The Failing SME Revolution

BY Getachew T. Alemu
Getdem2006@yahoo.com

Andy Grove, former Chairman and CEO of Intel Corporation, might have once
said that “there is at least one point in the history of any enterprise when you
have to change dramatically to raise to the next level of performance. Miss that
moment - and you start to decline”. Would that hold true for the Small and
Medium Enterprises (SMEs) of our fair nation? According to the annual progress
report from Ministry of Works and Urban Development, by the year 2007/08,
more than 73,000 SMEs have been established creating employment opportunity
for 551,075 individuals. For those who get this figure rather stunning, a
comparison with the Chinese performance might help figure out the truth.
According to China Briefing, there are 42 million SMEs in china, which makes 99
percent of the total number of enterprises in the country. The total value of good
and services produced by the Chinese SMEs account for 60 percent of the Gross
Domestic Product (GDP) of the third largest economy of the world next to USA
and Japan. Amongst the major reasons that Chinese SMEs have developed
such a large market capitalization are clear policy direction, favorable financial
support, strong inter-industrial linkage, clear regulatory framework and strong
political commitment.

Our poor nation has also picked the vibe, partly by choice and partly by pressure,
to expand SMEs in different sectors. Yet, aside some in the construction sector,
the hype could not achieve what it was intended to. Even, the little achievement
attained is at the brink of collapse unless a plan for sustaining it and pushing it
forward could be placed soon. While planning, we shall answer one critical
question; what went wrong with our SME development strategy that makes its
achievement modest? The answer for this critical question transcends many
fronts. A range of factors from lack of political commitment to condemnatory
popular attitude is challenging the survival of our SMEs.
The current SME movement in our nation was embraced in the urban
development policy of the incumbent, which is one of the pillars of Plan for
Accelerated and Sustained Development to End Poverty (PASDEP). The main
objectives of the strategy were decreasing urban unemployment, helping to
realize the progressive shift from agriculture to industrial development and
incubating domestic enterprise development. The strategy was found so
attractive by the urban unemployed, especially the youth. Provided that Technical
and Vocational Education and Training (TVET) was gaining momentum by the
time, SMEs were conceived to be the way out to put technical skill into business
ventures by many. Yet, the strategy was shortsighted in terms of placing clear
tactics to link the SMEs with biggest industries, and helping them to climb up the
ladder of enterprise development. Besides, it was not accompanied by long-term
market analysis, both domestically and internationally.

On the political front, SMEs have helped the governing party to amass large
number of urban supporters. Yet the support base was so fragile that business
success was taken as a performance measure of bureaucrats by enterprise folks.
Hence, even after the official announcement of the strategy on 2005, a lot of
quick fixes have been made on to it aiming at maintaining the “Urban Hype”. To
the dismay of the revolutionary democrats, though, the hype could not be
maintained as the fundamental problems of the system were not taken care of. At
the same time, the urban hype has also lost the charismatic leadership of Mayor
Arkebe Ekubaye. After him, there comes no one with a charisma, comprehension
and eloquence to pick the cause up and stir it. Squared with the many
implementation snags faced by the SMEs, the lack of strong political commitment
has lowered the tone of expectation.

On the technical side, the SME development strategy has many holes, which
could not be filled with the quick fixes made at different occasions in time. The
biggest of the holes is its failure to create a clear link between SMEs and bigger
industries. In relation to this, failure to draw clear strategy for enterprise
development and transformation has also been widening this hole. In countries
like China, where the SME revolution has changed the wave of economic
development, inter-industrial linkage is very strong, and well-established. For
every large industry producing a good or service, say shoe, there will be many
SMEs in the supply chain providing an outsole, foot bed, heel or shoelaces. This
applies to all industries ranging from electronics manufacturers to garment
factories and to fast food chains. The inter-industrial linkage strategy has made
Chinese SMEs strong players in China’s export market. Further more, China has
also succeeded in supporting startup SMEs to climb up the ladder of business
development by availing cheap credit and subsidies. With that, it has created a
handful of prominent domestic brands with millions of loyal customer base. Not
least, Chinese government has also used it leverage to negotiate with big
multinationals to pour in Chinese SMEs in their supply chain.

We have a lot to learn from the Chinese experience, with regard to creating inter-
industrial linkage and assisting SMEs to transform themselves into bigger
business ventures. By then, we can broaden the beneficiary base by replacing
new startups in the place of the grownups. Another important technical snag that
our SMEs face is little market information. That has made some of them to
produce non-tradable and substandard goods. To add on to their pain, lack of
planning and management capacity has often made them to overproduce a
good. Accordingly, lack of market is the common problem that they always
mention. To this regard, just like what ECX has made to synchronize our
agricultural market, we shall put in place a clear strategy to synchronize SMEs
with domestic as well as international market. In furthering the market
synchronization, the government could also help SMEs get cheap credit by
negotiating with both private and public financial institutions. Not least,
diversification of product type shall also be given due accord by the government
and the enterprises alike. It is only then that the holes of the SME development
strategy could be filled sustainably, thereby creating a smooth playing field for
them.
Equally challenging to SME development is the unfavorable popular attitude that
SMEs face from the society. We, as a society, have developed a habit of judging
things by their mere size. Small is perceived as substandard. But the truth is way
far from the presumption. Popular international brands like Nike and Addidas
work in partnership with many SMEs. What is important in this regard is for the
government to extend a helping hand for SMEs to control the quality of their
products. Denouncing them shall not be the way to teach them but supporting
them shall be.

It is true that SMEs have helped to decrease urban unemployment, though

employment statistics is rare to find in our fair nation. Yet, our SME revolution
could hold water only if we open ways for them to change as Andy Grove was
quoted saying. For that to happen, strong political commitment, strategic
leadership and popular support should be put in place. Else, our SME revolution
would crush creating an irreversible mistrust to similar initiatives in the future.