LAHORE, Dec 21: Is Pakistan's small and medium sector at all prepared for the cutthroat competition, being unleashed by the process we know as globalization , in the international trade? No, businessmen and officials have unanimity of views on the issue, which is going to be of critical importance for Pakistan exports and economy in the next few years.

"Small and medium businesses have no international exposure. I doubt their very ability to even survive in the post-quota regime if the factors holding back their progress are addressed urgently on a war footing," says leading knitwear producer, Shahzad Azam Khan.

"Potential for growth (in the post-quota world) is there. But we got to remove the practical problems that hinder the progress and development of small and medium enterprises (SMEs) if we want to actually and fully exploit the opportunity," says former Aptma chairman Abid Farooq.

The kind of growth being foreseen by the government as well as by the private business in the coming few years, he maintains, would not come through the 50-60 large manufacturers, who have prepared themselves for the 'free' competition either under compulsion or by choice.

"For this, we would have to develop and strengthen our small and medium sector which has no experience at all of dealing with foreign buyers." For instance, Mr Farooq points out, Pakistan can increase its share of some two per cent in the world clothing market of $410 billion to three per cent. But it cannot raise the share to six per cent, or more, without helping the small and medium sector.

"A UNDP report says the world clothing market is going to rise to $680 billion in 2015. Just think of the windfall that we would be reaping if we manage to raise our share even to five per cent.

We've got the potential to achieve this. But we'll need to assist our SMEs and remove all the roadblocks stymying their growth," he insists. Mr Farooq says SMEs need greater governmental attention and help in the post-quota world because the free trade does not eliminate all 'restrictions'.

"Bigger economies do not want unemployment in their countries. They would safeguard their industry and workers. They've got the means to do so by insisting on the compliance and security issues.

In the international trade environment, which is likely to emerge in the coming months, I do not see any scope for our small and medium sector because it is in a very bad shape and riddled with problems. They just cannot address compliance issues on their own. They need help, real help and not words."

A former Smeda official insists that Pakistan needs to "improve its small and medium sector because it's a question of necessity, and not an option". Let the government, he says, ensure that "the free market means free market" for the small and medium sector as well and compliance issues don't deter them from taking their due share in the international trade. "It also means that Pakistan is fully geared for reaping the benefits of WTO free trade regime."

Pakistan's small and medium sector is fraught with a number of problems ranging from the lack of access to credit to inefficient technologies and production processes to lack of marketing skills to absence of quality assurance to non-compliance of environment, social and other issues to very low economies of scale. All these factors add to their production costs, making them un competitive.

The foremost factor responsible for what most businessmen call as backwardness of SMEs is lack of access to credit, especially at a 'reasonable' cost. "Banks simply don't entertain their requests for credit.

Even if somebody manages to convince bankers to allow him the credit line, its cost is so high that it is difficult, if not impossible, for him to stay competitive," says Shahzad Azam.

"While banks are prepared to advance credit to big businessmen at four per cent or even less, they charge minimum of 14 per cent or more from SMEs. Bankers say the cost of credit for SMEs is high because of the risk factors involved. By doing so, the banks are actually themselves showing SMEs the way to bankruptcy," says Abid Farooq.

"No matter how enterprising small and medium scale businessmen are, they just cannot survive in the market by borrowing from the banks at such a high cost. The need is that SMEs are given access to bank finance at reasonable cost so that they can modernize the technology, expand and become competitive. Otherwise they'll keep struggling for survival instead of competing in the international markets," he says.

Another factor that is pointed out by businessmen holding back the progress of SMEs is absence of research and development (R&D) facilities. "The large manufacturers have their own R&D facilities as they have financial resources for this.

On the other hand, SMEs do not have these facilities. They do not have the resources required to explore the foreign markets. The government agencies, too, are of no assistance for them in this regard despite the fact that it is blocking their entry in the international trade," says Mr Farooq.

Similarly, SMEs do not have resources or facilities for quality assurance without which it is impossible to enter foreign market. "Though large manufacturers have set up their own laboratories for evaluation, quality assurance, and equipment calibration, and got the kind of money needed to get various, expensive compliance certificates from abroad required to export their goods to the US and Europe, no such facility exists for SMEs," says Mr Farooq.

"Which SME can spend $5,000-25,000 a year to obtain compliance certifications from foreign agencies to be able to export?" he wonders. "In India, the government has supported the private sector in setting up testing laboratories of world standards to provide the facilities of internationally approved certifications and quality assurance to their small and medium sector at an economical rate. Why can't we do the same in Pakistan?"

He also says that the government should help the private sector in the establishment of joint warehousing, manufacturing, marketing, quality assurance and other facilities needed for entering export markets for SMEs. The small and medium businessmen can avail them at commercial, economical rates.

Shahzad Azam says: "Unavailability of trained labour is another roadblock, preventing SMEs from becoming competitive. The larger manufacturers have little or no problem in getting skilled labour or even training unskilled workers because they have resources to spare for this. But when it comes to SMEs, they just can't afford to hire unskilled labour and train them."