paper presented at the fmc conference “changing paradigm of cluster development” delhi, 20...

Paper presented at the FMC Conference “Changing Paradigm of Cluster Development” Delhi, 20 February 2014

What determines MSE upgrading?What determines MSE upgrading?Evidence from India, Egypt and the Evidence from India, Egypt and the PhilippinesPhilippinesDr. Aimée Hampel-Milagrosa Dr. Markus LoeweCaroline Reeg

© 2012 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)

Outline

1. Research question

2. Definitions & conceptual framework

3. Research methodology

4. Results

5. Conclusion and Policy Recommendations

2


Research question

3

What are the most important factors of upgrading?What are the main constraints for MSE upgrading?Why do some firms succeed to upgrade while others do not?(What are the critical success factors?)

How does the process of MSE upgrading unfold? (What kind of growth trajectories are suggested?)

micro

small

medium


Definition: Upgrading

4

Innovation(qualitative improvement)Process innovationProduct innovationFunctional innovationMarketing innovationSectoral innovation

UpgradingUpgrading

MSE growth(quantitative improvement)in terms ofemploymentsalesreturn of investment assetsturnover

What are the determinants?Extensive literature is offering manifold explanations:

New to the market

=> innovation rent

Entrepreneur characteristics

Enterprise characteristics

Social networks

Business networks(inter-firm linkages)

Business environment


Business Environment

Business Networks

Social Networks

Factors of upgrading: the ‚onion model‘

6

The Enterprise

The Entrepren

eur

• Human capital• Family

background• Work experience• Personal

qualities• Gender• Social capital• Social class

• Personal relations with core family, relatives, friends, neighbours etc.

• Membership in business organisations

• Relations with buyers and suppliers (value chains)

• Relations with competitors(clusters)

• Infrastructure (access to electricity, transportation, telecommunication)

• Financial and political stability

• Access to finance (credit, leasing, insurance)

• Corruption and politics

• Laws and regulation

• Location• Size• Degree of

formalisation• Workforce

characteristics(e.g. training)

• Product portfolio• Strategy• Market

orientation• Portfolio

diversification


Definition of MSME based on employment

Employment figures are1. easy to observe and easier to remember2.do not change over time due to inflation or

productivity increases3. Employment numbers reflect the sustainability of

enterpise growth (maturity of the enterprise).

Micro Small Medium

Egypt: 1-9 empl.

India: 1-9 empl.

Philippines: 1-5 empl.

Egypt: 10-49 empl.

India: 10-19 empl.


Egypt: 50-99 empl.

India: 20-99 empl.



Methodology

Primary objective is to learn from successful cases

Therefore, PURPOSIVE and EXPLORATIVE! Gather rich stories that show the longitudinal dynamics of upgrading

Capture whole picture of evolution and growth of entrepreneur and enterprise

Capture qualities of entrepreneur’s environment (networks and business environment) that MATTER

+ Gathered additional quantitative information for confirmation

8


Method: Tracing Back Success Stories

99

41

17

6

15

69

26

1015

73

Number of

employees

TimeStart-up

2012


Sampling

11

Identification of upgraders by:

– ‚quantitative‘ criteria: (i) grown fast in relative terms(at least 10% annually over a period of

5/10 years)

(ii) passed threshold

– ‚qualitative‘ criteria: (i) any kind of innovation(product, process, functional,

marketing, inter-sectoral)

(ii) grown faster than competitors(new to the market: innovation rent)


Identification of SMEs for interviews

12

Egypt India Philippines

102 93 150

Company registries and other representative lists:

Near-to representative lists:

Recommendation by experts, business associations or lead firms in sector:

‚Walking the street‘ (especially in geographic clusters):

2330

29

19

-10

34

49

7-

19

124


Composition of core sample (descriptives)

13


Total: 80 93 112

Upgraders:Non-upgraders:

4040

4251

2191

Garment & textile :Leather & footwear:Food processing:ICT:

42-

2614

2937-

27

313249-

Formal at start:Informal at start:

5921

2865

3082

Female entrepreneur:Male entrepreneur:

1565

489

5854


Methodological tools

14

Qualitative:

• Stories of interviewees: growth trajectories

Quantitative:

• Main constraints for upgrading: structural factors

• Main success factors in upgrading: differences between upgraders and non-upgraders

• Comparison between characteristics of upgraders and non-upgraders: differences between them

• Egypt: econometric analysis of representative panel data from two rounds of MSME surveys: differences between upgraders and non-upgraders


Common constraints (of upgraders and non-upgraders in the three case studies)

15



•Low education and training of entrepreneurs•Limited readiness to take risks

•Low education and training of entrepreneurs


•Lack and high turn-over of workers•Lack of market information

•Lack and high turn-over of workers

•Lack of worker motivation•Lack of market information

Social networks

Business networks

•Delay in Payments by clients/ buyers

•Unstable relationship with suppliers


•Difficulties in access to finance•Deficits in law enforcement

•Difficulties in access to finance•Difficulties in under-standing/ predicting laws and regulations•Corruption

•Difficulties in access to finance•Difficulties in accessing markets


What makes an upgrader? (Success factors:

explaining differences in the likelihood to upgrade)

16

Considerable impact in all three

countries

No major impact in any of the

three countries

Divergent results


•Human capital(quality education and training, international exposureand work experience)•Availability of own finance•Motivation

•Gender * •Readiness to take risks•Social origin


•‘Employee welfare‘(training, benefits, care, treatment, participation)•Systematic R&Dand market research

•Degree of formalisation

•Market orientation•Portfolio diversification•Location

Social networks

•Social networks

Business networks

•Value chains(esp. power structures)

•Clusters•Business organisation


•Registration, licensing•Taxation, customs•Corruption

•Access to land•Political stability•BDSs


What makes an upgrader? (Success factors: explaining differences in the likelihood to upgrade)

17



•Readiness to take risks •Social origin

(socio-economic stratification)

•Readiness to take risks

•Social origin


•Portfolio diversification •Market

orientation

•Location

•Portfolio diversification

Social networks

•Social networks •Social networks

Business networks

•Clusters

•Membership in (quality) business organisations

•Membership in (quality) business organisations


•Access to land •Access to land

•Political stability


Takeaways

1. MSEs in India, Egypt and Philippines face very similar constraints to upgrading

• Deficit in owner’s education and experience• Lack of and high turnover of trained workers• Difficulties in accessing finance/Lack of market information• Deficits in rule of law

2. Upgrading is possible – for some MSEs – despite constraints! • Found more upgraders than expected• Some upgraders contracted in size

3. Upgrading depends critically on few specific “individual” factors• Upgraders better endowed with human capital, more motivated• Willing to take risks, invest more in HRD and R&D• Have personal or family wealth, integrated in GVCs (many through clusters)

18


Takeaways

4. Upgrading requires a combination of factors• Upgraders combine factors to create strategies to overcome constraints

• Combination of factors/strategies are sector-specific

5. Most combination of factors are corner-stoned on entrepreneur• The entrepreneur matters

• Other success factors are contingent on entrepreneur

6. Glaring inequality of opportunity for MSEs to upgrade

19


Combination of Factors

20

The Entrepre

neur

The Business Environm

ent

The Business Networks

The Social

Network

The Enterpris

e

Finance

Labour

Markets

Technology andcreativi

ty

Security

Challenges

personal

savings

inter-national exposur

e

personal labour

quality educatio

n

readiness to

accept risk

incentives for

workers to stay

employees as

shareholders

own market researc

h

R&D

Portfolio diversification

family savings / Friends

family labour

personal outreach

exchange of

ideas

mutual support

cash-advanc

e

pooling outsourc

ing

(global) value chains

value chains

insurance

bank loan

availability of

(skilled) workers

published market informati

on

Availability of

external training

economic

stability, rule of

law


Policy Recommendations

1. Education

2. Work experience

3. Human resource development

4. Access to markets

5. Access to finance

6. Rule ofLaw

21


22

Thank you for your attention!

German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)

Tulpenfeld 6

D-53113 Bonn

Telephone: +49 (0)228-949 27-0

E-Mail: [email protected]

www.die-gdi.de

www.facebook.com/DIE.Bonn

paper presented at the fmc conference “changing paradigm of cluster development” delhi, 20...

Documents