Role of ICT for SME Development in Bangladesh

Transcription

1 Expert Consultation Meeting on Role of ICT for SME Development in Bangladesh Saturday, February 07, 2009 Pan Pacific Sonargaon Hotel, Dhaka SME Foundation

2 Report of the Expert Consultation Meeting on Role of ICT for SME Development in Bagladesh February 07, Background Small and Medium Enterprise Foundation (SMEF) was established in 2006 under the Companies Act Since its inception the Foundation is working as an apex institution for implementing SME Policy Strategies and has empowered to perform the role of a facilitator 1, removing operational bottlenecks, neutralizing market failures and providing necessary promotional supports like informing, advocating, facilitating, financing, planning, coordinating roles aimed at SME development for accelerating economic growth in general, and reducing poverty in particular. Since small and medium enterprises do not enjoy economy of scales significantly, they must exploit all possible measures to improve efficiency and productivity in order to survive against the challenges in the globalized world. As part of its desire to improve efficiency and productivity of SMEs, SMEF has been inspiring penetration of Information and Communication Technology (ICT) into these enterprises in Bangladesh. ICT, the most versatile technology of human civilization, has revolutionized our life and thought process, increased our efficiency and productivity. Increase of efficiency and productivity in every sphere, including in SME, necessitates application of ICT. Business models are being reshaped in line with ICT. In other words business enterprises are in the process of major transformation in order to meet the challenges of the new millennium. As a part of SMEF s intervention in SME production system, the Foundation has organized an Expert Consultation Meeting on Role of ICT for SME Development in Bangladesh to address constraints inhibiting SMEs in accessing and identifying the role of ICT for SME development in Bangladesh. In addition, the purposes of the consultation meeting cover: 1. Asses the available facilities, organizations/institutions and needs of ICT for SME Development; 2. Determine the major areas of interventions for ICT adaptation for the SMEs in Bangladesh; 3. Identify the constraints and potentials of SMEs in Bangladesh for ICT adaptation; 4. Develop a time bound action plan for trouble free access and appropriate utilization of ICT by the SMEs. 2. Opening Session The expert consultation meeting on Role of ICT for SME Development in Bangladesh was held on February 07, 2009 by SME Foundation in Pan Pacific Sonargaon Hotel. The Workshop started at 9.30 and ended at 2.00 PM. The Meeting was chaired by Mirza Nurul Gani Shovon, Member, Board of Directors, SME Foundation. Mr. Dilip Barua, Honorable Minister of the People s Republic of Bangladesh, Minister of Industries was attended the meeting as Chief Guest and Zafar Osman, President, DCCI and Dr. Engr. S. M. Nazrul Islam, Honorary President, Engineers Institute of Bangladesh were attended the meeting as special guest. Dr. M Kaykobad, Professor, Department of Computer Science and Engineering, 1 Moving Ahead, National Strategy for Accelerated Poverty Reduction II, General Economics Division, Planning Commission, Government of the People s Republic of Bangladesh, October 2008 Page 2 of 30

3 Bangladesh University of Engineering and Technology (BUET) presented the keynote paper titled ICT for SME Development in Bangladesh (Annex-1: Keynote Paper and Annex-2: Keynote Presentation). He also briefly presented a Policy Matrix of Action Plan of ICT Adoption. Representatives from different concerned Ministries/Agencies/ Department of Bangladesh Government, Research/Training Institutions, NGOs, trade bodies, CEOs of different ICT companies, SME entrepreneurs, Public and private universities, academicians and professionals have attended the consultation meeting. The list of participants is attached as Annex-3. After the keynote presentation, special guests and chief guest delivered their speeches. Zafar Osman, President, DCCI thanked SMEF for organizing the consultation meeting as well as he informed that DCCI had been working for along time for SME development. Considering the overall business environment he mentioned that ICT need to be made truely development tool for SMEs by reforming ICT policy. In this regard, awareness, training, policy advocacy are required. Moreover, we need a target oriented road map. Dr. Engr. Nazrul Islam said that ICT is important for development of enterprises and it is must for SMEs. He added knowledge accumulation and technology development is not possbile without ICT. Chief Guest of the event mentioned that SME sector would get more priority in the proposed industrial policy for facing the impacts of ongoing global recession (Annex-4: Detail speech in Bangla). In addition, he informed that ICT based SMEs have potentiality to create huge employment and enhance productivity of the country. He mentioned that change in our mind-set can lead poverty free Bangladesh with limited resources. After the Chif Guest s deliberation, Chair of the Meeting brief the overall probelms that are faced by the SMEs. In this connection he informed SMEF s initiatives to solve these problems. 3. Discussion Before the discussion starts Chair of the meeting request to make meaningful comments on the recommendations of keynote papers that we can make rigorous recommendations for policy makers. Mr. Fahim Mashroor, CEO BDJOBS He starts the discussion with commentary over the keynote presentation as the data are not up to date. He informed that International Telecommunication Union database contains the data of Bangladesh almost 5 years old. He believes that in the recent years internet penetration in Bangladesh is good enough and by referencing CEO, Grameen Phone he mentioned that not less than 50 million people are connected through internet. If we consider that infrastructure is not ready than it is difficult to make our action plan. Reality is that infrastructure is almost prepared but we can not offer them good quality content. He also emphasized on the industry academia relationship. The Meeting has also raised the issue that being a poor country like ours whatever infrastructure we have that is still underutilized and it is a big burden for the country. Representative of Ministry of Science and Information & Communication Technology Joytirmoy Sammaddar, Deputy Secretary He informed the meeting that the draft ICT Policy 2002 has already been completed. Out of total 306 Action Plans 44 are related to SMEs and these action plans can help preparing todays action plan. In this regard, he also suggest it should be carefully checked that any action plan preparing today shall not conflict with the existing draft action plan. He also added that fresh graduate should give the opportunity to work in the domestic industry as Page 3 of 30

4 intern to get the first hand exposure. The meeting discussed the matter that SMEF can play a role to cordinate SME related issues in the ICT policy. In this regard, Chairman, Bangladesh Computer Council proposed the recommendations that are finalized today we can forward it to the Ministry of Science and Information & Communication Techology to incorporate in the ICT Policy. Mr. Shekil Chowdhury, Senior Vice President, Dhaka Chamber of Commerce & Industry (DCCI) In his opinion he mentioned that SMEF is the central body for policy support of SME development and it should not go for implementation of the policies considering the limitation and realitations. He emphasized on the baseline survey and recommended to sart the survey on limited basis with 6 division then 21 old districs and then cover overall Bangladesh. In this connection, DCCI and other district level Chamber can help SMEF. The Meeting has informed that SMEF has already conducting a study on 6 SME sectors. Dr. Nuimuddin Chowdhury, SME Consultant He recommended that as we have limited resources we have to make selectional preference among small & medium enterprises. In such case we can focus on micro and small enterprises only. We can also force SMEs to use ICT by different inititatives. Mr. S. M. Kamal, Chairman, System Resources Ltd He suggested offering reward those SME entrepreneurs who successfully uses ICT for their business. These entrepreneurs can be role model and they can easily explain to others about the benefit of ICT. Mr. Matiur Rahman, General Manager, Bangladesh Small & Cottage Industries Corporation (BSCIC) SME is defined by different policy related organizations in different ways and all these definition need to be harmonized and be practical. Separate IT Park which is proposed to be set up in Kaliakoir, Gazipur and Computer Village in Mohakhali, Dhaka can play vital role in promoting ICT for SMEs. In addition, Small & Cottage Industries Training Institute (SCITI) can provide ICT related training to the SME entrepreneurs. Dr. M. Rokonuzzaman, Associate Professor, Independent University, Bangladesh In depth value chain analysis of different SME sector can disclose the information how much value is added by ICT. Moreover, ICT related software; ISP industries are fall in SME category. What support will be provided by SMEF to these industries is asked by him. Dr. A B M Siddique Hossain, American International University-Bangladesh For economic development of Bangladesh there is no alternative to develop SMEs. By mentioning the overview of the problems that are faced by SMEs, he recommend some suggestions. SMEs should be encouraged to use Open Source based software. The web portal of SMEF should be up to date by providing huge information both in Bengali and English languages. Page 4 of 30

5 Young ICT educated people should be offered all sort of assistance for developing ICT related activities in our country. These people can produce software for local demand. Imported software should be stopped using for domestic uses. Ministry of Science and Information & Communication Technology has to declare of using Open Sourced Software. E-commerce should be encouraged. Mr. Sumon Ahmed Sabir, CEO, BdCom Online Ltd. ICT related SMEs should be offered assistance to survive in the fierce competition with foreign and multinational companies. ICT Policy should take care SME development. As there is a lack of coordination, coordinated effort is required by all to develop ICT for SMEs. Moreoever, it is true that there is lack of sufficient infrastructure but still this infrastructure is unused. Artifical pricing of the infrastructure makes it high price that is beyond capacity of SMEs. In addition he mentioned about the industry-academia relationship should be encouraged for development of SMEs. Mahmud Hasan, Chief Operating Officer, Bangladesh Telecentre Network The role of telecentre in developing ICT awareness and uses is mentioned by him and then some suggestions also offered. First of all, to reach ICT in the remote areas connectivity is required. Besides, online connectivity offline content like Compact Disk (CD), mobile based hotline can promote ICT uses among SME entrepreneurs. One of the most important aspect is content must contain the practical information for SMEs like market information, access to finance related inofrmation, documentation procedures for export, fair related information etc. In addition, local information collection and content tie up at local level can create more interest for the SMEs. Last of all capacity building of SME entrepreneurs is the demand of present global and national market context. Mr. Nirmalendu Sarker, Chairman, Study and Research cell, Institute of Diploma Engineers It is expected that ICT practice in SMEs will reduce business cost but at the same time we need to be practical about the limitations. Computer and internet related training is essential for SMEs to use ICT in their business. Mr. Shahedul Islam Helal, President, Bangladesh Chamber of Industries (BCI) If it is imposed to the SME entrepreneurs for certain activities like issuance of business license, payments of utility services like gas, electricity, telephone etc by using ICT then it will help to be accustomed with the ICT and this practice can help them to further implementation of ICT in their business. Md. Zabed Ali Sorker, Deputy Director (System) & Project Director, Bangladesh Computer Council In addition to the general SMEs he mentioned about the ICT related SMEs that are facing problems in the current context. For SME development support center for SMEs and SME incubation center can be established in all over the country. SMEF has also can support to create new SMEs. Establishment of ICT Park/ ICT village can also help SMEs for ICT related issues. In this regard, for general SMEs awareness and skill development program can be launched. Interventions are needed how SMEF can help for access to information. Moreover, R& D is essential for local content development. Page 5 of 30

6 Sheikh Md. Abdus Sobhan, President, NASCIB First of all target group should be selected for motivate for using ICT. Dr. Md. Mostofa Akbar, Department of Computer Science and Engineering, BUET Better relationship between academia and industry need to be established for further ICT related usage in SMEs and SME development in Bangladesh. To promote local software, high tariff can be imposed on foreign imported software. Mr. A A Munir Hasan, National Project Coordinator, Access to Information Programme, Prime Minister's Office To create new entrepreneur and encourage developing as an entrepreneur academic syllabus need to include entrepreneurship related course or topic in the textbook. Saidur Rahman, Chairman, CSE, BUET If government implements certain measures like tax submission, payment of any other utility bills, banking facilities by ICT can increase usage of ICT by SMEs. Representative of Bangladesh Open Source Network Content in Bengali language can help SME entrepreneurs to learn quickly. In this regard, he mentioned that a compact disc (CD) namely SMEs in box has already been prepared and that can help to get information for SMEs. Afroza Nahar, Assistant Professor, Dept. of CS, AIUB For preparing any policy guideline ralted to role of ICT for SME development statistics of SME is required first of all. Ahmed Ali Shah, DGM, SMEF Computer added manufacturing can help SME development. Dr. Yeamin Akbory, DGM, SMEF Software procurment by government or private sector can mention in their tender specification that if locally produced software is particpated in the bid then foreign software will not be allowed. Mr. Sayed Azim, SME Consultant Key note paper does not include the activities already been taken by SMEF in this regard. The format of action plan needs to be improved. Dr. Nurul Qadir, DGM, SMEF The role and activities of SMEF reagrding ICT practice in SMEs are mentioned by him. Md. Mujibur Rahman, DGM, SMEF A dynamic website of SMEF both in Bengali and English langauge with plenty of SME related information is going to be launched. SME entrepreneur can get any sort of help from SME helpline centres. SMEF has alrady preapred web portals of different SME related trade bodies like NASCIB, BEEMA, Banglacraft, Plastic association and light engineering assocation etc. In addition, SMEF provide capacity building activities like ICT awareness development, training etc. Mr. Md. Abdur Razzak, President, Bangladesh Engineering Industries Owners Association Page 6 of 30

7 The sector specific ICT related problems are presented by the president of BEIOA. Technology of the sector is very old and ICT is very important to upgrade these technologies. At the same time he mentioned that we have lack of modern programming knowledge that can support advanced technology oriented industry. Some other issues are raised during the meeting that are briefly given below: Arrangement of SMEs product registration in online market space. To develop contentent SMEF can encourage SMEs. 4. Recommendations SHORT TERM (1-3 Years) S.L Task 1. ICT appreciation for SME owners/managers 2. ICT Training for SME managers/owners 3. ICT capacity building of SMEs 4. Comprehensive SME database 5. Exhibition of ICT for SME Responsible Party SMEF, MOI, Trade Association SMEF, MOI, Trade Association SMEF, MOSICT, BCC, BTRC SMEF, MOI SMEF, MOI 6. E-transaction Act MOSICT, BCC, Law Ministry, Bangladesh Bank 7. e-business advisory service SMEF, BCC, BSCIC Sched ule June, June 2010 June, June 2010 June June June Performance Monitoring Feedback from participants ICT adoption Statistics on connectivity and website of SMEs Resource faculty members of University/technic al institute SMEF, BCC, Universities and technical institutes Key Characteristics / Operational Controls / Comments Awareness will be built among SMEs about powers of ICT tools SMEs will be given training on important ICT tools Broadband connectivity for SMEs. Creation of website of SMEs with their product details Trade bodies SMEF, PPP Detail information in database will help government. Researchers to formulate appropriate policies. Trade bodies SMEF, PPP ICT exhibition for SMEs can be organized division-wise and nationally 2009 Volume of e- transactions MoC, MOSICT Enhancing e-commerce activities 2009 SMEF, PPP Facilitating e-commerce MIDTERM (3-5 Years) S.L Task Responsible Party Schedule Performance Monitoring Resource Key Characteristics / Operational Controls / Comments Page 7 of 30

8 8. Integration of ICT in production lines of SMEs 9. Adoption of E- commerce 10. E-catalogue of SME products 11. e-procurement by government 12. e-governance for SME NPO, BITAC, BCC MOSICT, BCC, Law Ministry, Ministry of Commerce, Finance, Bangladesh bank SMEF, MOI, MOSICT Ministry of Finance, MOSICT MOSICT, Municipal corporation, local government June Percentage of increase in productivity as well as number of SMEs Number of SMEs adopting e-commerce Number of SMEs with e- catalogues Number of organizations adopting e- procurement Faculty members of technical institutes/universities PPP Adoption of e- commerce will bring in transparency and inspire SMEs to adopt it. In addition it can avail of the opportunities existing in international market. SMEF, PPP Publication of Brochures for products of SMEs MoC, MoF, BCC e-procurement by govt will inspire SMEs to adopt ICT tools for better business MoC, MoF, BCC Online renewal of Trade AT, TIN will reduce barriers for SMEs Page 8 of 30

9 LONG TERM (More than 5 years) S.L Task Responsible Party 13. ERP Centre SMEF, MOI, MOSICT 14. Innovation Centre for SMEs 15. Integration of ICT in production lines of SMEs SMEF, MOI, MOSICT NPO, BITAC, BCC Schedule June Performance Monitoring Resource PPP Technical Universities ICT innovation Centre Key Characteristics / Operational Controls / Comments Govt can provide ERP solution to SMEs by establishing an ERP Centre (SMEs can use ERP solutions by providing monthly subscription Innovation centre will look for ICT based solutions to problems faced by SMEs. It will also be used as incubator of appropriate technologies. SMEs will be supported by ICT experts to improve productivity of existing production lines by industrial automation Page 9 of 30

10 Annex 1 ICT for SME Development in Bangladesh Dr. M. Kaykobad Professor Department of Computer Science and Engineering Bangladesh University of Engineering and Technology Abstract Information and Communication Technology (ICT), being the most versatile technology human civilization has so far seen and is being enriched with, is penetrating literally into every walk of life. It has revolutionized our life and thought process, increased our efficiency and productivity. Increase of efficiency and productivity in every sphere, including in Small and Medium Enterprises (SME), necessitates application of ICT. Business models are being reshaped in line with ICT. In other words business enterprises are in the process of major transformation in order to meet the challenges of the new millennium. Research results indicate that e-commerce offers potential solutions for SMEs to meet challenges of an everchanging environment. However, the few available studies related to SMEs in Bangladesh reveal that we are lagging behind and are skeptical about adopting the ICT even though it promises increase of productivity. Many significant reasons contribute towards indifference to ICT in SME. These factors can be broadly classified into Internal and External Barriers. While internal barriers can be resolved within the organization by the organization itself, external barriers need to be addressed either by government intervention or by collaboration of SMEs. This paper discusses potential areas in which ICT can be effective for development of SME. This includes office automation, e-commerce, application of ICT tools in solving production line problem more efficiently. This paper also highlights some of the barriers that are hindering penetration of ICT into SME activities. Page 10 of 30

11 Background Under the Companies act 1994, the Government of Bangladesh has established in 2006 the Small and Medium Enterprise Foundation (SMEF) as an apex institution for implementing SME Policy Strategies and has empowered SMEF to perform the role of a facilitator 2, removing operational bottlenecks, neutralizing market failures and providing necessary promotional supports like informing, advocating, facilitating, financing, planning, coordinating roles aimed at SME development for accelerating economic growth in general, and reducing poverty in particular. While there is ample avenue for development of diversified and non-traditional SMEs in the country, low productivity, lack of access to information, high import of finished products put SMEs in a challenging situation. 3 Since these small and medium enterprises do not enjoy economy of scales significantly, they must exploit all possible measures to improve efficiency and productivity in order to survive against the challenges of multinational companies in the globalized world. As part of its desire to improve efficiency and productivity of SMEs, SMEF has been inspiring penetration of ICT into these enterprises in Bangladesh. In a developing country like Bangladesh vigorous attempt should be made to accelerate the growth of SMEs to reach the targets set by the United Nations (UN) in the Millennium Development Goals (MDG) 4 to alleviate poverty of which Bangladesh is a signatory. Bangladesh has made impressive progress towards attainment of MDGs by National Strategy for Accelerated Poverty Reduction II(NSAPR II) comments that Bangladesh appears on track to achieve the targets of halving the proportion of people living below poverty line and suffer from hunger, net enrolment in primary education and reduced child mortality. However, it lags behind in indicators like primary school completion rate, maternal mortality ratio, participation of women in wage employment and limitations in the use of PCs and internet services. While improvement in poverty measures reflects the positive impact of the pro-poor strategy of the government focusing over the years on growth, human development and social safety nets, the social activities of NGOs, broad-based micro credit operations and a growth process led by expanding and vibrant private sector, nevertheless the impact of growth on poverty reduction has been neutralized to some extent by increasing inequality of income in the country- the Gini coefficient increased from 0.39 in 1991 to 0.47 in 2005 implying barely an average annual increase of 1.47 percent during the period. The incidence of poverty, 40% in 2005, is higher than in some of the neighbouring countries, like Bhutan with 31.7% (2004), India with 27.5% (2004-5), and Sri Lanka with 22.7% (2002). The high incidence of poverty in absolute terms as well as in regional contexts calls for accelerated government efforts at achieving higher growth, fostering productive employment, improving human capital and social protection. NSAPR II states that there is a very high density of SMEs in Bangladesh constituting over 99 percent of private sector industrial establishments and providing job opportunities to roughly 70 to 80 percent of the non-agricultural labour force. The relative SME share in manufacturing value added to GDP varies between 28 to 30 percent. Their contribution to national exports varies between 12 to 40 percent. The greater proportion of SMEs (58 percent 2 Moving Ahead, National Strategy for Accelerated Poverty Reduction II, General Economics Division, Planning Commission, Government of the People s Republic of Bangladesh, October Meeting the challenges in SME Development in Bangladesh, Report by KATALYST, 09 September, Page 11 of 30

12 of establishments and 55 percent of jobs created by them in 2006) being spread in the rural locations offers better prospects for industrial dispersal and reduction of income disparity between rural and urban areas. There has been increased women s participation in the SMEs, especially in home-based micro enterprises spread over the production of clothing and textile. This significant contribution of SMEs and its role in reducing income disparity, participation of women are completely in alignment with the MDG goals. So for the greater benefit of the nation and achievement of the MDG goals the Government should take adequate and comprehensive steps to foster its growth and efficiency. ICT, being so versatile, should be in action to improve efficiency and productivity of SMEs. Introduction Revolutionary development of Information and Communication Technology has brought in unprecedented change in our life styles and thoughts. No technology in the history of human civilization has penetrated so much into every walk of life as ICT has. Bill Gates of MicroSoft thought of ICT tools as Digital Nervous System 5 for any enterprise. ICT is a great tool for increasing efficiency and productivity in any sector more so for SME, where you need to squeeze out benefits from every corner. For a country like Bangladesh with an economy that is burdened with meeting perennial natural calamities, high population density and high unemployment rate, not heavy industries demanding huge investment but light industries like SMEs should be developed in different localities that will foster both economic growth and employment to people. The significance of ICT ICT is concerned with technology and other aspects of managing and processing information and its transmission to points needing them. Modern ICT has the following dimensions- Computing: ICT is more than computers. It includes hardware, software required for application in communications, control systems, sensor networks and in other fields. However, to ensure use of computers and other ICT tools by common people it is very important for them to be available at affordable prices, so should they be available in local languages. The question of language is particularly important in case of SMEs where involved population is not expected to be highly educated and can interact largely only when local language can be used. Connectivity: While generation of information by computing is essential, it is more important to be able to share information and resources by people located geographically apart. This requires communication and electronic communication. Internet technology has made it possible to transmit information at the speed of the light to places where this will be required. This also allows people located far apart to use computing and other ICT resources located in different places and thus share and utilize the power to the benefit of all. Developing countries, especially their rural areas, typically are without connectivity, let alone broadband (data) connectivity at affordable prices. Non-availability of ICT resources to a section of population, especially in developing nations, forces them to be poorer. This phenomenon has been coined as Digital Divide. Universal access requires powerful networking and business models, perhaps combining 5 Gates, Bill (1999). The Speed of Thought, Warner Books, New York. ISBN Page 12 of 30

13 public and private partnerships. ICT is more than connecting humans to the internet, it requires integration of all forms of ICT and media, such as mobile telephony, TV, radio, etc., as well as interconnecting systems such as sensors, controllers, etc. The issue of connectivity is particularly important for SMEs since mostly they are located away from the capital where internet connectivity is yet to reach. Content: ICT tools will become useful for sustainable development when it provides relevant content (value) to end-users. Often, this would be locally-specific content. One requirement is for tools to make it easier for people to become producers of content and information, instead of just consumers. In order to inspire SMEs to introduce ICT technologies it is important to have sufficient content in the net that will prove useful to SME entrepreneurs. This content may include possible market for their products, information about quality of products and buyers. Bill of Rights: Getting the right information to the right people in the right timeframe in the right language in the right level of detail is what is important for people to be effective and productive in their tasks. This requires extensive development of appropriate solutions that overcome barriers of language, information complexity, and incompatible or missing structure. Since SMEs are primarily located in rural and semi urban areas content will be useful only when it is presented in local language. (human) Capacity: By far the most important of the links of ICT is awareness of the potential of ICT by people that are supposed to benefit from. Beyond technical barriers, many limitations to incorporating ICT are social, cultural, or economic. A first goal for governments must be to increase literacy amongst its populace, especially for the historically disadvantaged, such as women, rural inhabitants. For ICT to penetrate into SME it is very important that SME people are imparted ICT training and appreciation. Methodology This paper is prepared on the basis of secondary information collected from different reports published by government, private and international organizations and the general trend of success the other countries are embracing through applications of ICT. One of the major limitations in case of analyzing SME-related data is that there is no official up-to date baseline information on SMEs; most of the information reflected the scenario of a decadeback. Thanks to the initiatives of some local and international organizations, some steps have been taken to develop baseline information on various economic, managerial and technological aspects of SMEs (for example, SMEF, BEI, SEDF, IFC, KATALYST etc.). The Definition of SMEs and Bangladesh Perspective The definition of SME varies from country to country. On 6 May 2003 the European Commission adopted a new Recommendation 2003/361/EC 6 regarding the SME definition which replaced Recommendation 96/280/EC as from 1 January The revision takes account of the economic developments since 1996 and the lessons drawn from the application of the definition. It increases legal certainty, while reducing possibilities of its abuse, 6 Page 13 of 30

14 particularly with regard to state aid, structural funds and the research and development framework programme. This Recommendation concerns all community policies applied within the European Economic Area in favour of SMEs and is addressed to the Member States, the European Investment Bank and the European Investment Fund. The definition will be adopted in a number of Community acts and programmes and integrated in the field of state aids where SMEs can benefit from exemption provisions including aid for R&D and vocational training. European Union considers 5 enterprises with less than 50 million euro annual turnover and less than 250 headcounts as medium-sized. Corresponding figures for small enterprises are 10 million euro and 50 persons. Although Bangladesh has considerably progressed in its MDG goals, economic fate of the population has barely changed over the past decades. The Industrial Policy states: the SME sector has been given priority as a privileged sector. The PRSP 8 states: The Government will pursue an employment intensive industrialization with emphasis on SMEs and export-oriented industries.small and Medium Enterprises (SMEs) have moved to centre-stage as a major plank of Bangladesh s poverty reduction amid globalization. National Strategy for Accelerated Poverty Reduction II asserts that The SME sector will turn into a more dynamic sector to be able to play a pivotal role in achieving the national goal of accelerated pro-poor growth, sustained poverty alleviation and faster rate of economic and social progress during the NSAPR II period and beyond. Highlights of data with a national scope pertinent to characterizing SMEs in Bangladesh as of are as follows: (a) there are some 82,000 private-sector establishments with headcount of at least 10 in Bangladesh with some 3.8 million workers employed in them. 9 The urban Bangladesh accounts for some 60% of units and 76% of employment in the private-sector enterprises. Rural Bangladesh accounts for the rest. 93.6% of all units in Bangladesh belong to the SME category, i.e. have between 10 and 99 employees. However, SMEs account for only 44% of the total employment of the enterprise sector. The number of establishments with between 1 and 9 workers is about 3.7 million. They account for some 14 million workers, working mostly in rural areas. However, many of these statistics are only survey-based. So, there is an immediate requirement of a census on SMEs. Keeping in mind the last census conducted by Bangladesh Small and Cottage Industries Corporation(BSCIC) was as early as in 1990, a similar census needs to be conducted by the same institution. It may be noted that the survey conducted by Bangladesh Bureau of Statistics in 2006 and funded by SMESDP project did not classify data in line with SME definitions, and therefore, could not be effectively utilized. 10 Moreover, in order to harvest the benefits from such huge a sector a comprehensive database of all SMEs must be prepared for the benefit of the SMEs and for enabling the government to take appropriate steps for fostering its growth. This will involve huge data processing and warrants SMEF to be strengthened with computing facilities capable of handling it. A year 2000 report of KATALYST states that now SMEs are not only concentrated to lowtech, traditional, and agro-based economic activities, they are spread over other nontraditional manufacturing and service sector as well BBS data on enterprises include some units under the sub-sectoral captions of public administration and defence, for instance. Smefbd.org 10 Bangladesh Bureau of Statistics, 2004; BBS Business Registry, 2006 Page 14 of 30

15 In SME Policy strategies 2005, the Small and Medium Enterprises were categorized using the following definitions: a. Manufacturing enterprise Small enterprise : An enterprise would be treated as small if, in current market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc, excluding land and building, were to up to Tk. 15 million. Medium enterprise : An enterprise would be treated as medium if, in current market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc, excluding land and building, were up to Tk. 100 million. b. Non-manufacturing activities (such as trading or other services) Small enterprise: An enterprise should be treated as small if it has less than 25 workers, in full-time equivalents. Medium enterprise: An enterprise should be treated as small if it has between 25 and 100 employees. Ministry of Industries revised the above mentioned definition on June 12, According to their circular the definition of small, medium and large industries are summarized below- Category Small Medium Large * Excluding land and building ** Full-time equivalents Table-1: Definition of small, medium and large enterprises Manufacturing enterprise Tk million Capitalized costs * < Tk. 1.5 million AND/OR No. of employees ** < 50 Tk. 1.5 million Capitalized costs * Tk. 200 million AND/OR 50 No. of employees ** 150 Capitalized costs * > Tk. 200 million AND/OR No. of employees ** > 150 Non-manufacturing (such as trading or other services) Tk million Capitalized costs * < Tk. 5 million AND/OR No. of employees ** < 25 Tk. 5 million Capitalized costs * Tk. 100 million AND/OR 50 No. of employees ** 50 Capitalized costs * > Tk. 100 million AND/OR No. of employees ** > 50 Literature Review on ICT in SME According to the OECD (1998) 11, there is a positive correlation between adoption of ICT and firm size. However, there are substantial variations even within SMEs. For instance, OECD research based on 2881 companies in 12 European countries shows that the Internet is used by 41 per cent of companies with employees, by 30 per cent of companies with employees, and by only 16 per cent of companies with 1-9 employees. An EU-Databank survey 12 of ICT use by European SMEs found that SMEs use internet for (64 per cent), to maintain contact with a wide range of organizations (60 per cent), to access a wider range of information sources (56 per cent), to improve co-ordination of their main line of business within and outside the organization (29 per cent), to experiment (26 per cent), to conduct on-line sales/orders (14 per cent) and on-line purchase of goods and services (12 per cent). The same study indicated that SMEs were motivated to create web sites to raise visibility and advertise (67.2 per cent) and to widen the range of target customers (40 per cent), but that on-line sales and orders were less important (11 per cent). 11 SMEs, Productivity and Management: A Research Agenda for ICT and Business Clusters, Jonathan Liebenau, [Paper presented at the 2004 Conference on Information Science, Technology and Management (CISTM), Alexandria, Egypt, 8-10 July 2004] 12 Page 15 of 30

16 However, it must be borne in mind that broad conclusions about SMEs are at best indicative and at worst of limited value for policy makers. For electronic commerce (as indeed for most applications and the diffusion of ICT), the heterogeneity of SMEs 13 (in terms of market structure, aversion to risk, location, sector, organizational structure, innovation climate, etc.) affects the scale and rate of implementation of electronic commerce and its very appropriateness. This has implications for the rate of adoption as well as efficacy of policies and programmes to encourage SMEs to adopt electronic commerce. The degree with which awareness of electronic commerce is translated into adoption, investment and use also varies. For example, an SME can operate in a highly competitive market with low innovation rates (e.g. low end of the retail sector) or in a highly dynamic industry with high innovation rates (e.g. software). The former may be indifferent to electronic commerce or perceive it only as a way to reduce costs; the latter may see it as a tool for new process, product or service innovations or for creating new markets 14. Other SMEs may operate in clusters for production or within networks dominated by large companies (such as SME suppliers to single large manufacturers in the car industry). In fact, one would expect that large companies would drive the adoption of business-to-business electronic commerce. In these cases, there is likely to be a highly innovative environment and electronic commerce would be used for productive processes and supply line relations 15. To encourage SMEs to use ICT tools in order to increase productivity, the Japanese government allows corporations to deduct up to 6 percent of total lease payment on brand new machines from annual income tax payments. The government also subsidizes up to 25 percent (with a cap at JPY2.5 million or USD22,000) lease payments for corporations in agribusiness management, lumber supply, and aquaculture. 16 Singapore launched an Infocomm Competency Programme from November 2003 to March 2005 to increase the computer literacy of its workforce. The programme subsidized SGD5.00 (USD3.00) per trainee per hour for SMEs on broad-based ICT courses such as Office applications, desktop publishing, workgroup applications, and webpage design. 17 Between 1998 and 1999, the Singapore government passed the Electronic Transaction Act 18 and Electronic Transactions Regulations 19 to legitimize electronic signatures in the legal framework. This provided a foundation for key public and private sector leaders, including the Monetary Authority of Singapore, Cisco Systems, and Visa International, to develop more secure e-payment services over a public key infrastructure. The Philippines National Economic and Development Authority (NEDA) are pushing for the full deregulation of Voice-over-Internet Protocol (VoIP). In most parts of the world, governments are more inclined to ban VoIP because it is in direct competition with stateowned telecom companies and will decrease government revenues from incoming international call tariffs. NEDA however, firmly believes that VoIP can help spur growth, investment, and jobs because it can reduce charges for international calls by 75 percent. 20 Skype, the leading programme for VoIP now has more than 27 million users worldwide, of which 30 percent, primarily SMEs, use it for business purposes. 21 The Hong Kong Productivity Council 22 sponsors various sector-specific programmes that help businesses increase productivity through better utilization of ICT resources. Their Enterprise Resource Planning Centre 23 provides training, consulting, and a software platform 13 personal.rhul.ac.uk/uhtm/022/smeict.html OECD SMEs and electronic commerce. Paris: OECD 16 Leasing Policies : < 17 National Infocomm Competency Centre, Singapore : 18 Legal Guide to the Electronic Transactions Act Salient Features of the Certification Authority Regulations 20 NEDA Press Release, 22 February IT for SMEs: Cost savings by making the switch, UK Financial Times, 23 March Hong Kong Productivity Council < 23 Hong Kong Enterprise Resource Planning Centre < Page 16 of 30

17 for its subscribers. In addition, the Vocational Training Council of Hong Kong provides e- learning courses by sector. 24 The Korean government created the Korean Market Place Website 25 to showcase products of Korean SMEs to global buyers. Local SMEs can easily connect to the global network by posting offers to buy or sell products. It currently hosts over 20,000 homepages of SMEs and e-catalogues of over 120,000 products. Progress of ICT Sector in Bangladesh The first computer came to this land in 1964 at Atomic Energy Commission, Dhaka Centre. Then subsequently banks and universities started using them. The first formal degree awarding department started at BUET with the opening of Computer Engineering Department, later renamed as Department of Computer Science and Engineering, in Computer departments around the country attracted the most meritorious students in spite of non-availability of experienced and qualified teachers. Now almost all universities offer degree courses under different names. It is already quarter of a century that formal education in ICT started our country. Possibly inspired by the success of our neighbour India, many initiatives on ICT have been taken by ICT professionals and the government. In order to harvest the benefits of this new technology the government formed Bangladesh Computer Council, renamed a ministry into Ministry of Science and ICT, exempted VAT and taxes from ICT tools, opened ICT incubator in the heart of the capital, facilitated participation of our professionals in software expos in different countries and in WSIS with a delegate more than 3 times as large as that of India, formulated ICT Policy twice and passed ICT Act, High Tech Park is also in the being, spent significant amount of money for opening shared office in the Silicon Valley, made funds available through EPB and Bangladesh Bank to inspire growth in this sector, constituted a high powered Task Force with the Honourable Prime Minister of the country in the chair, Support to ICT Task Force (SICT) for prompt implementation of projects of national interest, successive governments declared ICT as thrust sector of the nation. In spite of all these efforts our performance in ICT is quite mediocre. To be convinced of the mediocrity of our performance let us see the following statistics. Indian ICT export 26 is growing very rapidly starting with $128 million in 1991, then US$ 17 billion in 2005 and US$ 60 billion in 2010 (projected) whereas in 2005 we earned US$15 million and now claim to have earned about US$25 million only. For India share of ICT in GDP is 5%, whereas share of ICT in exports is about 20%. Table 2. GDP and total telephone subscription of neighbouring countries 27 Country GDP, 2006 in billion US$ Per capita in US$ Total telephone in,000 Telephone/ Hong Kong Information Technology Training and Development Centre: < 25 Korean Market Place < Page 17 of 30

18 Bangladesh India Nepal Pakistan Mobile phones constitute 96.7% 28 of the total subscription in Bangladesh, whereas for India, Nepal and Pakistan the corresponding figures are 85.6%, 82.3% and 92.9%. Now number of mobile phones alones has increased to nearly 50 mln 29. Table 3. Internet subscription in neighbouring countries(2007) 30 Country Internet Internet Number of users Number of subscription in subscription/100 users/hundred,000 Bangladesh India Nepal Pakistan In January 2006 Indian e-commerce market stood at 1,180 crore Indian Rupees, and in it has been estimated to reach 2,300 crore rupees. Its online sale in 2004 was 345 crore rupees. Indians enjoyed 1.2 computers per citizen in While our corresponding figures are not available but production to consumption ratio will be xtremely small compared to the India figures. Now that we are not doing that well we must analyze the situation and find reasons behind it. There is a guess that only much less than 10 percent of professionals acting as ICT experts and consultants have formal education in ICT. After 25 years of formal ICT education in Bangladesh the situation should change. These qualified graduates should be induced to play their role in policy making, implementation of projects of national interest and help the country harvest the benefit of this versatile technology. So success of our ICT initiatives will largely depend upon whether we are able to pick up the right experts. In this era of internet technology it is not at all difficult to find appropriate people. Professionals and experts that will be leading any sector including ICT should be transparent enough to keep their profiles in the net, and the government can select the right people for implementation of the projects of national interest, including those that are related top SMEs. Major Areas of Interventions for ICT adoption in SME Access to Information Information and data on business, industry, technology, finance etc. are fragmented and difficult to access in Bangladesh. However, this situation is not entirely uncommon as usages of ICT are in preliminary stages. Government of Bangladesh is recently going to pass a law Page 18 of 30

19 regarding access to information. ICTs can increase access to information and this information can help SME entrepreneurs to work more productively as well as in new opportunities. Access to information through ICTs is a question not only of connectivity but also of capability to use the new tools and relevant content provided in accessible and useful forms. Connectivity has been a priority, and it is a prerequisite for contents as well. But given the speed at which technologies are evolving and can move unconstrained by overly restrictive licenses and global patenting costs could fall significantly, facilitating adoption. Hence, we should emphasize the need for all content creation to progress in tandem. The government of Bangladesh has allocated fund through EPB and Bangladesh Bank for use in ICT endeavours. Since this information is possibly not available to SME entrepreneurs in the right time they could not do it. Access to Technology Unfortunately, as in other developing countries, in Bangladesh population in the lower stratum does not have the same level of access to technology as those in upper stratum. ICT should be made available to SMEs whether located near the capital or further away in the remote corner of the country. Since SMEs cannot afford to make adequate investment to procure high end computing devices or ICT tools like ERP solutions. Our Government should come forward to create Enterprise Resource Planning Centre as done in Hong Kong for providing training, consulting, and a software platform for its SME subscribers. SME personnel should be given adequate training on popular ICT tools so that they can use those tools and appreciate their effectiveness in their work. Government should also inspire SMEs to use ICT tools by giving incentives. In line with Japanese Government s initiatives SMEs can be given tax exemption for purchasing computers and other ICT tools. Access to Market In Bangladesh some progress have been made to use ICT tools for effective marketing of products 31,32,33,34,35. However, these efforts have not reached a level where entrepreneurs of SME could be adequately inspired. Efforts should be made to inspire both buyers and producers to present their items of interest in the net for electronic matching and thus save time and energy for marketing. SMEs can be facilitated through initiatives like Korean Market Place Website that will help our SME entrepreneurs project their products inside the country and outside. Access to Finance Bangladesh Bank has initiated a fund of Taka 300 crore as Entrepreneur Equity Fund to support ICT, Agriculture and SMEs. In the budget of , government has given increased tax-rebates to the SMEs 2. Government should also take progressive measures so that in terms of import duty and VAT SMEs get some benefits. However, in some specific web.bizbangladesh.com/ecommerce_solutions_bangladesh.html 35 Page 19 of 30

20 cases, SMEs are facing higher import duties on their imported raw materials than finished products. 36 Last budget again allocated EEF fund for the software industry 37. According to the report Bangladesh Bank is going to disburse US$14.57 million or BDT 1.0 billion to the software companies. Export statistics do not support that such funds have been used to improve the economic fate of the country. A better way would be to make a portion of this fund available for SMEs in their bid to improving their efficiency through applying ICT tools. Human Resource Development In order for SMEs to appreciate importance of ICT tools it is important that SME entrepreneurs are given appreciation courses and managers necessary ICT skills. This can be organized by SMEF and BCC. SME personnel can be equipped with popular tools for Office Automation typically used in Office environment for word processing, spreadsheet analysis or databases, internet browsing and some presentation tools. Further courses on webpage management can also be taught with a view to enabling SMEs develop their own websites. Furthermore, based upon necessity some hardware courses can also be taught to enable SME personnel perform many of the production line operations using ICT. Some of the courses may be specially designed to suit the needs of the SMEs of similar types. Prospects and Potentials for ICT Adoption e-commerce Electronic commerce or e-commerce refers to a wide range of online business activities for products and services. It also pertains to any form of business transaction in which the parties interact electronically rather than by physical exchanges or direct physical contact. E-commerce is usually associated with buying and selling over the Internet, or conducting any transaction involving the transfer of ownership or rights to use goods or services through a computer-mediated network. Though popular, this definition is not comprehensive enough to capture recent developments in this new and revolutionary business phenomenon. A more complete definition is: E-commerce is the use of electronic communications and digital information processing technology in business transactions to create, transform, and redefine relationships for value creation between or among organizations, and between organizations and individuals. E-commerce facilitates organization networks, wherein small firms depend on partner firms for supplies and product distribution to address customer demands more effectively. Advanced ICT products for SMEs Enterprise Resource Planning (ERP) ERP offers a single repository for information on all business functions human resources, manufacturing, inventory, marketing, sales, accounting, and tax. It allows all levels of a business to obtain real-time management information for their area of responsibility. In figure 2 there are some comparison regarding cost reductions from ERP Centre for Policy Dialogue(CPD) (2006), An Analysis of the National Budget for FY , Dhaka. 37 bd-it.blogspot.com/2007/12/bangla-it-eef-fund-bangladesh-software.html Page 20 of 30

21 Figure-2 : Cost reductions from ERP Customer Relationship Management (CRM) CRM software integrates people and technology to maximize external relationships. Functionality includes: sales contact management, activity history, order entry, customer service and support, field service, lead generation, data mining, etc. Supply Chain Management (SCM) SCM software helps streamline the procurement of raw materials and delivering of finished products. It helps to decrease error rates, delays, and to increase efficiency. e-procurement is often a part of SCM. There are three main flows in SCM, namely: The product flow, which includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs; The information flow, which involves the transmission of orders and the update of the status of delivery; and The finances flow, which consists of credit terms, payment schedules, and consignment and title ownership arrangements. Enterprise Application Integration (EAI) EAI integrates different types of ERP and other software systems through a common problem in order to synchronize the processing, storing, and transmitting of information. Rapid Prototyping and Manufacturing (RPM) Over the next 20 years, RPM will have a profound effect upon the global manufacturing technology. RPM can reduce the new product design phase from 90 days to just three days. It is still an infant industry based upon newly invented technologies, but it is apparent that RPM will dramatically reduce the cost and time required to convert a new product design to a practical manufacturing process. Knowledge Management (KM) KM systems help a firm to better organize and share the knowledge of its employees. They help the firm take better advantage of its human resources. Page 21 of 30