Assessing their potential to integrate into local and global supply chains
- 06 Oct 2022
To strengthen and localise supply chains in Jordan, we conducted a study to assess the main needs and challenges of Jordanian MSMEs. We assessed nine different industrial sectors in Jordan using a combination of primary and secondary sources; including data from national sources such as the Department of Statistics (DOS) and Jordan Chamber of Industry (JCI) as well as interviews with key stakeholders, business owners, and representatives of different industrial sectors, organisations, and unions.
The nine sectors are: food processing, clothing and textiles, wood and furniture, plastics and rubber, chemicals and cosmetics, fabricated metal, non-metal, machinery and equipment, and packaging.
Through the study, we identified the main gaps in MSMEs’ potential to expand and integrate into local and global supply chains, or at least, value chains of larger Jordanian enterprises and corporates who usually opt for foreign suppliers. Our assessment will ultimately turn into a set of technical and financial support and capacity-building programmes to assist MSMEs in each of the targeted sectors and help them integrate better.
Why MSMEs?
In Jordan, micro, small, and medium enterprises (MSMEs) are vital to the country’s social and economic development. They represent the economy’s engines of growth and employment, or at least, hold the greatest potential for growth and innovation – but only little is known about them.
In numbers, MSMEs comprise 98.5% of the total number of registered business enterprises and 60% of formal jobs in Jordan.
But alas, they contribute less than 30% to GDP and less than 10% to total exports due to limitations that affect their production, growth, and business continuity. This humble contribution is due to two main reasons. Firstly, Jordanian corporates or large enterprises currently source their inputs from abroad more than they do from local MSMEs. Secondly, Jordanian MSMEs lack the business and marketing skills and capabilities to penetrate new markets, and often, the adherence to different international quality standards that Jordanian exporters and global firms expect.
98.5% of registered business enterprises in Jordan are MSMEs
MSMEs employ 60% of formal workers in Jordan
98.5% of registered business enterprises in Jordan are MSMEs
Therefore, empowering MSMEs and facilitating their integration into local and international supply chains is fundamental to the development of an inclusive, sustainable, and resilient economy; one that not only guarantees prosperity but also safeguards our economic, social, and environmental foundations.
To understand the potential of Jordanian MSMEs, our assessment has focused on answering two main questions: What are the challenges and development needs of Jordanian MSMEs? And why should Jordanian corporates localise their supply chains? But first, let’s check how significant is the role of Jordanian MSMEs in contributing to the country’s national economy.
Sector Insights
Number of total establishments and percentage of which are MSMEs per sector in Jordan
Number of employees (total and women) for whom the sector is a primary source of income
Challenges of MSMEs in Jordan
In addition to fees and legal constraints associated with business registration and vocational and home-based business licensing, access to finance is one of the biggest challenges found amongst MSMEs of all studied sectors.
The global financial crisis and subsequent debt crisis in the region made access to finance for MSMEs extremely difficult. For most business owners, they do not view debt financing as a viable option to begin with given banks’ assessment requirements, which mainly focus on the current status and past performance rather than future potential.
The regulatory framework supporting access to finance has not been updated and modernised to cope with the financial crisis and overall changes in the Jordanian economy. Although the Credit Bureau Law was issued in 2010 with its supporting regulation to establish a Credit Bureau, the Central Bank of Jordan has not yet accredited this Bureau. When this happens, it will significantly help small businesses in securing access to finance.
Limited access to finance also inevitably hinders innovation and access to technology. According to our findings, many business owners are aware and interested in employing new machinery, equipment, and technology to improve production capacity and efficiency. This, however, is difficult with no access to funds.
Moreover, MSMEs in Jordan struggle with access to skilled workers in line with those required on the job. Many cite insufficiency in adequate vocational training programmes as the main challenge for this, pointing to a mismatch between the demand and supply of skills in the market.
Finally, many MSMEs in Jordan do not employ marketing and business development as part of their growth strategies. Instead, most businesses still rely on traditional marketing, sales, procurement, finance, and logistics techniques to run and promote their business, which is very limiting, especially for those wishing to expand to new global markets.
Why should Jordanian corporates localise their supply chains?
Jordanian corporates and large enterprises can reap numerous economic benefits and economies of scale by working with local MSMEs. Below are two main benefits:
1) Stronger supply chains
For Jordanian corporates, partnering with local Jordanian MSMEs will inherently help strengthen their supply chains. It simply provides MSMEs with greater flexibility to cater to corporates’ product development and value-added needs as business linkages become stronger and easier to build given the shared language, culture, mutual understanding, and most importantly, location. Since both are based in the same country, proximity will expedite different business processes, operations, and logistics and allow quicker and easier visits to maintain quality assurance. At the same time, transportation will not be as tedious, and import customs procedures will be reduced.
2) Social responsibility
For Jordanian corporates, sourcing locally is a way to support the national economy, engage and empower local communities, create new jobs, and build sustainable livelihoods. In doing so, they also strengthen their corporate social responsibility (CSR) and increase their share in giving back to the national economy and local communities. Empowering MSMEs specifically appeals to customers interested in supporting small, local businesses. In the short run, it may only enhance the corporate’s brand health and customer sentiment, but in the long run, it is likely to increase brand loyalty and drive more revenues.
Localising supply chains
The answer to a stronger SME integration into supply chains
Our solution is a new form of social responsibility, called corporate entrepreneurship responsibility (CER), where larger enterprises are committed to developing the capacity and skills of local MSMEs, not only for the benefit of their own supply chain, but also for the economic and social goodwill. More specifically, CER offers a wide array of solutions to tackling the MSMEs’ lack of access to technological solutions, green skills and requirements, funding options and investment instruments, and business support services.
Along the process, CER will also support and promote inclusive growth in underserved governorates and marginalised communities to become a powerful force in spurring innovation, entrepreneurship, and employment.
CER can easily be replicated and adopted by large business enterprises in other developing economies. Currently, our team of experts in Jordan is building the first CER alliance of corporates through our new CERA project. The alliance will be the national champion group of Jordanian large enterprises who show interest in eliminating the challenges faced by smaller enterprises and promoting the growth and engagement of smaller suppliers in non-central regions of the country.