Sustainable Development and SMEs. Rhama Parthasarathy

Transcription

1 Sustainable Development and SMEs Rhama Parthasarathy

2 Vital Statistics on SMEs 80% global enterprises are SMEs, with less than 250 employees SMEs constitute: 99% of EU s business 85% of USA s business 99% of UK s business 70% of World s production 20th June, 2009 Sustainable Development and SMEs, Leipzig 2

3 Features Labour intensive providing more opportunities for lowskilled workers Correlated with lower income distribution inequality Important link in the supply chain for the large MNCs Necessary for agro-dependent economies to transform into industrial and service-oriented economies Potentially bright for innovation and sustainable initiatives due to their flexibility and risk taking ability Providing all the benefits mentioned above in the transition economies despite their smaller operations 20th June, 2009 Sustainable Development and SMEs, Leipzig 3

4 Poverty reduction and SMEs Economic growth, poverty reduction and SMEs correlated? Economic activities assure economic growth Equitable distribution of wealth reduces poverty While MNCs create disparities, SMEs reduce them All the above factors produce social stability But... environmental quality?? 20th June, 2009 Sustainable Development and SMEs, Leipzig 4

5 Characteristics of SMEs No direct access to international and local capital markets Burden of fixed costs of regulation compliance Limited access to policy makers Limited capacity to bear high transaction costs Less/no incentive to policy compliance 20th June, 2009 Sustainable Development and SMEs, Leipzig 5

6 SMEs and Low Income Countries Bureacratic practices and formal regulations help corporate houses Incentivise micro enterprises to operate illegally And the above factors affect SMEs due to their limited human and financial resources 20th June, 2009 Sustainable Development and SMEs, Leipzig 6

7 SMEs prevelance 20th June, 2009 Sustainable Development and SMEs, Leipzig 7

8 Ease of Doing Business vs.number of SMEs 20th June, 2009 Sustainable Development and SMEs, Leipzig 8

9 Prospective Scenario Predicting the future market for sustainable enterprise which Can adapt to the social and environmental needs Can diminish the risk of exceeding social and environmental limits Can meet the unmet market needs of the potential consumers around 2 billion who are not active in the current global market 20th June, 2009 Sustainable Development and SMEs, Leipzig 9

10 Sustainability in organisational strategy Hart-Milstein Matrix 20th June, 2009 Sustainable Development and SMEs, Leipzig 10

11 Brighter side of SMEs Important source of employment especially for low-skilled labour, women and the youth Source of linkages that strengthen economic vitality of nations Flexibility and capacity to innovate than the MNCs Link the corporates with the local customer base Source of supply of input materials and service to large corporate houses 20th June, 2009 Sustainable Development and SMEs, Leipzig 11

12 Obstacles in General Difficulty to absorb large fixed costs Absence of economies of scale Higher unit costs of production Dull investment climate Long average time to start an enterprise 20th June, 2009 Sustainable Development and SMEs, Leipzig 12

13 Formal vs. Informal Sector Less developed economies Costly regulations Heavy bureaucracy Poor credit and banking Bolivia: out of 8.8 million population 400,000 have formal jobs Burkina Faso: 12 million people 50,000 employed in formal sector 38.4% of GNP from informal sector 20th June, 2009 Sustainable Development and SMEs, Leipzig 13

14 Constraints Input constraints long term finance labour market information & techonology inputs for production Output constraints access to domestic & international market Regulatory constraints tariff and non-tariff barrrier bias bureaucratic complications, legal complications with high start-up costs, licensing, registration procedures Management constraints scarce availability of management skills lack of consulting services due to high unit cost Institutional constraints passive association and collective action 20th June, 2009 Sustainable Development and SMEs, Leipzig 14

15 Environmental Impact and SMEs Environmental policies designed for MNCs overlook impact of SMEs Due to their large numbers and illegal operations the total impact is huge MNCs push the burden of environmental compliance to SMEs through outsourcing All the above factors lead to negative environmental impact 20th June, 2009 Sustainable Development and SMEs, Leipzig 15

16 Challenges facing SMEs Bureaucracy hinders their presence in emerging economies Environmental regulations designed for large corporate houses make compliance difficult Lack of finance hurt growth and entrepreneurship 20th June, 2009 Sustainable Development and SMEs, Leipzig 16

17 What SMEs Can Do? When SMEs are suppliers Their innovative measures can move their customers in the supply chain towards sustainable solutions When SMEs are buyers Can exert pressure towards sustainable supply chain management 20th June, 2009 Sustainable Development and SMEs, Leipzig 17

18 What the Governments Can Do? Creating favourable framework conditions Institutional and regulatory procedures/barriers can be relaxed Public policy be improved Organisational arrangements for ISO14001/EMAS assisting firms to integrate EMS Making EMS less formal for SMEs Offering benefits to SMEs with EMS Procure goods for the public sector from SMEs Create incentives to bring all the SMEs into formal sector Compensating for the unfavourable position Lowering transaction costs to SMEs Making market-related information available for SMEs Enhacing access to credit facilities 20th June, 2009 Sustainable Development and SMEs, Leipzig 18

19 Thank you for the patient hearing 20th June, 2009 Sustainable Development and SMEs, Leipzig 19