Report Ashish

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REPORT OF

CONTEMPORARY ISSUE IN MANAGEMENT

TOPIC OF SEMINAR

ANAYSIS OF PERFORMANCE OF SSI IN ERA OF

GLOBLISAATION

Submitted to

MR. B.L. KHODPIA SIR

MAHARAJA COLLEGE OF MANAGEMENT, UDAIPUR

(RAJ.)

(Rajasthan Technical University, Kota)

(Session 2007-2010)

Submitted By:

Name of the student

AASHISH ARYA


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First of all thanks to Director of Maharaja college of

management DR. Harvinder Soni mam. & I express my sincere

thanks to my project guide, Mr. B.L. KHODPIA SIR. (Facilitymember of Maharaja College of management Udaipur) for

guiding me right from the inceptions till the successful

completion of the project. I sincerely acknowledge him for

extending their valuable guidance, support for literature,

critical reviews of project and the report and above all the

moral support he had provided to me with all stages of this

project.

I would also like to thank the supporting staff of Maharaja

College for their help and cooperation throughout our project.

AASHISH ARYA

(Signature of Student)

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Title Page no.

[1.] Introduction of topic: - 5-25

(I) Objective: - 7

(II) SSIs in India: - 8-16

(III)The SSI sector: - 16-19

(IV)Distribution of SSIs by Industry Division: - 19-25

[2.] Research Methodology :- 26-34

(I) Introduction:- 27-27

(II) Material & Methods:- 27-28

(III)Results & Discussion:- 28-34

[3.] Conclusion :- 35-36

[4.] Appendix :- 37-44

[5.] Bibliography :- 45-45

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I ntroduction:-

Small Scale Industries (SSIs) have a significant role to play in the

socioeconomic of developing countries like India. This sector continued toreceive a special thrust from the Government of India due to its contribution

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towards achieving the multiple objectives of employment generation, regional

dispersal of industry and developing as a seedbed for entrepreneurship. Indias

small scales Enterprise (SSEs) contribute about 39% of the gross industrial

value-added and about 35% of the exports. In India, the SSE sector is the

second largest employer of human resources after agriculture.

After independence, the Indian government recognized the importance of

developing the village and the small sector and incorporated the same in its

Industrial Policy Resolution of 1948. Because of the importance of SSIs in

Indian economy, one of the measures of the policy support for promoting SSIs,

is the policy of reservation of economically viable and technically feasible

items for exclusive manufactures by the SSI sector . SSI units were granted

protection by preventing fresh capacities being created in the large scale sector.

Within the small scale units, those units, which export more than 50% of their

output, are classified as Export Oriented Units. Industry related service or

business enterprises with investment in fixed assets, excluding land and

building, up to Rs. 10Lakh are registered under Small Scale Service and

Business Enterprises (SSSBEs).

Globalization is defined as policies that decease the restrictions on trade, to

encourage the free movement of goods and services across borders. This is

exactly opposite to the policy of imports substitution. If markets work as they

are expected and supply elasticities are sufficiently strong, these measures lead

to increase in imports and exports. This is implemented by bringing more

goods from the restrictive list under the Open General Licensing (OGL). The

market is allowed to play a free role rather than the governmental regulations

in determining the pattern and nature of imports.

India initiated globalization in 1991 with the objective of faster economic

growth, as the liberalization process is in vogue from the last 16 years in India;

it is high time to examine the impact of reforms on Indian economy. The SSI

sector being an important component of Indian economy is the right case for

examining the impact of economic reforms on its performance. This sector has

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emerged as a powerful instrument for bringing about a rapid and decentralized

growth in a country that faces adverse features such as having a large army of

unemployment labor and scarcity of capital resources. It is considered as an

important dispersal and equitable distribution of national income. It also checks

unplanned migration from rural and semi-urban areas. The urban areas. Thesector provides the necessary boost for the development of new entrepreneurial

initiatives to inject a sense of encouragement and competitiveness the industrial

sector. Moreover, the SSI sector accounts for more than 30% of Indias total

exports.

Objectives:-

This papers aims to achieve the following objectives:

To examine the performance of SSIs terms of growth rates of the

number of units, employment, output and exports d5uring the 1980s,

1990 and the later period.

To find sickness level in the SSI sector in pre- and post

liberalization era.

To analyze the trend and growth rate in the bank credit to SSIs in the

era of liberalization

The board hypothesis tested in this study is that, There is no impact of

liberalization and globalization process on SSI in India.

SSIs in India :-

The post-independence development policy in India evolved around targetedefforts to faster economic growth. With some degree of industrialization at the

time independence (Bhagwati, 1998), key strategy was to embark on a rapid

industrialization process that would accelerate growth. Such growth strategy

required a policy framework that induces private investment and import of

newer technologies. However, within less than a decade, the initial policy

prescription was radically altered towards import substitution (Bhagwati,

1998). Given the absence of a larger entrepreneurial skill and shortage of

capital, the policy gradually moved towards industrialization through fostering

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small-scale industry. It was envisaged that SSIs would help generate

employment and expansion of industrial activity across the country (NIPFP,

1996).

Under these situations, the SSI sector was given a prominent place in Indian

Industrialization policy. Given that the industrialization policy graduallymoved towards an insulated environment for development and growth of

industries in general, the SSI sector too developed in those environments. In

case of large industries, the public sector took the lead, thereby becoming

under the direct control of the state, the SSI sector benefited from such

insulation in the form of reservation of certain items that were to be exclusively

produced by the SSIs. This was achieved by restricting the expansion of large

firms that were already producing these items as well as barring the entry of

new firms with large-scale production capacities in 1960s.5 The list of itemsthat were reserved for SSI was initially small (47 with effect from April 1,

1967) which grew over the years. At the peak of reservation it numbered over

873 items (or 1045 products).6 with the drastic economic policy changes

announced in July 1991, no addition or deletion of items reserved for

production by the SSIs took place. During this period several studies tried to

evaluate the performance of SSI sector (NCAER, 1993;Sandesara, 1993;

NCAER, 1996; Tendulkar and Bhavani, 1997). A common theme of these

studies has been the evaluation of reservation policy towards SSI sector. Giventhat the general economic policy moved towards openness of the economy both

for investment and imports, the very rational for continuation of reservation of

items to be produced exclusive by the SSI was brought under scrutiny. Most of

the studies during early 1990s recommended that there are reasons to do away

with policy of reservation. Consequently, dereservation process began in 1997.

Currently, over 500 hundred items are still under reserved list, to be produced

exclusively by the SSI sector. The performance SSI sector in terms of

contribution to industrial output, employment generation as well as itsefficiency has been subject of intensive research for purposes of policy

intervention. While the SSI sector as whole has performed well compared to

other sectors it has also experienced serious sickness and exit problems.7 The

existing literature on performance evaluation of SSIs can be divided into two

broad categories: theoretical and empirical. On both these issues there is a large

body of literature. One of the first studies to look into the working of SSIs has

been by Dhar and 5 For the details on specific consideration going into

reservation see GOI (1997) especially Appendix-I. 6 The number of items andnumber of products changed somewhat because of adoption of NIC codes for

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and horizontally, belying the argument that it was isolated shocks to one or two

industries generating the relatively poor results in the aggregate for reserved

products. Sandesara (1993) suggests that the lackluster performance of the

reserved industries might be attributed to excess entry of small firms into these

protected sectors. Whatever be the cause, the lesson for dereservation is clear

--removing items from the reservation list should improve their capacityutilization and production.

With the large-scale changes in Indian economic policy taking effect since

1991, the liberalisation of a capacity constrained Indian economy became the

key policy mantra. Since SSIs dominated the production and employment in

the industrial sector, the functioning of this sector too came up for scrutiny. In

a pioneering work on the functionings of the SSIs, Expert Committee (GOI,

1997) was constituted to review policy on the small scale industries in thechanged economic policy environment. The Expert Committee argued that the

reservation policy for SSIs was envisaged as a means for protecting small

industries from their larger counterparts. That might have been justifiable in the

past on the grounds that the small-scale industry would provide larger

employment opportunities at a lower capital cost, engender a wide

entrepreneurial base, and aid in the redistribution of national wealth. But in the

new policy environs, he stressed a need for change in the thinking towards SSIs

and recommended de-reservation of items to be produced by the SSI sector.These sentiments are also well articulated by a study at NCAER, Mohan

(2001), where he has argued for complete abolition of reservation for SSI

sector. These recommendations have been justified on the theoretical as well as

empirical grounds. In one of the most influential piece of research, Little et al

(1987) have argued that reservation creates inefficiencies and decreases

welfare. Among the more recent studies NIPFP (1996) provide evidence

against reservation. They conducted their own sample survey of 900 SSI units

in 18 districts of 10 states. Sorting the data by reserved and unreservedmanufacturers enabled them to draw several conclusions about the differences

between these sectors. Katrak (1999) investigated the effects of reservation

using a theoretical framework and testing his hypotheses using Indian data. His

tests showed three main results. First, reservation has increased the number of

production units per item produced compared to those that produced

unreserved items. Secondly, units that produce mainly reserved items have

higher levels of installed capacities than those making mainly unreserved items

but the former do not have higher levels of per unit production therebyresulting in significantly lower levels of capacity utilization which was

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highlighted earlier by Sandesara (1993). Third, reservation has not helped

reduce the problem of closures of small units. These results suggest that

reservation has not achieved its objectives and may have caused a loss in

overall welfare. Morris et al (2001) address the differences in capacity

utilization between reserved and non-reserved small-scale industries.

Specifically, they express doubt that capacity utilization can be shown to differ

using the census data, citing the possibility that differences in the nature of the

industry themselves might be causing the perceived difference in capacity

utilization between reserved and unreserved small scale industries. They do not

find the evidence advanced by Sandesara (1993) to be strong enough to either

confirm or reject the position that inferior capacity utilization and production

are the result of reservation. Using their own survey data of more than 1200

units, the authors (Morris et al, 2001) explore capacity utilization in amultivariate context, using dummy variables to control for the other industry

factors that might be giving rise to differences in capacity utilization. Their

examination demonstrates that reservation is not an important factor in

explaining differences in capacity utilization. The factors that mattered were

the size of unit, the rate of growth of the market, the state within which the unit

was located and the industry in which the unit was operating. However, they

stress that theirs is a preliminary analysis using a limited dataset and a more

expansive exercise might introduce different results. Their results show thatmanufacturers of reserved products were less reliant on technology, showed

significantly less innovativeness and were motivated more by subsidies and

concessions than their counterparts. In addition, they tended to be less

educated, less technically inclined and guaranteed a steady, if low-growth,

market.

Manufacturers of reserved products also had more of their entrepreneurs with a

family background in trade and service related activities. Their results alsorevealed that the production of reserved items grew at a retarded rate to that of

other producers in the SSIs. They attribute these results to the impact of

reservation on the industry itself. Excess entry is not ruled out since there is

evidence that capacity utilization does differ between the reserved and

unreserved sectors of SSI. This was confirmed by the analysis of the data

collected by Morris et al (2001).

Other important observations resulting from their study concern returns tofixed capital, value added per unit of capital, and value added per worker.

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Returns to fixed capital as proxied for by plant and machinery at original value

showed inferior results for the reserved manufacturers in comparison to the

unreserved units. The case of value added per unit of capital was similarly

inferior for reserved manufacturers. However, in terms of value added per

worker, the analysis revealed no significant difference between the reserved

unreserved industries. Another comparison, of labour value added per unit ofplant and machinery, proved once again that reserved industries were on the

inferior side of the lineup.

They also regressed value added using a translog production function against

capital and labour, as a translog form supports the variation of prices among

inputs. Again the results showed the firms manufacturing reserved items

ranked poorer in measures of efficiency. An interesting aside was that firms

that did not know they were manufacturing a reserved product were not verydifferent from those SSIs who were manufacturing an unreserved product.

They note that reserved firms have a decreased likelihood to participate in

national and international markets and instead targeted local and regional

markets. They also tend to compete exclusively with small firms, as one would

expect from a reservation policy protecting them from large firms. It is

noteworthy that despite such protection, slightly less than half of all reserved

firms reported competing solely with other small firms, indicating there is a

fair degree of slack in the efficacy of reservation. The analysis measures thestatic efficiency of reservation but the authors also recognize the importance of

measuring the dynamic effects of reservation which would seek to provide a

holistic picture of the reserved firm within the changing context of the

economy. Reading several characteristics of the reserved firm together, the

authors construct a picture of an SSI entrepreneur as someone who relies more

on information about barriers to start-up and political contacts than a sound

assessment of market potential and technology. Summarizing their

observations, Morris et al (2001) argue that on the whole the effects of de-reservation would be non-volatile for most firms. This conclusion follows from

two general findings from their sample study. First, in the great majority of

cases, entrepreneurs have entered reserved industries for reasons other than just

that they were reserved. Second, that for many of the products manufactured in

the reserved small-scale sector there is little or no economies of scale or a

quick plateauing economies of scale which makes these sectors unattractive to

competition from larger firms.

They suggest that there are only a handful of products that would shift entirelyinto the larger sector with de-reservation. The area where small-scale sector

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firms would suffer the most with dereservation is in lifestyle consumption

goods.

The authors foresee three possible futures for dereserved firms. One is that they

will be gutted by larger, brand-name producers. Another is that a few may

become large players themselves. The third is the remainder will become sub-contractor or franchisee for large manufacturers. Of the units surveyed 40 per

cent were in the reserved sector. In all measures which included employment,

capital, and production, it was seen hat units manufacturing reserved items

were lowly placed compared to unreserved manufacturers. Reserved units

performed worse than unreserved ones for capital intensity, capital productivity

and labour productivity. The only silver lining was for units with an investment

less than Rs 10 lakh. These showed slighter better capital intensity and labour

productivity than nonreserved

SSIs of the same size. Shridharan (2002) finds, like Expert Committee (GOI,

1997) that only four industry groups account for two-thirds of reserved

products, suggesting that reservations are being decided on the basis of the

most vocal campaigners rather than a sound analysis of items appropriate for

small-scale production. The second noteworthy characteristic he highlights is

that of the 200 products leading in value of output in the small sector, reserved

products tallied only 21 per cent. This casts some doubt on the idea thatreservation is creating a habitat for success among the small-scale firms. He

also calls to our attention to the fact that as many as 90 reserved items were

being manufactured by one company each which is suspiciously like a

monopoly. Whats more 22 per cent of reserved products were not being

manufactured at all and just 68 reserved items comprised 81 per cent of the

total value of reserved products produced. For good measure he cites an

NCAER survey (1993) in which only 32 per cent of SSI associations were in

favor of reservation with 57 per cent balloting for phased dereservation.

Industry specific analyses by Shridharan (2002) are also insightful. He

undertook case studies of four industries in and around Hyderabad to find out

what the effects of dereservation have been on these industries. The first

industry investigated in his study is rice milling. He provides a detailed account

of the milling industry, post-dereservation. The impact of dereservation has so

far been negligible and it been business as usual since dereservation took place

in 1997. Shridharan (2002) suggests that this is primarily due to excesscapacity in the industry. Other industry specific variables have also militated

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against the entry of larger players, namely seasonal production which entails

long periods of down time in the milling industry. The second industry he

studied was corrugated paper and paperboard, which was dereserved in April

1997. He identifies two primary considerations that weigh with investors --

expectations about the growth of the industry vis a vis the economy as a whole

and the prior establishment of a some key contacts in ancillary industries towhom the product can be sold. Reservation was of little consequence to

entrepreneurs, many of who reported not having even known that the industry

had such status until it was removed in 1997. Entry by larger units into the

industry post-de-reservation has been slight. According to industry sources,

only two larger firms had entered the paperboard industry up until 2002 when

the study was published, one in Gujarat and one in Andhra Pradesh. While the

one in AP closed down, the Gujarat factory was reported to be faring well. The

author advances structural reasons why larger firms have not moved into thesector in a big way. The requirements for paperboard cartons vary by quantity

and size and are subject to streaks of high demand or dry spells. The argument

is that small firms are better equipped to handle these fluctuations, reservation

or no reservation, and it unlikely that this will change in the near future.

Biscuits are the third industry Shridharan (2002) studied. It was dereserved in

1997. The biscuit industry is notable in that there were several large producers

operating before reservation came into being. But they were allowed to remain

in the market. Other large players penetrated the market by franchising thesmall-scale producers and were thus able to circumvent the reservation system.

In many ways this was convenient for the small biscuit produces who were

then assured a buyer for their product. With dereservation, the prevailing

system has remained intact, with large unit preferring to remain in the franchise

arrangement. One of the reasons large units prefer to keep the current business

strategy is to sidestep labour restrictions and other legal considerations. The

burden of maintaining fair labor practices and dealing with the repercussions if

violations are detected rests solely with the small franchise units. The biscuitindustry revolves around brand names, making it difficult for smaller units to

compete with the branded manufacturers even if that was their desire. Only in

the rural areas did some of the small companies develop a devoted consumer

base. With liberalization and multinational competition, international biscuit

makers have discovered Indias rural market and the indigenous biscuit

makers are getting bought out or franchised. In the case of biscuits, reservation

never really had an impact but actually reinforced the market tendency. So the

effects of de-reservation were minor.

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The last industry surveyed by Shridharan (2002) is ice cream. Almost

immediately after dereservation the small scale producers felt the impact as

larger units and multinationals moved in. Many small units around Hyderabad

considered selling off their company or being franchised. Production and

turnover slipped for small-scale units. But overall the consumer has gained

with the try of the big firms. These gains include an increase in the level oftechnology, ensuring speedy and safe delivery systems. Prices have remained

low despite rising input costs.

Shridharan (2002), therefore, identifies three typologies for de-reserved

industries. The first comprises those industries in which sector specific

qualities work against the entry of larger firms. These can be industries with

little or no economies of scale or steep seasonal/demand fluctuations etc. For

these industries, dereservation is unlikely to make much of an impact and thesmall scale will continue to operate much as it these did before. The second is

industries where industry specific reasons make it attractive for large firms to

subcontract their production to smaller units rather than take over the

manufacturing themselves. Though this can be beneficial to the small-scale

units, it relegates them to the position of a producer rather than an

entrepreneur. The third is one in which medium and large units enter. Here

small-scale units either have to increase their production size and graduate to

become a larger player or watch their market share dwindle.

Two other studies have been commissioned by the government to explore the

impact of dereservation. One is by Dalal Consultants and the other through

UNDP. A publication of Press Information Bureau, GoI, reports that a study

by UNDP for the ministry on 15 dereserved items indicated that there has been

no negative impact on the sector with exception of marginal impact in case of

biscuits.10 This study has however since become untraceable. The Dalal

Consultants study showed that in the 15 sectors studied, SSIs were doing wellpost reservation.

The empirical studies reviewed above do not provide a comprehensive

coverage of the SSI sector in terms of the impact of dereservations. Most

studies cover the dereserved items partially and arrive at a conclusion that

mostly favours further dereservation. One possible reason for such mixed

outcome could be the timing of these studies as it was only a couple of years

into the dereservation.

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Keeping these in mind, we investigate the impact of dereservation in terms of

growth in output and employment overall and for the small scale sector in

these segments.

The SSI sector:-

We have pointed out that there are multiple sources of data on SSI sector. In

this section, we have reported some major indicators of SSI sector from three

different sources of data namely, those compiled by the MOSSI on both

registered and unregistered categories, the NSSO data on unregistered category

and ASI data on registered units.

2.2.1 Trends in the SSI SectorGiven that SSI sector has been considered as a major source of employment,

growth of manufacturing output and exports, we examine the statistical

evidence available from published sources of data in this section. At the outset,

it is to be borne in mind that information on the number of SSIs as well as on

their characteristics differs according tothe source of data used.

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Table 2.1 shows the number of units in both the registered and the unregistered

categories along with employment. The table suggests that there has been an

overall increase in the number of units--- both registered and unregistered

categories as well as in employment.While in the registered category, the

number of units increased by close to 60 percent in the last ten years, the

increase in unregistered units has been only about 47 percent. The employmenttoo appears to be keeping pace with the number of units as it increased by over

48 percent during the same period. But this impressive growth has been

slowing down, both in terms of the number of units as well as in terms of

employment. As for the unregistered sector Appendix 2 goes into the details,

but we generally find that there is a dissonance between the NSSO data on the

unregistered sector and that from the SSI Survey of unregistered units. This

could be because of differences in definitions or some other factors that are

beyond the scope of this study and therefore not considered here.

2.2.2 SSI Sector in Indian Manufacturing: Indicators from Third SSI Census

By far the most comprehensive coverage of SSI sector is in the SSI census

carried out by the MOSSI. So far there have been three censuses, conducted

during 1973-74, 1987-88 and 2001-02. The data from two earlier censuses are

not generally comparable in scopeand coverage of SSI sector. Moreover, thedetailed data is not available for first two censuses. Therefore, in this section

and also in rest of the analysis in this report, we useunit record data from third

SSI census. Moreover, as the issue of reservation is pertinent for registered

segment of SSI, we report different characteristics for SSIs that

areregistered.The term registeredhere refers to being registered under the

Factories Act, as reported by each unit in the Census.

Table 2.2 has different characteristics of the registered segment of the SSI

sector as tabulated from the 3rd SSI census data. A little over nine lakh unitsout of over 11 million SSI units are registered and a large proportion (about

95%) are in manufacturing sector. Total employment in the registered segment

of SSI is more than 5.1 million; again most of it is in the manufacturing sector.

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Distribution of SSIs by Industry Division :-

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This section looks at SSI units in terms of industry divisions. The Industry

divisions have been taken from NIC 1998. There are 99 two-digit descriptions

ranging from agriculture, forestry and manufactures to construction, retail

trade, transportation and social work. The SSIs are engaged in production of

over 6000 items as per 3rd SSI Census. Dispersion of these can be seen

through the distribution of units across two-digit NIC groups.Table 2.3 shows the spread of SSIs according to the type of items they

manufacture. The maximum number of SSIs -- close to 19 per cent -- in our

data set belongs to the food product and beverage manufacturing industry. The

next highest share over 14.6 per cent consists of SSIs making fabricated

metal products, followed by other non-metallic mineral products. Small textile

units have a share of 8.7 per cent. Chemicals and chemical products, machinery

and equipment and other fabricated equipment account for around seven per

cent.

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In keeping with their share in numbers, food product and beverages SSIs also

matched their share in total employment. These SSIs, with the highest share in

numbers employed as much as 20 per cent of the total number of people (Table

2.4). The big departure is by the tobacco products SSIs -- despite their small

2.2 per cent share in the total number, they had a disproportionately large shareof the employment at 13.2 per cent. This can probably be explained by the fact

that these units are country cigarette or bidi making units and since this is a

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hand-rolled product, a large number of people are needed to make products of

seemingly much less value.

Looking at the output across industry divisions we find that food and beverages

SSIs again rule the roost. The share in total output of food etc is over 21

percent as evident from Table 2.5. This is followed by chemical and chemical

products at just over 10 percent. Other important industry divisions in terms of

contribution to output are Basic Metals, Fabricated Metal, Rubber & Plastic,Textiles and Machinery & Equip. N.E.C

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The distribution of units, employment and output are predominantly in

manufacturing SSI units, the share in exports show some surprises as apparent

from table 2.6. More than 50 percent of the total export from the registered

SSIs is from food and beverages, textiles and wearing apparels. Fourth position

in terms of exports is by fabricated metal products. The chemical and chemical

products contribute about 6% to total exports from SSI.

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Small-scale industries in Jordan in the globalization era

performance and prospects:-

INTRODUCTION:-

Small scale industry sector occupies a place of strategic importance in

Jordanian economy structure due to its considerable contribution in terms of

output, exports and employment. Small scale industries play a key in the

industrialization and development of a country. This is because they provide

immediate large scale employment comparatively higher capital ratio, they

need lower investment, offer a method of ensuring a more equitable

distribution of national income and facilitate an effective mobilization of

resources, capital and skill which might other wise remain unutilized (4).

Development of small scale industries was governorate affair therefore; these

industries were planned by the governorates. The governorate co-ordinate the

development programs through its agencies.

Small scale industries sector was a major contributor to the industrial economy

of Jordan. It accounts for 50% of the total manufacturing sector, has 20% share

in exports and provides 80% of employment in industrial sectors (10). In spite

of all the odds it has always performed well. Despite the global and domestic

recession, small scale industries registered a higher growth rate when the

overall industrial sector in terms of number of units. Liberalization have forced

all industries to constantly up grade their quality while cutting down the costs

if they want to remain and retain their place and share in the global market.

Small scale industries world over including Jordan were facing the on slight of

the adverse effects of globalization in the stringent requirements of quality

costs, tight delivery schedules and productivity (1).

MATERIALS AND METHODS

this research is based on the survey and analysis of secondary data, the data

was a gathered from published studies and reports available in English and in

Arabic. Relevant statistics were obtained from Central Bank of Jordan and

Department of Statistics. The answer to the following questions is one of the

objectives of this study

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* Why global and national policy development should affect small business

scale industries in Jordan? How? What are its implications?

* How far small scale industries have been able to cope up with the

competitive environment? What was its growth performance in the last decade?

How different was it compared to the earlier decades?

* What are the future prospects of small scale industries in Jordan in the era of

globalization? What steps need to be taken to strengthen small scale industries

to ensure its sustained contribution to Jordanian economy?

RESULTS AND DISCUSSIN

The over all performance and contribution of small scale industries toJordanian economy is generally described in terms of its absolute growth in

units, employment, production and exports. Equally important is its relative

contribution, which can be analyzed in terms of its share in the national

income, total exports and total organized sector employment. Thus, the growth

of small scale industries can be evaluated in two ways:

* To compare the growth rates of units, employment, output and exports of

small scale industries in the 2000 with that of 1990s

* To ascertain the change in the relative contribution of small scale industries

to GDP, exports and organized sector employment in the 2000s with that of

1990s

This will reveal how the sector is copying up with challenges and changes in

the intensifying competitive environment emerging since 1990-1991. The

growth of small scale in terms of units, employment, production and exports isestimated based on the figures given in bulletins issued by the Central Bank of

Jordan (CBJ) and Department of Statistics (DOS). The share of small scale

industries in National Income is arrived at as follows: The Gross Value Added

(GVA) of firms having investment more than that of the small scale industries

investment limit is deducted from the manufacturing sector's contribution to

Gross Domestic product (GDP) and the remainder is the contribution of small

scale industries to GDP. This value is calculated as a percentage of the total

GDP.

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The growth rates of small scale industries in terms, of units, employment,

output and exports for the 1990s and 2000s are percentage in table 1.

Table 1: Growth of small scale industries (1990s and 2000s)

Export Output Employment Units Period

10.5 13.2 4 5.2 1995-1990

15.9 15.3 8.3 7.3 1996-2000

25.3 19.3 10.2 9.5 2001-2005

Source: Department of Statistics, Annual statistical Bulletin, (various Issues)

It is clear that the growth of small scale industries has come up in terms of notonly units and employment, but also in terms of output. This could be an

indication that increasing competition in the globalization period and the

agreements signed with other affected the growth of Jordanian small scale

industries positively. Growth rates are estimated for 5 years period. The growth

rates of units, employment, output and exports steadily come up. In fact, the

growth rate increased in the 2000s as compared to early 1990s.

The other dimension of small scale industries is its relative contribution tonational income (GDP). The contribution of small scale industries is

considered for four periods of time: 1990, 1995, 2000 and 2005 (Table 2).

Table 2: Small scale industries in Jordan's national income (GDP) in percent

National income Year

3 1990

4.2 19955 2000

5.8 2005

Source: Department of Statistics, Annual statistical Bulletin, (various issues)

The share of small scale industries in national income has consistently

increased. The infrastructure constraints confronted by small scale industries

can be broadly classified as economic, technological, marketing and financial.

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Stable and reliable economic infrastructure such as power, water, transport and

communications are a pre-requisite for the official functioning of any economic

activity including small scale industries. Inadequate economic infrastructure is

one major factor affects the performance and competitiveness of small scale

industries. It is to overcome the infrastructural deficiencies faced by the sector,particularly in rural/backward areas and to strengthen linkages between

agriculture and industry the government introduced many schemes. The

purpose of there schemes is to contain developed sites, power distribution

network, water, telecommunications, drainage and pollution control facilities,

roads, banks, raw material depots, storage and marketing, outlets, common

facilities and technological back-up services. Recently, the government of

Jordan has proposed to extend these schemes to the entire country (5).However, it is not clear how and when the schemes will be expended to cover

the entire country.

The need for improving the competitive strength of small scale industries

through technology improvement and modernization was recognized as early

as in the 1990s with the setting up of small industries development programs

(6). Since then, over a period of time, particularly in the 2000s exclusivetechnology infrastructure has come up for small scale industries to facilitate

technology transfer. Thus, policy makers in Jordan have considered technology

development in small scale industries only from a single dimension, that is,

through institutional technology transfer.

How far technological infrastructure meant for small scale industries has

helped them in another issue. Technology development in small scale

industries can be achieved through in-house technological innovations as wellas inter-firm linkages with large firms (2). Technological innovation involves

the situationally new development and introduction of knowledge- derived

tools, artifacts and devices by which people extend and interact with their

environment. It is primarily rooted in a firm's internal competencies. The

advantage with in-house technological innovations is that it can be firm

specific and continuous. Similarly, a small firm can get technological inputs

and technology through sub-contracting relationship with large firms on acontinuous basis. In Japan, effective sub-contracting relationship between

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small and medium enterprises and large firms works as an important

mechanism of technology transfer (3). But in Jordan, policy seems to have over

looked the ability of small firms to innovate and the extent of ancillarisation,

through increasing in recent years, is well below potential.

Timely availability of adequate finance is another issue, which crucially

determines the survival and growth of small firms. Small firms are largely

dependent on bank credit to meet their financing requirements while the big

firms have alternative sources of finance (13). To ensure better financial

infrastructure, government of Jordan directed its institutions and commercial

banks to meet the working capital needs of small scale industries at a very low

interest rate (12). However, despite the development of exclusive financialinfrastructure for small scale industries, the growth in the amount of credit

extended to small scale industries is not sufficient.

Marketing has been identified as one of the major problem areas of the small

scale industries and it has been ranked as the second most reason for the

closure of small scale units (8). It is quite logical and obvious, if small firms do

not have access to reliable and efficient economic infrastructure, they suffer, ingeneral, from technological obsolescence and if credit flow is not sufficient,

they will not be able to produce quality goods and productivity will not be

higher either. In such a case, small firms will not be able to penetrate markets,

national or international, even if marketing support is coming from government

agencies. After 1990s, two major steps have been taken by the government to

promote small scale industries marketing:

* The scheme of establishing strong relation between small and large firms,

one of the major objectives of this scheme is to provide good in formations by

large scale industries to the small scale industries about the new method of

marketing and low to take chance in the international market

* With a view to ensure that exports from small scale industries sector exhibit

their produces in the International Exhibitions, required assistance and supportis provided. Expenditure on account of space rent, handling and clearing

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changes, insurance and shipment charges, etc., are met by the government of

Jordan under one of the plan schemes

Thus, the current status of small scale industries in Jordan can be appropriately

understood in the above context. Given the good performance of small scale

industries in the context of constraints, it is essential to ponder over its futureprospects and the strategy to be adopted by the stakeholders; namely, the

government and more importantly the small scale industries sector itself.

Based on the data analysis the research concluded the following results:

* First of all, if small scale industries have to thrive steadily, infrastructural

bottlenecks must be overcome to enable them to compete based on their

internal potential. And it is the responsibility of the government to remove anystructural bottleneck for small scale industries performance especially when

market forces are given prominence through the removal of protective

elements. It is essential to provide the much-needed level playing field to small

enterprises through infrastructure development. But overcoming the

infrastructural bottlenecks' for small scale industries is easier said than done

* To enable efficient monitoring and provision of infrastructural facilities,small scale industries should be permitted to come days only in designated

industrial areas or estates. Each state should be asked to develop a database of

small scale industries, which should be up dated at least, once in three years.

There will facilitate policy corrections from time to time. In addition, the

government along with industry associations should involve the private sector

in the development of infrastructure in existing industrial areas and clusters and

permit provision of infrastructural services on payments. Similarly, privatesector investment should be encouraged for the development and management

of existing as well as new industrial parks and clusters. These steps would go

along may in strengthening the infrastructure for small scale industries

development in Jordan

* There is a need to explicitly recognize and exploit the innovation potential of

small scale industries. In developed countries small scale industries are

promoted, among others. Small scale enterprises have the specific advantages

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of flexibility, concentration and internal communications for carrying out

technological innovations. Technological innovations contribute to

competitiveness. Even in the Jordanian context a significant number of small

firms do carry out technological innovations and there by enhance their

competitiveness. Therefore, it is appropriate to incorporate schemes in theexisting policy and institutional network to provide technological and financial

assistance to in-house technological innovations at the district level and make it

easily accessible to small scale industries. There is a need to create fund at the

government level for disbursement as margin money through district industries

centers to small scale industries units to encourage them to undertake

technological innovations

* These schemes are not to undermine the significance of the present strategyof technology transfer. It essential to pursue with more intensity the existing

strategy of technological up gradation and modernization by involving

governorates and small scale industries associations, particularly with a focus

on small scale industries clusters.

* There is a need for technological transformation of Jordanian small scale

industries is gigantic task and government alone cannot achieve the objective,

however extensive its infrastructure may be. Therefore major initiative has to

come from small scale industries itself, particularly through their associations.

The importance of achieving and sustaining competitiveness in the long and

investing self-efforts and resources needs to be realized and spread among

small scale industries units through their associations at regional level. This

will play a good role in their long-term development in the future.

* The increase in the competitiveness of small scale industries will also be

determined by the availability and quantum of finance. The demand for

finance- implicit as well explicit-from small scale industries will be substantial

considering its size, structure, growth pattern need for its reconstructing and

technology development. Particularly, the investment demand for finance from

small scale industries will increase considerably due to technology and

modernization, expansion quality, improvement and technological innovations,

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environment related investments, etc. To meet the growing and diversified and

specifically to take care of the technological transformation of small scale

industries and lay more thrust on adequate flow of finance to the sector. The

promotion of inter firm linkages is another issue deserving more recognition.

Till recently small and medium-sized enterprises in general were precludedfrom participating in the lucrative supply-chain transactions generated by much

larger manufacturers and suppliers. In most cases small and medium

enterprises were unaware or unable or unwilling to spend the necessary capital

or transactional system implementations, or infrastructure upgrades. However,

time is changing now. The increasing presence of transnational corporations in

the country would open up new opportunities for sub-contracting/outsourcing.

This is because FDI has flowed into industries such as telecommunications,transportation, where opportunities for sub-contracting/outsourcing are high for

small scale industries.

* Globalization need not affect Jordanian small Scale Industries adversely. It

would have created beneficial opportunities as well. The removal of quantities

restrictions and reduction of import duties, particularly after the setting up of

WTO in 1995, have opened up foreign markets to Jordanian small scale

industries as much as Jordanian market to foreign goods (7). Many efficientand export oriented small firms in Jordan to enhance their competitiveness to

penetrate the global market. This could also be achieved by small firms

becoming vendors or sub-contactors to foreign large scale industries. The trend

is outsourcing of supplies by Transnational Corporations and they are always

on the look out for firms who could supply reliable and quality products.

* Finally, irrespective of the degree of support extended by the government,

Jordan is going to experience the emergence of small scale industries sector,

which is qualitatively superior, technologically vibrant and internationally

competitive, in the next five-to-ten years because the inefficient ones are likely

to vanish gradually. The objective of the policy makers as well as scale

industries associations should be to enable the sector to emerge vibrant and

competitive without a considerable reduction in its size and thereby enable it to

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make a sustainable contribution to national income, output and exports.

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CONCLSION :-

Small scale industries in Jordan find itself in an intensely competitive

environment since 1991 due to globalization domestic economic liberalization

and dilution of sector specific protective measures. As a result, its growth in

terms of units, employment, output and exports has come up. This has resulted

in more growth in its contribution to national income and exports in the 1990s.

International and national policy changes have thrown open new opportunities

and markets to Jordanian small scale industries. Concerted efforts are needed

both from the government and more importantly, from small scale industries

themselves to imbibe technological dynamism into Jordanian small scale

industries. Technological up gradation and in-house technological innovations

and promotion of inter-firm linkages need to be encouraged consciously and

consistently. The benefits and need to go for technology development through

either technology transfer or technological innovations or inter-firm linkages

should be emphasized in the light of dimensions of global competition and its

negative fall outs as well as positive opportunities, to small scale industries

entrepreneurs through seminars and work shop, at the local level. Financial

infrastructure needs to be broadened and adequate inflow of credit to the sector

ensured taking into consideration the growing investment demand including

the requirements of technological transformation. Small scale industries should

be allowed to come up only in designated industrial areas for better monitoring

and periodic surveys though Ministry of industry should enable policy

corrections from time to time. A technological vibrant, internationally

competitive small scale industries sector should be encouraged to emerge, to

make a sustainable contribution to national income, employment and exports.

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Appendix: -

How do laws, rules, regulations affect doing business for SSIs.

The governments active role in the economy affects small business in many

ways and across all stages of the small business lifespan: At entry (setting up),

during operations, and finally at the last (or exit) stage. Of these the exit stage

has been discussed elsewhere and will not be repeated here.

I. Setting Up A Unit Setting up a manufacturing unit requires the entrepreneur

to obtain land, capital, utility connection, environmental clearances, and then

depending upon its area of operations many other clearances such as from the

food and beverages department in the case of food products, etc. First consider

the problems experienced across the board: Land and Utility Connections:

Take the case of setting up a unit on government revenue land. In many cases,

the scales and location characteristics of a project are such that a piece of land,

not a part of some industrial estate, is ideal for a unit. However, getting the

necessary permissions through the DIC, Tahsildar, Electricity Boards,

environment/pollution control agencies, etc., are tedious and time consuming.

Admittedly, locating in an industrial estate is significantly easier. In a study on

the reform process in different states by NCAER, 16 it was found that

obtaining various permissions for locating a small industry on revenue land

required about three months and obtaining electricity connections took

approximately three and a half months. On the other hand, it took

approximately forty days to obtain the necessary permissions to locate on land

developed by an Industrial Development Corporation, and less than a month

for the necessary electricity connections. Capital: Though it is not necessary to

access Public Sector State Financial Corporations and Banks for financing,

they are the major source of funds in the organized sector. On an average, ittakes more than four and a half months to access funds from these sources. It is

not only the time taken and the loss in terms of opportunity costs that harm the

economy.

Entrepreneurs and their agents have to make repeated visits, make repeated

applications, provide details time and again to these bodies, make facilitation

payments, and so forth. Clearances: Environmental and labor related

clearances also require repeated visits to the relevant departments and getting

permissions. There are multiple clearances that are required from multiple

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organs of the governments. Each of these organs has an inspector whose duty is

to ensure that the SSI follows the norms on which the clearance was based (see

below).

Sector specific: Food and beverages, pharmaceuticals, polluting

industries (such as those having oil or coal furnaces, or recycling plastics, or

those that have chemicals as inputs or outputs), are even more affected by thegovernments role in the economy. These have more clearances to obtain and

these vary from state to state. The attitude of the state 16 R. Venkatesan,

Problems in the Implementation of Economic Reforms at the State Level,

NCAER, 1996 government agents also varies, typically it is felt that those in

the northern part of the country are less sympathetic to the requirements of the

entrepreneur. The major problems therefore can be broadly classified as

necessity of repeated interface with bureaucratic-administrative machinery.

These in turn leads to delays in putting up a project, loss of flexibility, andhigher costs of setting up and as a result, higher operating costs. Many if not all

SSI entrepreneurs circumvent these cost add-ons by finding other ways of

getting the relevant documents stamped. Be that as it may, the single window

clearance system has to be implemented. This would involve the getting

together of all the government functionaries involved in setting up a project,

the finance corporations, electricity and water authorities, environment related

authorities, etc., together to give the necessary clearances.

II. Operating a Unit

II a. InspectorRaj

In a study by NCAER on industrial policies and procedures, it was found that

there were more than fifty major acts covering the operations of any enterprise.

In addition, there are many supplementary acts.17 to enforce each of these acts;

there is the government administrative machinery. Government inspectors arebut one set of government agents responsible for this. The issue here is not so

much the various acts, but the duplication of records, multiple inspector visits,

and consequent procedural complexities that they lead to. In many cases, even

if some unit is meeting the legal obligations, inspectors have to be satisfied

because they have the ability to trouble the entrepreneur and divert his/her

attention from operating the unit. This leads to a situation where even if some

laws do not apply to a particular unit, the entrepreneurs are forced to deal with

the representative

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inspectors. Since the possible inspectors are many, the potential procedural

transaction costs are also high.

Table A4.6: Inspectors in various Ministries and Departments

Needless to say, not all units are inspected by each of the above. The above

table only reflects the various inspectors that exist under various ministries and

departments. However, most units come under many of the above (and others

not noted here) inspectors. In many cases, even if some unit is meeting the

legal obligations, inspectors have to be satisfied because they have the ability

to trouble the entrepreneur and divert his/her attention from operating the unit.This leads to a situation where even if some laws do not apply to a particular

unit, the entrepreneurs are forced to deal with the representative inspectors.

Since the possible inspectors are many, the potential procedural transaction

costs are also high.

II b. Labour18

One of the most serious problems faced by all industries leave alone SSIs has

to do with the labour laws and enforcement machinery. There are many laws,rules, regulations related to labour, compensation, working conditions in India.

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The majority of these were put in place in the first half of the 20th century

when a different set of priorities shaped industrial policy. In addition, there are

a variety of laws dealing with various subjects, using different definitions of

terms such as wages and workers and overlapping in many cases, leading to

confusion and uncertainty. Various case laws have also since got incorporated,

further contributing to the complexities. This leads to many proceduralcomplexities and duplication of records. The related procedural transaction

costs are also so high that many entrepreneurs find it better to circumvent these

by not complying with them and managing the government machinery set up

to enforce them. Not only does this increase the degree of illegal operations, it

also harms labour and industrial relations. Consequently, both employer and

employee efforts are diverted towards day-to-day labour and employment

issues, harming quality, innovative-ness and smooth operations.

Table A4.7: Large Number of Acts Governing Labour

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Many believe, mistakenly, that SSIs are not as affected by labour laws,

however many SSIs are large enough to be under the ambit of the various

labour laws. The following table shows otherwise.

Table A4.8: Varying Applicability of Laws SSIs are not out of range for

labour laws

II c. Exports

Though Indian exporting units have had a good run in recent years, significant

operational problems continue. For the larger firms these are proportionately

less costly as the time required to receive various clearances are about thesame. The table below lists the time required for a typical garment-exporting

unit.

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Table A4.9: Time costs associated with export clearance

In terms of money costs as well many of these clearances and procedures

impose significant costs. The EXIM bank of India estimated these costs of

various export related clearances for different sectors. It did so by simply

asking entrepreneurs and managers to estimate the Rupee costs of obtaining

various clearances for exports. As the table below shows, the costs

tend to be higher for those sectors where the key exporters are smaller firms

garments, chemicals, light engineering, food related items, etc.

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[1] I HAVE TAKEN THE METTER OF PROJECT REPORT

FROM THE ICFAI UNIVERSITY JOURNAL OF

MANAGERIAL ECONOMICS.

[2] I HAVE ALSO TAKEN THE METTER OF PROJECT

REPORT FROM INTERNET... (www.smallindustryindia.com)

Report Ashish

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