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Policy Recommendations on Job Creation: Promoting SME Development

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SME in LAC: Standardized products, competition with large firms (with low costs: ... Orientation of programs at results that can be evaluated by SME ... – PowerPoint PPT presentation

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Title: Policy Recommendations on Job Creation: Promoting SME Development


1
Policy Recommendations on Job Creation
Promoting SME Development
  • Presented at the seminar Job Creation in the
    Western Hemisphere
  • Reviewing Best Practices and Setting a New Policy
    Agenda
  • Washington, D.C., October 21, 2004
  • Jürgen Weller, ECLAC

2
Overview
  • General situation of SME in LAC
  • Obstacles to their development
  • Policies for SME promotion

3
Quantitative dimensions in Latin America (1998)
  • 22.3 of urban employment (9.7 12.6)
  • 32.6 of urban wage employment
  • 42.8 of formal urban employment
  • 57.0 of urban private wage employment
  • Source ILO

4
Labor demand curves
5
Expectations about SME contributions
  • Economic contributions
  • Value added
  • Regional development
  • Competition
  • Systemic competitiveness
  • Clusters
  • Exports
  • Structural change
  • Diversity of supply and development of niches
  • Better access for consumers

6
Expectations of SME contributions
  • Contributions to social and political development
  • Stabilization of aggregate employment and income
    level
  • Access to jobs for less qualified and young
    people
  • Environmental decentralization
  • Income distribution
  • Strengthening of democratic foundation

7
Impact of economic reforms
  • Among SMEs winners and losers
  • Entrepreneurial, sector and territorial
    heterogeneity
  • Evolution marked by macroeconomic development
    (concentration on internal markets)
  • Cluster and linkages helpful
  • Source Peres and Stumpo (2002)

8
Structural problems of SME in LAC
  • SME in highly developed countries
  • Specialized in goods and services without
    relevant economies of scale, less competition
    with large firms, relevance of flexibility and
    client service, continuous innovation
  • SME in LAC Standardized products, competition
    with large firms (with low costs wages,
    nonobservance of norms)
  • Asymmetry of information and high fixed costs
    (markets for capital and technology, marketing
    channels)
  • High macroeconomic volatility

9
Typical obstacles for SME development
  • Market situation (macroeconomic, oligopsonies,
    unfair competition)
  • Credit (access, interest rates)
  • Public sector efficiency
  • Low integration and cooperation
  • Human resources
  • Access to technology

10
Obstacles.
  • Labor legislation
  • Infrastructure
  • Quality of instruments of promotion
    (disarticulation, view from the supply side, not
    flexible)
  • Market access (X)
  • Taxes

11
Promoting SME?
  • Not necessary as undistorted market permit their
    development.
  • Necessary as market failures create obstacles to
    their development.
  • During the nineties change of attitude more in
    favor of actively promoting SME

12
Policies of SME promotion Some general lessons
  • Intervention takes into account diversity of
    agents
  • Focalization of programs (differentiation of type
    of service, sector, territory)
  • Combine decentralized programs, mechanisms of
    coordination and centralized instruments
  • Easy access to programs and demand orientation

13
Some general lessons (2)
  • Orientation of programs at results that can be
    evaluated by SME
  • Complimentarity (institutional coordination to
    create sinergy)
  • Co-finance where possible
  • Two main recent orientations
  • Market development
  • Entrepreneurial linkages

14
Market development
  • Development of intermediate institutions
    (chambers, associations) y private specialized
    suppliers
  • Promoting demand (e.g., training bonds)
  • Promoting the creation of enterprises
  • Incentive access to information technology
    (facilitate access to suppliers and (potential)
    clients, transparency of public purchases)
  • Quality orientation help to comply with
    standards, certification

15
Market development (2)
  • Example capital market
  • Funds of risk capital
  • Training in interaction with financial system
  • Cost reduction (taxes)
  • Linkages research seed capital

16
Entrepreneurial linkages
  • Horizontal SME linkages
  • Vertical linkages SME large firms
  • Territorial linkages
  • Clusters
  • Institutional development (sector, territory)

17
Entrepreneurial linkages Some specific lessons
  • Origin of program Problem or opportunity
    perceived by many
  • Recognition of common or dependent interests and
    objectives
  • Sustainability if solution is result of
    participatory process under the ownership of the
    interested
  • Close public-private coordination
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