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Enlightened Marketing - a new philosophy

by Prasanna Perera

Enlightened Marketing is not a new brand of Marketing. It is in fact a form of marketing orientation, that prevails in a business. Philip Kotler the well-known Marketing guru defines Enlightened Marketing as a Philosophy, reflecting corporate ethics and holding that "a company's marketing, should support the best long-run performance of the marketing system." This definition highlights the following aspects.

a. Corporate ethics is an important aspect for long-term business success. Ethically acceptable behaviour is being demanded from corporates today.

b. Enlightened Marketing is clearly a way to reflect corporate ethics and good behaviour.

c. Marketing activities should be viewed as providing long-term benefits. Since marketing activities are designed to satisfy customer needs, ethically acceptable behaviour is demanded in this process. Hence, it is customer satisfaction through ethical means and then the resulting business success.

Principles of Enlightened Marketing

Enlightened Marketing is built on five principles. They are:

1. Consumer-oriented marketing, which organizes activities from the consumer point of view.

2. Sense-of-mission marketing. This means defining the marketing mission in broad social terms, rather than narrow product terms.

3. The emergence of societal marketing, driven by the consumers and society's long run interest.

4. Innovation in marketing, seeking "real" product, marketing and process improvements.

5. Adding value through marketing, by allocating resources into value-building marketing investments.

Each of these principles will be briefly examined and discussed.

Consumer-oriented marketing

Marketing starts from the consumer and ends with the consumer. This is an universal truth. Enlightened Marketing simply subscribes to this accepted norm. Not only should external consumers be considered, but also those internal. (employees etc.) Marketing activities should be organized and implemented, by always keeping consumer needs in the forefront.

Sense-of-mission marketing

Successful businesses develop a marketing oriented mission, keeping in mind the needs of all stakeholders. (key publics). The temptation is to describe the mission based on the products/brands marketed. But if Enlightened Marketing is to be practised, the social benefits that would be achieved have to be highlighted and focused upon. For example, what social benefits could be derived by the effective marketing of products/services.

These benefits could be a higher quality of life, social recognition, social harmony and goodwill etc.

National Panasonic describe their mission as contributing to the cause of man's happiness, by providing an inexhaustible and inexpensive range of high quality products. Marks and Spencer see their mission as to foster good human relations with customers, suppliers and staff.

Societal Marketing

Successful organisations, view their product and service offerings, in terms of the benefits they provide to society.

In societal marketing, marketing activities are carried out in order to safeguard and develop society. Society could be classified as the external environment with which the organization interacts. Environmental protection by utilizing packaging which is environmentally friendly, utilizing raw materials which are of high quality and not injurious to the health and well being of consumers and carrying out business activities in a manner that provides social, financial and economic benefits. Basically society should view the organization and its activities in a positive manner, since they offer tangible benefits.

Take for example the numerous organisations in Sri Lanka, that contribute to the well being of society, through responsible marketing activities. In addition the numerous activities carried out for specific social causes.

Innovation in Marketing

Enlightened Marketing also involves, examining whether marketing activities are carried out in an innovative manner. For example, the entire marketing planning process can be innovated, to reflect the changing needs of the market. New product development related activities can be speeded up through paralel processing and by involving consumers in the processes.

Real product improvements and development of innovative new products are vital areas of innovation in marketing.

Innovation should not be viewed, only in terms of new to the world products, but also real modifications to existing products and processes. The benefits through innovation activities should result in real advantages being offered to society at large. This is what Enlightened Marketing is all about.

Value Added Marketing

The resources available to an organization is limited. These limited resources need to be invested in activities, that add real value to marketing. Value-building marketing investments are as follows:

1. Brands and brand building

2. Marketing Research and information systems

3. Research and Development, New product development and innovation

4. Marketing education and training

These value-building investments, will result in adequate support towards the long run performance of the marketing system i.e. Enlightened Marketing.

Enlightened Marketing goes well beyond simple customer satisfaction. It is indeed a philosophy or a form of marketing orientation, based on corporates ethics and social considerations.

Through this concept of Enlightened Marketing, marketing activities should be viewed, on the impact created towards the long term benefits of the marketing system, society and the organization.

Asian countries must tackle unfinished reforms

Asia was not immune to the effects of the recent global economic slowdown, but there are some indications that the region's emerging market economies are beginning to recover. In a speech to the Eleventh Asia Business Conference at the Harvard Business School recently Wanda S. Tseng, Deputy Director of the IMF's Asia and Pacific Department, said that these countries now need to move forcefully on the unfinished structural reform agenda - particularly in the banking and corporate sectors - to ensure sustained growth and resilience against external shocks. She focused on the progress Asian countries have made to date in financial sector and corporate restructuring. But what more needs to be done to cement the progress already made? Following is an edited version of her remarks.

Asia's recovery from the financial crises of 1997-98 was interrupted last year by serious external shocks, notably the collapse of the technology bubble and the terrorist attacks in the United States on September 11. However, the effects of these shocks appear to be receding, and signs of a recovery are beginning to emerge. The key uncertainty in the outlook for much of Asia is the strength of export demand, especially the pace of the global recovery in corporate investment in information technology.

Judging by recent indicators, the sharp export decline may have bottomed out. Exports are now rising again in some countries. Nonetheless, countries in Asia cannot rely on external demand alone. They need to implement policies that would position their economies for a faster takeoff and sustained growth.

In response to the slowdown, macro-economic policies across the region have generally been eased. Most countries have lowered official interest rates since September 11, continuing the trend established before this date, and the weakening of most regional currencies (apart from those with fixed pegs) has also contributed to an easing of monetary conditions. On the fiscal policy front, the scope for adjustment varies considerably. Following widespread easing of fiscal policy earlier last year, some economies, including Hong Kong, SAR, Malaysia, and Singapore, have announced supplementary budgets. But high public debt, or deficit in some cases - particularly in Indonesia, the Philippines, and India - greatly constrains the scope for further fiscal support.

Recovery strategy in Asia

But perhaps even more important for the Asian crisis countries is the need to tackle the unfinished structural reform agenda. If we look back for a moment at the

Asian financial crisis, one lesson we can draw is that sound macro-economic fundamentals must be accompanied by sound structural fundamentals to ensure sustained rapid growth and resilience against external shocks. While Asian countries, for the most part, had pursued prudent macro-economic policies, the core of the problems was the absence of a strong institutional framework to impose market discipline. It became apparent that the institutions that provide checks and balances in a market economy - a sound and well-supervised banking system, a corporate governance structure, and a legal and judicial system - were weak or lacking in Asia. In many countries, the institutional weaknesses allowed severe balance sheet problems to develop and fester, triggering a breakdown of the corporate and banking sectors.

Over the past four years, the recovery strategy in the region has focused on rebuilding the banking system and deleveraging the corporate sector. Let me briefly review the progress that has been made in the crisis countries.

Banking sector - There has been significant consolidation in the banking system. The number of banks has declined in all countries surveyed, most dramatically in Indonesia, where the total has fallen from 240 in 1977 to 146 in 2001. Bank ownership structures have also changed markedly. In all countries, foreign bank ownership has increased; in some, foreign banks have entered for the first time. But this change has not been as significant as originally expected. Instead, it is the state that has expanded its market share, quite significantly. And, while some of this expansion has been rolled back over the past few years, the decline has been slow and small. In Thailand, for example, the government still owns about one-third of bank assets, almost unchanged from 1998, while in Indonesia the government controls nearly three-fourths of bank assets.

Banks have also been repairing their balance sheets. Average capital adequacy ratios - measured by governments and tending to be overstated - now exceed 10 per cent, and headline nonperforming loan ratios have been falling. In Thailand, for example, reported nonperforming loans have fallen from a high of nearly 50 per cent during the crisis to 13 per cent at present, although this decline largely reflects the transfer of assets to asset management companies.

There are clear signs of progress in financial sector restructuring, but a number of indicators suggest that further efforts are necessary to cement the progress already made. To begin with, bank profitability remains weak. There has been some recovery in profits before provisions, but they remain low by any standard. In Thailand and Korea, for example, profits before provisions as a per cent of total assets turned positive in 2001, but only marginally so. Also, banks are not yet performing their intermediary function, as lending remains subdued. This may reflect, in part, the lack of good credit or investment opportunities, but it may also reflect a limited capacity on the part of the banks to lend, given their still-difficult financial positions.

Unsurprisingly, given these difficulties, bank share prices remain relatively low. Investors remain concerned about low profits, unrecognized loan losses, inadequate collateral, and a potential deterioration in loan performance, because borrowers remain vulnerable.

Given these problems, what are the reform priorities for banks going forward?

* First, they need to make further progress in operational restructuring. This means, for example, rationalizing branch networks, reducing staffing, and revamping loan approval and analysis procedures.

* Second, bank's capital bases need to be augmented further in some countries to allow them to deal more easily with the remaining nonperforming loans and to improve profitability.

* Third, prudential regulations must be enforced. Regulators must avoid succumbing to the pressures of regulatory forbearance that hide the true magnitude of the problem.

* Fourth, banks should be returned to the private sector. Reprivatizing the banks is an excellent way to achieve the first two objectives - operational restructuring and recapitalization - without burdening public finances. Sound and privately led banks are also indispensable for a truly market-driven approach to working out the remaining impaired assets.

* Fifth, further progress in corporate restructuring needs to be made. In some countries, such as the Philippines, this is necessary because many of the bad loans are still in the banks, rather than in asset management companies. In other countries, where loans have been transferred, it is still important because banks, in the end, can be only as healthy as their clients.

Corporate sector - A number of indicators suggest that corporate sector restructuring has been slow and incomplete, with the debt overhang still high. The stock of impaired assets - that is, nonperforming loans plus loans transferred to asset management companies - remain sizeable.

In Thailand, for example, the ratio held steady at nearly 40 per cent of loans in 2001. In Indonesia, the ratio is over 50 per cent. Corporate leverage also remains high (see chart, bottom panel). In Korea, where the average debt-equity ratio has been halved since 1997, the ratio nonetheless remains at about 200 per cent. Corporate debt today is much the same as it was in 1997. Indeed, in Malaysia and Indonesia, corporate debt as a per cent of GDP actually rose in 2001, and, in Indonesia, is even higher than precrisis levels.

So what can and should be done? Clearly, legal frameworks need improving to speed resolution and strengthen the rights of creditors. In Korea, the authorities are planning another major reform, which should include a provision to authorize court approval of majority-approved restructuring plans even when there are some dissenting creditors - often the shareholders of these enterprises. In Thailand, bankruptcy criteria need to be clarified, so that debtors can be declared insolvent based on straightforward cash-flow tests of their ability to meet debt-service obligations, rather than on subjective assessments of their net worth.

In most countries, judicial systems need streamlining. Court processes and foreclosure procedures need expediting, so that countries can clear away the existing judicial backlogs, which in some cases amount to several years. Bank supervisory frameworks also need to be reinforced. Regulators need to insist that banks remedy their deficiencies in assessing asset quality, and they should press creditors to acknowledge the true health of debtors. As long as firms' problems are denied, they will certainly not be remedied. Finally, corporate governance, shareholder rights, and disclosure requirements need to be strengthened. Such reforms will allow markets to exercise greater discipline on the region's firms to ensure that they are not taking on excessive risk and are acting in the best financial interest of all owners and creditors.

Other reforms - In addition to the financial and corporate sector reforms, there are additional areas for reforms that require attention. The first is trade liberalization. It is heartening that, despite the current slowdown, protectionist pressures are being held at bay in Asia and elsewhere. Encouragingly, there is a political will to move forward on trade liberalization - as evidenced by the Doha agreement - which will have a major impact on long-term growth. Second, Asia's emerging market economies can also go further in the direction of facilitating foreign direct investment inflows. A particular priority would be to remove restrictions that limit or prohibit foreign ownership in selected sectors.

The third area is export diversification. The current slowdown highlights the risks of overspecialization in information technology products as primary exports and undue reliance on the United States as the main export market. Finally, social safety nets need to be strengthened. Looking back, as Asian countries generally enjoyed high growth rates and low unemployment for most of the period after World War II, an effective social safety net was neglected. Adequate social protection is not only necessary to maintain fairness and human dignity, but it also allows needed structural reforms to proceed without causing social hardships that can lead to social disturbances and instability.

While the global economy remains subdued and the outlook uncertain, there are reasons for cautious optimism. The countries that will emerge ahead will be those that position themselves to benefit from the recovery. This requires supportive macro-economic policies, perseverance with corporate and financial sector reforms, openness to trade and investment, and stronger social safety nets.

(Courtesy: IMF Survey)

Small Manufacturing Units (SMU) Clusters: A vital link in the industrial development

by Namiz Musafer

Travelling down the Kandy Road from Colombo, one meets the pineapple sellers at Imbulgoda, the rambutan sellers at Kalagedihena and the traditional cashew girls at Bataleeya. Further along the road are the cane products at Weveldeniya, the clay products at Molagoda and duliyan and avacado pears at the Kadugannawa climb. There familiar clusters have become landmarks of this route as well as points of tourist attraction.

Similarly, along other routes are other clusters of sellers forming characteristics of those routes.

These groups of sellers, developing a market for themselves along the main roads, are clear examples of the clusters of small scale producers/manufacturers that have sprung up due to easy accessibility of particular resources available in the area. Here, markets have been established over a long period of time without planned interventions aimed at forming such clusters.

Some other examples of clusters which are not systematically organised but which are linked by common bonding and norms pertaining to that particular market are the motor vehicle spare parts enterprises at Panchikawatte, Colombo and the cut piece garment trade at Pamunuwa, Maharagma.

Clusters of manufacturers are seen at small, medium and large scale and in different production sectors. The reasons that trigger cluster formation are varied. Some are closely linked with the facilities such as the industrial clusters of Ratmalana and Ekala where land availability and easy accessibility to port/suppliers are key concerns. Others such as the sand collectors at Hanwella and Alawwa are strongly resource specific. Another type is that of the traditional craftsmen whose knowledge and expertise are passed on through family ties. Examples for these are the brassware craftsmen at Pilimatalawa and the blacksmiths in blacksmiths villages such as Ogodapola in Gampaha and Apelawa in Kegalle.

Clusters are an important segment in the economic structure. When aiming to understand these better, we see that clusters could be categorised as "groups specializing in certain goods/services".

In the ancient times the specialization of labour formed the caste system. This later took different turns where clusters emerged for reasons based on criteria other than specialization in a certain trade. A key consideration was the access to resources and markets. Usually facilities and infrastructure required for small scale and informal sector clusters are not pre-planned and provided beforehand. Often without deliberate or planned interventions these gradually take shape until such time that the cluster is recognized for its contribution and systematic assistance may, then, be provided.

In contrast there is another type of clusters which are designed and developed either through state interventions or initiatives of large scale business linkages. As opposed to the small scale clusters that spring up, grow and establish itself, these organized and large scale clusters plan and carry out its operations by systematically drawing on their collective strength. In Sri Lanka as well as in many other countries both in the developed and developing world, such clusters play an important role. Free trade and export processing zones and industrial estates are classic examples.

In the business world we also observe the common technique of growth of companies by merging, forming conglomerates and acquisitions. Generally, the product/service extend to new territories. As such these clusters could be service/goods specific and have a common resource base or its main link could be the financial resource and joint management.

While the large companies, the conglomerates or the markets established by companies or countries gain recognition, it is not so with the small scale clusters. The contribution of the small scale industries are overshadowed by the large scale zones/clusters. The informal nature of operation and the lack of sectorally synthesized statistics are the main reasons why the presence of small scale clusters is not noticeably felt in the economic picture of the country. Several advantages of the small scale industries which are not seen at large scale level are overlooked due to the low recognition of its contribution.

Although the stakes of the large industries are high, we cannot forget the role played by the smaller clusters. Therefore it is imperative that ways are sought to promote small scale clusters while retaining the contribution of the large scale industries. What are the possibilities of developing and sustaining links between the small and large scale clusters for the benefit of both as well as for the national economic gains it could facilitate? Are there opportunities to promote subcontracting between the small scale clusters and the large clusters/industrial zones?

For example, is it possible to link clusters such as the tile factories of Dankotuwa, the brassware producers of Pilimatalawa, the potters of Kelaniya or the blacksmiths with the large scale industries? These smaller units are generally perceived to be too small scale and/or too tradition bound in their production methods and products to be able to subcontract from large industries, but is this actually so? Some garment industries in the industrial zones draw from the conventional skills of embroidery to enhance the value of their work and issue subcontracts for embroidery. Similarly cannot initiatives be taken to identify the niche of particular small scale clusters and find avenues for large scale industries to effectively use these skills?

What is a small Scale Manufacturing Unit (SMU) cluster?

Before embarking on an analysis of the contributions by SMU clusters, let us first be clear as to how a 'SMU cluster' is defined in this discussion. A cluster in general is defined as a sectoral or a geographical concentration of manufacturing units. Clusters can be further categorized into three broad sections, i.e. -

a) geographically concentrated and sectorally specialized (for example tiles manufactured in Dankotuwa. The specialization of the product as well as the concentration in one geographical area is observed here).

b) geographically concentrated but sectorally diversified (for example the industries in the Export Promotion Zones. These specialize in different products but operate in a specific geographical area.)

c) geographically scattered but sectorally specialized. (for example rubber sheet manufacturers from different parts of the country. They deal in the same type of products but do not operate from a common place/area).

This article mainly discusses the SMUs of the first two categories due to the practicality of linking these with larger clusters/industries. The SMU is defined in this discussion as 'a small manufacturing unit that employs less than five people, is mostly dependent on family labour, is family owned/managed and uses relatively less capital investment.'

The key advantages of SMU clusters and the primary reasons for promotion of these: . Collectively, a high employment generation capacity - The closure of one SMU would affect only the four or five people earning form it, but a trend of low SMU operations would drastically affect the employment rates of the country. Although accurate statistics are not available it could be safely assumed that there are a minimum of 200,000 SMUs in all sectors. If each employs a minimum of 3 persons (including family members) we are considering employment of at least 600,000 persons - obviously a figure that any government would not want to neglect.

It's their bread and dhal - SMUs, being family businesses, have invested with their own resources in their production/trading units. As investment it at a personal level, the commitment to make a success of this is high. The SMU would generally be their primary source of income - it is their bread and dhal. This concern and commitment is a definite advantage in any production sector for it promotes perseverance. However, it should be noted that this has to be matched with effective entrepreneurship skills and a high degree of financial discipline.

Low financial burden on the state - One of the strongest features of SMU clusters is their non-dependency on the state or other institutions for their operations. They do not demand higher wages or go on strikes. This, however, should not be exploited but be viewed positively. Their non or low dependency on the state should be recognised and supported by improving their access to infrastructure and other necessary facilities.

Time tested knowledge and skills base - SMU clusters are generally production units that have been involved in their particular field for generations. Knowledge and skills have passed from one generation to the other and expertise in their particular field have built up over the years, often excelling in their task. This wealth of knowledge and expertise could be effectively channelled to benefit the production sector of the country while ensuring the ownership and benefit of such development to the SMUs. It is common for traditional craftspeople to pass on their knowledge to a close family member which is their way of attempting to ensure economic gains from this trade to the family. However, such restricted knowledge and skills transfer would result in loss of valuable knowledge unless these clusters are helped to keep pace with the changing economy.

A skilled youth population - The youth of the SMU families have an early exposure to the technical and trade skills of their production area. They grow up learning the basics and often have the skill to carry out productions, but unfortunately in many cases they lack the will to take the family business forward. This is seen in sectors such as blacksmithing, welding, brassware productions and pottery etc. The main reasons for this are the low economic gains from the industry, the relatively lower social prestige attached to traditional SMUs and the strong bonds those industries have with the traditional production methods. With advancement of technology in these sectors it would help to retain the interest of the youth in their family production sectors, thereby helping the country to draw from and develop on an already existing skill base.

Socially less costly - The social cost of developing SMU clusters is notably less as they do not require migration to urban or industrial zones. The socio-cultural problems arising from large scale migration by young men and women to industrial zones and often living with poor accommodation is common knowledge today. Several organisations currently conduct counselling programs to youth of these zones, especially young women. In comparison SMU clusters do not demand large scale migration. It does facilitate the family units to be together, thereby increasing space to foster stronger family ties and a more stable social system.

Market and supply linkage advantages

From a market and a raw material supply linkage too SMU clusters have an advantage over scattered manufacturing units. Some examples are:

Customers can directly link with the SMUs if certain geographical areas are well known for certain products. Weveldeniya for cane products, Wadduwa for coir products and Molagoda or Kelaniya for pottery are some examples. The choice of products is wider at a cluster due to many sales outlets within close proximity and the customers also have the choice of surpassing the intermediaries and directly accessing the SMU.

The quality of products in a cluster tends to be higher than at individual manufacturing units as the competition is higher. There is also the ability for producers to learn from one another. Often SMUs in a cluster are keen to safeguard the name and fame of their geographical concentration and therefore aim to maintain certain quality standards.

The suppliers too find dealing with clusters easier as reaching a group of manufacturers reduces their distribution cost. For example a chemical supplier to the pottery industry may have to visit a cluster once to deliver orders/supplies to a number of manufacturers.

Service providers find clusters easy to analyse and design their services more appropriately. As the number of persons involved in the production work in a cluster is considerable accessibility and operation of programs is relatively easy. For example organising sector specific bank credit systems and visiting the clusters for bank operations on selected days.

This clearly shows that clusters offer the small manufacturing units a great advantage in economies of scale and economies of scope on which the national economy can build up.

Building up on SMU cluster characteristics for sustainable economic interaction in a liberalised economy.

Locational advantage is very important for SMU clusters. Strategic advantages such as the availability of raw material, transport facilities, ready markets, easy accessibility to labour, natural resource advantages or the name and fame of a particular location are considered here. The clusters of sellers/producers along the main routes, mentioned in the introduction of the article, are some examples.

Non-sensitivity to strategic locations and the systems developed over the years could result in a setback of the operations of a particular SMU. For example the attempts to develop the cashew sales at Bataleeya by constructing a separate cashew village failed in the recent past because this move deprived the Bataleeya cashew girls of the ready market their cashew products had on the sides of the main road.

The SMU units need to couple their technical capability with entrepreneurship qualities which prepares them to take calculated risks. SMUs must have personnel with a drive for innovations both in terms of products they make and the technologies they use. Non-stagnation, accumulation of capital and re-investment in the industry are vital for their growth. State or other mechanisms should facilitate increased exposure of SMU entrepreneurs to new knowledge bases and experience sharing.

Appropriate training facilities that recognise their limited time availability and in many cases, the low level of formal education is a key necessity.

The need for SMUs to test new products and carry out R&D without incurring high costs on testing equipment is an area that is often overlooked but is crucial to developing the SMUs capacity to keep pace in fast changing markets.

SMUs as the term implies is small and have low access to financial resources that are needed for growth. Most are unable to comply with collateral requirements specified by the formal financial institutions. What the SMU sector needs is for the financial institutions to take the viability of the SMU operations as a security and assist them with credit facilities.

The family run SMUs tend to be less open to use of new technologies as the knowledge and skills base is often solely from the older generation. Such SMUs over a period, may have to restructure their production and organisation set up. Changes may be necessary to technical procedures as well as products to improve effectiveness. If markets have reached saturation, then product diversification is necessary to face the challenges of the market. Supporting the SMUs in these areas is of vital importance.

Inter and intra cluster collaborations and backward and forward linkages cannot be overlooked. Due to the small-scale operation, a lesser degree of formal education and other social issues owners/workers in SMUs are hesitant to develop a wide interactive circle. This has an undisputed negative effect on the growth and the sustainability of SMUs in a liberalised economy. Linkages with large-scale manufacturers/industries, service agencies, information sharing channels are a primary necessity, but often these are beyond the reach of the SMUs. Assisting the SMU clusters to develop their networks is important to minimise their isolated operations.

SMUs will have to respond to the changes and demands within a short spell of time. Unlike in the past, the demand patterns and deliveries have to be made fast and on time. They also would have to be flexible in products and terms of operation where they may have to manufacture multiple orders instead of a single specialised item.

With a high level of responsiveness they would have to be alert to changing fashions and develop new designs while maintaining efficiency and quality Operating in the small-scale gives them flexibility at a relatively low cost, which is an advantage that large industries do not have. However,to access wider markets and to be able to cater to larger orders the SMUs need to link up with similar production organisations. Thus they stand to benefit vastly by forming/joining trade associations.

Lessons from SMU cluster experiences of developing countries

SMU clusters had existed in the developing countries for thousands of years. As mentioned earlier, this is clearly seen in the Asian region in the form of castes. However, the post colonial development have placed the SMUs in a new and a more progressive footing. Let us briefly examine how this was so.

During the world wars, many countries now considered as developing were colonies. The post war period saw a rapid change in the production sector of the developed countries and with the industrial revolution large-scale manufacturing became a significant feature of those economies. The developed countries had little or no interest to develop the manufacturing sector of the colonies except as raw material and resource supplying channels.

After gaining independence, the primary need of the colonies was to develop their nations. On the one hand the expectations of the citizens were high and they looked to their new national leaders to address the many burning issues. On the other hand the countries realized that they were far behind the developed nations in terms of industry, technology development and production capacity.

In order to rapidly develop their countries, the newly independent nations followed the example of the developed countries and opted for large scale manufacturing and production. However the pace at which the developing nations could grow was far below that of the developed nations, who had mastered the skill of mass scale manufacturing.

The developing nations had neither the expertise and technology nor the capital as desired. The result was the non-ability to generate large scale employment as expected and the ensuing economic issues. In comparison the developed countries further developed at a faster pace and the gap between the developed and the developing nations widened.

After few years since gaining independence the developing nations found themselves in economic perils: their unemployment rates were growing and the long striking poverty was not contained. Political pressure increased.

In this context many countries began to try out small scale enterprise promotion as a means of dealing with the labour surplus. Since SMUs develop with private participation this was less burdensome to the resource poor governments. Initiatives to promote SMUs are seen in many countries and the results are mixed. Some governments extended heavy subsidies to promote SMUs, but were not able to maintain these in the long run. When subsidies were withdrawn, SUMs failed to meet to challenges of an open market.

When aiming to draw lessons from the SMU experiences of other countries, it is necessary to differentiate between the SMU promotion of the developed and the developing countries.

The developed countries have a longer history and experience of meeting industrial standards and adhering to industrial discipline, whereas the developing countries have a long history of family run business and skills development at a small scale level. In an open economy where quality standards and timely and quick delivery of goods/services is imperative, the SMUs of the developing countries may find that they are not fully geared to meet such demands. While in the industrial clusters of the developed countries technical innovations and quality consciousness are an inherent part of their operations, this did not happen so in the SMUs of the developing countries for obvious reasons.

With this note in mind, it is worth observing some of the lessons form the success stories of SMU promotion.

a) The focus must be to develop the cluster or the collection of SMUs. Individual firms or persons should not be the primary goal. What is meant here is that, rather than giving attention to individual manufacturers, it is more appropriate to focus on the cluster as a whole. Development of the cluster invariably would develop the individuals, at comparatively less effort and cost.

b) The strategies should be demand oriented rather than supply driven. The demand has to be well projected and addressed. Often we see attempts to safeguard traditional crafts by providing external support systems without identifying the market niche that could be met by diversifying products of that craft. In the absence of an actual demand the SMU collapses when external support has had to be withdrawn.

c) Large scale manufacturing units are an important element in the clusters. For SMUs to develop into competitive forces, links with large firms is vital. In addition to links with the large manufacturing units, ties with other support service agencies have to be fostered.

d) Active participation of the SMUs is vital. The stake by the SMUs in any development initiative is a prerequisite as this ensures a sense of responsibility towards their own development rather than resorting to complaints and blame shifting.

e) Although the role of the government as the facilitator of the SMU clusters is important, the predominant force behind the SMU clusters is the private sector. The private sector maintains the momentum of the markets in which the SMUs deal. Governments develop infrastructure, grant special incentives and tax benefits, and meet basic requirements related to industrial developments. But they should not attempt to replace the role of the private sector when developing SMU clusters.

(The writer is Project Manager Intermediate Technology Development Group (ITDG)-South Asia)

Productivity in the service sector

by Dr. K. Kuhathasan , CEO, Center for Leadership Excellence and Personality Development

As we advance towards the status of a newly industrialising nation, the new economy will increase the importance of occupations with a high information and knowledge content. Managerial, professional accounting, banking and other related technical occupations would constitute the core of the new social structure of our nation. It is, therefore, essential to appreciate that knowledge and information will be the key to productivity. The influence of knowledge on productivity growth will be the special feature of our future economy.

Productivity in the service sector depends on people. People at work. People centred productivity is based and built on the foundation that management should focus attention on people in human terms. It demands a close, cordial and caring type of relationship that motivate people to develop a more positive and constructive attitude towards productivity efforts.

Motivated behaviour represents the extent to which individuals will develop their abilities to use on the job and team work refers to people's willingness and ability to work together to achieve organisational goals. Group and intergroup behaviour relationship among various groups are significant aspects of team work. Motivated behaviour is an important component because the desire and willingness of employees to extend effort to reach and sustain high levels of performance, is a critical factor in service sector productivity.

It is, therefore, clear that capital cannot be substituted for labour in the service sector. No does new technology by itself generate higher productivity in such work. Whether capital and technology help productivity or harm it, depends on what people do with them and the purpose to which they are being put and the skills of the user.

East Asia began its rapid productivity growth with heavy investment in human capital. Much of East Asia's dramatic productivity growth is due to educational policies that focused on primary and secondary education which generated rapid increases in labour force capable of acquiring and mastering technology.

Work simplification

Work simplification is an important component of higher productivity in the service sector. Work simplification is a systematic analysis of the factors that influence job performance, the application of principles of improvement and the design of correct work procedures. Improvements result in upgradation of technology and facilities maximum return for each unit of effort, money, or time expended.

Work simplification may be defined as a systematic analysis of all factors affecting work being done, or all factors that will affect work to be done, to save effort, time or money.

The philosophy and attitude of work simplification can be stated as follows:

1. There is always a better way for higher performance.

2. The "one best way" is never truly achieved. It is a goal to be worked toward under a given set of conditions.

3. Work simplification can be applied to any work if there is a desire to save time, effort, or money.

4. A systematic and orderly approach to work problems will yield better results than a haphazard or inspirational approach.

5. The person doing the job knows more about that job than anyone else and so he is the only person best suited to improve it.

The work simplification attitude is a questioning attitude. Each unit of work is examined and, questioned concerning its purpose and manner of execution. There is no place for "it can't be done" or "this is the way we always do" attitudes. We may face a period of economic stagnation if we do not raise productivity of knowledge. Rasing the productivity of knowledge and service work must, therefore, be an economic priority for all of us.

Higher productivity is possible only through high quality of work. Higher quality of work is attained by performing a task properly and efficiently. In a task in which it is possible to make a mistake, it is possible to measure and improve quality and, consequently, productivity. In the service sector like banking there is a widespread belief that high quality service means either taking more time and giving each customer more attention.

This is simply not the case. A quality service like quality product depends on quality of attention aimed at improved customer satisfaction. Quality service is one you can count on. This consistency, that is, higher quality-translated directly into higher productivity in terms of giving customers what they want.

Good service is not an intrinsic knack and service quality/sales ability is not something inborn or inherited. Both can be learned and acquired and good management system should offer opportunities to develop such skills.

Knowledge and service jobs must not be treated as just work. They cannot be assumed to be homogeneous.

They must be treated as falling into distinct categories. Each requires different analysis and different organisations. In the manufacturing sector focus is on work related productivity. But in knowledge and service work, the focus should be performance linked productivity.

Defining and concentrating on the task and performance will by themselves produce substantial productivity increases. These issues need to work through again and again, may be every three to five years and certainly whenever we change work or its organisation. Increased productivity also depends on the desire to learn continuously.

Learning and training has to be part of working life, if high productivity is desired. Higher rates of service sector productivity are probably the single best indicator of a nation's economic health. In the absence of service sector productivity gains there can be no general improvement of living.

The continuing desire for service sector productivity push is essential because:

1. Productivity growth is the basic source of improvements in real wages and living standards.

2. Productivity growth is an anti-inflationary force in that it tends to offset or absorb increased money circulation.

Although the causes of inflation are complex and controversial there is certainly a close link between the rate of inflation. Other things being equal, rapid productivity growth helps limit the rate of inflation poor productivity may cause the inflation rate to be higher than otherwise.

New levels of productivity and higher degrees of its growth should be the concern of everyone of us as it results in everybody's gain. A highly successful productivity growth policy will require a higher degree of co-operation among the productive partners, namely, government, management and labour.

Better export planning via market research

by Nihal Mawella , Chartered Marketer - CIM.UK ,MCIM MSLIM

Information is the life blood of the export trade. A firm that wants to succeed in export, needs information about market prospects. Market research can help provide this vital information necessary for successful product launching.

Many SMEs (Small and Medium Enterprises) do little or no market research. If asked why they don't make greater use of market research, most would probably say, it is too expensive or they don't believe they need to do it. Unfortunately both answers are wrong. The cost of not conducting market research results in less export success.

Those who do not conduct market research are only penalizing themselves by not having factual information upon which to base their discussion. For example, an export company who plans to participate in an international trade fair in an overseas market should do some research on the prospective market and buying organizations to evaluate the exact demand for the products in the market.

Similarly those SMEs who participate in overseas market promotional work must do their homework first and then seek assistance from promotional organizations to promote their products. One method of obtaining information is through Internet. Internet provides economic and trade information and other details of markets, international trade fairs and import promotion organizations in the world.

Market research is the systematic design, collection analysis and reporting of data and findings relevant to a specific marketing situation facing a firm.

Market research must be a practical exercise leading to specific decisions and actions. Market research is not meant to be simply a time consuming effort to collect all kinds of statistical and other data. It is an extremely worthwhile activity when it is centred upon providing practical information of direct marketing value.

For the small and medium scale exporting companies with limited financial and other resources selecting the most suitable markets to promote their products is a crucial decision. Under the global liberalized trade policies almost all the markets of world are open now.

Which are the right markets for a firm to target its export marketing campaign? Market research can help provide the right answers. Some markets for a variety of reasons may never be viable markets. Other markets may have special characteristics which will immediately rank them higher on a prospect list than nearby markets. An export firm must therefore do research and rate markets as best, fair or poor markets based on the cost and benefits derive from entering a market.

Successful Export Business

To effectively use market research as a marketing tool to develop a successful export business, the company management must first determine what kind of information it needs in order to make the correct marketing decisions. To decide simply on the basis on a concept "We want to export our Products" is not good enough.

All the small and medium entrepreneurs are anxious to enter an export market. Successful exporters closely examine their product range and marketing capabilities. Then they conduct market research on a prospective market. Draw up marketing plans, adapt product according to the findings, revise FOB or CIF prices, check credibility of importers, and finally obtain assistance from export promotional organizations, develop a marketing plan to promote the select products in selected markets.

It may be a range of travel bags, tableware or a range of value added tea and then use market research to identify those markets where such a product line has the greatest potential. Examining firms product line mean asking questions such as -

1. Who is the ultimate user of the product

2. What is used for

3. How does the user to buy the product

4. Are there other uses for the product as it now

5. Will we increase our sales possibilities if we modify or adapt the product slightly or

6. Is our packaging right for the markets we want to sell to.

The answer to questions like these will enable a company to concentrate its market research on obtaining the specific information most relevant to its market selection. For example, choir brushes including tawashi brushes are used for various purposes in Japan.

Therefore manufacturers, exporters should consider this aspect and introduce respective choir products to this market. Similarly plastic basins are used to carry fruits and cereals on head in most African countries. So if the manufacturer without considering this aspect introduce large basins he will not succeed in selling them.

An alert export firm should also consider how its products are being used and bought in import market and then seek to find like prospective users and similar trade channels in market abroad.

Market research would help to locate appropriate country targets, but should also provide meaningful information on which areas of a market are the right ones for particular product. Meaningful market research should also supply the exporter with data on buyers wants and preferences of the markets distribution structure and prices and what the competitive products are.

Market research has a cost and there comes a point when doing more research will cost more than the information it produces. Just how much research is needed will depend upon the product and the firm. It is essential however to undertake certain basic research to -

1. Eliminate those markets which offer least potential

2. Determine which and how many markets a firm should initially concentrate upon

3. Identify proper market segments within overseas countries

4. Provide information on how best to reach and influence prospects which distribution channels to use and what kind of sales promotion is needed.

Trade/Professional Association

Recently trade associations and investment production groups have been in the forefront in negotiating reduction of taxes, incentives for production and encouraging trade promotional activities. They must also make an extra effort to raise standards of their production and services, encouraging product improvements and the marketing role.

Trade associations and export investment and production groups today have two major roles to play. The first role is that of representing their members and their industry and negotiations with other institutions, government on behalf of the association and generally considered as their primary function.

The other role is the encouragement and development of business for their industry. In other words it is the market development role or marketing role. This is a function that associations should perceive and acknowledge. Most associations are aware of their marketing role and have been active in organising exhibitions, awareness seminars, entrepreneur development activities, delegations and dissemination of information and working with export promotion institutions.

For both roles to be successfully conducted the manufacturing groups and trade professional associations and their members need to have access to reliable statistics and qualitative market information on overseas markets. If we examine the attitudes of these associations in relation to the provision of market information and advisory services it could be seen that these associations compile statistical information on various aspects of their services and industries. In addition to the processing and dissemination, updated market information should be activated throughout the year as the overseas market situations are changing rapidly. In other words every manufacturing and service industry in Sri Lanka must adopt market research as a tool of promotion of their industry and services overseas.

The production groups, trade and professional association may complain of high cost of research in relation to the limited budget available for them but we could see up to 15% of their income is invested on product and service research and market research by overseas, trade and professional companies. The funds invested on product and market research are not waste, it must be considered as an investment for future expansion.

The SMEs can obtain assistance of trade promotion institutions to carry out such surveys to plan their export strategy. This includes the promotion institutions established by the Government and Foreign Governments including Commercial Sections of Foreign Missions established in Sri Lanka. Some examples are European Chamber of Commerce and the services of Japan External Trade Organisation.

Alternatively they may organise the survey with import promotion organisations overseas.

The most significant reason is that trade and professional associations and production groups require statistics to support their proposals, submitted to government and donors of funds. Such information should come from their own research units. These research activity should be a continuous one so that they could ascertain the prospering or declining economic environment and take action based on the findings of research. Trade/Professional Associations and Trade Groups should make conscious attempt to determine the needs of their members.

Most have vague notions of the type of service which their members require and generally do not consider this includes overseas market research export marketing oriented product policy and overseas export promotion planning. Yet there is undeniably a need for trade/professional associations and production groups to improve their export marketing and research services for their members. As counter to the argument that the larger members of an association conduct their own market research. There are at the same time many small firms unable individually to sponsor surveys.

Furthermore, associations sponsored research can benefit the industry as a whole. Particularly in the export field leaving each member to interpret the findings and develop a marketing strategy. For example, probing the acceptability of products is one frequently stated qualitative research objective. In certain cases the research agency employed by an association can make detailed recommendations in overseas marketing and promotional matters.

However, trade/professional associations must not ignore their marketing role either because they are unaware of it or because they choose to ignore it as being administratively little difficult.

By developing the marketing role, trade and professional associations, manufacturing and construction groups can make a far greater contribution to the advancement of their industries and services than they are in their negotiating and persuasive functions.

Co-operative research is only one service they can provide to their members, by adopting a market concept, they can improve acceptance, membership, approval, status and even profitability.

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