Abstract:
The study reviews the government SME development programs of Sri Lanka in the
lens of transaction cost economics in order to understand whether they facilitate
the development of a favourable transaction environment for SMEs to govern their
transaction cost in an economizing manner. Data were collected from the national
development plan, strategic plans of the cabinet ministries, which are responsible for the
development of SMEs and other publications related to the government national level
SME development programs. The study mainly analyses the activities of each SME
development program being currently implemented by the Sri Lankan government,
employing qualitative content analysis to understand whether they facilitate to access
information and to select appropriate governance mechanism. The study recognized
that SME development programs of Sri Lanka do not positively contribute to develop
a favourable transaction environment for SMEs. The government SME development
programs do not facilitate SMEs to access sufficient and reliable information which
lead to make more rational decision, to safeguard transactions from opportunism and
to select suitable governance mechanism. SME development programs have neglected
in supporting formal governance; instead, they encourage relational governance
to some extent only for selected SMEs. As a result, there is a high possibility that
SMEs in Sri Lanka have a greater transaction cost which averts the growth of SMEs.
Therefore, SME development programs need to focus their attention to develop a
favourable transaction environment for SMEs providing reliable information which
facilitate to make more rational decisions avoiding opportunism on the one hand and
to select better governance structure on the other in order to accelerate the growth of
SMEs in Sri Lanka.
