The Importance of Support Services to Small Enterprise in Bangladesh

Article excerpt

Substantial money and energy worldwide has been invested in support services for the small- and mid-sized enterprises (SME) sector, as interest has grown in the development of small enterprises (Bolton Committee 1971; Birch 1979; International Labour Organization [ILO] 1992). For example, the World Bank alone has lent over US $3 billion between 1973 and 1989 to foster a healthy growth in this sector in developing countries (Timberg 1992). Despite this interest, evidence suggests that the majority of programs and institutions designed to support small enterprises have reached and assisted only a minority of them (Farbman and Steel 1992). There has also been an ongoing debate over what effect support services have on the development of assisted firms (ILO 1992). The evaluation of support services remains under-researched, often inconclusive, anecdotal, and ex-ante in nature (Gibb and Manu 1990). On the one hand, empirical studies from developing countries have generally highlighted a limited impact in terms of growth, profit generated, or jobs created (Kilby 1979; Little, Mazumder, and Page 1987). On the other hand, studies by Sharma (1979) and Bhatt (1988) on SMEs in India :met Tecson, Valcarcel, and Nunez (1989) on those in the Philippines reported a significant role for support services in improving the performance of assisted firms. These tend to reinforce conclusions drawn in parallel studies in developed countries that assistance can enhance the performance of small firms (Chrisman and Leslie 1989; Gibb and Scott 1985; Monk 1991).

Finding contradictory evidence about the effectiveness of support services from one study to another, from one country to another, and even within countries is not totally surprising. Conditions vary considerably both between and within countries on the nature of support services, how they are delivered, and in the characteristics and needs of the of the target firms. Studies too have varied in empirical scope, methodological rigor, and in methods of analysis and interpretation. It is an important methodological debating point whether support services can be evaluated rigorously (given the numerous variables that need to be controlled for) and if so, how evaluation should be conducted.

This article seeks to shed some insights on these issues. It reports results from a three-year empirical study on the effectiveness and role of support services on small firms in Dhaka, Bangladesh (Sarder 1995), one of the poorest countries in the world, where an unusually large network of support agencies, public and private, has developed (notably in the 1980s) to support SMEs (Sarder 1995). Of over 60 support organizations identified by Sarder as active in 1993, 39 were involved in supporting small enterprises in part or in whole. Eleven were exclusively directed at supporting small enterprises. Despite such substantial support, the growth and development of the small firms sector in Bangladesh appears to have been slow and unsatisfactory (Reza, Ahmed and Mahmud 1992), raising questions about the effectiveness of the support services offered (Mannan 1993; Sarder and Rosa 1994). This article takes the debate further by presenting results from a three-year research study on the nature and effectiveness of support services in Bangladesh. While it seeks some answers to this question, whether the results of this study can be generalized beyond the unique circumstances of Bangladesh's peripheral economy to wider debates concerning the effectiveness of support services on SME performance remains to be determined.

Research Methodology

The research design (outlined in detail in Sarder 1995) involved semi-structured interviews of the owner-managers of small firms in Dhaka. The interviews contained questions aimed at: assessing the performance of each firm; comparing the performance of assisted with non-assisted firms; and drawing comparisons among firms receiving different levels and forms of assistance. …