Since the 1960s to date, small and medium sized enterprises (SMEs) have been given due recognitions especially in the developed nations for playing very important roles towards fostering accelerated economic growth, development and stability within several economies (Yitzhaki, 2006).
Over the last few decades, the contributions of the SMEs sector, the development of the largest economies in the world have beamed the searchlight on the uniqueness of the SMEs; and this have succeeded in overruling previously held views that SMEs were only ?miniature versions of larger companies (Al-Shaikh 1998; Gaskill et al. 1993).
For instance, recent studies conducted by United Nations Industrial Development Organization (UNIDO) concur that SMEs are: labour-intensive, providing more opportunities for low-skilled workers, correlated with lower income distribution inequality, necessary for agriculture-dependent nations transitioning to an industrial-2 and service-oriented economy, excellent sites for innovation and sustainable initiatives due to their inherent flexibility and risk-taking ability (Patricoff & Sunderland, 2005).
Small and medium enterprises play predominant roles in the economies of most of the developed and developing countries, especially in Lebanon, and impact significantly on employment creation, income distribution, and dispersion of industries.
The importance of the SME sector and the informal sector is acknowledged internationally, defining SMEs as challenging task, and then every country has its own definition.
There is no single, uniformly accepted definition of a small firm (Storey, 1994). Firms differ in their levels of capitalization, sales and employment. Hence, definitions which employ measures of size (e.g. number of employees, turnover, profitability and net worth) when applied to one sector might lead to all firms being classified as small, while the same size definition when applied to a different sector might lead to a different result.
The Lebanese economy faces a complexity of problems, which are rooted in socio-economic structure and history of violence and injustice. Hence the low agricultural productivity, famine and frequent droughts; high population growth, low human resource development, high transport costs and environmental degradation contribute tremendously to the structural problems which led to huge macroeconomic difficulties.
Besides, social problems, the human resource base and the general productive apparatus and systems, were also affected by the war .Hence the destruction of the social fabric, the loss of people’s confidence and trust in each other increase more the poverty and vulnerability of the Lebanese people especially in rural areas.
In this context, the Government’s ultimate objective is to create a new social, political and economic framework that must address the problems of the country. The government of Lebanon must develop a policy that promote the creation of alternative ways of attaining high incomes, employment, a policy which encourages entrepreneurs to contribute more positively to economic development in the country. Entrepreneurs are encouraged in implementing small and medium enterprises which play a paramount role on economic development
The definitions of SMEs
Small and medium-sized enterprises (SMEs) are a very heterogeneous group. SMEs are found in a wide array of business activities, ranging from the single artisan producing agricultural implements for the village market, the coffee shop at the corner, the internet café in a small town to a small sophisticated engineering or software firm selling in overseas markets and a medium-sized automotive parts manufacturer selling to multinational automakers in the domestic and foreign markets.
The owners may or may not be poor; the firms operate in very different markets (urban, rural, local, national, regional and international); embody different levels of skills, capital, sophistication and growth orientation, and may be in the formal or the informal economy. The abbreviation “SME” is used in the HYPERLINK “https://en.wikipedia.org/wiki/European_Union” European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization . Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors
In the United States, the Small Business Administration sets small business criteria based on industry, ownership structure, revenue and number of employees (which in some circumstances may be as high as 1500, although the cap is typically 500). Both the US and the EU generally use the same threshold of fewer than 10 employees for HYPERLINK “https://en.wikipedia.org/wiki/Small_office” small offices.
In July 2011, the European Union Commission said it would open a consultation on the definition of SMEs in 2012. In Europe, there are three broad parameters which define SMEs:
· Micro-entities are companies with up to 10 employees
· Small companies employ up to 50 workers
· Medium-sized enterprises have up to 250 employees.
The European definition of SME follows: “The category of micro, small and medium-sized enterprises is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.
EU member states have had individual definitions of what constitutes an SME. For example, the definition in HYPERLINK “https://en.wikipedia.org/wiki/Germany” Germany had a limit of 255 employees, while in Belgium it could have been 100. The result is that while a Belgian business of 249 employees would be taxed at full rate in Belgium, it would nevertheless be eligible for SME subsidy under a European-labeled programmed.
According to German economist HYPERLINK “https://en.wikipedia.org/w/index.php?title=Hans-Heinrich_Bass&action=edit&redlink=1” Hans-Heinrich Bass, “empirical research on SME as well as policies to promote SME has a long tradition in West Germany, dating back into the 19th century. Until the mid-20th century most researchers considered SMEs as an impediment to further economic development and SME policies were thus designed in the framework of social policies.
Only the HYPERLINK “https://en.wikipedia.org/w/index.php?title=Ordo-liberal&action=edit&redlink=1” ordo-liberal school, the founding fathers of Germany’s social market economy, discovered their strengths, considered SME as a solution to mid-20th century economic problems (mass unemployment, abuse of economic power), and laid the foundations for non-selective (functional) industrial policies to promote SMEs.
Canadian Industry defines a small business as one with fewer than 100 employees (if the business is a goods-producing one) or fewer than 50 employees (if the business is service-based), and a medium-sized business as one with fewer than 500 employees. While Industry Canada may have screening criteria based on SME qualification, such as eligibility for subsidies, it is not the tax authority in Canada.
Corporations in Canada are generally taxed at 29% federally. Canadian Controlled private corporations receive a 17% reduction in the tax rate on taxable income from active businesses up to $500,000. This small business deduction is reduced for corporations whose taxable capital exceeding $10M, and is completely eliminated for corporations whose taxable capital exceeds $15M.
In China, the definition of a small-medium enterprise is most commonly based on the number of employees that usually with fewer than 500 employees; In China, the definition of an SME is complex, which depends on the industry category and based on the number of employees, annual revenue and total assets, and this criteria on small and medium-sized enterprises are based on the SME Promotion Law of China (2003), which sets the guideline for classifying SME’s.
1. The relevant size of the SMEs is significantly smaller than the large and listed companies in China due to the size of their capital stock, credit allowance.
2. After the reformations of government legislations in 2005 for the favor of SMEs in China, nowadays, SMEs have been operating in different branches of businesses such as manufacturing, services, construction, transport and retailing. This support has helped the emergence of many more SMEs in China which means there is even greater demand for financing all these SMEs
3. Small enterprises also make up huge proportion of SMEs in China which usually lack the degree of specialization and cooperation in the production areas. This is mainly due to the fact that there is lack of government legislations that supports and shows guidelines for SMEs in China.
4. The main market for SMEs is the domestic market of China which is due to the fact that SMEs cannot cope with fierce competition in the international markets or does not have advantage over foreign-invested companies with high-tech. Due to shortage of funds, most SMEs operate mainly in labour-intensive small and medium industries as the technological progress is slow for them.
Generally refers to the sustained, concerted actions of policy makers and communities that promote the standard of living and economic health of a specific area. Economic development can also be referred to as the quantitative and qualitative changes in the economy. Such actions can involve multiple areas including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives.
Economic development, according to Harvard Professor Michael E. Porter is the “long-term process of building a number of interdependent microeconomic capabilities and incentives to support more advanced forms of competition.” These capabilities and incentives, which were originally identified in Porter’s The Competitive Advantage of Nations, 1990, include the nature and extent of the inputs required by firms to produce goods or services; the rules, incentives and norms governing the type and intensity of local rivalry; the quality of demand for local services; and the extent and quality of local suppliers and related industries.
Economic development differs from HYPERLINK “https://en.wikipedia.org/wiki/Economic_growth” economic growth. Whereas economic development is a HYPERLINK “https://en.wikipedia.org/wiki/Public_policy” policy intervention endeavour with aims of economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist HYPERLINK “https://en.wikipedia.org/wiki/Amartya_Sen” Amartya Sen points out: «economic growth is one aspect of the process of economic development.
Economic development can also be described as a process that influences growth and restructuring of an economy to enhance the economic wellbeing of a community. In the broadest sense, economic development encompasses three major areas:
1. Policies that government undertakes to meet broad economic objectives including inflation control, high employment and sustainable growth.
2. Policies and programs to provide services including building highways, managing parks and providing medical access to the disadvantaged.
3. Policies and programs explicitly directed at improving the business climate through specific efforts, business finance, marketing, neighbourhood development, business retention and expansion, technology transfer, real estate development and others.
The main goal of economic development is improving the economic wellbeing of a community through efforts that entail job creation, job retention, tax base enhancements and quality of life. As there is no single definition for economic development, there is no single strategy, policy or program for achieving successful economic development. Communities differ in their geographic and political strengths and weaknesses.
Each community therefore, will have a unique set of challenges for economic development.
Growth and Development
Dependency theorists argue that poor countries have sometimes experienced HYPERLINK “https://en.wikipedia.org/wiki/Economic_growth” economic growth with little or no economic development initiatives; for instance, in cases where they have functioned mainly as resource-providers to wealthy industrialized countries. There is an opposing argument, however, that growth causes development because some of the increase in income gets spent on human development such as education and health.
According to Ranis et al., economic growth and is a two-way relationship. Moreover, the first chain consists of economic growth benefiting human development with the rise in economic growth, families and individuals will likely increase expenditures with heightened incomes, which in turn leads to growth in human development. Further, with the increased consumption, health and education grow, also contributing to economic growth. In addition to increasing private incomes, economic growth also generates additional HYPERLINK “https://en.wikipedia.org/wiki/Resource” resources that can be used to improve social services (such as healthcare, safe drinking water, etc.).
By generating additional resources for social services, unequal HYPERLINK “https://en.wikipedia.org/wiki/Income_distribution” income distribution will be mitigated as such social services are distributed equally across each community, thereby benefiting each individual. Concisely, the relationship between human development and economic development can be explained in three ways. First, increase in average income leads to improvement in HYPERLINK “https://en.wikipedia.org/wiki/Health” health and nutrition (known as Capability Expansion through Economic Growth). Second, it is believed that social outcomes can only be improved by reducing income poverty (known as Capability Expansion through Poverty Reduction).
Lastly, social outcomes can also be improved with essential services such as HYPERLINK “https://en.wikipedia.org/wiki/Education” education, healthcare, and clean drinking water (known as Capability Expansion through Social Services). John Joseph Puthenkalam’s research aims at the process of economic growth theories that lead to economic development. After analyzing the existing capitalistic growth-development theoretical apparatus, he introduces the new model which integrates the variables of freedom, democracy and human rights into the existing models and argues that any future economic growth-development of any nation depends on this emerging model as we witness the third wave of unfolding demand for democracy in the Middle East.
He develops the knowledge sector in growth theories with two new concepts of ‘micro knowledge’ and ‘macro knowledge’. Micro knowledge is what an individual learns from school or from various existing knowledge and macro knowledge is the core philosophical thinking of a nation that all individuals inherently receive. How to combine both these knowledge would determine further growth that leads to economic development of developing nations.
Yet others believe that a number of basic building blocks need to be in place for growth and development to take place. For instance, some economists believe that a fundamental first step toward development and growth is to address property rights issues, otherwise only a small part of the economic sector will be able to participate in growth. That is, without inclusive property rights in the equation, the informal sector will remain outside the mainstream economy, excluded and without the same opportunities for study.
Regional policies of economic development
In its broadest sense, policies of economic development encompass three major areas:
Governments undertaking to meet broad economic objectives such as HYPERLINK “https://en.wikipedia.org/wiki/Price” price stability, high employment, and sustainable growth. Such efforts include HYPERLINK “https://en.wikipedia.org/wiki/Monetary_policy” monetary and fiscal policies, regulation of financial institutions, trade, and tax policies.
Programs that provide infrastructure and services such as HYPERLINK “https://en.wikipedia.org/wiki/Highway” highways, parks, affordable housing, crime prevention, and K-12 education.
Job creation and retention through specific efforts, business finance, marketing, HYPERLINK “https://en.wikipedia.org/wiki/Community_development” neighborhood development, workforce development, small business development, business retention and expansion, technology transfer, and real estate development. This third category is a primary focus of economic development professionals.
One growing understanding in economic development is the promotion of HYPERLINK “https://en.wikipedia.org/wiki/Business_cluster” regional clusters and a thriving metropolitan economy. In today’s global landscape, location is vitally important and becomes a key in HYPERLINK “https://en.wikipedia.org/wiki/Competitive_advantage” competitive advantage.
International trade and exchange rates are a key issue in economic development. Currencies are often either under-valued or HYPERLINK “https://en.wikipedia.org/wiki/Kemal_Kurdas” over-valued, resulting in trade surpluses or deficits.
General overview of Small and medium enterprises (SMEs)
The growth and development of micro-enterprises as well as small and medium scale enterprises has been crucial to the economic development of East African countries ( Mamadou March, 1996).
Many governments and specialized small and medium enterprises development agencies and institutions have long been engaged in providing assistance for the establishment of small and medium enterprises and for their growth and development activities.
This the mainly through the creation of an enabling environment, for example economic and financial policies that are geared towards encouraging development of small and medium enterprises, pre-investment feasibility surveys, facilities for raw materials and other inputs, infrastructure facilities and domestic assistance.
Small and medium enterprises are a key component in economic life, not only because of their number and variety but also because of their catalytic role in the economy. They play a complementary role in the support of the large sector, and are a ground for innovations and adaptations. They can be seen as a kind of industrial breeding ground, a source of constant renewal of industry and commerce, and a wellspring of competition dynamism (Tarner et al 1989).
Governments, organizations, international institutions, private and public investors and all other development associations are turning their attention to the small-scale enterprises. Efforts to promote economic progress by establishing large industries have usually failed to improve the lot of majority of the population. In the developing countries, small and medium businesses are viewed as an important element in the economic development (Malcolm, 1976).
This section provides a broad overview of small enterprise definitions used across the globe with the objective of understanding what an SME really is. This understanding will go a long way in comparing and benchmarking results from different studies.
SME definitions can be broadly categorized into two, «economic» and «statistical» definitions. Under the economic definition, a firm is regarded as small if it meets the following three criteria:
It has a relatively small share of their market place;
It is managed by owners, or part owners, in a personalized way and not through the medium of a formalized management structure; and
It is independent in that it is not part of a larger enterprise.
The «statistical» definition, on the other hand, is used in three main areas:
Quantifying the size of the small firm sector and its contribution to GDP, employment and exports;
Comparing the extent to which the small firm sector’s economic contribution has changed over time; and
In a cross country comparison of the small firms’ economic contribution.
These definitions, however, have a number of weaknesses. For example, the economic definition, which states that a small business is managed by its owners or part owners in a personalized way and not through the medium of a formal management structure, is incompatible with its statistical definition of a small manufacturing firm which might have up to 200 employees.
According to UNIDO, the definition of SMEs is a significant issue for policy development and implementation and depends primarily on the purpose of the classification. For the purposes of policy development, UNIDO generally advises countries to take into account the quantitative and qualitative indicators for SME definition.
Popular types of small and medium enterprises
Small business exist in every type of industry, agriculture, forestry, and fishing, mining , construction, manufacturing, transportation , communication, and utilities, wholesale trade, retail trade, finance, insurance, and real estate, and services. In order of importance, however, they are most important in retail trade, services, construction, wholesale trade, and manufacturing.
Retail businesses sell their products directly to consumers. But they are tens of thousands of small retail enterprises, such as bakery, greeting card, record, apparel, jewelry and numerous other types of shops and stores.
Characteristics of the SME Sector
This study noted that the small business segment of the economy is heterogeneous with businesses ranging in size from micro-enterprises to relatively large firms. Small businesses are very diverse and have different needs. They operate in the formal and informal economies. Some are simply survivalist whereas others are run by people with an entrepreneurial flair. Some are start ups; some are growing rapidly; others are experienced and highly sophisticated. They operate in different markets, local, national and global (Wikipedia, October 2007).
No single policy can cover all these businesses, formal and informal, operating in different industrial sectors and with many sector specific challenges. Thus, data categories should be sufficiently differentiated to provide detailed and nuanced information to support targeted policy approaches and practical interventions.
It is worth reconsidering whether SMEs should be considered as «one group» as the acronym infers. For policy purposes, a one- size-fits-all approach certainly will not work
Factors needed for development of small and medium enterprises
Greater flexibility: small firms are typically more flexible than large firms. For example, they can adopt their plans quickly in response to environmental changes. Large firms, which many layers of management, cannot respond as quickly.
More personal attention to customers and employees: small business owners have more direct contact with their customers and have a better feel for what they want than very large business. They can often respond sooner to changes in customers preferences as well as offer more personal service.
The relationship between the owners of small business and their employees is also often more direct and personal than in many large business, where management tends to communicate with employees though labor and management representatives.
Lower fixed costs: small companies often have lower fixed costs than large firms.
Fixed costs are costs that do not vary as the volume of business changes. Thus the small firm might be able to sell its product at lower price than a large competitor with high fixed costs.
Greater entrepreneurial and innovative fervor: an entrepreneur is a risk taker who starts and operates a business in hope of making a profit. The hired managers who run big corporations seldom hold any significant ownership in them. They have less to gain by taking the risk, for example, of developing new products. As result, they may tend to be overly conservative in running the corporations.
Greater motivation of the owners, hired managers generally do not have a significant ownership stake in their corporations. Small business owners do, and this in itself can motivate them to work harder.
In addition, the desire to be independent and act as one’s owner boss is a powerful motivator (NORMAN M. Scarborough, 1999 p. 103 up to 106).
Ten good things ISO standards can do for small and medium enterprises
Standards help you compete on a level playing field with bigger enterprises
Standards open up export markets for your products and services
Standards help you discover best business practices
Standards drive efficiency in your business operations
Standards add credibility and confidence for your customers
Standards open new business opportunities and sales
Standards give you the competitive edge
Standards make your brand name internationally recognized
Standards help your company grow
Standards enable a common « language » to be used across an industry sector
Principles of good regulation for Small and Medium Enterprises
The impact of regulation on small business is identified, establishing an appropriate balance between risk and cost. Needless demands are not placed on regulated small business.
Policy objectives, including the need for regulation, are clearly defined and effectively communicated to those involved. Those being regulated understand their obligations and know what to expect from the enforcing authorities.
Proposals are published and all those affected are consulted before decisions are taken.
New regulations are consistent with existing regulations. Regulations are applied consistently across the country.
The importance roles of SMEs in the economy
The importance and potential contribution of the SME sector are supported by both theoretical and empirical arguments and evidence. We turn first to the former. Part of the contribution of the SME sector both to the overall total factor productivity (efficiency, as usually defined) of an economy and to employment generation and distributional equality comes by virtue of its pattern of technology choice.
SME technology tends to be intermediate between the highly labour intensive technologies of micro enterprise, which as a result achieve only low average labour productivity, and the highly capital intensive technologies of large firms which thereby achieve high labour productivity, but use more capital per worker than is available for the economy as a whole.
Given this correlation between size and capital intensity, it becomes a foregone conclusion that an economy that applies a high share of its capital to a small group of workers must necessarily have, as the other side of the coin, a large informal or microenterprise sector that uses very little capital (the bit not used by the large-scale sector) with the large amount of labour not employed by the large firms.
Its intermediate technology characteristic is what gives the SME sector a special role (together with small-scale agriculture) in the generation of adequate or decent employment. When most jobs are in the micro enterprise sector, too many of them are destined to be low productivity and hence low income in character.
SME firms can be substantially more productive, so in terms of the potential to generate «decent» jobs this sector competes with large private firms and the government, but it has the advantage of being able to generate many more such jobs for a modest input of capital.
The key mechanism in generating decent employment in most developing countries involves the expansion of this sector fast enough to absorb people previously unemployed (a few) or engaged in low productivity informal sector jobs.
In a globalizing world it is naturally important that as many major categories of firms as possible have the capacity to compete in world markets. The importance of an efficient collaboration between large firms and SMEs through subcontracting is at its peak in outward oriented countries especially those competing in international markets in products involving a good deal of labour. Being able to rely of efficient low-cost subcontractors can substantially increase the competitiveness of the large exporters, and has been an important factor underpinning the successes of Japan, Taiwan and Korea( Palma and Gabriel, January 2005).
On the empirical side, some features are common to nearly all SME sectors. The most important positive features have, naturally, gone with those cases where SMEs have made the biggest positive contribution. Broad empirical evidence highlighting the importance of SMEs includes the facts that:
The most successful developing country over the last 50 years, Taiwan, is built on a dynamic SME sector. This has produced both (for its time) record breaking growth and a quite low level of inequality, by comparative standards.
The experience of Korea, Taiwan’s partner among the Asian Tigers and a more or less equally fast grower, has provided the laboratory to illustrate another point-inequality can fall significantly when the weight of the SME sector rises quickly, as it did for a period after the mid-1970s in Korea.
Colombia’s golden age of growth, from the late 1960s through the 1970s, coincided with very fast expansion of the manufacturing SME sector and with an apparent decline in urban inequality.
SMEs tend to use medium-sophistication technology, which is approximately consistent with the factor endowment ratios in most developing countries.
Many firms «grow into» or «grow out of» the SME size range, with both of these transitions having something positive to be said for them.
The SME size range is where many important entrepreneurs and firms of the future get their start.
Is it any correlation between Small and medium enterprises, business environment and Growth?
Efforts targeted at the SME sector are often based on the premises that SMEs are the engine of growth, but market imperfections and institutional weaknesses impede their growth. Skeptics question the efficacy of this policy and point to empirical evidence either in favour of large firms or of a size-blind policy approach. While many country-level and microeconomic studies have assessed the importance of SMEs in the economic development and industrialization process (Snodgrass and Biggs, 1996), Beck, Demirguc-Kunt and Levine (2005a) provide the first cross-country evidence on the links between SMEs, economic growth, and poverty alleviation, using a new database compiled by Ayyagari, Beck and Demirguc-Kunt (2003).
Cross-country regressions of GDP per capita growth on SMEs share in manufacturing employment show a strong positive relationship over the 1990s, even after controlling for an array of other country characteristics that can account for differences in growth across countries.
Instrumental variable regressions that explicitly control for reverse causation and simultaneity bias, however, erode the significance of the relationship between SMEs and economic growth.
The regressions do not necessarily lead to the conclusion that SMEs do not foster economic growth. Rather, they fail to reject confidently the hypothesis that SMEs do not exert a causal impact on GDP per capita growth. This finding is consistent with the view that a large SME sector is a characteristic of fast-growing economies, but not a cause of their rapid growth. Beck, Demirguc-Kunt and Levine (2005a) also do not find any evidence for any association of a large SME sector with faster income growth of the lowest income quintile and faster rates of poverty reduction.
While to our best knowledge there is no robust cross-country evidence on the relationship between the business environment and economic growth, industry-level, firm level and survey evidence consistently show a positive association of a competitive business environment with entry, entrepreneurship and investment. Klapper, Leaven and Rajan (2006) show that one channel through which the business environment affects economic development is the entry of new firms.
By using firm-level survey data for 52 countries, Demirguc-Kunt, Love and Maksimovic (2012) show that one of the reasons for this variation in the likelihood of incorporating is the fact that incorporated firms face lower obstacles to their growth in countries with better developed financial sectors and efficient legal systems, strong shareholder and creditor rights, low regulatory burdens and corporate taxes and efficient bankruptcy processes.
Corporations report fewer financing, legal and regulatory obstacles than unincorporated firms and this advantage is greater in countries with more developed institutions and favourable business environments. Further, they find some evidence of higher growth of incorporated businesses in countries with good financial and legal institutions.
Using survey data from interviews with entrepreneurs and non-entrepreneurs in seven cities across Russia, Djankov et al. (2004) provide further evidence for the importance of the business environment for the decision of becoming an entrepreneur. They find that in addition to many personal characteristics the perception of corruption and government officials’ attitude towards entrepreneurship affects the decision to become an entrepreneur.
Similarly, Johnson et al. (2002) find that entrepreneurs in transition economies are more likely to reinvest their profits if they feel more secure about property right protection in their country, while Cull and Xu (2005) find that Chinese entrepreneurs are more likely to reinvest their profits if they are more confident in the system of property rights protection and have easier access to credit, with this effect being stronger for small firms.
Are different dimensions of the business environment equally important? Using firm level survey data on the business environment across 80 countries, Ayyagari, Demirguc-Kunt and Maksimovic (2005) investigate the impact of access to finance, property right protection, provision of infrastructure, inefficient regulation and taxation, and broader governance features such as corruption, macroeconomic and political stability on firm growth.
They show that finance, crime and political instability are the only obstacles that have a direct impact on firm growth and finance is the most robust one among those. Together, these results suggest that it is important to have a competitive business environment that allows for the entry of new and innovative entrepreneurs resulting in the Schumpeterian process of «creative destruction» rather than simply having a large SME sector, which might be characterized by a large number of small enterprises that are neither able to grow nor to exit.
Indeed, a large, but stagnant SME sector may be a by-product of a poor business environment itself. Furthermore, the existing evidence suggests that access to finance plays a very important role in the overall business environment, potentially constraining both firm entry and growth (Thorsten Beck and Asli Demirguc-Kunt , February 2006)
Limitations of Small and Medium enterprises in Lebanon
Small and medium enterprise strength comes from the ability of smaller firms to react quickly and flexibly to adapt to market realities and to take advantage of opportunities that would not be an advantage to larger firms. Small enterprises grow to medium enterprises as they are increasingly able to develop the resources to expand out of their local economic system.
Thousands of small companies operating at the micro level, taking advantage of local resources and opportunities, form the base of a healthy economy by providing local services, jobs and supplying or processing for larger firms and markets. Although substantial supporting initiatives had been undertaken by the Government, they have failed to create the enabling environment necessary to develop the sector.
Key challenges include:
1. Limited resources and human capacity for previous initiatives meant they were unable to fulfill the mandate of SME development or to extend their services country-wide
2. Limited coordination and partnership in these initiatives meant that many ongoing activities, in the public and private sector, were not sufficiently connected and harmonized to maximize their potential for SME development.
3. A limited policy environment lacking focus and a prioritization of cluster and sector specific policies meant that the general policy environment was not targeted at SMEs
4. The structure of previous finance schemes, by placing them in large intermediary institutions with complicated application procedures and limited assessment capacity, meant the SMEs found them difficult to access.
5. The (low) quality and «one size fits all» approach for business development services meant that the private sector did not take advantage of them, though the current PSF model is working to address this constraint.
6. The general regulatory environment in Lebanon is structured toward large companies that have the time and resources to comply, making the existing structures a challenge to grow for SMEs.
7. Inadequate Infrastructure for rural SME development that inhibits implementation of innovative ideas and provision of services.
SMEs and Incubators:
Business incubators have been created to support viable business ideas and to help entrepreneurs’ companies to succeed in passing critical stages in the life of any company and to grow on the market. Incubators are providing a range of facilities to the incubated companies, creating a favourable, appropriate environment to their development, consulting business plans, marketing, business management or information related to promoting the image of companies.
They are an important lever to launch the local entrepreneurial initiatives that can have a significant impact on a country’s economy and can lead to the creation of large numbers of jobs. In order to have a strong network of incubators it is necessary to use available resources efficiently, therefore, to be mobilized in enterprises productive from economic point of view, competitive, but also able to continue their work after leaving the incubator. To expand the incubators network it is necessary to improve the legal framework, to check carefully incubated companies and framing with the limits of performance parameters and diversification of business areas.
Given their sheer numbers and propensity to fail, one may argue that making sure that Small and Medium size Enterprises (SMEs) are self-sustaining, would be the right step towards ensuring economic sustainability in any economy. Business incubators have been proven to provide the platform for nurturing businesses. In fact, business incubators are seen globally as an essential tool for the development of SMEs and considerable amounts of resources are invested in them today.
Previous researchers mentioned that business incubators in developing countries face a number of challenges concerning innovation and creativity. Notable among these challenges are:
lack of entrepreneurial skills,
lack of venture capital,
poor growth rate,
productivity falling behind,
Downsizing, and the lack of true entrepreneurship
Owing to the foregoing challenges, business incubators find it difficult to uphold their mandates as development agents and in, some cases, their long-term survival becomes threatened. Of course, this may negatively affect SMEs who depend on them for survival.