2.3 Quality as a basis for competition

Despite an aggregate picture which shows widespread tendencies for incomes and qualitative aspects of employment to deteriorate as firm size drops, closer inspection shows that there are, in fact, major differences within the general category of ‘small enterprises’. It is clear that small enterprises as such need not necessarily providers of poor pay and inadequate conditions. There are a variety of reasons why small enterprises might offer better conditions than others, but it seems that a particularly significant factor could be the basis on which they compete.

This was borne out in the extensive survey of manufacturing enterprises carried out in Malaysia (World Bank, 1997), which found an association between higher incomes, rising firm size, and superior efficiency. The aggregate picture notwithstanding, it was also found that some small enterprises could be as efficient, or even more so than large enterprises. It was found that size in itself was not necessarily a limiting factor on higher efficiency and higher wages. Efficient enterprises in Malaysia tended to compete on a basis of emphasising and ensuring quality. They also were active in the acquisition of technology and know how through licensing, joint ventures and exports. They emphasised training and practiced human resource development policies that encouraged job stability and the acquisition of further skills (World Bank, 1997).

The evidence suggests that small enterprises that compete on lines similar to the efficient enterprises described in Malaysia are more likely to provide higher incomes and offer better working conditions than others. This is consistent with a conclusion of the recent ILO study of export processing zones, which found that quality conscious and innovative enterprises there ‘are invariably setting standards which are higher than national norms for wages, working conditions, health and safety and training (ILO, 1998)’.

Such findings have important implications for strategies to raise the levels of incomes and working conditions in small and micro-enterprises: On the one hand, it seems that the more efficient, innovative and quality conscious enterprises are more able to provide better incomes and conditions associated with quality employment. On the other hand, as the next chapter suggests the development of innovative, quality conscious, competitive enterprises may, in turn, be significantly influenced by a range of qualitative working and environmental factors.

There is the possibility, therefore, that enterprise competitiveness and qualitative aspects of employment could become mutually reinforcing. The challenge is to provide the right conditions to enable small and micro-enterprises, and indeed broader communities, to move towards such a goal along a path of constant improvement.