Determinants of Quality Diffusion in SMEs in Upstream Supply Chains for Future Competitiveness

Abstract

SMEs occupy an important place in economic growth and equitable development in all countries. Constituting as high as 99% of enterprises, SMEs contribute to the growth of the national economy through employment creation, investments and exports. While SMEs provide more than 80% of industrial jobs in Pakistan, man- ufacturing SMEs have shown an dismal growth profile. The manufacturing sector, except the textiles, that has not performed well in exports since the 1960s, is now being challenged in the home markets as well. While SMEs are considered inherently resource constrained around the world, thus unable to invest in business development initiatives, the SMEs in Pakistan present an extreme case where an average SME has 1300% less turnover compared to an average EU SME, thus is much weaker. With widely known and accepted infrastruc- tural and policy limitations which inhibit SMEs in Pakistan from growing to their full potential, Diffusion of Innovations (DOI) has tremendous potential to offer al- ternate solutions for SME growth. If integrated successfully in the upstream supply chains of larger businesses, SMEs can improve their quality and quality management practices through effective supplier development by larger businesses. Such supplier development is of-course a win-for-all solution, since in today’s business environ- ment of focusing on core competencies, only well performing suppliers can ensure that the large businesses perform well. This thesis attempts to demystify the supply chain networks in a high context econ- omy like Pakistan, using the strengths of these networks to accelerate the positive diffusion of quality management practices. It attempts to develop the understand- ing of Pakistan’s business culture along-with examining the current health of quality management and supplier development activities in Pakistan through empirical re- search. All results have been consolidated through triangulations employing case studies, structured interviews and surveys. Based on this knowledge, the thesis in- vestigates the determinants of the diffusion of practices from buyers to suppliers. Developing the knowledge of these determinants can form a basis of manufacturing sector SMEs development in Pakistan by exploiting the strengths of Pakistan’s so- cial and business culture. Based on the results, the thesis offers a consolidated set of recommendations, which if employed could potentially bring about the revitalization of the manufacturing sector of Pakistan.