Supply Chains and the SME Ecosystem

One of the most crucial challenges facing SMEs in Sri Lanka and Bangladesh is how to create new business opportunities in the global and regional markets. Recent experiences from a wide range of Asian countries, particularly from South-East Asia and China, strongly indicate that domestic SMEs can access international markets through global and regional value chains, which provide a full range of value-added business activities across borders.

SMEs are the backbone of the Sri Lankan economy. According to reports from the Secretariat for Senior Ministers, Sri Lanka, SMEs provide 35 percent of employment. Sri Lanka has more than 500,000 SMEs, each employing three to five persons on average. The same can be seen with Bangladesh where it is estimated that there are about 6 million micro, small and medium enterprises, with fewer than 100 employees.

While most enterprises and policymakers in both Sri Lanka and Bangladesh have yet to fully understand certain basic fundamentals of conducting international trade, there is still a growing need for them to be more familiar with the emerging realities of modern business as well as realize that higher productivity, better technological capability and time-bound delivery of products and services are the basic tenets of international business.

Despite promising opportunities for SMEs, they are also faced with many constraints in many developing countries. One of the major constraints is their small sizes, which limited access to the financial resources they need to grow and expand. Nearly half of SMEs in developing countries either find it hard to borrow from local banks or face strongly unfavorable lending conditions. This can be seen in Bangladesh where banks lack access to current information about the credit behavior of these enterprises thus making lending decisions far more difficult. Analysts say it is vital to provide SMEs in Bangladesh with not only appropriate policy support but also with financial support in order to develop the sector and increase SME's contribution to the country's GDP. SMEs are also unable to thrive in Bangladesh due to major challenges such as lack of fiscal incentives, management problems, access to finance, policy inconsistency, etc.

In Sri Lanka, SMEs are an essential source of employment opportunities and are estimated to contribute about 35 percent of employment. Similar to Bangladesh, there are many challenges SMEs in Sri Lanka face, for example, SMEs suffer from a lack of information exchange, leading to conflict, and other industrial relations issues. Furthermore, it can be seen that there is a gender bias in the level of SME employment. Workers employed in SMEs are predominantly men.

Collaborated efforts from the public and private sectors are needed to overcome challenges faced by SMEs in Bangladesh and Sri Lanka. Ultimately, there is a need for changes to fiscal policies, financial institution strategies as well as business environment to allow for SMEs to thrive in Sri Lanka and Bangladesh.

Join us for the upcoming Network Sri Lanka webinar to learn more about the Women in STEM and Supply Chains: Reshaping the World of Work.