1 Small and Medium-sized industries

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Small and Medium-sized industries (SMEs): its role in developing
economies
Student ID: 2915*
*Trainee, Post Graduate Diploma in Public Administration
Royal Institute of Management

Introduction
Small and medium sized enterprises (SMEs) are regarded as the drivers of socio-
economic development due to their important role in GDP growth, new job creation and
entrepreneurship (Karadag, 2016). It is very important for both developed and developing
country as it always represents the economic development model with high contribution
to domestic production, export earnings, low investment requirements, and employment
generation (Uma, 2013). Amongst all, SMEs are important especially to developing
countries like Bhutan for two primary reasons. First, it has proved to be an effective
antipoverty programme, and secondly, it is considered as one of the building blocks of
innovation and sustainable growth. As these two reasons of economic growth and real
poverty reduction go hand in hand would mean, alleviation of poverty with economic
growth due to SMEs development (Keskgn,et al.,2010). Further asserted by Karadag
(2016), the role of SMEs on the real GDP growth, new job creation and reduction of
poverty is recognized worldwide. This is particularly evident in developing economies
where there are comparably less number of large corporations, thus, leading to large
impact of these small economic units on socio-economic development.
Development of SMEs in developing economies is found very crucial (Nkwe, 2012) in
combating some of the common socio-economic issues like GDP growth, employment
opportunities, poverty alleviation (Pandey, 2013), and building firm foundation for
corporate and private sectors which are economic engine of the country (Moktan, 2007).
It has widely been accepted as the engine of economic growth and poverty eradication in
the world regardless of economies of scale (Katua, 2014).These small economic units
are indispensable building blocks for nation’s socio-economic prosperity, thus, referred to

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as economic backbone of the nation (Uma, 2013). This paper attempts to review, analyze
and discuss the roles of SMEs in economic growth, employment creation, and poverty
alleviation among others.
Definition of Small and Medium Enterprises
There is no universally accepted one definition of SME, because the economies of
countries differ and people adopt particular standards for particular purposes (Nkwe,
2012). The scale of industry in Bhutan is determined by the size of capital investment and
the number of people it employs as illustrated in the table below (Table. 1) (MoEA, 2012).
Scale of industry Employment size Investment (million Nu.)
Large 100+ ;100
Medium 20-99 10-100
Small 5-19 1-10
Cottage 1-4