Cluster Development · Economy of Bangladesh · Entrepreneurship Development · Industrial Development · Industrialization · Investment

Selecting appropriate approaches to industrialization

Selecting appropriate approaches to industrialization

Md. Joynal Abdin

The Financial Express on July 30, 2016

Industries are playing a vital role in entrepreneurship development, self-employment, and new-employment opportunity creation and increasing economic growth throughout the world. Therefore governments are keen to promote industrialisation for fostering economic growth, fighting unemployment and reducing poverty. The government used to establish an organisation for promoting and developing industries. But due to lack of specialised knowledge to select an appropriate approach for industrialisation these organisations are becoming less productive or ineffective in this regard.

Bangladesh classified industries / enterprises into five different categories (based on size), namely; Cottage, Micro, Small, Medium and Large enterprises / industries. At the same time Bangladesh segmented up the industries into seven different segments (based on purposes) namely; Handicraft, Hi-tech, Creative, Reserved, High Priority, Priority and Control industries. Size-based classification of industries in Bangladesh is as follows:

Sl. Type of Industry Replacement cost and value of fixed assets, excluding land and factory buildings (in BDT) Number of employed workers
1. Cottage Industry Below 1 million not exceed 15
2. Micro Industry 1 million to 7.5 million 16 to 30
3. Small Industry Manufacturing 7.5 million to 150 million 31 to 120
Service 1 million to 20 million 16 to 50
4. Medium Industry Manufacturing 150 million to 500 million 121 to 300
Service 20 million to 300 million 51 to 120
5. Large Industry Manufacturing More than 500 million More than 300
Service More than 300 million More than 120
Source: Ministry of Industries, Government of Bangladesh, (2016). National Industrial Policy.

Development / promotion agencies are generally categorised as enterprises according to the following approaches:

  1. Classification of industries as per the basic raw materials used: One of the most common approaches of classifying the industries as per their basic raw materials used. For example, the enterprises use primary agricultural crops to produce their products. These crops are known as agro-processing industries / sector; such as producers of jam jelly or chutney, rice, flour etc. Similarly, the enterprises use leather to produce shoes, bags; belts etc. These are known as leather goods industries or sectors.

  1. Clusters-based classification of industries / as per location: Development agencies are often identifying the industries based on their location at any specific pre-determined industrial clusters. This cluster-based approach to industrialisation could be one of the most effective tools for their development for many reasons such as serving maximum enterprises with minimum resources, promoting inclusive and geographically balanced development etc.

  1. Classification of industries based on entrepreneur’s gender: Industries are often getting priority for special treatment based on the gender of the entrepreneurs. For example, women entrepreneurs are usually lagging behind the men-owned enterprises. Therefore, governments are offering special treatment for the women entrepreneurs-owned enterprises to inspire women to become entrepreneurs.

  1. Classification of industries based on owner’s race and ethnicity: Another most important approach to differentiating enterprises to the based on the race or ethnicity of the owners. For example, tribal community or minority group could get special attention to bring them economically forward or to the mainstream.

  1. Classification based on output of the enterprises: Primary classification of the enterprises could be determined based on the output of the enterprises i.e. it is producing a product or performing service. Manufacturing and service enterprises have different attributes, this than that of the others. Therefore, policy makers identify them differently under manufacturing or service sector heads.

  1. Objective-oriented classification of enterprises: Promoters often differentiate the enterprises based on the objective of their products; such as domestic enterprises vs. export-oriented enterprises. Domestic enterprises produce products for the local market. On the other hand, export-oriented enterprises produce products only for export. Mixed types of enterprises could be there but they are not eligible to get special treatment offered by the government for exporters or others.

  1. Special-purpose approach of classification: Enterprises working for rehabilitating any special groups like disabled population or autistic group could be described as special-purpose enterprises.

A country may have a series of policies like, National Industrial Policy, SME Policy, Export Policy, Import Policy, Fiscal policy, ICT Policy, Women Development policy, Education Policy, Investment Policy, Skilled Development Policy, Credit Policy, Different Sectoral Policies on agriculture, handicraft, poultry and livestock etc. The government usually formulates policies to focus on any specific group or problem or purpose. But industrialisation / entrepreneurship development is such an important issue that could address multiple objectives at a time. Therefore, enterprise development agencies usually select approaches to achieve any specific goal of different government policies at a time. For example, one action plan could address employment generation, promotion of any specific sector as well as increasing export earning of the country through a single intervention. Therefore, designing development intervention by addressing multiple objectives requires appropriate selection of perfect approach to industrial development of a country.

India is providing more emphasis on SME development by having a specialised ministry, namely, the Ministry of Micro, Small & Medium Enterprises. This ministry is implementing Five-Year Plan for Economic Development. Indian SME promoters are working with Trade Promotional Programmes, Connectivity with MNCs and Government, Inbound and Outbound Investment, Strategic Business Alliances, Delegations and Study Tours, and Restructuring and Revival of stressed SMEs etc. issues additional to the Bangladeshi practices (SMBDC, 2016). India has several acts namely the Micro, Small and Medium Enterprises Development Act, 2006, Khadi & Village Industries Commission Act, 1956 – March 17, 2008, Re-establishing Khadi & Village Industries Commission dissolved in October’ 2004, July 19, 2006, Notification regarding implementation of provisions of Khadi and Village Industries Commission (Amendment) Act, 2006 and The Industries (Development and Regulation) Act, 1951. India has a long list of sector-specific policies, laws, bylaws etc. for promoting respective sectors, while a single act is missing in Bangladesh for promoting SME development or industrialisation.

Small and Medium Enterprises Development Authority (SMEDA) is the premier institution of the Government of Pakistan under Ministry of Industries & Production. SMEDA is implementing different projects namely; Prime Minister’s Youth Business Loan, Common Facility Centre projects, Cluster Development, and the Multi Donor Trust Fund (MDTF) project ‘Economic Revitalisation of Khyber Pakhtunkhwa and Federally Administered Tribal Areas (FATA)’ etc. for promoting SMEs in Pakistan (SMEDA, 2016).

Iran Small Industries and Industrial Parks Organisation (ISIPO) is focusing more on clustre development as well as development of Industrial Parks and Industrial Areas to promote industrialisation in Iran. They have their specialised approach to SME clustre development throughout the country.

The Small and Medium Enterprises Development and Support Administration of Turkey is generally known as KOSGEB. Their distinguishable programmes for SME development are Entrepreneurship Support Programme, Cooperation Joint Forces Support Programme, R & D, Innovation and Industrial Application Support Programme, International Incubation Centre and Accelerator Support Programme, Emerging Enterprises Market SME Support Programme, Thematic Project Support Programme, Laboratory Services etc. (KOSGEB, 2016). They are working on a much more wider scale than that of the above mentioned institutions.

From the above discussion it is clear that different countries have different approaches to SME development. Some of the above mentioned approaches are quite different from the others. Countries like Bangladesh, Pakistan or Iran has a lot to replicate from the countries like India or Turkey. We would like to recommend few approaches to SME Development for a least developed country like Bangladesh:

  1. Clustre-based development intervention: Clustre is defined in many ways by the experts around the world. There are a large number of homogenous enterprises located at a particular geographical area as a clustre. Therefore, trained manpower, raw materials, buyers and other factors of production are available at that particular place. A development agency could easily implement interventions for promoting and developing entrepreneurs of that clustre with limited resource deployment. Therefore, it could be one of the best approaches for industrialisation in a least developed or even in a developing country.

  1. Objective-oriented classification approach: We would like to offer this new approach for better output within a limited timeframe. For example; an SME promotion agency could identify few promising sectors with export potentials. Special export-oriented intervention could be developed and implemented to make the sector capable of export as well as competitive in the targeted international markets.

  1. Special purpose projects: A development agency shall have special purpose projects to rescue declining local sectors, promoting newly-developed sectors, mainstreaming any particular race or ethnic groups etc. Thus an organisation could contribute to achieving national goals of the country.

  1. Available skill-based enterprise development approach: The government could facilitate new sectors based on the available skills of the general people. For example, currently Bangladesh is producing a remarkable number of computer engineers every year. So IT / ICT-based industries like software development, outsourcing, freelancing etc. could be promoted for the sake of their self-employment or employment generation.

Industrial promotion agencies of a country have a great role to play with. But if any organisation is tagged with a set of predetermined approaches, they may not be capable to face newly-emerging challenges and needs of the sectors. Therefore, such institutions shall have a live, flexible set of targets to undertake newer approaches and interventions as and when required for promoting and development of the industries of that particular country. We must remember that effectiveness of the output and usefulness of the result of an organisation depend upon its approaches to designing, implementing and delivering their services to the clients. Appropriate methodology selection shall get highest priority before devising any strategy, undertaking interventions and implementing the plans.

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