Download Promoting SME Development

Policy Recommendations on
Job Creation:
Promoting SME Development
Presented at the seminar “Job Creation in the Western Hemisphere:
Reviewing Best Practices and Setting a New Policy Agenda”
Washington, D.C., October 21, 2004
Jürgen Weller, ECLAC
Overview
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General situation of SME in LAC

Obstacles to their development
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Policies for SME promotion
Quantitative dimensions in
Latin America (1998)
22.3% of urban employment (9.7% +
12.6%)
 32.6% of urban wage employment
 42.8% of formal urban employment
 57.0% of urban private wage
employment
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Source: ILO
Labor demand curves
Expectations about SME
contributions
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Economic contributions
Value added
Regional development
Competition
Systemic competitiveness
Clusters
Exports
Structural change
Diversity of supply and development of
niches
Better access for consumers
Expectations of SME
contributions
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Contributions to social and political
development
Stabilization of aggregate employment and
income level
Access to jobs for less qualified and young
people
Environmental decentralization
Income distribution
Strengthening of democratic foundation
Impact of economic reforms

Among SMEs winners and losers
 Entrepreneurial, sector and territorial
heterogeneity
 Evolution marked by macroeconomic
development (concentration on internal
markets)
 Cluster and linkages helpful
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Source: Peres and Stumpo (2002)
Structural problems of SME in LAC
SME in highly developed countries:
Specialized in goods and services without
relevant economies of scale, less competition
with large firms, relevance of flexibility and client
service, continuous innovation
 SME in LAC: Standardized products, competition
with large firms (with low costs: wages,
nonobservance of norms)
 Asymmetry of information and high fixed costs
(markets for capital and technology, marketing
channels)
 High macroeconomic volatility

Typical obstacles for SME
development
Market situation (macroeconomic,
oligopsonies, unfair competition)
 Credit (access, interest rates)
 Public sector efficiency
 Low integration and cooperation
 Human resources
 Access to technology

Obstacles….
Labor legislation
 Infrastructure
 Quality of instruments of promotion
(disarticulation, view from the supply
side, not flexible)
 Market access (X)
 Taxes

Promoting SME?
A)
B)
-
Not necessary as undistorted market
permit their development.
Necessary as market failures create
obstacles to their development.
During the nineties change of attitude:
more in favor of actively promoting
SME
Policies of SME promotion:
Some general lessons
Intervention takes into account diversity
of agents
 Focalization of programs (differentiation
of type of service, sector, territory)
 Combine decentralized programs,
mechanisms of coordination and
centralized instruments
 Easy access to programs and demand
orientation

Some general lessons (2)
Orientation of programs at results that
can be evaluated by SME
 Complimentarity (institutional
coordination to create sinergy)
 Co-finance where possible
 Two main recent orientations:
• Market development
• Entrepreneurial linkages
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Market development
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Development of intermediate institutions
(chambers, associations) y private
specialized suppliers
Promoting demand (e.g., training; bonds)
Promoting the creation of enterprises
Incentive access to information technology
(facilitate access to suppliers and (potential)
clients, transparency of public purchases)
Quality orientation: help to comply with
standards, certification
Market development (2)
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Example capital market:
Funds of risk capital
Training in interaction with financial
system
Cost reduction (taxes)
Linkages research – seed capital
Entrepreneurial linkages
Horizontal SME linkages
 Vertical linkages SME – large firms
 Territorial linkages
 Clusters
 Institutional development (sector,
territory)

Entrepreneurial linkages: Some
specific lessons
Origin of program: Problem or
opportunity perceived by many
 Recognition of common or dependent
interests and objectives
 Sustainability if solution is result of
participatory process under the
ownership of the interested
 Close public-private coordination
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