OPPORTUNITIES AND CHALLENGES TO SMALL AND MEDIUM ENTERPRISES: A STUDY OF SILLANWALI WOODEN HANDICRAFTS

Abstract

The purpose of the current study is to investigate the effect of business constraints on firm’s performance and growth potential of SMEs. The study also evaluates the role of firm level characteristics in accessing the finance. The study utilizes the primary data collected through detailed survey of wooden handicraft SMEs of Sillanwali, a tehsil of district Sargodha, Punjab. The handicraft articles of Sillanwali are well known throughout Pakistan and across the world due to its fascinated and attractive designs. The study surveyed 120 firms by a well-structured questionnaire. The business constraints include of Accessing of finance, Cost of financing, Tax rates, Tax Administration, Price instability and Inflation, Political instability, Un-affordability of CNC machines, Severe competition and Inefficient cost of electricity. The study utilizes the ordinary least squares method and logistic regression method for estimating the models. The study estimates the probability of accessing the finance by SMEs through considering the variables of firm level Characteristics i.e. firm size, firm age, sales, capital and collateral. The performance of firms are checked by considering the effect of nine business constraints i.e. access of finance, cost of financing, tax rates, tax administrations, inflation and price instability, political instability, un-affordability of CNC machines, inefficient cost of electricity and severe competitions on sales of firms per month. Similarly, the income growth potential of SMEs is estimated by checking the effect of six business constraints i.e. political instability, shortage of electricity, accessing of finance, limited access to new markets, lack of government subsidies and firm innovation on sales of firms during previous five years. The results show that the variables of Firm size, Firm age, Capital, Sales and Collateral have positive effect on increasing the probability of firm to access the finance. The performance of firm is negatively affected by business constraints. The probability of growth potential of Sillanwali SMEs is also negatively affected by business constraints. It suggested that any unit increase in the index value of business constraints will result to reduce the probability of income growth potential by their respective values.