SMALL and medium enterprises generally act as a supplier of goods and services to large organisations and have a sizeable share in the country’s industrial employment, and in export of manufactured goods. Their share in value addition is 28pc.

In a populous country like Pakistan a growing SMEs sector can provide a viable source for job opportunities to a burgeoning population of youths.

Most SME clusters exist in major cities which are also the country’s industrial hubs. However, manufacturing is mostly labour-intensive with a low level of automation, a minimum of skills training, which results in high defect rates in goods produced with low efficiency levels.

The sector targets low value-added markets abroad while struggling to manufacture products for better value-added markets. It is facing serious problems in increasing or even sustaining its share of the global market which lead to under-utilisation of capacity and labour retrenchment.

Most of the export-oriented clusters, especially around Sialkot, manufacture international brands and are a part of international manufacturing chains identified in the literature as Global Value Chains (GVCs), where producers, suppliers and buyers are located in different countries.

The government should formulate a comprehensive policy to promote and encourage upgrading of technological capabilities in export-oriented SMEs/clusters

Pakistan has various organisations for SMEs’ development, including Small Medium Enterprise Development Authority (Smeda), Trade Development Authority of Pakistan (TDAP) and Technology Upgradation and Skill Development Company (Tusdec).

Most of the literature and policy emphasis on SMEs in Pakistan relate to business performance, access to different markets, quality accreditations and supply chain management.

Smeda is providing technical guidance and consultancy, with the help of international development agencies, to different export-oriented industrial sectors in the areas of productivity improvement, quality assurance, cost reduction and energy efficiency.

However, with other competing developing countries such as Vietnam, Thailand, Bangladesh, SMEs there are also improving their quality, productivity, cost competitiveness. It is not clear how these factors would be a sustained source of competitiveness at the international level.

Similarly, TDAP’s mandate, among others, is to examine supply chains of strategic export sectors and develop plans and initiatives for strengthening supply base including exporters’ capabilities and capacities. Again, the emphasis is on increasing the cost competitiveness and efficiency of supply chain, which is not a source of sustained competitive advantage at international level.

Tusdec also aims to expedite value-addition and productivity among manufacturing sectors by technology assimilation. However, it is not explained how this technology assimilation will occur, neither its website cites an example of a sector/sub-sector where it has helped in value-addition through technology assimilation.

Further, Tusdec has taken initiatives to improve the performance of clusters, a sphere on which Smeda is also working.

Even various international consultancy programmes such as Trade related Technical Assistance (TRTA) initiated by the European Union is directed towards increasing Pakistan’s productivity and quality of export-oriented supply chains.

Similarly, Unido has worked with Smeda to increase the cost competitiveness and productivity of various export-oriented clusters.

Thus, various government bodies and international development organisations are working at different levels without much signs of effective inter-organisation cooperation, and often with duplication of efforts.

Further, they are mostly focused on increasing productivity, quality and cost competitiveness along the supply chain.

However, for long-term competitiveness the need is to increase/upgrade the existing technological capabilities of SMEs/clusters so that they can target better value-added markets abroad, which translates into increased opportunities and better revenues for SMEs.

The government should formulate a comprehensive policy to promote and encourage upgrading of technological capabilities in export-oriented SMEs/clusters — particularly in products/commodities where the country has domestic advantage — by dovetailing and synchronising the efforts of all SME development organisations, and should also engage with international development agencies on the same agenda.

Published in Dawn, Business & Finance weekly, February 29th, 2016