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SME Development in the GMS. Masato Abe, Ph.D. Economic Affairs Officer United Nations ESCAP Bangkok Challenges for SME development. Scattered targets leading to high transaction costs Lack of economies of scale Limited public resources

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sme development in the gms

SME Development in the GMS

Masato Abe, Ph.D.

Economic Affairs Officer

United Nations ESCAP


challenges for sme development
Challenges for SME development
  • Scattered targets leading to high transaction costs
  • Lack of economies of scale
  • Limited public resources
  • Limited understanding about the targets, i.e., SMEs
  • Limited communication channels
  • Limited knowledge and skills
objectives of sme development
Objectives of SME development
  • Increase the number of startups
  • Increase their survival rate
  • Encourage incorporation or formalization
  • Foster SME graduates (to be large enterprises)
  • Facilitate the smooth exit of failed firms, with leniency for bankruptcy
  • Enhance access to markets (e.g., increased exports and exporting to wider markets)
  • Sustainable and inclusive enterprise development (e.g., environment, gender, youth, and minorities)
international sme definition
International SME definition

Sources: European Union (2003); Gibson and van der Vaart (2008)

startups by sector in japan smes by sector in thailand
Startups by sector in Japan; SMEs by sector in Thailand (%)

Sources: Japan Finance Corporation (2009); Office of SMEs Promotion (2011).

smes net income in japan
SMEs’ net income in Japan

Source: National Life Finance Corporation (2007).

gdp contribution of the sme and informal sector based on income levels
GDP contribution of the SME and informal sector based on income levels

Source: Ayyagari, Beck, and Demirgüç-Kunt (2003).

Note: ‘Residual’ includes large enterprises and public sector.

simplified sme life cycle


Grow to a large firm










Simplified SME life cycle
another sme typology by market and technology
Another SME typologyby market and technology

Source: Modified from Uchikawa and Keola (2009).

startup profiles in japan
Startup profiles in Japan
  • Entrepreneurs
  • Average age was 41.4 years old
  • 84.5 per cent were men; 15.5 per cent women
  • 33.1 per cent held a college degree or higher
  • Enterprises
  • 3.9 employees
  • Startup funds: US$ 100K
    • Own capital: 35 per cent
    • Support of family, relatives and friends: 15 per cent:
    • Public grants and commercial loans, with collaterals and/or partially covered by public loan guarantee schemes: 50 per cent
  • 60 per cent of startups achieved break-even within 15 months.
  • Source: National Life Finance Corporation (2008)
characteristics of smes
Characteristics of SMEs
  • Born out of individual initiatives, knowledge, and skills
  • Greater operational flexibility
  • Low cost of production
  • Specialization to niche markets
  • High propensity to adopt technology
  • High capacity to innovate
  • High employment orientation
  • Utilization of locally available human and material resources
  • Reduction of geographical imbalances
disadvantages of smes
Disadvantages of SMEs
  • Low bargaining power for both sales and procurement
  • Weak market access
  • Low technology adaptation
  • Lack of brand development
  • High debt structure
  • Weak management with less training
  • Weak human resource base with low level of compensation
  • Inadequate institutional support
entry and exit rates between japan and usa
Entry and exit rates between Japan and USA

Source: The authors, developed based on data from JSBRI (2011).

national culture and entrepreneurship japan usa
National culture and entrepreneurship: Japan & USA

Sources: GEM (2011); Hofstede (1991).

six key areas
Six key areas
  • Business environment, including policy and regulatory framework and infrastructure development
  • Entrepreneurship
  • Financing
  • Business development services
  • Innovation and technology
  • Market access
business enabling environment
Business enabling environment
  • A transparent, open, fair, and competitive business framework
  • Clear, independent rule of law for all firms
  • Easy establishment and dissolution of businesses
  • Equal and stable legal treatment for national and cross-border transactions
bee survey
BEE survey
  • Ease of Doing Business
  • Economic Freedom of the World Exercise
  • Corruption Perception Index
  • Sub-national survey
economic freedom
Economic freedom

Source: Gwartney, Hall and Lawson (2011).

corruption ratings in asia and the pacific
Corruption ratings in Asia and the Pacific

Source: Transparency International (2011).

subnational surveys
Subnational surveys
  • Most SMEs have relatively limited relationships with national agencies, interfacing with municipal or provincial bodies and conduct their activities largely or entirely within that sphere
  • Provincial competitiveness index in Viet Nam
    • 64 provinces of Viet Nam
    • (a) costs of market entry; (b) access to land and security of tenure; (c) issues relating to the transparency of regulations and their enactment by provincial bodies; (d) the time required to comply with regulations; (e) informal charges imposed; (f) bias towards state-owned enterprises; (g) the pro-activity of provincial authorities to assist firms; (h) the provision of business development services (BDS); (i) the availability of training for employees; and (j) the quality of legal institutions
  • Provincial business environment scorecard in Cambodia
    • 10 most economically active provinces
    • 10 sub-indices such as tax administration, crime prevention, and dispute resolution.
entry barriers to entrepreneurship
Entry barriers to entrepreneurship
  • The ‘fear of failure’
    • Mindset
      • Lack of confidence due to inadequate skills and knowledge
      • Low aspirations
    • socioeconomic and cultural factors:
      • Negative peer pressures (e.g., parents, relatives, and friends)
      • No respectable exit route without economic punishment
      • Social stigma
financial gap in sme financing
Financial gap in SME financing

Source: Modified from JFC (2011).

types of bds
Types of BDS
  • Market access and development
  • Supporting infrastructure
  • Supplies
  • Technical assistance and training
  • Technology and product development
bds actors and their roles
BDS actors and their roles

Source: Modified from AAMO (2007).

traditional bds approach
Traditional BDS approach

Source: Modified from DCED (2001).

market oriented bds approach
Market-oriented BDS approach

Source: Modified from McVay and Miehlbradt (2001).

market access major challenges
Market Access: Major challenges
  • Intensified competition
  • Internationalization
  • Trade and investment liberalization
  • Management skills

Stages in the process of

export product identification

trade promotion tools for smes
Trade promotion tools for SMEs
  • Develop or refine products (and services) for export by communicating with potential customers
  • Gain new customers/intermediaries in neighbouring, regional, and global markets
  • Strengthen relationship with existing customers and intermediaries
  • Increase the amount of exports
  • Achieve the above objectives effectively and efficiently
various trade promotion tools cost and target





magazine, journal, directories,

TV, radio)

Trade fair/mission


Direct mail

(Mail, email, telephone)





Target customers


Various trade promotion tools: cost and target

Source: Modified from Japan Finance Corporation (2008)

special economic zones
Special economic zones

Source: FIAS (2008)

aec 2015
AEC 2015
  • The ASEAN Economic Community (AEC)
  • Regional economic integration by 2015 for ASEAN countries
  • Free movement of goods, services, investment, skilled labour and freer flow of capital
aec key objectives
AEC: Key objectives
  • A single market and production base
  • A competitive economic region
  • A region of equitable economic development
  • A region fully integrated into the global economy.
aec key characteristics
AEC: Key characteristics
  • Fair competition
  • Consumer protection
  • Intellectual Property Rights
  • Infrastructure development
  • Product and service standards
aec present status
AEC: Present status
  • Completed 187 measures (67.5%) out of 277 measures by the end of 2011
  • Some measures due for implementation have not been fully implemented
    • Delays in ratification of signed ASEAN-wide agreements and their alignment into national domestic laws as well as delays in implementation of specific initiatives
      • E.g., Measures for the free flow of service, transportation, cooperation in food, agriculture and forestry etc.
clmv countries in aec 2015
CLMV countries in AEC 2015
  • Relatively less developed than the ASEAN 6 counties
  • Special schedule for CLMV countries
    • mainly in the elimination of tariffs and non-tariff barriers)
  • Completed most of the tasks for AEC 2015 with some weaker links remained compared to other countries
    • For example, intellectual property rights, SME development and taxation
  • ASEAN Integration (IAI) Work Plan 2 (2009-2015)
    • Human capital and institutional strengthening
    • Slow implementation
the impact of aec on smes
The impact of AEC on SMEs
  • Challenges
    • Intensified competition domestic and international players
    • Access to credit, labour mobility, technology development, market access and political risk
    • More measures for promoting SMEs
  • A survey conducted by The University of the Thai Chamber of Commerce (2012)
    • The majority of Thai SMEs did not understand the benefits and challenges of regional integration
      • Investment liberalisation, service liberalisation, reduction of non-tariff barriers, rules of origins and single standards for Asean products
    • Lack of readiness on financial support, low development of human resources at both the management level and workers, low development of ICT, high production and labour costs, low support from government agencies, and a low level of logistics development
case of myanmar
Case of Myanmar
  • Development of Industries with agriculture
  • Enhancement of production and quality of industrial products
  • Increased production of new types of machinery and equipment
  • Creation of suitable conditions for industrialized state
  • Human resource development
  • Coordination among various agencies in economic and social activities
  • Integration of the business community into international trade and globalized economy