CHAPTER TWO
Literature Review
Definitions of SME?s
SME?s are defined in a variety of ways by various countries using such parameters such as a number of persons employed, capital invested, turnover or nature of the business etc?.not only different countries apply different definitions on the concept of SME?s even within countries, different regions and different institutions adopt varying definitions in this regard.
In Sri Lanka there is no any clear definition for SME?s. Different government agencies use different criteria to identify SME?s. Among these criteria the number of employees, the size of fixed investment, and the nature of the business and sector, formal and informal, in which the industry operates are commonly used. There
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So a well-organized SME sector provides the foundation for the growth of the entire industrial sector.
Conceptual Framework Independent Variables Dependent Variable
borrowing Amount from informal financial transactions
Demographic Variables
Economic Variables
Sociological Variables
References
Karunagoda,K P N S,2007 Informal Markets For Financial Services In Sri Lanka, Anniversary Convention ,pp123- 146
Dasanayaka, SWSB 2011, Global Challenges for SME in Sri Lanka and Pakistan in Comparative Perspectives, Research Journal Of The Institute Of Business Administration, Vol. 6 no. 1, pp 61-80
Ministry of Enterprise Development, Industrial Policy, and Investment Promotion 2002,National strategy For small and Medium Enterprise Sector Development In Sri Lanka
Weerakoon, W MW 2008, National Agriculture Research System in Sri Lanka
De Mel, S, .McKenzie, D., And Woodruff. 2012,The Demand For Consequence Of, Formalization among Informal Firms in Sri Lanka ,National Bureau Of Economic Research Paper Series,no.18019
Zoltan,J.A. and David B.A 2005,Entreprenurship and
Stanley and Mose (1995) see indigenous base industrialization process as a means of mobilizing capital towards productive ventures. Due to low capital requirement, individuals can set up their own firms through their own resources, thereby, serving as means of mobilizing funds for economic activities. UNECA, focus on Africa Industries (1991) states that SMEs can make contribution to the technological base of a Country. This cue was taken from the USA where more than 40% of major innovations originate from small medium enterprises and individual investors.
We are currently living in a highly lucrative market, in a rapidly growing economy. Similar to Malaysia, there are millions of small and medium enterprises in Sri Lanka who desperately needs financial and business support in starting up and growing their businesses. We opine that there is a serious lack of financing options for the SMEs. Moreover, the current trend towards an increase in the number of entrepreneurs and competition amongst existing companies presents an opportunity for increased demand of market information and services that will enable companies to stay ahead of the
If the small firm is actively involved in international trade as are most little firms in specific areas in Europe, case in point then worldwide business is an extremely important subject to study particularly if consolidated with cutting edge European dialects. One of the enormous brakes on the advancement of little firms is the way that a large portion of those that could stretch globally neglect to do so in light of the fact that they fail to offer any staff at administration level with the abilities to help them grow abroad.
Regardless of these confinements, the Small and Medium Firms have accomplished impressive inclusion towards the development in innovation and fares in nation. Small and Medium Firms have been touched base in the vast majority of the significant zones in the business of India for instance:
In view of the poverty situation in Bangladesh, the government’s major development objective is to create more employment in order to secure incomes and thereby reduce poverty. Because of the structure of small and medium enterprises (SMEs) in Bangladesh, which are mainly labor-intensive and the development of SMEs is considered to be the most effective contribution to the eradication of poverty.
Small firms are good for those people who have experience in particular field but do not have a necessary amount of resources, in the terms of resources contain land, labour, capital and enterprise. Small firms not require more space to start production so require less amount of land same as land in production small firms require less number of people. Enterprise is the risk taking ability of the owner.
According to BIS survey, most of SME’s are not using direct loan they use other forms of finance, like lease, hire purchase, invoice finance etc.
2004) the innovation is not just about new ideas, but also it’s about the actions to make new product or improving producing process. There for, the procedure and results are not only concerned with the firm but also contains market and other external factors. The differences between innovation in SMEs and large firms, that the SMEs have more limited resources and limited innovative capability (Kanamori et al., 2006, Zhu et al., 2012). As the process of innovation is defined as the formation of new knowledge, innovation in SMEs is considered to be disadvantage compared to their large rivals who have greatly bigger knowledge base and human capability. Moreover innovation in its nature is risky and uncertain (Fagerberg, 2004), the barriers facing innovation in SMEs, the SMEs disadvantages are limitation in resources, informal structures, managerial capability and financial capacity, However SMEs have flexible and reactive in structure change and market dynamics. The main advantages of SMEs are flexibility and adaptability than large organization than larger organization. The flexibility and spongy capacity is conclusive for firm development (ERIKSSON, 2014). Small firms sometimes relay on innovating throw flexibility and time recognition to market dynamics in order to create and aid profitable market niche (CALOGHIROU, 2004). An analyzing of in manufacturing sector in china found that
Small and medium sized firms play a prominent role in economic development (Osotimehi, et al. 2012). Hence it has been the underlining background to this study. The importance of SMES cannot be overemphasized in an economy. This is because they contribute to the creation of employment, free competitive market environments, inputs for large scale industries and so on. Drucker (1985) stated that entrepreneurship is not complete without the injection of innovation. In any business venture, the combination of innovation and entrepreneurship by an SME will need a very important spice of creativity to ensure a quick growth and development process in its environment. It is pertinent to understand that ‘creativity and Innovation’ are the engine house of economic growth. Creativity focuses on introducing a new idea/product/service Wyckoff (1991) and on the other hand innovation assist to turn the idea/product/service into a business that records success Heunks and Roos (1992). Entrepreneurship is simply about breaking new boundaries, introducing that which is entirely new or a modification of the existing ones. Entrepreneurs are commonly known as risk takers because of their ability to break frontiers without agitation or fear of loss.
In Sri Lanka,there are vast number of businesses.They are either production based or servisce providing budsinesses.Of them some do their business in large scales(even globally) and some people deals with small scale businesses.Among them there businesses that can be categorized under traditional businesses(or indegeneous businesses).They produce various kinds of
It is a member of the South Asian Association for Regional Corporation (SAARC) along with 8 other countries in the region. The capital of Sri Lanka is Sri Jayawardhanapura, Kotte. However, Colombo is the city that is more popularly known being the economic capital of the country. With its excellent geographic location, moderate weather and ample natural resources Sri Lanka is an excellent location for business investment if it wasn’t for a civil war which has kept business investors at bay. A macro analysis of Sri Lanka reveals the following major factors.
The Small and Medium Enterprises worldwide are recognized as engines of economic growth. The commonly perceived merits often emphasized for their promotion especially in the developing countries like Bangladesh include their relatively high labor intensity, dependence on indigenous skills and technology, contributions to entrepreneurship development and innovativeness and growth of industrial linkages. Out of 11% employment of the civilian labor force provided by the manufacturing sector, about two thirds are estimated to be provided by the small and cottage industries sector. Again, development of small industries facilitates the effective mobilization of capital and labor resources. They also help in raising standards of living.
SMEs (Small and Medium enterprises) are one of the key drivers of India’s economic growth. Over the years a large number of small and medium size companies have grown in the market. Small and Medium Enterprises (SMEs) have been contributing so much towards the GDP of India. With their emergence and huge potential, the government of India launched regulated trading platforms for the SMEs, which allows them to get listed without bringing an IPO. The stock exchanges for these enterprises were introduced so that these firms can do better in financing activities for themselves. Of course, there is an option of adding debt, which also helps improve the overall return on equity, but the cost of raising debt for SMEs is relatively higher. High interest expense does not look very good on the profit and loss statement of a growing company. Thus, in order to fund the next stage of growth without excessive interest cost burden, companies look to access equity funds via capital markets. This is where listing on an exchange comes into the picture. The research would include the implications of the introduction of the BSE and NSE SME stock exchanges how well they are performing. Also, what is the response from the SME sector.
Definitional issues: entrepreneurship, micro enterprise and rurality Numerous definition of entrepreneurship can also be found in the literature. Hisrich and Peters (1998) define entrepreneurship as “the process of creating something new with value by devoting the necessary time effort assuming the accompanying financial, physic and social risks and receiving the resulting rewards of monetary and personal satisfaction and independence” while Zacharis et al (2000) define entrepreneurship as “ any attempt to create a new business enterprise or to expand existing business by an individual, ateam individuals or an established business”.
If efforts are put towards promoting SMEs, particularly, the likes that are concerned with the informal sector, achievement of development that is sustainable is inevitable. Most developing as well as developed countries depend on the small and micro enterprises in the provision of employment. Even though a number of small and medium-sized enterprises are not part of the formal sector that is