Productos Diversos de las Industrias Químicas.

As discussed in administrative decentralisation before, district governments have more functions as a result of decentralisation policy. One of the functions of district government is to promote the business sector. In relations to small business development, district governments are legally in a position to provide financial and technological assistance as well as infrastructure facilities for small businesses as carried out by local governments in Italy (Brusco, 1992). In contrast, if local governments have limited financial resources, they may less provide financial assistance and infrastructure facilities for small businesses. The next section will explore financial assistance from local government and financial institutions to small businesses.

1.7.2.1. Financial Assistance for Small Businesses

The sources of fund raising for small businesses are classified into many types: state- owned banks, private banks, leasing companies, other non-bank financial institutions, money lenders, family and relations. For small businesses, access to credit is essential to finance the upgrade of technology, to expand production capacity and to purchase larger inputs and better material. However, small-scale businesses generally have difficulty in obtaining credits from formal financial institutions due to collateral and administrative requirements, while credits from non-financial institutions impose very high interest on small business (Bannock,

2005; Freeeman, 2004; Liedholm & Mead, 1999; Lim, 1992a). As a result, small businesses have difficulty in increasing their productivity and competitiveness.

By implementing fiscal decentralisation, local governments have more power to allocate local budgets in providing financial assistance for small businesses. There are two ways to help small business in relation to financial assistance. Firstly, local government can establish its public institution for job creation in the small business sector. Secondly, local governments can develop a network with state/private banks and village financial institutions in order to provide credits to small businesses. The local government can deposit funds to financial institutions, so that the financial institutions will have greater funds to be distributed to small businesses. The financial assistance is extended to increase capital or to upgrade technology of small businesses. Based on the experience in the case of Italy and Denmark, the local financial institutions or local banks played a vital role in promoting small businesses. According to Becattini (2004, p. 29), at the local level in Italy, the main reason for small businesses being at a disadvantage compared to large ones, was because of difficult access to credits. He suggests that establishing local commercial bank is the best way to help small businesses because it is very closely linked with local small businesses and knows the needs of them. In the case of Staling district, Denmark, Kristensen (1992) describes the importance of local banks during the setting up of the businesses:

….many furniture makers have traditionally used skills as carpenters and cabinet-makers to start up in the building and construction industry during boom periods in local industry……. In such initial periods, the small local savings banks have been able to use their detailed local knowledge as a basis for providing loans for the creation of new building and construction businesses (Kristensen, 1992, p. 149).

It is clear that local banks can be responsive to the needs of local small businesses because they are closely positioned to them and involved in the local life of small businesses.

1.7.2.2. Training and Technological Assistance

The success of small businesses is not only dependent on small business entrepreneurs but also on workers. Unfortunately, most workers have low levels of formal education or no practical training. Small businesses generally do not have the

resources to provide training programs for improving the quality of workers. There is no doubt that small businesses do carry out less training for employees and managers than large businesses (Bannock, 2005, p. 147). As a result, small businesses produce a low quality of products and have a limited market.

The low education and lack of skill of small business workers can be overcome by providing training programs (Freeeman, 2004, p. 228). Local government can also cooperate with non-government organisations or state-owned enterprises to provide training to small businesses. By providing training to small businesses, it will improve the quality of productivity.

Further, technology can provide small businesses with an opportunity to increase their efficiency and productivity with tools to better manage their business. For an example, Malaysian government provides technological assistance to small businesses by issuing matching grants (Saleh & Ndubisi, 2008, p. 289).

In a market economy such as in the United States, small businesses have to compete with big businesses which have huge capital, extensive business networks and are supported by high technology. Although adopting a free market policy, the US government has a long history of government help for small businesses. The Small Business Administration (SBA), established in 1953 to champion small business, provides them with financial, technical and management assistances (Shanmugaratnam, 2004, p. xix). The technical assistance includes training and marketing advice services. It is clear that government intervention is necessary in developing small businesses by facilitating training, infrastructure and technological assistance for the small business.

1.7.2.3. Infrastructure Facilities

As discussed before, in fiscal decentralisation the district government has fiscal discretion to allocate its funds in improving physical infrastructure facilities for small businesses, such as roads, markets building, electricity and telephone networks or what Brusco calls “real service” (Brusco, 1992). For instance, if the district government can improve roads between city centre and small business villages, the

buyers can easily come to these villages for shopping. Developing market buildings is important to facilitate small businesses in selling their products.

Developing physical infrastructure is influenced by the financial capacity of local governments. If the local government has a lack of financial capacity, as a result of poor local resources, the central government needs to provide grants for them. As discussed above, the experience of development in Japan indicates that the central government plays an important role in promoting small businesses while at the same time local governments also promote them by providing housing and technical assistance as well as management advice (Aoyama, 2000, p. 55).