Micro, Small and Medium Enterprise (MSMEs) in employment generation and its effects on Entrepreneurship

Research Paper (postgraduate), 2014

32 Pages




Chapter I: Introduction
1.1. Background to the study
1.2. Statement of the problem
1.3. Aims and Objective of the study
1.4. Research questions
1.5. Significance of the study
1.6. Definition of concepts

Chapter II: Literature Review
2.1. The relationship between growth of MSMEs and employment
2.2. Linking entrepreneurship and unemployment

Chapter III: Research Methodology
3.1. Research design
3.2. Population and Sample size
3.3. Response rate
3.4. Data collection
3.5. Method of Data analysis
3.6. Ethical consideration

Chapter IV: Data Analysis and Findings
4.1. Demographic profile of the respondents

Chapter V: Discussions and Conclusions
5.1. Discussions
5.2. Conclusions


Micro, Small and Medium Enterprise (MSME’s) in employment generation and its effects on Entrepreneurship.

Tashi Tenzin, Post Graduate Diploma in Public Administration (2014) & Bachelor of Science in Life Science (2015). Bhutan Standards Bureau, the National Standards Body of Bhutan, Royal Government of Bhutan, Thimphu.


The purpose of the study is to examine the role of MSMEs in solving unemployment problem and to find the unemployment trend. The unemployment problem is rising every year and especially youth unemployment is increasing at alarming rate. The study cover Thimphu area whereby a total of 351 samples were determined for the purpose of the study however the response rate was 82.05% with 288 responds qualifying for the analysis. Descriptive analysis was used and the findings reveals that most of the business owned by youth entrepreneurs employed more people though their initial investments were very low. The study also shows that most of the present business owners has plan of expanding their business in future which will create more jobs. From the studies, it shows that unemployment rate in Bhutan fluctuates and is mainly because of change in the supply and demand in the job markets. It also shows that despite high unemployment rate in the country, preferences for job among the youth remain same. They prefer to join civil servants followed by corporations, NGOs and self-employment or entrepreneurship as the last option. Form this preferences of job and trend of high unemployment rate in the country, it can conclude that there is no refugee in the country nor can say that there is entrepreneurial effect as the entrepreneurship culture in the country is in the verge of developing, therefore entrepreneurial effect can only be tested after some years when the entrepreneurship culture in the country is fully developed.

Key words: Entrepreneurship, Refugee effect, entrepreneurial effect, youth, unemployment, MSMEs and Employment.

Chapter I: Introduction

1.1. Background to the study

Bhutan has been experiencing a period of rapid economic growth over the years. In fact, some international reports have described Bhutan to be the fastest growing economy in the world. This is confirmed by the real GDP rate of 11.8% in 2010. However, on the other hand, Bhutan is experiencing a huge gap in the labour market, thus, giving rise to unemployment issues.

The increasing unemployment rate with accelerating economic growth has become an issue of concern as the impact of unemployment is identified as one of the hazardous factors on people’s welfare, especially, when young people face high unemployment (MoE, 2014). According to the Population and Housing Census (2005), 256,895 people were economically active population (96.9 percent were employed & 3.1 were unemployed) and 168,128 were economically inactive in Bhutan. As per GNH (2010), the total labour force is expected to increase to 318,688 by 2015 which demands an economy to increase its employment opportunities by 24 percent in 2015. On the other hand, there is not many employment opportunities in the public sector. Therefore, the government is in the process of diversifying the economy to create enough employment opportunities. In this regards, micro, small and medium enterprises play an important role in fostering entrepreneurship development, providing employment and reducing poverty (South Asian survey) and also considered as the engine of economic growth (Micro, Small and medium Enterprise policy, 2012).

As per the CSMI policy 2012, MSMEs in Bhutan represent 98 per cent of the private sector and it is consistently believed that they would play a central role in fostering entrepreneurship development, providing employment and reducing poverty, despite many challenges being faced by the SMEs in Bhutan. The Royal Government of Bhutan is also in the process of supporting the establishment of MSMEs and promoting their growth in a counter to solve the rising unemployment problem because-as per the experience of both developed and developing countries-it has been put forward that promotion of micro, small and medium enterprises provides viable opportunities for fledgling entrepreneurs to participate effectively in the economy and provide economic benefits to nations beyond commercial initiatives. The Royal Government of Bhutan’s effort to promote an entrepreneurial culture dates back to 1990, where under the erstwhile[1] Ministry of Trade and Industry, the Entrepreneurship Promotion Centre and the Small Business Resource Centre were created to serve as a platform for promoting entrepreneurship and enterprises in micro, small and medium enterprises.

With the growing concern over unemployment and the fact that entrepreneurship is increasingly accepted as an important tool and a strategy for job creation in small, medium and micro enterprises, the mandate to promote entrepreneurship and enterprises was transferred from the Ministry of Economic Affairs to the Ministry of Labour and Human Resources (MoLHR) in January 16, 2009.

Ever since its transfer to the MoLHR, the Ministry has underscored “youth entrepreneurship” as its principal area of focus. The entrepreneurship programme is considered as an important tool and a useful strategy for job creation and economic growth. Having known the fact that the MSMEs have high potential to absorb substantial numbers of unemployed youth into the labour market, the Ministry started two major regular courses: -[2] Comprehensive Entrepreneurship course (CEC) and the Basic Entrepreneurship courses (BEC) (Entrepreneurship activities moves to MoLHR, n.d) with the main objective of promoting self-employment as one of the viable options of employment (Annual progress report, 2008 – 2009, MoLHR).

The importance of MSMEs in creating employment opportunities is also well documented in Bhutan 2020; however, till 2012, there was no national policy to guide the growth of micro, small and medium enterprise in the country. The Cottage, Small and Medium Industry (CSMI) Policy, 2012, was adopted by the Royal Government to provide a clear direction for the development of cottage, small and medium industries to prepare them for the opportunities and challenges of globalization, to ensure that they play an increasing role in fostering economic development, to generate employment, and to support equitable distribution of income and bring about balanced regional development (MoEA, 2014).

Six strategic objectives of the CSMI Policy (2012)

1. Strengthen the Policy Environment and Institutional Framework.
2. Strengthen the Legislative Framework and Enterprise Environment.
3. Facilitate Access to Finance and Incentives.
4. Enhance Competitiveness and Innovation.
5. Improve Market Access.
6. Enhance Employment and Develop a Culture of Entrepreneurship.

Ministry of economic affairs (RGoB) is responsible for the implementation of CSMI policy, 2012 and in order implement it, CSMI development strategy 2012-2020 and action plan 2012 – 2020 were also documented (CSMI,2012). The CSMI development and action plan clearly shows the way forward to operationalize and achieve the objectives of the policy.

1.2. Statement of the problem

Unemployment is one of the most serious socio-economic challenges facing Bhutan. The unemployment rate had increased from 2.1% in 2012 to 2.9% in 2013 (Labour force survey Report 2013). More worrying, the youth unemployment rate increased from 7.3% in 2012 to 9.6% in 2013 (NSB, 2013). This issue is only likely to escalate given Bhutan’s youthful demographic profile with 51.7% of population below the age of 25 years (Statistical Year Book 2013) and the growing numbers of youth entering the labour market in search of jobs. On the contrary, the employment opportunities in civil service and cooperate world is also saturated, therefore government tries to urge unemployed youth to take up business and to be entrepreneurs through various measures such as policy intervention (eg. Draft national employment policy, Cottage and small industry policy 2012, CSMI strategy and action plan, etc.). And other initiatives such as providing basic and comprehensive entrepreneurship course, assisting in the development of business plan, availing loans at lower interest rate (Entrepreneurship and self-employment division, 2013). Royal government of Bhutan is also in the process of starting enterprise award system and innovation voucher scheme for the micro, small and medium enterprise (MSME) to promote entrepreneurship, increase awareness and appreciation of the role of entrepreneurship by rewarding successful entrepreneurs(Dema, 2013).

MSME in Bhutan constitute about 97% of all business. It is considered as the jewel of the economy where it has potential to create employment opportunities and inculcate entrepreneurship culture in the society (The state of the Tsa-Wa-Sum, 2014). Currently micro, small and medium enterprise employed about 20,177 (Cottage and small industry, 2013) and in 11th five year plan, government had target to create additional 21,000 jobs in this area (The state of the Tsa-Wa-Sum, 2014). However, despite providing conducive environment for taking up business and entrepreneurship, Bhutanese youth prefer employment in government and cooperate sector and only few take up the job in private sector and take entrepreneurship for self-employment (SME). In addition, unlike in other countries, the high unemployment rate in Bhutan does not result in the startup of entrepreneurship activities for the self-employment. In many developing countries, there is positive correlation between the unemployment and entrepreneurship as high unemployment rate may result in the startup of entrepreneurship for self-employment as a result of high rate of self-employment reduces unemployment (Thurik, Carree, Stel & Audretsch, 2001).

1.3. Aims and Objective of the study

The aims and objective of the research is to study the role of MSMEs in reducing unemployment and to explore the relationship between growth of MSMEs and unemployment trend.

1.4. Research questions

2. What is the unemployment trend in Bhutan?

3. What is the role played by MSMEs in creating employment opportunities? Or reducing unemployment in the country?

4. What is the relationship between unemployment and entrepreneurship in Bhutan?

1.5. Significance of the study

The research will enable us to know the current youth unemployment trend in the country and the preferences of youth for the work. The research will also help us to explore the potentiality of MSMEs in solving the unemployment problem in the country. Besides this, the study will also add to existing literature and the findings in this research will help future researchers in the field of entrepreneurship. The study will help in providing valuable insights into the relationship between entrepreneurship and the unemployment trend in the country. This study will bring immense benefits to the academic field and, more importantly, it will help policy makers in formulating policies, programs and strategies that will help in solving unemployment through promotion of entrepreneurship culture among the youth population.

1.6. Definition of concepts

Micro, Small and Medium Enterprises (MSMEs): MSMEs in Bhutan mainly covers non-farm economic activities likes manufacturing, trading, mining, construction and services. MSME is used as nomenclature for Micro, Small and Medium enterprises however, it is refer to as Cottage, Small and Medium Industries (CSMI) in Bhutan (Micro, Small and Medium Enterprise Policy, 2012).

Generally, there is no universally accepted definition to MSME as different countries uses different definition depending upon the level of developments. For instance in India, MSMEs are broadly classified in terms of activity such as enterprises engaged in the manufacturing/production and enterprises engaged in services. While the manufacturing enterprises were defined in terms of investments in plant and machinery, the service enterprises are defined in terms of investment in equipment’s (The micro, small and medium enterprises development act, 2006).

The classification of MSMEs in India is shown below:

Abbildung in dieser Leseprobe nicht enthalten

(Source: Kumar, Prasad & Rao, 2013)

However in Bhutan, it is define based on number of employment and capital investment. The enterprises with an investment of less than Nu.1 million and engaging up to 4 people are referred to as micro or cottage industries. Whereas an enterprise engaging between 5 and 19 employees with investment from Nu.1 to Nu.10 million and enterprises employing between 20 to 99 people with investment from Nu.10 to Nu.100 is referred to as small and medium enterprise respectively(Micro, Small and Medium Enterprise Policy, 2012). The definition is illustrated in the table below:

Abbildung in dieser Leseprobe nicht enthalten

(Source: Micro, Small and Medium Enterprise Policy, 2012)


According to business dictionary, Entrepreneurship is defined as the capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit. The most obvious example of entrepreneurship is the starting of the business ( Business dictionary, 2014).


According to International labour organization (ILO), unemployment is defined as people who were out of work, want a job, have actively sought work in the previous four weeks and are available to start work within the next fortnight.


In Bhutan, the age group of 13 to 24 years of age is considered as youth but according to united nation standard definition, the age group of 15 to 24 is considered as youth (National youth policy, 2010).

Chapter II: Literature Review

2.1. The relationship between growth of MSMEs and employment

MSMEs play key role in the economic wellbeing of developing countries and is considered as drivers of the economy as it has potential to promote competiveness and innovation in many economics which will directly leads to employment generation, poverty reduction and balanced regional development (Dalberg, 2011).

MSMEs is the major area where entrepreneurs can take it as entrepreneurship opportunities because it has low capital requirement and more job creation compared to large enterprises and is also regarded as the nursery for the entrepreneurship (EIM business and policy research, 2011). MSMEs in India is the second largest employer after agriculture providing employment to 73 million workers and accounting over 40% of the employment (Kumar, Prasad & Rao, 2013).

In many developing economics, MSMEs is one of the principal generators of employment and many researchers agree that SMEs are crucial contributors to job creation and economic growth in both high and low-income countries (Tambunan, 2006). For instance, in 2010, about 67% of the employment in the non-financial business sector in the European Union (EU) is provided by SMEs where Micro enterprises contribute to about 30% of these jobs, small enterprises about 20% and medium-sized enterprise about 17% (EIM business and policy research, 2011). And same is reported by Agyapong (2010), where it has indicated that MSMEs contribute over 65 per cent of total employment in high income countries, 70 per cent of total employment in low income countries and 95 per cent of total employment in any economy.

According to Al Ajiouni, Oweis, & Algaswyneh (2014), MSMEs play an important role in decreasing unemployment in Saudis countries. The importance of MSMEs is reported in Nigeria, where MSMEs is regarded as a solution to the upward trend of unemployment in the country because MSMEs provides a platform for employment and wealth creation, poverty reduction, reducing rural-urban drift, arresting youth restiveness and crime (Adegboye, 2013).

In Kenya, MSMEs dominate most of the sector including wholesale and retail trade, restaurants, hotels, community and social services, insurance etc. and employed 42% of total working population (Kenya economic report, 2013). The role of MSMEs in solving unemployment is also India where it has reveal the potential of MSMEs in generating employment and growth and diversification of the industries (Garg & Walia, 2012). Thus, in every country, MSMEs plays a vital role in solving unemployment and there is positive relationship between growth of MSMEs and unemployment.

2.2. Linking entrepreneurship and unemployment

There are many views on the relationship between entrepreneurship and unemployment and therefore its relation is viewed as ambiguity. The relationship between unemployment and entrepreneurship is analyzed on the basis of the "refugee effect" (i.e. High unemployment rate causes to take up Entrepreneurship) and the "Schumpeter effect" (i.e. higher rate entrepreneurship results in reducing unemployment) (Frank, Katherine & Sascha, 2007). While the first view refugee effect suggest positive relationship but the Schumpeter effect suggest negative relationship. The causal relation between refugee and Schumpeter effect is that high unemployment rates lead to start-up of new companies and this leads to what they referred to as "entrepreneurial" effect where the unemployment decreases after a period of time. In other literature, recession or unemployment push (unemployment reduces the opportunities to obtain gainful occupation and the expected income from employment, thus the person is pushed into the business) and prosperity pull (assumption individuals will own the business, if the country's economic and business conditions allow, thus reducing the unemployment rate) is also presented as another concept to study the relationship between unemployment and entrepreneurship (Remeikiene & Startiene, 2009).


[1] The ministry is created in 1967 and now renamed as Ministry of Economic affairs

[2] Druk Holding Investment Limited also offer similar course known as BEGIN (Business Entrepreneurship Growth and INovation. BEGIN course commenced on 2011 with 11 trainees.

Excerpt out of 32 pages


Micro, Small and Medium Enterprise (MSMEs) in employment generation and its effects on Entrepreneurship
Royal University of Bhutan  (Royal Institute of Management, Thimphu)
Post Graduate Diploma in Public Administration (PGDPA)
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micro, small, medium, enterprise, msme’s, entrepreneurship
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Tashi Tenzin (Author), 2014, Micro, Small and Medium Enterprise (MSMEs) in employment generation and its effects on Entrepreneurship, Munich, GRIN Verlag, https://www.grin.com/document/424945


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