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What are SMEs?

SME stands for small and medium-sized enterprise (SMEs) or small and medium-sized business which has a certain limit of investment capital and employees. The SME sector plays a precious role in economic growth in the country. SMEs contribute to the business sectors by proving their impact on the global economy. Thus, the government across the world has been increasing the effort to promote its business. SMEs are one of the primary sectors in the world as their national development strategy. This sector has been paramount as a primary actor in employment, economic growth, and innovation. SMEs (small and medium-sized enterprises) are recognized as the primary drivers of economic development, job creation, poverty reduction, innovation, and social cohesion. SMEs are categorized and regulated by the national laws, rules, and regulations of the respective country. SMEs are vital for economic growth around the world. SMEs are themselves important elements to the broader economy of the world.

SMEs cover around 95% of business globally and also contribute to more than half of total employment in the world (BiAC; 2016). The private sector generates around 90% of jobs globally and the portion of SMEs is nearly 50%. In Asia, SMEs also account for nearly 90% of all company entities and are the principal private-sector employers, supplying 50-80% of all jobs (Wikipedia). SMEs cover 97-99% of all firms in Southeast Asia, contributing considerably to each country’s GDP (Wikipedia). The dynamic of these enterprises and their success depends on the market. SMEs include a source of entrepreneurial skills, innovation, and employment that stimulate cooperation for prices, product design, and efficiency. They as well help the large industry by supplying raw materials and parts and distributing products in the market. The major keys to economic growth, innovation, and job formation are SMEs. An important feature of these enterprises is the innovation process in technology and management. Therefore, SMEs contribute to forming the GDP and increasing national exports and play a role in maintaining the socio-political stability in a country.

Development of SMEs in Nepal

The development of industry in Nepal started in late 1936 with the establishment of an industrial council. This was the first initiative for the industry sector in Nepal. First of all, Gharelu Ilam Prachar Adda was established in 1940. The industry development process gradually increased when Adda was established in Nepal. The Raghupati Jute Mill industry was established in 1946 and was the first modern industry in Nepal. The government included the plan of industrialization in the first five-year plan in 1956. The development of industry in the country was regarded as one of the primary ventures by the government since the commencement of the national five-year plan. After that small, medium, and large scale industries started establishing gradually in the public and private sectors in Nepal. Coming up to now, a lot of changes in this sector have come to attention in developing and establishing processes. It is in high priority for Nepalese labor skills and raw material-based domestic investments to promote national-level industry for achieving national employment growth as per the spirit of the constitution of Nepal.

SMEs are recognized as a contributor to employment, innovation, and economic dynamism. It is also considered a path of growth and an essential portion of a healthy economy in the country. Through these enterprises, public, private, and cooperative sectors contribute to achieving industrial employment in the country. According to the Industrial Enterprise Act 2020 (2076 BS) small industries are the industry that have fixed capital not exceeding one hundred fifty million rupees rather than a micro-enterprise and cottage industry. Similarly, industries with fixed capital exceeding one hundred fifty million but not exceeding five hundred million rupees are medium-sized industries. The government has developed different types of acts of policies, including the Company Act (2063), Industrial Enterprise Act (2076), Foreign Investment Policy (2071), Special Economic Zone Act (2074), national intellectual property policy (2073), and industrial policy (2011) to promote and regulate these enterprises in Nepal.

SMEs play a vital role in economic development in Nepal. Their contribution to generating jobs, reducing poverty, and advancing the private and public sectors is extremely regardable. A study (2010) shows that SMEs employ about 57% of the entire workforce cover over 96% of all industries and contribute 83% to the generation of industrial employment. They also account for 80% of the contribution of the industry to GDP. SMEs are seen in a vital role in creating employment and self-employment mobilizing and using local resources to generate income for the rural people as well. When Nepal shifted to an open market regime in the late 1980s, barriers to global trade were substantially reduced. The challenges of Nepalese SMEs are to compete with imported products in the domestic market and international markets for exportable goods. Since national plans and policies have promised to promote SMEs with incentives and many privileges, there are many problems and challenges, including inadequate implementation of policies, lack of knowledge and skills, lack of marketing strategies, and insufficiency of capital investments.

In Nepal, most of the SMEs are involved in the processing and manufacturing of commodities, home appliances, clothes, textiles, and other related products for export and the domestic market as well. Cereal mills, dairy, juice products, garments, mineral water, noodles, biscuits and chocolates, handicrafts, handmade paper, carpets, pashmina, Jute products, livestock products, iron and metal products, wooden products, tea state, horticulture, plastic products, rubber, and tubes are the dominant SMEs in Nepal. Likewise, hotels, motels, transport services, homestays, restaurants, rafting, catering, health clinics, agro-vet, fashion design, tailoring, etc. are service-oriented SMEs in Nepal. Similarly, department stores, wholesale shops, grocery shops, hardware shops, fancy shops, cosmetics, pharmacies, vegetable and fruit marts, agro-marts, etc. are also SMEs that distribute a variety of goods from the manufacturing industry to consumers in the domestic market.

Types of SMEs

SMEs are the great sectors whose contribution reflects on the overall economy of the country. These sectors can be classified into three categories: 1) manufacturing industry, 2) distribution industry, and 3) service industry according to their presence in the global market.

1) Manufacturing Industry:

The manufacturing industry produces goods through processing and manufacturing using human skills and technologies. The manufacturing industry has its area of expertise specialized for producing specific goods or products. The industry plays a vital role in the local and global economy and the products help people to be easier.

2) Distribution Industry:

The distribution industry operates to distribute a variety of goods from the manufacturing industry to consumers. The distribution industry spreads the goods or products throughout the marketplace where a large number of consumers live. It is directly linked to the local and regional markets.

3) Service Industry:

The service industry operates in the presence of many services provided to businesses or individuals. The service industry is a part of the economy that creates services for the people rather than tangible stuff.

Importance of SMEs

SMEs are widely regarded for their contribution to employment generation, economic growth, and sustainable development. The beginning phase of economic growth toward industrialization is micro, small, and medium-sized enterprises (MSMEs). However, the impact of SMEs on revenue, tax revenues, employment, efficient use of resources, and stability of family income is very important. Whatever it is, their contribution to job creation, innovation, and economic growth has been greatly recognized in both developed and least-developed countries. They are responsible for the vitalization of the development of the national economy as they play a role in creating job growth and promoting economic activities. A large number of people depend on small and medium-sized enterprises. Their contribution to labor absorption, poverty alleviation, and revenue generation is highly important to overall economic development.

Conclusion:

SMEs are the priority sectors for achieving more inclusive globalization and economic growth. They lead to the economic growth of the country as pioneer actors in the ecosystem of industry sectors. SMEs play an important role in achieving the Sustainable Development Goals (SDGs) by promoting inclusive and sustainable economic growth, generating employment, fostering innovation, and decreasing income inequalities across the world. To promote these sectors, the government has developed many laws and policies around the world as their contribution to national economic growth is very remarkable. Their significant role in providing various goods and services, creating job opportunities, offering innovation, developing the national economy, and helping the competition in the market is acknowledged for the overall development of the country.

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