Developing SMEs: The way forward

As we come into the 73rd year after independence, we cannot find many things to be proud about at all. We had a one billion UK pounds to loan the UK at independence. During that period, we were only second to Japan in economic progress. Singapore wanted to be like us. Today we are far behind with trillions of debt to pay and of course after an unwanted war fought destroying everything we had in our lifetime.

Important role of SMEs

It is a fact beyond doubt that SMEs play an extremely vital role. In countries like Thailand the role of the SMEs is more than 30% while in Malaysia it is more than 25%. In most countries in the ASEAN region it is well above 15% but in our country, it is less than even 7%, which is a very sad and a disturbing situation. This needs immediate attention for quick improvement with solutions such as those I am trying to share with all for another way forward.

What is observed today, the last few governments have given more emphasis in this area, which is excellent. Now entrepreneurship is being recognised as an important role in our economic fabric. We could observe that even the banking sector has credit and other facilities, etc. extended to these entrepreneurs now, which was never the case a few years back. There is a fair amount of emphasis and focus on entrepreneurs as this is a critical aspect of the country’s economic progress for the future.

SL can develop entrepreneurs, an example of the current situation 

If you look at the transport industry as an example, we find many have done well. In the very early ’80s when this private transport industry started, we had small, very short or low vans transporting people under very difficult conditions. We had to bend into two and travel in them with half the body outside the crowded van. The situation was extremely tough as I have experienced it many times in those early days.

With regulations, that situation has changed where we find many or all entrepreneurs have upgraded themselves into big large buses and many are doing well with some owning fleets of buses. 

This situation is much better than the CTB where buses are given absolutely free by the State and they cannot even pay their staff and even their EPF leaving out investments for new buses. That episode continues even now with public funds being used with cost free buses to the CTB with the least efficiency. Of course, at our costs. What a shame and no progress in sight after 60+ years of running.

In contrast, the private entrepreneur has expanded into fleets after paying their own high interest leases, mostly borrowed from expensive finance companies. During this period, they have also invested in new buses to increase their fleet after running their own business under difficult conditions. Including under very uncertain economic situations with the war in the north and the south including many other operational difficulties that existed then and even now with even COVID-19.

This shows the SL entrepreneur can perform and of course well above the CTB which is not the best benchmark to compare performances. Anyway, they have and we see prospective progress and we can be satisfied although there are certain aspects like discipline at a low level. This can be managed and improved I am sure.

Hence on the basis, I feel the SL entrepreneur can perform if guided well and supported correctly.

My experience 

In my little note, I am only trying share what I experienced and many other small-time entrepreneurs can be supported in the same way to improve and strengthen their performances.

I run a SME and market a range of Moringa products both locally and internationally. This is being done under difficult conditions due to limitations in funding among many others.

I am an individual who came into employment after the 1977 liberalisation and survived with good market competition and tough market situations with the 30 year war both in the north and south. With these experiences I carry extensive knowledge and experience both in leading multinationals and SL blue chips to manage my own SME now.

Sadly, my two children, both live abroad with their families like many of our children among our friends of our generation. My daughter who is a Chartered Accountant advised me that I should not be investing any more funds in my business and suggested that I find a partner which will eliminate or reduce my risks and help the operations funding. 

Being my company, I was not prepared to let go of the ownership. This is my frank opinion. That was obvious as I have spent five years of my valuable time and my sweat and tears was very much in the company. My daughter kept asking me to do so as she was confident it would assist me.

The new investor and what a proactive message 

With that in mind, the first gentleman whom I approached was an important personality. I met him because it was he who created my interest in Moringa.  What a change it was. First thing he told me was that he did not want controlling interest of the company. He told me ‘you have to run the company as it is your company’. He said he would support with an investment of agreed amounts and increase funding when we do well. He did say he would support me since it was an important sector with local primary agriculture and also with agro exports being key to increase primary farmer incomes. 

On his part, he will share management of the company’s accounts, share resources, knowledge and contacts and have a director in the company to coordinate matters; also establish good systems and lay a foundation and for me to just concentrate on the business for growth with no other headaches in my mind. 

Immediate changes

Since I have to run the company and make it happen, immediately I prioritised my activities and improved the website which was very poor to what it is at present. This gave confidence not only to me but to my buyers locally and worldwide.

As the second priority I was on print media for the first time to give my products very valuable awareness with the public. I never been on the print media before for good reasons as I had no funding. I got a 25% advantage on the cost of advertising price as my investor’s media buying was big and I had the advantage of a lower price and a cost saving.

In addition, with rupees in my account, I hired a professional to handle my digital marketing and I became very active on social media for the first time. The likes on my FB page ‘Moringa SL’ had more likes as never before. More inquiries followed in with a very active page being in operation on digital media.

We are also on the move to forward integrate with a distribution partner with contacts of the investor. This will make the products available country-wide soon. In addition, we are trying to backward integrate with the processor so that we have a flow of goods through the supply channel to the consumer both locally and internationally. Things are happening all within a period of less than 60 days. A good change has happened. A new model for SME improvements has now been established. I think it’s a win-win situation. Hence this note to share and for others to experiment.

Objective of this write up

SMEs are extremely important to the country’s future. They must be supported to the maximum. Loans at low interest is very important. No questions about it but the information that I shared is even more important. Accordingly let’s go beyond loans and look at solutions like what I have been supported with and improve this important segment. 

Such support will change the destiny of the country. It is not difficult as there many more young entrepreneurs who are very much capable and need support and assistance with guidance as stated in this short note. A new model, worth to explore and try out as it is working out for me.

Suggestions

Invite 500 or 1,000 medium and large size companies to take on and support five, 10 or 15 small entrepreneurs each. It could be even from a provincial basis so that the most deserving can be assisted and brought up to the expectations of an entrepreneur who needs assistance. Even the banks can support with low interest rates through these partners as the financial institutions can depend on the investor for repayment as well.

This approach will support in the same way like I have benefited not only with financial investment but support with the strengths of the investing company have in the market place. It could be in all fields of management. It can be in accounting, purchasing, marketing, media buying, processing, supply chain and any other so that SMEs will benefit with the strengths of the investment company. 

The criteria for investment 

In this management principle or the business model, the controlling interest will be with the entrepreneur. This will motivate him to perform better. The supporting investment company can buy into only up to 25% or 30% of the company. This will encourage the funding receiving entrepreneur, to work much better and efficiently and to take the company to the next level. The banks too could support at lower rates of interest through the bigger investment company and their funding being safer even without collateral.

The assistance receiving company will need no collateral as funding partnering supporting company will take the responsibility as he will have a director on the board, signing cheques to have a control on the flow of funds.

Some serious food for thought and I feel very confident and comfortable with this methodology or the business model to develop more and more SMEs to take our country to the next level which is more important in today’s context.

I would like to mention who this important personality and the brand is but I will not do so for the moment but will do so in the future as he needs recognition and worth for all others to follow. 

Some food for thought.

[The writer is a Chartered Marketer and a member of the Chartered institute of Marketing (MCIM) in the UK. My Masters is from PIM of the University of Sri Jayewardenepura. I am a small entrepreneur now after representing big local and international brands. Visit www.saja.lk for more information.]