Government SME Development Programs in Sri Lanka: A Review in the Lens of Transaction Cost Economics

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. Sabaragamuwa University Journal Vol.13(2) December 2014; 59-81