Small and Medium-scale Enterprises (SMEs) are widely recognized as the backbone
of a country’s economy, especially in developing economies. The major points which
highlight the importance of SMEs are:
- They are responsible for a majority of the jobs, especially new jobs (OECD
Report, 1997; Zhang, 2008; and ASSOCHAM, 2010);
- They have a major share in the Gross Domestic Product (GDP) of a country,
and are the engines of growth (Beck et al., 2005; and Schmiemann, 2009);
- They are also seen as a mechanism for alleviating poverty in developing
countries where there exists a huge income gap between the rich and
the poor;
- They promote innovation and entrepreneurship (National Knowledge
Commission India, 2007);
- They serve the local consumer demands in a more effective way by
producing goods which have limited or seasonal demand, or have to be
highly customized, and which many large-scale enterprises may not be
interested in producing; and
- They are the important stakeholders of larger enterprises.
In the face of competition and internationalization, the key factor for success
for the domestic SMEs and policy makers lies in increasing the productivity.
The importance of productivity to economic growth and development is well
established. It remains the basic problem of economic progress, as it is required in
the early stages of development, as well as in the permanent process of growth
and development. The growth of productivity and employment generally generates
higher per capita income. Historical evidence has shown that the economies
characterized by high per capita income have had an impressive growth in labor
productivity over the past centuries where the major determinants of productivity
have been improvement in technology and enhancement in human capital capability
(Prakash and Balakrishnan, 2008).
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