The Development of informal sector small and medium scale enterprises through formation of cluster and networking : a case study based on Sri Lanka and Pakistan

Abstract

The concepts of cluster and networking emerged in 1960s in Small and Medium Scale Enterprises (SMEs) literature but the formation ofSME clusters and networking is a very new strategy for Sri Lanka started in 2001 and Pakistan started in 2003. But it shows some positive sign of growth by increasing competitiveness of SMEs by opening-up new opportunities due to good innovative networking, common facility usage and collective efficiency of economies of scale, scopes and synergies, etc. The problem of many SMEs in both countries is not their size, but being isolated and working in enclave nature, therefore SMEs individually have little capacity to respond to competitive pressure and to generate factors for expansion and innovation. Especially, SME Apex bodies and Authorities see the formation of clusters and networking as the way to reduce transaction cost of facility provision by creating new form of co-operation for sharing resources, information, technical expertise and knowledge, etc. But in turn, this can strengthen the competitiveness as well as facilitating learning and technical innovation and ultimately it helps SMEs to mobilize human, financial and other resources to one place by opening avenue for long lasting networking. Many successful empirical stories available regarding the effectiveness of SME cluster and networking formation around the world but Sri Lankan and Pakistan cases may be too early to judge the exact relationship between SME's success and cluster and networking formation as they recently started these concepts. But available evidences in some clusters and networking in both countries show that due to this SMEs growth and competitiveness have been increasing during the last few years in terms of various indicators. Therefore, this paper ascertains the implications of cluster and networking formation on growth and competitiveness of Sri Lankan and Pakistan's SMEs. This paper concludesby emphasizing that formation of clusters and promotion of networking is a very good start to develop and increase competiveness of SMEs but at the same time many other right policy initiatives, incentives, business development services and infrastructure facilities must be in place to better perform these clusters and networking relations to address SMEs complex and diverse problems. Especially, clusters and networking alone cannot be solved the complex problems and constraints encountered by SMEs in Sri Lanka and Pakistan to break the vicious cycle of SMEs.