Defining SMEs

❑ Small and medium-sized enterprises (SMEs) are autonomous firms which

employ less than 100 number of workers in Pakistan or having paid-up

capital up to Rs. 20 million & sales up to Rs. 250 million per annum.

❑ Small firms are generally those with fewer than 50 employees, while micro-

enterprises have at most 10, or in some cases 5, workers.

❑ This number varies across countries.

Defining SMEs
❑ SMEs constitute about 90% of the considerable number of ventures in

Pakistan.

❑ Their contribution in the yearly GDP is up to 40%.

❑ GDP = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (NX)

❑ Roughly it has proportion of 30% in Pakistan's all exports.

❑ The studies reveal that, SMEs not only impacts GDP, but it also helps to

enhance the livelihood of people of the country by creating more economic

opportunities.
Defining SMEs

❑ SMEs are spread in all areas of Pakistan with

a noteworthy fixation in Punjab (65.4%).

❑ The contribution of Balochistan in the nation's

SME part happens to be the littlest (2.3%)

while those of Sindh and Khyber-

Pakhtunkhwa are 18% and 14.3%, separately.

Defining SMEs

❑ There are approximately 2 million Micro, Small,

and Medium Enterprises in Pakistan.

❑ Because they are by definition small their share in

GDP is not quite as dominant.

❑ Contribution to Employment: The SMEs employ

roughly 80% of the total non- agricultural labor

force in the country.

Importance of SMEs

1. Favors flexibility and innovation

❑ Many technological processes and innovations are

attributed to SMEs.

❑ Since large enterprises tend to focus on improving

the old products to produce more quantities and

obtain general benefits of dimensional economy,

such companies are not as flexible as SMEs.

Importance of SMEs

2. Creates a more competitive and healthier

economy

❑ Small and medium-sized enterprises stimulate

competition for the design of products, prices,

and efficiency.

❑ Without SMEs, large enterprises would hold a

monopoly in almost all the activity areas.

Importance of SMEs

3. Assists big enterprises

❑ Small and medium-sized enterprises help large companies in some areas of operation
that they are better able to supply.
❑ Activities such as supplying raw materials and distributing the finished goods created
by big enterprises are developed more efficiently by SMEs.
❑ The significance of small and medium-sized enterprises is also recognized by the
governments.
❑ Hence, they offer regular incentives to SMEs, such as easier access to loans and
better tax treatment.
Fear and Challenges

Case Study
As a small business enterprise,
what are your fears and
challenges?
Fear and Challenges

• Lack of Finance 55%

❑ According to a study conducted by Gallup
• Shortage of skilled labor 39%
Pakistan with the cooperation of World • Getting business site 38%

Bank and the Government of Pakistan • Bribe 21%

• Orders/Marketing of product 28%
❑ The 500 sampled entrepreneurs were
• Lack of knowledge 12%
asked to list down the most important • Government interference 12%

problems faced by them in setting up their • Getting quality Raw material 10%
• Getting license for work 8%
business.
• Knowledge of new Technology 8%
Fear and Challenges

❑ Their working capital and investment needs are

met from their profit or from purchases or credit

and advance from customers.

❑ The small businesses interviewed in the survey

considered taxes, corruption and high price of

utilities especially electricity as three of their

major grievances against the government.

Evaluating an Opportunity
Evaluating an Opportunity

❑ You can use three practical methods for determining the feasibility of

your business ideas:

1. Cost/benefit analysis

2. Opportunity-cost analysis

3. SWOT analysis
1. Cost-benefit Analysis

❑ Even though it is necessary to take risks as an entrepreneur, successful people

take a calculated risk.

❑ This means carefully considering the potential costs and benefits.

❑ One method used to determine a calculated risk is called cost/benefit analysis.

❑ It is the process of adding up all the expected benefits of an opportunity and

subtracting all the expected costs.

1. Cost-benefit Analysis

❑ A difficulty in cost/benefit analysis is assigning a monetary value to

intangible things. For example…..

❑ Another difficult part of doing a cost/benefit analysis is that you can’t

precisely assign numbers to the costs or the benefits at the beginning of

your evaluation.

❑ You have to think only in general terms.

1. Case Study-Cost-benefit Analysis

Education Sector: Setting Up a New Laboratory

❑ Objective: PAF-IAST considers establishing a materials science lab to support
research and attract new student
❑ Costs: Initial setup: $300,000 for equipment, infrastructure, and supplies
Annual operating costs: $50,000 for maintenance, staffing, and materials

❑ Benefits: Increased student enrollment: $50,000/year in tuition

Research grants and funding: Estimated $100,000/year
Improved learning and research reputation, potentially increasing future
admissions and alumni donation
2. Case Study-Cost-benefit Analysis
Public Sector: Building a New Public Park

Objective: A city council examines the benefits of developing a new public park.
❑ Costs: Land acquisition and development: $500,000
Annual maintenance: $30,000

❑ Benefits: Increased local property values: Estimated tax revenue increase of $40,000/year
Health benefits: Reduced healthcare costs for residents due to increased physical
activity, valued at $20,000/year
Community impact: Enhanced quality of life and possible attraction for new
residents
2. Opportunity-cost Analysis

❑ This is the value of what you will give up to get something.

❑ An opportunity-cost analysis examines the potential benefits that you

forfeit (loss) when you choose one course of action over others.

❑ Suppose you are offered a one-year internship at a company where you can

gain valuable work experience. However, you will not receive wages.

Discuss………
Case Study-Opportunity-Cost Analysis

Educational Investment vs. Immediate Income

Scenario: A person is deciding whether to go back to college for a BS degree or
continue working in their current job.

Opportunity Cost: If he/she joins college, they forgo immediate income.

However, if the degree leads to a significant salary income later, the long-term
income potential might justify the lost wages.

Analysis: Calculate the total cost of education (tuition, fees, living expenses) and
compare it to the projected increase in lifetime earnings after obtaining the degree.

If the future earnings outweigh the costs, the education investment is worth the
opportunity cost of lost income.
3. SWOT Analysis

❑ Another way to determine an idea’s

feasibility is to perform a SWOT
analysis.
❑ A SWOT analysis is a business
evaluation method that draws its name
from the four areas it evaluates
(Strengths, Weaknesses, Opportunities,
and Threats):
3. SWOT Analysis

❑ What skills do you have that would enable you to do well with this specific

opportunity?

❑ What resources do you have available (time, money, and people who can help

you)?

❑ Do you have any unique knowledge or experiences that could give you an edge?
3. SWOT Analysis

❑ In what skill or knowledge areas do you need to improve?

❑ What resources are you lacking?

❑ What might potential customers see as a weakness in your product or

service?
3. SWOT Analysis

❑ Does this business idea fill an unmet need or want?

❑ Are there any trends or changes happening in your community that you could

use as an advantage?

❑ What could you do better than other companies already in the same type of

business?

❑ Does the proposed business location give you any advantages?

3. SWOT Analysis

❑ What obstacles stand in the way of pursuing this opportunity?

❑ What current trends could potentially harm your business?

❑ How severe is the competition in this business area?

❑ Does this business idea have a short window of opportunity (time

duration to execute)?