Hinhalagoda lekamalage pulsi kavindya sandeepani ariyarathna

1.5. Overview of the Theoretical Part
Small and medium businesses have long been thought to play a critical role in a 
country's economic development.As a result, its position is growing increasingly important 
around the world.This research looks at the factors that are solely responsible for the success or 
the downfall of small and medium businesses.Financial resources, marketing strategy, 
technology resources, government assistance, and entrepreneurial skill are among these 
elements. Entrepreneurs are having a lot of challenges as a result of the government's lack of 
financial support. 
Small and medium-sized enterprises play a vital role in any economy by creating jobs, 
contributing to GDP growth, pursuing new ideas, and boosting other economic activity.All 
developed and emerging countries are thought to rely on this sector.As a result, regardless of a 
country's level of development, the development of this sector is critical.This is particularly 

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essential in developing countries, where poverty and unemployment are persistent 
challenges.Since independence, successive administrations in Sri Lanka have taken various 
initiatives to promote this crucial industry, having recognized this fact.However, when 
comparing the current contribution of this sector to the national economy with that of other 
developed and emerging countries in the region, it is obvious that the sector has not yet reached 
the required level of contribution. 
1.5.1. Literature review on the External factors affecting SME 
According to the National Human Resourse and Employment policy in Sri Lanka 2021 
(Ministry of Industries, 2021), small and medium Enterprises make up 80 percent of the 
Businesses in the Country.The 75 percent also represents 45 percent of the work force in the 
entire country as well.Promoting small and medium enterprises has also taken a main part by 
the Rural development programs because they have shown encouraging social cohesion. Even 
though these enterprises are abundant in the country, most of the employees lack sufficient 
knowledge and experiencein their respective fields most of the time. it is also discovered that 
although there are ways to improve the productivity and the efficiency of these businesses, lots 
of employers tend to ignore those ways due to three major reasons. 
1. The cost to train Employees can be high . 
2. Trainees tend to leave training sessions becuase they only think of a short term 
way of income. 
3. A few number of employees leave the Business once they learn enough and start 
a similar business thinking they can thrive soon in the same business field. 
It is also discovered that out of those medium enterprises that complete the training 
sessions for the employees have a higher succession rate over the businesses without any trained 
employess. 
 
German Federal Ministry for Economic Cooperation and Development (BMZ), started 
a joint program with the Ministry of Finance of Srilanka to promote and support the SMEs 
starting from 2017 (German Agency for International Cooperation, 2019).The major five goals 
were to Improve the legislative framework for the SMEs, to grant upgraded technology transfer 
and competitive market access for the SMEs , to grant easy access to finance for the SMEs, to 
strengthen Sri Lanka’s national innovation system and entrepreneurship ,To creates the 
foundation for the economic development of the national parks in Sri lanka and to develop areas 
of influence. 

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The results have been promising and with the new establishment of SME authority, 
Enterprise Sri Lanka, the framework policy has been introduced to every corner of the country 
thus attracting more and more people willing to start SMEs. Through the program sri lanka was 
able to forge a partnership with Vietnam allowing the countries to share knowledge and to 
promote bilateral economic cooperation. 
 
Recent outbreak of Covid-19 has affected most of the SMEs based in Sri lanka due to 
the facts such as contant lock downs, Less merchants in both local and Global markets, inability 
to pay debts due to low income each month , accrding to the famous sri lankan biz blog (Sri 
Lanka Export Development Board, 2021).The cental bank of Sri lanka has released a statement 
mentioning that all the SMEs engaged in business activities in the sectors of manufacturing, 
services, agriculture, construction, value addition, and trading businesses will be given fiscal 
and financial concessions because of the struggle they have faced in their businesses. (FISCAL 
MANAGEMENT REPORT 2020–21, Sri lanka) 
 
According to a research conducted by the International Finance Corporation (Gendered 
Impacts of COVID-19 on Small and Medium-Sized Enterprises in Sri Lanka, 2021) they have 
shown how the external factor Covid -19 has affected the SMEs and how they differ from the 
SMEs owned by Men, Women and jointly by a man and a woman(WSME, MSME & JSME). 
It is found that the businesses co-owned by men and women have a higher success rate and 
continuation rate under the current circumstances in the country and around 80 percent of the 
SMEs had to seek additional financing to make up shortfalls in debt repalyment. 
 
The famous news website “the Wire”, have reported about another external factor that 
has affected the SMEs, the draining of foreign gold reserves (The Wire, 2021). The draing of 
foreign gold reserves has resulted in increase of Inflation in the country and now the USD has 
gone up to 201 LKR and EUR to approximately 242 LKR in exchange rates. This has resulted 
to most of the SMEs who are trading globally as they are forced to pay a higher exchange rate 
and fluctuating LKR amount everyday.Recently Sri Lankan Government even had to Declare 
a Food Emergency as Country Ran Out of Forex Reserves to Finance Imports. 

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