Formation of the strategy of sustainable SMES development based on SWOT analysis in Afghanistan

Table of contents: The Kazakh-American Free University Academic Journal №12 - 2020

Author: Hasamuddin Wasim, Kazakh-American Free University, Herat, Afghanistan

Many definitions exists by scholars describing what is SWOT analysis definition, SWOT Analysis is important part of strategic Management a tool used for strategic planning and strategic management in organizations. It can be used effectively to build organizational strategy and competitive strategy. In accordance with the System Approach, This process of examining the organization and its environment is termed SWOT Analysis. SWOT Analysis is a process that involves four areas into two dimensions. It has four components: "Strengths", "weaknesses", "opportunities", "threats". Strengths and weaknesses are internal factors and attributes of the organization, opportunities and threats are external factors and attributes of the environment [1].

We will conduct a SWOT analysis of the activities of SMEs to develop recommendations on the formation of a strategy for their sustainable development [2-4].

Strengths:

1. SMEs are an industry segment that can be used as a vehicle and the main pedestal of the most promising for the creation of new entrepreneurs, as it is the closest level that can be reached by people who are just starting entrepreneurship in Afghanistan.

2. SMEs have the characteristics of large capacity to the realization of the aspirations of the wider community to obtain an economic livelihood, especially those classified as low-income and middle-income in Afghanistan.

3. SMEs have high flexibility and resilience to anticipate and adapt to the dynamic changes or market developments, due to its dominant foothold benefited from the domestic market and strongly in the use of inputs (raw materials) derived from Afghanistan.

4. There are many financial institutions in the banking and non-banking and supporting business capital of the government of Afghanistan Revolving credit and loans.

5. Not easily penetrated by its domestic market of similar products imported because the level of sophistication of the technology used is low and does not require high skills.

Weaknesses:

Afghanistan government and majority of SMES did not have a clear SME strategy yet.

1. There are no central databases or information points dedicated to SME analysis in Afghanistan that provide easy access to relevant information.

2. The SMEs are incorporated in Afghanistan but not yet under the monitoring, evaluation and reforms process of the Ministry of industry and commerce due to high level and high frequency of corruptions and direct interference of warlords.

3. Shortage of Facilities and infrastructure to support the development of SMEs, especially in terms of the amount sufficient in Afghanistan.

4. Human resource who are involved in many highly qualified SMEs, yet reliable and professional, especially also in the field of entrepreneurship.

5. Low-cost work: in Afghanistan, labor costs are the lowest in the world

6. Limitations of skilled human resources in the field of SMEs resulting limitation management, marketing, capital, partnership and technology.

7. Most of raw materials need still imported from outside countries, skill of production technology and product quality as well as insight into the orientation of the majority of SMEs is still limited and has not been developed, including innovation, the production technology used mostly still relatively simple / traditional and the limited use of information technology to promote SMEs in Afghanistan.

8. The SMEs entrepreneurs to access markets is still limited, entrepreneurs in general are still not able to meet the market demand requires the stability of quality, a large number of orders, fast and timely delivery and there is a shortage of effective marketing institutions and other support facilities for SMEs products in Afghanistan.

9. Not its financial administration and management system that is good because it's not yet separated the ownership and management of the company and SMES development of business networks and lack of data and information that is sharp and up to date of SMEs are ready to be marketed and specification needs of individual SMEs.

10. Condition of facilities and infrastructure, especially from the aspect of quality is still low, such as roads, electricity, water, waste disposal, etc.

Opportunities:

Potential opportunities in the domestic market, the need for products, goods SMEs results still have not been met and opportunities would be open export markets, at least it will be easy access to the markets.

1. The emergence of new technologies and production processes in the field of information and communication technology (ICT) that really support dynamic business activities, including supporting the ability to access the market quickly.

2. Food feeding economic growth: Afghanistan progress in industrialization has been very disappointing for the past four decades of War, compared to the performance of our past and that of other countries. Industrialization is one of the main sources of economic growth because it creates jobs, uses our human resources and leads to the development of a manufacturing sector. The Make in Afghanistan campaign aims to accelerate Afghanistan growth by converting it into a manufacturing center and Self-sufficiency being an ending to starvation and poverty to be achieved two most memorable global sustainable Goals.

3. Presence of numbers of local, international NGOs and UN agencies in formation SMES, financial supporting SMEs in Afghanistan as ABADE organization assists SMEs with better planning, appropriate equipment and technologies, better management skills and business specific skills, innovative-supporting alliances, and by facilitating a business environment conducive to SME growth. AISA Business advice to national and international business persons wishing to start up in Afghanistan, ALYAL conducts Ongoing research on agriculture, food retail and distribution, and other aspects of private sector development funded by USAID, World Bank, and others, AKDN Research including baseline for own extension projects, mostly in rural areas and focused SMEs and private sector development, APPRO Extensive research based on primary data collected through surveys on clustered micro, small-sized enterprises analyses of microfinance and SMEs in Afghanistan, analysis of gender and agricultural production value chains, analysis of trade between Afghanistan and its neighbor's (Iran, Pakistan, and Central Asian countries), AREU A number of studies of emerging markets in pharmaceuticals, oil, and agricultural produce in 2005-2007, ASMED Supporting private sector development in Afghanistan with a focus on SMEs and women owned and operated businesses and associations nationally and internationally linking Afghan businesswomen with businesswomen elsewhere, MEDA Agricultural market research for microfinance and SME interventions, mostly for own projects but also other donors, UNDP Market Sector Assessments for SME Development and World Bank Best known for multi-country "Enterprise Survey", surveying between 100-120 medium- sized and large enterprises in Afghanistan.

Threats:

1. Product or activity deemed illegal, production of poppy or poppy processing, business of arms and ammunitions, toxic and hazardous chemicals, business of alcoholic beverages, gambling, political campaigning etc. resulting terrorist activities.

2. According to the latest World Bank Enterprise Survey 2014, the top critical areas impacting on SMEs are "political instability, corruption, access to land, access to finance". To design adequate BDS it is also necessary to be aware of the World Bank Doing Business Indicators that are good at capturing the enabling (or disenabling) environment and assess reform.

3. The top challenges for Afghan enterprises remain external, such as protecting investors, trading across borders, political instability, corruption, access to land, and access to finance. In addition to these, a weak labor market, low literacy levels and an unskilled workforce are highlighted as major challenges to inclusive growth.

4. Corrupt government officials, kidnappers, insurgents, warlords, politically-active individuals can be seen as beneficial.

5. Remains useless to a large extent because its neighbors have not installed the same technology. Corruption at the borders means goods transiting from Pakistan get priority over Afghan exports. Corruption also makes market competition for importers difficult. Those traders importing goods through more porous borders with Pakistan, where customs revenue collection is less rigid due to corruption, can sell their goods at a cheaper price than traders importing the same product via northern borders with Central Asia.

6. Afghanistan is a Land-locked country geographical proximity of Kandahar to the Pakistani border, and Pakistan's domestic market and Pakistani ports on the Arabian Sea, is a major advantage for Afghan exporters though not without problems with border crossing, the shared border with Pakistan is not always passable for Afghan exporters and, sometimes resulting in fresh produce rotting in truck containers held up by Pakistani border officials due to the political and security uncertainties. The volume of trade with Pakistan has expanded, but so has informal trade, costing the Afghan government tremendously in customs revenues.

7. Economic growth is expected to slow down because of a reduction in aid and political uncertainty which creates a perception of risk for investors not to the realization of the commitment, consistency of policy and the spirit of integration of various parties / policy decision makers to the development of SMEs, not only the vision and attitude as well as the integration of SMEs handler's guidance from the government, and not full support arrangements by the government, facilitate, ease and expedite business entrepreneurs incentives for SMEs, among others, special rates, easier requirements, subsidies and technical assistance, fraud protection against large employers.

8. Environmental issues: According to estimates by the World Health Organization (WHO), most polluted cities in the world belong to Afghanistan. The worst city is Kabul. In addition, Afghanistan "Doing in Afghanistan" policy could increase pollution and aggravate the situation. The government has not explained any ecological or social criteria about "Doing in Afghanistan". On the other hand, the government is already proposing diluted environmental and labor laws that attract investors to Afghanistan. "Make in Afghanistan policy could destroy soils; evacuate farmers, increase deforestation and pollution in the absence of environmental protection.

9. The use of materials that are less efficient, the instability of the exchange rate against foreign currencies, there are many raw materials that must be brought in from outside, and the low participation of residents in the activities of SMEs.

10. There is a widespread embedded caring attitude, partnership and social solidarity of large employers to SMEs, in the perspective and attitude is not negative, as would be set, do not want to exploit the potential of the wealth of art and culture that is optimal, essentially all of which is a challenge for the development of SMEs.

11. In the perspective and attitude is not negative, as would be set, do not want to exploit the potential of the wealth of art and culture that is optimal, essentially all of which is a challenge for the development of SMEs.

SWOT Analysis In formulating various alternative strategies can be used SWOT analysis matrix models. There are four alternative strategies that can be suggested; SO, WO, ST and WT strategy. SWOT matrix analysis model using data obtained from tables IFAS and EFAS [5-8].

Strategy SO:

1. Increased partnerships, both in the areas of marketing, technology and capital needs to be done with great entrepreneurs.

2. Development of SMEs needs to be done in an integrated and synergy with development medium and large scale industries.

3. Creating a favorable business climate for the development of SMEs and to encourage the creation of new entrepreneurs through business modernization policy, policy stability Enterprises, SMEs and weaknesses elimination.

4. To involve SMEs in the program of exhibitions and bazaars in order to help SMEs to market and promote their products through exhibitions and bazaars or the people in the domestic market and abroad.

Strategy WO:

1. Empowerment existing SMEs, and development of SMEs in an integrated manner in the field and has a strong commitment to do the development of SMEs.

2. Human resource development such as; entrepreneurship training, training production technology SMEs for various types of businesses, training of marketing management, training in the field of banking credit financing and training in export and import.

3. Development promotion services unit, technical services unit, information services unit, promotion and marketing center, development trading house and development promotion center.

Strategy ST:

1. Designate one official who actually became a coordinating body to be a "filter". It is expected that the role and functions of the Central Agency have been coordinating the implementation of coaching or capacity development. The benefits of coordination on the ground, so that each agency is able to perform the function not to over-lapping, because is a tendency to overlap in coaching.

Facilitate Meeting venture between entrepreneurs of SMEs with financial institutions such as the Banks and other micro-finance organizations, empowering microfinance institutions.

2. Increased participation and community participation including government related institutions and NGOs working in the area in the development of SMEs.

3. To disseminate the importance information technology, especially the use of the internet to promote the products of SMEs, and need to have a system of computer networks and the Internet to connect with related agencies as well as having a website that can be accessed by the public or prospective buyers both domestically and abroad.

4. Creating a conducive security conditions.

Strategy WT:

1. Special effort provisioning scheme for entrepreneurs SEMs.

2. Supplying government market.

3. Lightening system in the field of venture capital.

4. Diversification system / marking scheme (i.e. venture capital, loan guarantees, etc.),

5. Facilitating linkages enables entrepreneurs to exchanging ideas with other businesses in their clusters or value chain and develop business relationships.

6. Simplifying the permit / registration system

Here are the suggested strategy formation and tips for sustainable enterprise Development:

a) Proactive market orientation: the "Make in Afghanistan" campaign aims to make India a global manufacturing center, foreign investors can use the proactive market orientation to develop a new product and satisfy the domestic demand for this product. The strategy, in order to provide customers with correct and satisfactory solutions, helps investors to understand and understand the latent needs of customers.

b) Responsive business orientation: domestic and foreign investors could use the receptive business orientation to respond to customer demand for new or existing products as part of the Make in Afghanistan campaign.

c) Knowledge management: using current knowledge to create a new business and conduct a new business in Afghanistan, knowledge management can help foreign and Afghan investors gain access to existing knowledge and store new knowledge about the organization that can be used to improve, decisions in the future and in the present.

d) The government should establish national skills development institutions to address the skills gap in Afghanistan.

e) In order to develop the manufacturing sector worldwide, the government should focus on research and development institutions and invest in research and development to meet the demand for advanced investor technology through this campaign.

f) The need to develop production facilitation facilities is very important for the effective implementation of this policy. The government should focus more on road infrastructure and industry and invest to create global growth and competition.

g) Afghanistan mergers and acquisitions to be undertaken will generate speed. These startups will create more innovative approaches to attract attention and retain the talent of Afghanistan.

h) The revival of production and industrialization in Afghanistan requires coordination between monetary policy, exchange rate policy, trade policy and industrial financing. As members of the government, these policies need to be harmonized and function in a coordinated way to succeed in Afghanistan, all over the world.

Recommendations:

1. Raise awareness of the role of government in business development: With the decline in aid and military spending, the Afghan government will increasingly become the focal point for businesses. Many business owners remain uncertain about the role of government in business facilitation under the new economic policy. A well - orchestrated campaign is needed to inform business - owners about when they can seek help from the government and when demands go beyond the government's limited role in the market economy

2. Include women: Female business leaders are completely missing from policy - making bodies such as the Afghanistan Investment Support Agency and the Afghanistan Chamber of Commerce and Industry. Female - owned SMEs are struggling and public acceptance of women working outside home is declining. The presence of women in the decision - making bodies could result in formulation of polices that create more enabling environments for women in business.

3. Coordinate the Implementation of the SME Strategy: With a clear SME strategy finally in place, the SME Directorate at the Ministry of Commerce and Industry coordinating implementation remains understaffed. The government needs to increase human resource capacity within the directorate to meet the demand.

4. Build SME Capacity to find and Engage New Markets: Afghan traders still struggle in finding markets abroad. The culture of exhibitions, largely subsidized by international organizations over the past decade, needs to be better rooted in the trade community. The government needs to help SMEs in marketing and networking strategies to engage long - term clients, not just immediate sales at exhibitions.

5. Link Business Needs and the Education System: The SME Directorate should work with public and private educational institutions to ensure that educational curricula reflect local economic and business needs.

6. Facilitate SME Formalization: Inefficient bureaucracy and corruption, combined with no clear incentives for SMEs, has kept a majority of SMEs outside the government's sphere of influence. The process of registering businesses has been simplified, but licensing remains complicated. The Afghan government needs to simplify the licensing for SMEs if it wants to bring more of the sector under its formal supervision.

7. Improve Communication with Central Asia: Afghanistan has struggled with communications with Central Asian countries. Officials describe interactions as infrequent and difficult to arrange. The result is low level of coordination at the border crossing point. Streamlined channels of communication are needed to facilitate hearing about problems from traders and the removal of barriers. Improved communication could help address transit issues, such as the frequency and condition of ships at Hairatan port, or working out an agreement for Afghan goods to be transported in train wagons that return empty.

8. Gain Clarity on the New Silk Road Initiative: The United States needs to clarify the exact framework for its New Silk Road Initiative. This clarity could help Central Asian nations assess the benefits of investing in customs technology and trade facilitation to pave the way increased trade with Afghanistan.

REFERENCES

1. SWOT analysis: a theoretical review, The Journal of International Social Research 2017 August 2017 www.sosyalarastirmalar.com

2. Afghanistan National Development Strategy (ANDS) https://www.undp.org/content/ dam/afghanistan/docs/ANDS_Full_Eng.pdf

3. OECD (1997). Globalisation and Small and Medium Enterprises (SMEs). Paris, OECD. OECD (2000). OECD Small and Medium Enterprise Outlook: 2000 Edition. https://www.oecd-ilibrary.org/ docserver/ annrep-2000-en.pdf? expires= 1589937206 &id =id&accname= guest&checksum= 7653DB94004DE8FE366E6F5 CC641D2D8

4. World Bank https://www.worldbank.org/en/search?q=Poverty++and+unemplace-ment + rate+in+ Afghanistan

5. Final Report Scoping the Need for Improved Access to Funding, Advisory Support and Business Skills Development for SMEs in Afghanistan September 2014 by UKAID http://www. SME%20Article/61284-IDEVREAN-14001AF_FinalReport_ Circulation.pdf

6. A Conceptual Framework for Strategic Entrepreneurship in New and Established Organizations, Authors Marelize Griffin and Jacobus Oosthuizen https:// www. researchgate. net/ publication/308785074_A_Conceptual_Framework_ for_Strategic_ Entrepreneurship_in_New_and_Established_Organisations

7. Small and Medium Enterprises Development and Regional Trade in Afghanistan, Author Mujib Mashal (2014) https://www.researchgate.net/publication/ 315796115_ Small_and_Medium_Enterprises_Development_and_Regional_Trade_in_Afghanistan

8. Ministry of industry and commerce of Afghanistan, Administrative corruption report translated from Dari to English, https://moci.gov.af/en/reports



Table of contents: The Kazakh-American Free University Academic Journal №12 - 2020

  
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