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What determines MSE upgrading? Evidence from India, Egypt and the Philippines. Dr. Aimée Hampel-Milagrosa Dr. Markus Loewe Caroline Reeg. Paper presented at the FMC Conference “Changing Paradigm of Cluster Development” Delhi, 20 February 2014. Outline. 1. Research question

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What determines MSE upgrading? Evidence from India, Egypt and the Philippines

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What determines mse upgrading evidence from india egypt and the philippines

What determines MSE upgrading?Evidence from India, Egypt and the Philippines

Dr. Aimée Hampel-Milagrosa Dr. Markus Loewe

Caroline Reeg

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


Outline

Outline

1. Research question

2. Definitions & conceptual framework

3. Research methodology

  • Results

  • Conclusion and Policy Recommendations


Research question

Research question

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?)

medium

small

micro


Definition upgrading

Definition: Upgrading

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

Upgrading

New tothemarket=> innovationrent

  • Innovation(qualitative improvement)

  • Process innovation

  • Product innovation

  • Functional innovation

  • Marketing innovation

  • Sectoral innovation

  • MSE growth

  • (quantitative improvement)

  • in terms of

  • employment

  • sales

  • return of investment

  • assets

  • turnover

Entrepreneur characteristics

Enterprise characteristics

Social networks

Business networks(inter-firm linkages)

Business environment


Factors of upgrading the onion model

Factors of upgrading: the ‚onion model‘

  • Membership in business organisations

  • Relations with buyers and suppliers (value chains)

  • Relations with competitors(clusters)

Business Environment

  • Infrastructure (access to electricity, transportation, telecommunication)

  • Financial and political stability

  • Access to finance (credit, leasing, insurance)

  • Corruption and politics

  • Laws and regulation

Business Networks

Social Networks

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

The Enterprise

  • Location

  • Size

  • Degree of formalisation

  • Workforce characteristics(e.g. training)

  • Product portfolio

  • Strategy

  • Market orientation

  • Portfolio diversification

The Entrepreneur

  • Human capital

  • Family background

  • Work experience

  • Personal qualities

  • Gender

  • Social capital

  • Social class


Definition of msme based on employment

Definition of MSME based on employment

Micro

Small

Medium

  • Employment figures are

  • easy to observeand easier to remember

  • do not change over time due to inflation or productivity increases

  • Employment numbers reflect the sustainability of enterpise growth (maturity of the enterprise).

Egypt: 10-49 empl.

India: 10-19 empl.

Philippines: 6-10 empl.

Egypt: 50-99 empl.

India: 20-99 empl.

Philippines: 11-99 empl.

Egypt: 1-9 empl.

India: 1-9 empl.

Philippines: 1-5 empl.


Methodology

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


Method tracing back success stories

Method: Tracing Back Success Stories

Number of employees

69

41

26

17

15

15

10

6

7

3

Time

Start-up

2012

9


Sampling

Sampling

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

Identification of SMEs for interviews


Composition of core sample descriptives

Composition of core sample (descriptives)


Methodological tools

Methodological tools

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

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

15


What makes an upgrader success factors explaining differences in the likelihood to upgrade

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


What makes an upgrader success factors explaining differences in the likelihood to upgrade1

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

17


Takeaways

Takeaways

  • 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

  • Upgrading is possible – for some MSEs – despite constraints!

    • Found more upgraders than expected

    • Some upgraders contracted in size

  • 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)


Takeaways1

Takeaways

  • Upgrading requires a combination of factors

    • Upgraders combine factors to create strategies to overcome constraints

    • Combination of factors/strategies are sector-specific

  • Most combination of factors are corner-stoned on entrepreneur

    • The entrepreneur matters

    • Other success factors are contingent on entrepreneur

  • Glaring inequality of opportunity for MSEs to upgrade


Combination of factors

Combination of Factors

The Enterprise

The Entrepreneur

The Social Network

The Business Networks

The Business Environment

Challenges

ENTREPRENEUR

personal savings

family savings / Friends

cash-advance

bank loan

Finance

employees as shareholders

SECTOR -SPECIFITY

personal labour

family labour

pooling outsourcing

availability of (skilled) workers

Labour

incentives for workers to stay

readiness to accept risk

mutual support

insurance

economic stability, rule of law

Portfolio diversification

Security

Markets

inter-national exposure

personal outreach

(global) value chains

published market information

own market research

Technology and

creativity

quality education

exchange of ideas

value chains

Availability of external training

R&D


Policy recommendations

Policy Recommendations

  • Education

  • Work experience

  • Human resource development

  • Access to markets

  • Access to finance

  • Rule ofLaw


What determines mse upgrading evidence from india egypt and the philippines

Thank you for your attention!

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