types of Enterprises 3

Education/Healthcare 90 80 70 60 50 % 40 30 20 10 0 Various personal services Mining & Manufacture Fabricated goods, electrical and means of transport Non-metallic mineral products Chemicals & Plastics Wood, leather & Paper printing Ready-to-w ear apparels Textile Manufacturing Food and Tobacco
Small M edium Large

Source: BBS Census of Enterprises, 2001/2003

Figure: Figure 4 Proportionate share of SME Units Located in Rural and Urban Areas

Real Estate Finance & Banking

120 100 80

Transport & Comm.. Eateries Trade Construction Utility services Mfg. transport equipment

60 40 20 0 Proportion of Proportion of Proportion of Proportion of small medium small medium enterprises enterprises enterprises enterprises in the total in the total in the total in the total Rural enterprise Urban enterprise

Electrical equipments Fabricated products Non-metallic mineral products Chemicals & plastics Paper & printing Tanning, etc Wood products

Source: BBS Census of Enterprises, 2001/2003

3.2 Trends: The comparative dynamics of growth of establishments between 1986 and 2003 for different enterprise categories in urban and rural areas reveal that small and medium enterprises grew at a relatively slower pace than large enterprises. However employment growth for small enterprises evolved at a relatively higher rate (Table 1 and 2). Interestingly, medium enterprises were being marginalized both in terms of employment and the number of establishments. The number of small enterprise establishments and employment increased simultaneously while medium and large enterprise growth rates for these two indicators did not evolve at the same pace, to the extent that in large enterprises employment growth in rural areas was negative. This indicates that there is an agglomeration in the number of establishments and employment in urban areas.

A huge number of enterprises established during and after the 1990s were mainly in wholesale and retail trade, manufacturing, hotels and restaurants, health and social work. This implies that a large number of enterprises established during this period emerged in

the period of faster trade liberalization as well as in the regime of quota phase out under the Agreement of Textile and Clothing (ATC).

Table 1: Changes in the number of establishments between 1986 and 2003 1986 Total Small (10-49 persons) Medium (50-99 persons) Large (100+ persons) Total 46909 2409 2299 51617 Urban 25361 1520 1648 28529 Rural 21548 889 651 23088 Total 72935 3266 3689 79890 2001 and 2003 Urban 39127 2193 2930 44250 Rural 33808 1073 759 35640 Total 2.7 1.9 2.9 2.7 Growth Rate Urban 2.9 2.5 3.9 3.0 Rural 2.7 1.1 0.9 2.6

Source: BBS, Economic Census 2001 and 2003, National Report

Table 2: Changes in the number of permanent employment between 1986 and 2003 1986 Total Small (10-49 persons) Medium (50-99 persons) Large (100+ persons) Total 778761 163900 949114 1891775 Urban 430956 103147 698387 1232490 Rural 347805 60753 250727 659285 Total 1304935 221123 1314428 2840486 2001 and 2003 Urban 725378 150350 1082979 1958707 Rural 579557 70773 231449 881779 Growth Rate Total 3.2 1.9 2.0 2.5 Urban 3.5 2.5 3.0 3.1 Rural 3.0 0.9 -0.5 1.7

Source: BBS, Economic Census 2001 and 2003, National Report

It has to be underlined that enterprise growth differs according to sectors. Between 2002 and 2006, although the total number of enterprises and total employment increased irrespective of enterprise size, their performance varied widely from sector to sector (Table 3). The increase in the number of small-scale enterprises was substantially higher than that of medium and large-scale enterprises due to growth in specific economic activities such as education. In contrast, growth in the number of establishments of smallscale enterprises was negative in sectors like trade, transport and manufacturing, while medium size enterprises performed well only in the manufacturing sector. It can therefore be deduced that different factors are responsible for the growth of different types of enterprises under different categories.

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Table 3: Change between 2002 and 2006 in number of establishments and Total Person Employed Sectors No. of establishments in 2005/2006 Small (10-49 workers) Mining Manufacturing Electricity Construction Trade Eateries Transports Bank, Insurance Real estate Education Health Personal service All BSIC groups 6 -248 25 -172 -2436 -306 -428 752 -19 6809 -17 -720 3246 -9 481 41 -18 -54 -10 -17 5 -17 198 98 -75 623 Medium Large (100+ workers) -9 615 17 -57 5 -14 -2 3 3 36 37 -34 600 Total (10+ workers) -12 848 83 -247 -2485 -330 -447 760 -33 7043 118 -829 4469 Total persons employed in 2005/2006 Small (10-49 workers) 269 -5172 615 -3922 -39568 -7207 -6967 9931 -628 121009 -2572 -14313 51475 Medium (50-99 workers) -529 32592 3293 -1331 -3696 -715 -1326 38 -1177 12409 8409 -4703 43264 Large (100+ workers) -1279 281660 3918 -15230 -4047 -2104 -16834 -15782 -3684 -3386 -2908 -20172 200152 Total (10+ workers) -1539 309080 7826 -20483 -47311 -10026 -25127 -5813 -5489 130032 2929 -39188 294891

Source: Bangladesh Bureau of Statistics, 2004; BBS Business Registry, 2006

3.3 Gross Output, Value Added and Profitability: Comparison of gross output, value added, and profitability between small, medium and large enterprises points to different scenarios (Table 4). Large enterprises - because of the capital-intensive nature of production - ensure higher value added in the percentage of gross output compared to that of medium and small enterprises. However, value added per worker in small enterprises is much higher than in medium and large enterprises. The same is true when looking at gross profit per worker and gross profit as a percentage of gross output. Small size enterprises are found to perform better than medium size ones. This could be one of the reasons behind the higher growth of small enterprises compared to medium enterprises. However, the overall performance of SMEs in Bangladesh in terms of productivity and efficiency is much lower compared to countries like India and China. According to Rahman, Debapriya and Moazzem (2007), the productivity of readymade garment units (US$1563 in 2005) was found to be lower than that of China (US$5000 in 2001) and

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India (US$2600 in 1998). Under the dynamics of increased global market competition, it is challenging for small firms in Bangladesh to remain competitive.

Table 4: Gross output, value added, and average profitability, SMEs vs. large firms, 2005 (Tk. millions) Indicator variables Gross output (GO) Small firms 23801 (55.1) Value added (VA) 3642 (46.7) VA as % of GO VA per worker (Tk. 000s) Gross profit (GP) 15.3 106.3 (54.7) 2430 (33.4) GP per worker (Tk. 000s) GP as % of GO 66.6 (35.9) 10.2 Medium firms 34034 (83.8) 5337 (84.5) 15.7 76.4 (91.1) 2497.5 (46.1) 33.2 (44.0) 7.33 SMEs 26892 (63.7) 4185 (56.8) 15.5 96.7 (57.9) 2452 (36.6) 55.9 (35.2) 9.08 Large firms 183541 (73.3) 36080 (51.5) 19.6 94.65 (57.3) 16058 (2954) 43.7 (28.8) 8.74 All firms 135067 (61.0) 26112 (43.5) 19.3 96.3 (57.6) 11806 (25.88) 47.5 (30.9) 8.74

Source: Bangladesh Enterprise Institutes Enterprise Survey, data from 6th round

3.4 Policies for the Development of SMEs in Bangladesh SME Policy 2005: The major objectives of the SME policy are to embed the strategies of this policy into those of the Poverty Reduction Strategy Paper (PRSP); encourage FDI in SMEs; establish physical and ICT networks of infrastructure and institutional delivery mechanisms; re-orient the existing fiscal, regulatory and governmental support institutions; take measures for creating avenues to mobilize debt without collaterals; harness information and communication technologies; internet protocol (IP)-based infrastructure and electronic governance.

This policy provides directions for SME development in the short, medium and longterm. On top of the establishment of a government sponsored SME Foundation that will cater to the needs of SMEs over the medium term and beyond (see 3.5 below), it will act as a pivotal platform for the delivery of all planning, developmental activities, financing,

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awareness-raising, evaluation and advocacy services. The SME policy has identified eleven booster sectors with a list to be reviewed every three years: electronics and electrical, software development, light engineering and metal-working, agroand

processing/agro-business/plantation-agriculture/specialist-farming/tissue-culture

related businesses, leather making and leather goods, knitwear and RMGs, plastics and other synthetics, healthcare and diagnostics, educational services,

pharmaceuticals/cosmetics/toiletries, fashion-rich personal effects, wear and consumption goods.

In its tactical plan of action, the SME policy provides direction on strategic skill upgrading, the establishment of an enabling business environment, fostering supply chain for technopreneurship, developing an SME webportal, establishing a virtual SME frontoffice, access to information on export-oriented SMEs, development of a highperformance programs. communications backbone, and international technology-exchange

Industrial Policy 2005: Under the industrial policy, fiscal incentives are offered to all categories of enterprises irrespective of the size of the manufacturing/service units. Industries will enjoy tax holiday facilities for a period of 5 to 8 years depending on the locations. As an alternative to tax holidays, industrial enterprises receive depreciation at the rate of 100 per cent in the first year. If these facilities cannot be provided, then a reduced rate of taxation will be considered. Export oriented industries will have import facilities without any duty. Imported machinery and spare parts are exempted from payment of VAT. Duty structures of imported raw materials, intermediate goods and finished goods are set at gradually escalating rates. The activities of the Equity and Entrepreneurship Fund (EEF) will be intensified to give priority to entrepreneurs of under-developed areas and entrepreneurs of the BSCIC industrial units in receiving loans from this fund. Special facilities will be provided to 31 industries marked as thrust sectors. Industrial enterprises registered with the Board of Investment need not pay any transfer fee or tax to purchase land for setting up new industries or to transform an

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industry into a limited company provided that no changes can be made in the ownership structure after that transfer.

It is frequently argued that the incentives and facilities for different enterprises as mentioned in these policies are often inadequately provided to the enterprises. The scope of these facilities, especially financial facilities, needs to increase to cover as many enterprises as possible.

3.5 Institutional Set Up for SME Development SME Foundation: The SME Foundation is acting as a pivotal platform for the delivery of all planning, developmental activities, financing, awareness-raising, evaluation and advocacy services. It is a limited company licensed by the Ministry of Industry as a nonprofit organization. In its action plan for 2007-08 the following activities are listed: research, policy advocacy, gender equality, database and ICT Development, credit whole selling program, business support services, technology development, extension and diffusion, as well as public- private partnership initiatives.

Bangladesh Small & Cottage Industries Corporation (BSCIC): BSCIC is also acting as a state-run policy coordinator, service developer and distributor of facilities in the SME sector. A major responsibility of the Corporation is to mobilize policy support for an improvement in the economic environment, particularly to the benefit of SMEs. Its services include inputs in the areas of land development (estate building), technology transfer, credit rationing, training, and design development. Unfortunately, the BSCIC could not perform as expected although its achievement in physical terms, particularly in estate building over the past 40 years, is impressive. Eighty-one percent of the developed plots (7069 out of 8763) had been allotted to entrepreneurs as of October 2003. But only 2495 i.e. 30% of the plots have been used for actual industry building. There has been a substantial waste of public money in idle investments in BSCIC.

Bangladesh Industrial Technical Assistance Center (BITAC): BITAC was set up by the government as an autonomous body under the Ministry of Industries. Its mandate is to:

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(a) train industrial personnel to upgrade their skills; (b) render technical advice to industries; (c) disseminate modern know-how and improved techniques among industrial personnel; (d) manufacture and supply spare parts, tools and machines; and (e) develop equipments tools and processes. Since its birth BITAC has played an important but limited role by facilitating the transfer of technology to the countrys industrial sector and developing human resources through its skill development training programs. However, it has suffered from a chronic paucity of funds necessary for conducting training and modernization.

Bangladesh Council for Scientific & Industrial Research (BCSIR): BCSIR has also remained an underutilized organization in spite of its potential. Its regional establishments in Chittagong and Rajshahi should have been fully used to undertake research in locally available materials, which can be used as inputs by SMEs.

Other Institutions: Over the years a number of semi governmental and private sector institutions have become active in the SME area. Bodies such as the NASCIB, BASIC Bank, MIDAS, CARITAS, WEAB, and BWCCI, to name a few, are some of the organizations that have emerged in the private sector and are contributing to the promotion and development of the SMEs.

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4. Major Challenges Confronting SMEs

The countrys SMEs confront various types of structural, managerial, financial, infrastructural, marketing, and social problems (Table 5). The extent of the problems faced by SMEs differs according to their size, location, and market linkage. Some of the problems such as financial, infrastructural, and political unrest are considered to be acute as they have a substantial impact on business activity and hinder their competitivety.

Table 5: Different types of problems faced by SMEs Nature of problems Poor transportation facilities Lack of entrepreneurship education and training Financial assistance Hartal (strikes) Law and order situation Bureaucracy Lack of control of corruption Lack of adequate investment Lack of government support and assistance Lack of research and development Inadequate information Inability to forecast demand Frequent power failure Inadequate telecommunication services Fear of failure Lack of technology Source: Chowdhury, 2007 Frequency 50 40 35 60 50 45 50 50 35 50 50 40 60 50 50 45 Percentage 83 66 58 100 83 75 83 83 58 83 83 66 100 83 83 75

a) Lack of Sufficient Financial Support: Small entrepreneurs require various types of financial support to cover their expenses, such as initial capital to cover preliminary expenses, working capital to cover running expenses, reserve capital to meet expenses not only for unexpected contingencies but also for personal and family maintenance. In most cases, these enterprises receive working capital from the financial institutions, but start up capital, which is crucial to cover preliminary expenses, is often

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not supported by financial institutions. Various policies such as the SME policy or Industrial Policy do not give any guidelines regarding the financial coverage required to meet the initial expenses and unexpected requirements.

Although the government has tried to enhance support for SMEs by providing credit through different banks and other institutions including the recently established SME Foundation, the coverage of these support programs is found to be inadequate. In the budget of FY2008, the government has allocated an endowment fund of Tk.100 crore for the SME Foundation to provide credit to SMEs through private commercial banks under the Foundations credit wholesaling program. The government has continued allocating resources in the fiscal year FY2009 (Tk.100 crore) to support SMEs. The SME Refinancing Scheme of Bangladesh Bank has been allocated Tk.500 crore, up from Tk.300 crore the previous year. The allocation of EEF in the FY2009 has been targeted at IT related industries; in FY2008 the EEF allocation was targeted at agro-based industries. A total of Tk.469.6 crore has been disbursed as of April 2008 in 215 agro-based projects and 34 IT related projects (Bangladesh Bank, 2008). Major projects included fish hatchery (93), shrimp hatchery (50), software development (32) and poultry and fish feed projects (18). However, the EEF covered only about 38.1 per cent of the total cost of the projects. This needs to be increased to provide adequate support to the eligible business activities. Thus far, 82 projects have received full financial support, while another 145 projects received partial support costs of projects. 22 projects did not claim for support.

Poor legal and regulatory framework: Although various policies in support of SMEs are currently in operation, there is a problem of ambiguity, non-transparency, and inconsistency in these policies, which ultimately reduces entrepreneurs confidence in the legal and regulatory framework of the country. For example, there is a lot of disparity in the definition of SMEs between the different operational agencies: SMEs as defined in the SME policy emanating from the government differs from the one disclosed by the commercial banks in their guidelines to provide credit, and the World Bank has its own definition. For the sake of clarification, the government has announced a new definition and revised the existing one. According to the new definition, an enterprise with either

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capital (replacement of plant, machineries etc. and associated technical services excluding land and building) within the range of Tk.50,000 to Tk.15 million (about US$215,000) or total employment of 50 is regarded as a small enterprise. On the other hand, enterprises with either capital of up to Tk.200 million (US$2,866,000) or employment of 150 are regarded as medium enterprises. In the case of nonmanufacturing units, enterprises with fewer workers than 25 or with capital of Tk.50,000 to Tk.5,000,000 are considered to be small, while those with employment between 25-50 workers or with capital of Tk.5,000,000 to Tk.100,000,000 are considered to be medium sized enterprises. Besides, inconsistencies in enforcing laws, bureaucratic interpretation of rules, lack of firm political commitment, lack of accountability, hooliganism and political brinkmanship, lack of rule of law, and lack of control over corruption, offers an eloquent list revealing how poor the legal and regulatory framework is, and how badly the development of SMEs is hindered in the country.

Poor infrastructure: Poor physical infrastructure increases the cost of production and reduces the competitiveness of SME products. Major problems related to infrastructure include frequent power failures and poor transport facilities, which seriously hamper the smooth production and delivery of products. Small enterprises suffer more from frequent power failures because of lesser captive power generation facilities in their production units. According to Rahman, Bhattacharya and Moazzem (2007), the profitability of readymade garments declines (although not significantly), due to poor power supply conditions.

Lack of skilled workers: In order to enhance productivity and manufacture high end products, entrepreneurs often demand an adequate supply of skilled workers. An upgrade of technologies, important for manufacturing better products, always requires skilled workers. Huge public investment is necessary to develop human resources. A number of public and private initiatives were undertaken in order to upgrade workers skill. The government allocated Tk.50 crore in the 2007 national budget for skilled development training of garment workers. The Bangladesh Garment Manufacturers and Exporters

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Association (BGMEA) also took the initiative of training workers and supplying them to various factories.

Political unrest: Political structures remain confrontational in the country. Personal and political enmity between rivals, frequent hartal (strikes), and the lack of respect for elementary principles of democratic governance have become the principal characteristics of the countrys political system. A series of prolonged hartal affect the socio-economic and political conditions of the country. The average cost of hartal during the 1990s to the Bangladesh economy was 3-4 percent of GDP (UNDP, 2005). These syndromes have given birth to a culture of corruption, bribery, hooliganism, and brinkmanship, and discourage the development of entrepreneurial talent and initiative in the country through the non-adherence of any rule of law. Under the present caretaker regime, such political practice is largely inexistent.

Absence of a favorable social/cultural environment: The concept of entrepreneurship is not native to every culture or society. Starting a business requires courage: the courage to assume the risks of putting money into ideas and the courage to take a leap into an unknown future. Throughout the world millions of entrepreneurs display such courage. But the fear of failure produced by the highly volatile socio-politico-economic conditions of Bangladesh has deepened into the minds of potential entrepreneurs. Consequently, new and energetic entrepreneurs are not emerging in the market. The traditional and cultural values of the country tend to keep women inside family homes while women shoulder the burden of the poverty (Chowdhury, 2007). The SME policy of the country needs to work on building awareness at the socio-cultural level to develop a favourable environment for creating new entrepreneurs.

Poor quality and standards: Bangladesh has limited capacity to ensure the quality of products and services to consumers not only in the domestic market but also in international markets. There is no national quality policy or adequate support system that provide assistance to all enterprises to understand the principles of quality and to develop quality consciousness in business behavior. Currently, the Bangladesh Standards and

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Testing Institution (BSTI) formulates national standards for industrial, food, and chemical products. However, BSTI lacks credibility and importers from North America and Europe do not accept the certificates it issues (Haque, 2003).

Inefficient marketing practices: SMEs in Bangladesh, especially the small enterprises, do not have enough marketing capabilities or networks. An overwhelming majority of small firms do not have resources to invest in marketing. Export-oriented SMEs have very little marketing activities and most of them try to survive by linking up with multinational buyers or setting up subcontracting relationships with them. In the domestic market, SMEs are confronted with cheap imports and are hard pressed to hold on to their market share. On top of this, a lack of resources and skills make it difficult for SMEs to take advantage of market promotional activities.

Lack of entrepreneurship and management skills: Many owner-managers and entrepreneurs often lack wider managerial skills, which hinders their long-term success. Strategic planning, medium to long-term vision, marketing, commitment to quality, knowledge of quality systems, communicating in foreign languages, cash-flow management, and information technology are a few critical elements of management required to meet the challenges of the market economy, especially in the global market environment.

Challenges faced by women entrepreneurs: Women are handicapped in the current centralized wholesale market set-up controlled by men. Home-based women entrepreneurs suffer from a lack of access to inputs and services like credit, input supplies, markets and new technology that could increase their productivity. Women often lack the legal knowledge to protect their industries and often fall victim to illegal threats or criminal offences. Due to the lack of market facilities, women do not get the proper prices for their products, which are under priced by the customers or wholesalers who order their products. Bank loan procedures are not that easy because of bureaucratic obstacles. Commitment based problems are yet further challenges that women

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entrepreneurs face. The absence of advisory help and a lack of patience are also a hindrance to woman entrepreneurship.

5. Entrepreneurship Development in Bangladesh

Despite all the constraints and challenges mentioned in the previous section, there are SMEs in all sectors that manage to overcome these problems successfully and operate efficiently. The reasons for their success are manifold: the successful exploration of markets at the bottom of the pyramid, access to financial support on favorable terms and conditions, the use of marketing techniques to tap into domestic and international markets, and the extensive application of modern technology. The factors contributing towards the success of very small enterprises are different to those of relatively bigger enterprises. Beyond the reasons mentioned above, a major factor for the successful operation of any enterprise is entrepreneurship.

A significantly high rate of growth attained in sectors like readymade garments, agrobased & agro-processing industry, pharmaceuticals, telecommunication (mobile telephony), computer, software & ICT goods, poultry industry, leather goods, ceramics and tourism, indicate that there are enterprises which can provide exemplary evidence of successful entrepreneurship. A short list of these enterprises include: Pran Group, Nestle, BRAC, Grameen Danone Foods Ltd in agro processing; Dohatec, Cell Bazaar in ICT; Bengal Travels and Tours in tourism; Grameen Phone in telecommunications; Map Agro and Waste Concern in waste management. On top of these examples, there are many enterprises that operate successfully in urban and rural areas and can provide guidance to other enterprises with respect to entrepreneurship and operational aspects.

In this context, social entrepreneurship is emerging as an innovative approach for dealing with complex social needs (Johnson, 2000). The term social entrepreneurship is used to refer to the rapidly growing number of organizations that have created models for efficiently catering to basic human needs that existing markets and institutions have failed to satisfy (Seelos and Mair, 2005). Researches like Seelos and Mair (2005) and

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Alvord, Brown and Letts (2002) have mentioned Grameen Bank and BRAC of Bangladesh as renowned examples of social entrepreneurship. Grameen Bank was established in 1983 on principles of faith, hope and togetherness. Starting with only 5 people, Grameen bank had 7.24 million borrowers (97 percent of whom are women) as of July 2007. Grameen Bank provides services in 79,152 villages, covering more than 94 percent of the total villages in Bangladesh with its 2452 branches. Its loan recovery rate is 98%. The Grameen Bank model is now applied in projects in 58 countries (including the US, Canada, France, The Netherlands and Norway). Grameen phone, established by Dr. Mohammad Yunus, is the largest phone company in Bangladesh.

BRAC today protects and provides for the livelihoods of 100 million of the 141 million people living in Bangladesh. The BRAC Non Formal Primary Schools were established in 1985 to take education to poor, rural students, especially girls who have either dropped out or are left out of the formal educational system. It has several initiatives such as BRAC Industries Ltd. (Cold Storage), BRAC BDMail Network Ltd. (Internet Service Provider), BRAC Services Ltd. (Hospitality), BRAC Concord Lands Ltd. (Land and Housing), Delta BRAC Housing Finance Corp. (Housing Finance), BRAC University (Tertiary Education), BRAC Bank (Small & Medium Enterprise, Finance & Banking), BRAC Tea Companies (Tea Plantation & Production), Documenta TM Ltd. (Software Development). It has commercial enterprises such as Aarong Shops, Printing Press, and Dairy & Food Project. It also has different programs supporting enterprises: Poultry Farms & Hatcheries, Feed Mills, Prawn Hatcheries, Fish Hatcheries Seed Processing Centres, Seed Production Farms, Sericulture, Silk Reeling Centres, Grainages, Nurseries, Bull Station, Iodized Salt Industry, all of which generate job opportunities and lift individuals out of poverty.

In contrast to the usual assumptions on entrepreneur perceptions regarding the BOP such as a low level of profitability, the low level of affordability of poor consumers, the lack of capacity to utilize new technologies, less viability, the lack of scope for commercialization, or the minor interest of management personnel to work with these ventures, successful entrepreneurs rate these markets with high businesses potential

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rather than simply humanitarian activities. These firms, unlike other firms, endeavor to break the negative assumptions surrounding the BOP and to solve major structural, financial and management challenges while embarking on initiatives to develop their markets.

CPD has conducted a rapid assessment of a number of successful enterprises, which was reported at different times in the national Daily Prothom Alo as Saturdays Special Feature (Table 6). Most of the enterprises reported in the national daily, are small-scale operations and are located in rural and peri-urban areas. These enterprises have established their businesses with small amounts of capital and a number of these SMEs are still facing shortages of capital. The majority of these enterprises are targeting the BOP market, which indicates the availability of the market at the domestic level. Most of these enterprises have plans to expand their operations through the development of new technologies and new markets. Some of the major reasons behind the success of these enterprises, as reported by the entrepreneurs, are hard work and devotion, new designs, customer focused work, good quality, technical skill, and reasonable prices.

When looking at enterprises that operate at larger scale, the success originates from a different set of factors. Firstly, the management of these firms is highly professional as they are managed and operated by a set of skilled professionals. They are either locally or internationally appointed and they have experience in market operations at the BOP level: the optimization of profits, the management of risks originating at that level, and the creation of branding at the local level. Secondly, the ownership of these firms is of different types depending on the nature of participation and allocation of resources. Thirdly, these firms set their strategic objectives by keeping in mind the social needs which help to create a good reputation with financiers, suppliers and customers. For example, one of the strategic objectives set by these firms is to ensure the generation of more employment to reduce national poverty, which helps them garner the confidence of financiers who like to focus on social issues. These types of strategies also help firms to gain the confidence of customers, who are attracted to the social commitment of businesses. By taking this approach, firms get access to various tangible and intangible

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resources that help them operate businesses at low cost. For example, these firms get access to low cost funds from local and international financial organizations with the aim of using this business development for employment generation and poverty alleviation.

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Table 6: Sample Case Studies on Successful SMEs

Case No Name of owner Male/Female Entrepreneur Type of business Products produced Major Market Source of capital to initiate business Taking loan Tk 10,000 Major problems at the time of initiation Capital, family assistance Major problems faced at present Major factors for success Plan for expansion and development Develop a system for I.P.S which will run by solar energy Initiating foundry using gas instead of coal. Initiating foundry using gas instead of coal.

Abdur Rahim

Male

Electronics

I.P.S

Domestic

Lack of capital

Curiosity about electronics & hard labour

Abdul Kader Golap

Male

Foundry

Threshing Machine

Domestic

1.Lack of high technology 2.Increased price of scrap 3.No assistance from Govt. Fathers workshop 1.Lack of high technology 2.Increased price of scrap 3. No assistance from Govt. 4. Lack of electricity Hard labour and wisdom

Amir Hossain

Male

Foundry

Threshing Machine

Domestic

4 5

Shaheda Begum Manjulika Aesha Hanif

Female Female Female

Sewing Weaving Designing & making cloths

Cap Clothings & household items Cloths, handicrafts, home made food, home accessories

Internation al Domestic Domestic

Only a niddle as own capital Own savings Tk. 500

Capital & raw material

Exporting

Hard work 1. Every single piece is unique in design, there is no duplication 2. Involvement of family members 1. Customer focused work 2. Good quality 3. Reasonable price 4.Technical skill 5. Inspiration of relatives Reach out to the market outside Bangladesh, mainly to expatriate Bangladeshis To establish a training institute

Ms. Sayeda Anowara Begum 7

Female

Designing & making readymade garments

Sarees, Salwar, Kameez, Panjabi, Fotua, Children wear, Bed sheets

Domestic

A sewing machine

Capital & family assistance

She does not have distribution system.

Source: Daily Prothom Alo, Different Issues.

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Fourthly, successful SMEs usually try to develop new business ideas, which differ from traditional ideas. New ideas can be developed in manufacturing, business operations, the marketing of products, and management techniques. Entrepreneurs can be cautious about the selection of agents to whom they rely upon for various kinds of services. They are careful about providing additional services or products for the customers in order to get their confidence and satisfaction. It is also important to have good networks with different stakeholders, including government, as this helps entrepreneurs gather various types of tangible and intangible resources at low cost, which favors the development of an enterprise.

It appears that foreign firms are more and more interested in the BOP of developing countries, mainly to find a way out of fierce competition in the markets of developed countries under liberalized trade regimes. Various joint venture initiatives, which combine the resources and management of foreign firms with the market information and reputation of local firms, could create successful ventures for the BOP market. A number of examples already exist, such as Grameen Phone - a joint venture between Grameen Telecom, Bangladesh, and Telenor, Norway; Waste Concern - a foreign led initiative with support from Map Agro. These ventures can be looked at from the angle of social entrepreneurship. The success of these enterprises resides in their capacity to overcome significant hurdles in order to serve the poor and build resources and capabilities to achieve social objectives.

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6. Actions to be taken for Entrepreneurship Development

6.1 Actions to be taken at the domestic level a) Special SME Development Fund: Access to resources, especially financial resources, is one of the major requirements to develop successful SMEs in the country. Improved access would help develop better products/services, disseminate new technical skills/knowledge and improve management techniques. Financial resources should be offered at a reduced price, which would help small entrepreneurs invest in the development of new products and ideas. Without these resources it is difficult to pursue such innovations. Financial resources are required not only for the financing of working capital requirements, but also for start up capital. There is an absence in the market of financial instruments such as venture capital, which could favorably provide resources to innovative products and new ideas. The funding of SMEs by Bangladesh Bank under EEF seems inadequate and requires wider coverage at a higher scale. Commercial bank lending operations at the SME level need to be widened. The initiative of the SME Foundation through credit wholesaling should focus on these issues while financing commercial banks in order to provide credit to enterprises. Women-led SMEs need more attention as women entrepreneurs face various types of hurdles in securing loans from banks. A number of commercial banks have opened windows for women entrepreneurs, mainly in their urban branches. These are commendable initiatives but they need to be extended to sub-urban and rural areas.

b) Develop New Ideas, New Products, and New Services: There is always a demand for new products/services if those products meet the demand of the customer. This means that entrepreneurs should focus on customer satisfaction when developing new products. Investment in R&D is of great importance when looking at product development, process improvement, or technology upgrading. Resources should be allocated on preferential terms and conditions to enterprises for investment in R&D. However, for the many enterprises that are not yet ready to take on large-scale investment in R&D (especially SMEs), public and private sector institutions such as BCSIR, BSCIC, or BITAC could assume the initiative to develop new products and processes that could be sold commercially. Various private sector based associations could embark on

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initiatives with private and public universities/research organizations for product development or process improvement.

c) Encourage FDI in the SME sector: Foreign investment needs to be encouraged, especially in areas such as new product and process developments, new management techniques, and new services. FDI should be encouraged in developing diversified products and services with better management and marketing techniques. In view of the increased competition in developed country markets, foreign firms are interested in investing and exploring the BOP markets of developing countries. Bangladesh could be considered a potential option for them.

d) Setting strategic goals: Successful SMEs usually set strategic goals in view of getting support from the government and other organizations. These goals usually target the social needs of the country in which the firm operates its businesses. One of the countrys major social needs is to create new jobs in order to ensure income for more citizens. These strategic objectives help firms convince organizations under their network of their commitment to society and encourage the latter to take positive decisions in favour of small enterprises.

e) Develop networks with important market agents: Successful firms working in value chains usually maintain a good network, which in many cases reduces transaction costs and market risks while ensuring financial and other tangible and intangible resources if required. These networks are not limited to production agents. They extend to various business-related agents such as government agencies. Through these networks firms may get access to various types of critically important resources.

f) Develop local product standards: In order to improve the standards of local products, a strict application of standards needs to be ensured. Without this local products cannot be accepted in international markets. Local testing laboratories, with their existing facilities, can hardly ensure a proper level of product standards. The improvement of local testing laboratories is therefore required. Bangladesh should work jointly with

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South Asian countries in order to develop a harmonized standard system for their products. To this end, the mutual recognition of standards is required. In cases where the improvement of standardization is required, the government should allocate sufficient funds to improve the testing system at the Bangladesh Standard & Testing Institute (BSTI).

g) Improve banking rules and regulations: Banking regulations are not always considered to be favourable to entrepreneurs, especially those who operate small-scale businesses. Firstly, small-scale businesses face relatively higher interest burdens against their loan, although banks argue that there are higher risks involved in the financing of SMEs. Secondly, small businesses, in most instances, do not follow formal accounting practices, which makes it difficult for banks to assess the financial condition of these businesses. Hence bank officials are often reluctant to make the extra effort to formalize the accounting practices of these business units for the provision of credit. Thirdly, it is more difficult for women entrepreneurs to get credit from banks. Fourthly, entrepreneurs often cannot obtain credit from the international market due to some restraints in banking rules and regulations. In order to ease the problems and constraints confronted by SMEs, adequate attention and support is required from financial institutions.

h) Disseminate the Information of Successful Enterprises: New and potential entrepreneurs are often constrained by a lack of access to adequate information on successful enterprises, possible means for overcoming various challenges, or factors contributing to the success of these enterprises. Such information should be disseminated through different channels including print and electronic media, information services, and NGOs. This information could encourage potential entrepreneurs to understand markets, value chains, production techniques, and marketing mechanisms, thereby preparing them to take on new challenges.

6.2 Actions to be taken at the regional level i) Improve the custom services: The government has undertaken various initiatives to reduce different types of hassles faced by entrepreneurs in the export and import of

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goods. The number of forms required for export and import has been substantially reduced, which has brought down the overall time for processing customs related activities. Under the policy of trade liberalization, the government has substantially reduced tariff rates from as high as 350% in 1991 to 25% in 2008. The number of tax slabs has declined from 15 in 1993 to 4 in 2008. These initiatives have substantially improved the customs system in the country. Yet despite these improvements, additional charges have been collected on the import of goods in the form of supplementary duty or regulatory duty. The automated customs system, which was initiated a few years earlier, has yet to be fully operational. In this context, Bangladesh can learn lessons from Ghana, which has developed its customs system within a shorter time period (two years) by embarking on effective customs reform measures.

j) Enhance Regional Trading Arrangements: Although South Asian countries signed the SAFTA accord in 2006 there is no noticeable improvement in intra-regional trade and investment within the region. It is argued that long negative lists that include member countries major exportable products hamper the basic drive towards enhanced intraregional trade. South Asian countries should immediately reduce the number of products from these negative lists in order to sustain the momentum towards increased trade. There are a number of potential export areas in which Bangladesh has a comparative advantage over other South Asian countries. In certain products Bangladesh enjoys unique potentiality, while other Bangladesh products have complementarity with neighboring countries. The government has to make the effort to attract more FDI from South Asian countries by offering them the comparative advantage of the country. Trade facilitating measures, especially in border customs points, need to be improved. Shade facilities to load goods, truck parking facilities, laboratory testing facilities (especially for perishable items) need to be provided and ensured at the border points.

Under the SAFTA accord Bangladesh is currently enjoying duty free market access for a number of products, but most of these products are not major exportable items. India has provided a tariff rate quota (TRQ) facility to Bangladesh for clothing products under the S&D treatment facility. Under the TRQ arrangement 8 million pieces of readymade

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garments will be exported to India every year. In spite of these arrangements, Bangladesh is facing various types of non-tariff barriers in the export of products to the Indian market. These are mostly technical barriers that are related to standards, quality, and sanitary and phyto-sanitary requirements. The mutual recognition of standards could reduce the barriers to trade. India is currently in a situation of integration with ASEAN and partial integration with China, where Bangladesh is perceived as a regional hub for trade and investment.

k) Energy cooperation between South Asian Countries: In view of the growing demand for energy in the country, Bangladesh should put a strong emphasis on the development of domestic energy resources, especially gas and electricity. However, in consideration of the countrys long-term energy security, the government should lay stress on regional cooperation in energy resources; essentially the development of resources and supply through a regional grid. A regional power grid could be established in which additional amounts of electricity could be generated by and for member countries. Energy generation in Nepal and Bhutan, for example, could be transferred onto a regional grid for consumption in other countries like Bangladesh.

6.3 Actions to be taken at the international level l) Get SMEs voice heard at the international level: There should be one-voice for SMEs, which should be heard at international forums in order to get support from the international community. The responsibility of raising the voice of SMEs is not only that of government, but also that of major stakeholders including various associations and institutions. The expectations of SMEs should be properly articulated and their demands and challenges should be accumulated. National trade policy debates should ensure that entrepreneur representatives are heard as inclusively as possible. It is important to create mechanisms that ensure SME participation in national and international policy-making processes so that the local and international communities hear their voices.

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m) Improve the image of the country: In order to help increase the inward flow of investments,5 international efforts could be taken to raise the image of the country by highlighting the countrys potential, its achievements in human development, GINI index, stable growth, and the development of the readymade garment sector for example. Run a promotional campaign (like Incredible India & Malaysia truly Asia), underlying the dynamism, reliability, resilience of the Bangladeshi people, which could include testimonies of managers (both locals and expatriates) praising their Bangladeshi employees, and interviews of enlightened Bangladeshi individuals.

n) Harness foreign aid towards SME promotion: In order to promote development and associated business opportunities larger aid project should focus on supporting the economic reforms, laws and policies that will stimulate development from the bottom up. It is therefore in the interest of entrepreneurs that aid organizations themselves take a more entrepreneurial approach to development . (Global Entrepreneurship Monitor, 2007 Executive Report, p. 49)

o) Encourage policy coherence: One effective tool towards fostering an enabling environment is to highlight the issue of trade facilitation in the WTO negotiations. With the gradual liberalization of the trade regime, the development of trade facilitation could be the most important mechanism for countries to enhance their trade. The outcome of trade negotiations at the WTO has to be coherent with other international policies, especially foreign aid. It is important to ensure a unified donor approach for initiatives in specific sectors.

Anecdote of a billionaire from HK approached by a Bangladeshi Diplomat to invest in the country who publicly declared that a lot should be done to improve the national image of Bangladesh which is only linked to poverty, corruption and natural disasters.

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7. Conclusion
The development of SMEs is to be considered a major policy objective of the government. Unfortunately, the goals and targets related to SME development as mentioned in the policy document (the first Poverty Reduction Strategy Paper) were not achieved because of various limitations and constraints including financial, administrative, monitoring, and the commitment of donors. The challenges confronted by SMEs are not new. They are well known by all stakeholders including the government and international development partners. Because of various limitations, the growth of SMEs has been relatively slow compared to that of large-scale enterprises. However, there are successful enterprises that have achieved commendable progress in different sectors over the years by overcoming all the challenges and limitations. The reasons for their success according to entrepreneurs who operate small businesses are hard work, product development, marketing, and customer based operations. During the period of initial establishment entrepreneurs were constrained by small amounts of capital. The scarcity of capital was also found to be a problem for these enterprises when they embarked on expanding or upgrading their ventures. In the case of relatively large enterprises, success depends on the positive outcome of a complex web of relationships between different factors. The factors include: the pattern of ownership based on a strategic partnership in terms of sharing resources; know-how on the one hand and sharing market information and the reputation of the local firm on the other; access to tangible and intangible resources including financial support; setting strategic objectives in relation to the social commitment of the firm; special skills in accessing and working with the poor, mainly those working in management positions; providing complementary services beyond major services; the identification of new products and processes in order to mark a differentiation with the products and processes available in the market; good networks with government and other agencies in order to garner the support of tangible and intangible resources. It seems that enterprises need to clearly assess their shortcomings in the case of network development, taking joint initiatives to reap the benefits of strategic components or the development of new products and processes.

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At the regional level, the government should work on developing customs services, especially the simplification of customs documents and a reduction in the number of forms. Trade facilitation measures at the border point needs to be improved in order to speed up the process of bilateral trade between Bangladesh and India. There are a number of potential export areas where Bangladesh has comparative advantage over other South Asian countries. In some products Bangladesh enjoys unique potentiality, while in other products Bangladesh has complementarity with other countries. The government has to take the initiative to attract more FDI from South Asian countries by exploiting the comparative advantage of the country. In order to secure the long-term sustainability of the energy sector, the government should take the initiative, along with other regional partners, to develop a regional grid that will ensure electricity supply for the industrial sectors growing demand. Entrepreneurs should express their concerns and expectations in one voice, which should be heard at the international level in order to ensure a better commitment of the international community towards the development of the countrys SMEs. There needs to be a harmonization of national and international policies on trade and investment in developing countries, as well as development initiatives in order to guarantee more effective results.

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