Has structural adjustment made it impossible to provide a level playing field for open competition between large and small businesses? Are there ways in which more effective support can be given to small and medium-sized enterprises (SMEs)?

A University of Manchester study reviews approaches to helping SMEs and assesses lessons learned from initiatives in developed and developing countries. It looks beyond the old polarised debate between those arguing for reliance on market forces and those urging state intervention to counteract bias towards large-scale industry.

In recent years formal interfirm linkages have improved the market environment for SMEs: horizontal linkages have facilitated clustering of industries to achieve collective efficiency; vertical linkages between SMEs and larger enterprises through sub-contracting arrangements; new interfirm networks have increased the small-scale sector’s capacity for advocacy at macro-policy level.

The report argues for improved collaboration between four sets of actors identified as support facilitators for interfirm linkages: governments, SMEs, local associations, NGOs, and international donors.

The report provides evidence that structural adjustment is a threat to micro-enterprises producing simple household goods for domestic markets. Declining demand for local products, decreased rural incomes, competition from cheap high quality imports and higher priced inputs have had adverse effects on many small enterprises. Wherever the domestic market is contracting or unstable, technological upgrading, skills development and quality improvements are not in evidence.

Among the other points highlighted by the study are:

• Institutionalised provision of technological, production, marketing, financial, legal and management support remains important for vulnerable small enterprises less able to adapt and innovate.
• Funds for SMEs through specialized development banks are diminishing with changes in World Bank credits for SMEs.
• The emerging consensual trend among international development agencies is to facilitate vertical and horizontal, rather than enforced, linkages in order to support specialized SMEs to compete in niche markets.
• Compared with Latin America and Asia, African clusters of small enterprises are less developed both in terms of interfirm division of labour and institutional support.
• Institutional support is often fragmented and duplicated as a multitude of agencies intervene at different levels.

The implications for future policies to support SMEs include:

• The need for greater coordination and sharing of experience.
• The successes of private sector and NGO support for business enterprise networks does not remove the need for equal collaboration with institutional networks provided by southern governments.

Source(s):
‘Support mechanisms for interfirm linkages among SMEs; impact and assessment’ by Paul Cook, Finance and Development Research Programme Working Paper #18, Institute for Development Policy and Management, University of Manchester, September 2000 Full document.

Funded by: UK department for International Development

id21 Research Highlight: 5 June 2001

Further Information:
Paul Cook
Institute for Development Policy and Management
University of Manchester
Crawford House
Precinct Centre
Oxford Road
Manchester M13 9GH
UK

Tel: +44 (0) 161-275-2823
Fax: +44 (0) 161-273-8829
Contact the contributor: paul.cook@man.ac.uk

Institute for Development Policy and Management (IDPM), UK

Other related links:
'Must the small go to the wall? Financing small enterprises'

'Standards do matter: how can small producers keep up?'

'Small and Medium Enterprises and Development'

'Rethinking small enterprise development: between poverty and growth'

SBP is a research unit engaged in small business development