PRELIMINARY FINDINGS OF NINETEEN CASE/INDUSTRY STUDIES OF SMES IN THREE IDENTIFIED ASEAN PRIORITY SECTORS FOR THE ASEAN SMEWG MEETING

Prof. Philip E. Juico PhDAssociation Of South East Asian Nations (IND/SME/09/003/REG)Asian Development Bank Brown Bag SeminarMay 2013

ASEAN SME Case Study Project Background

Association of South East Asian Nations (ASEAN) Region

Ten countries with 600 million population and US$1.8trillion GDP.

Average ASEAN consumer purchases two times as many US goods as average Chinese consumer and nine times as many average Indian consumer. The diversity of the region is apparent in the fact that the largest country in terms of land area is 2700 times larger than the smallest country; the country with the largest population has 580 times more people than the smallest country; and the richest country has a GDP per capita that is 145 times the poorest country.

Varying degrees of political openness and liberal tradition.

Varying faith system within states and among ASEAN nations.

At the 14thASEAN Summit, the AEC Council was tasked to develop an ASEAN Action Plan to enhance SMEs competitiveness and resilience.

Asia Opportunities: Asean Economic Community (AEC) in 2015At the 14thASEAN Summit, the AEC Council was tasked to develop an ASEAN Action Plan to enhance SMEs competitiveness and resilience.

Infrastructure developmentamong the Asean countries: both the development of hard infrastructure such as roads, ports, airports, etc. and soft infrastructure such as human resource and training are being concentrated.Hard infrastructure (ASEAN Infrastructure Network, Soft Infrastructure The banking sectorwill particularly need to stay ahead of the game to facilitate investors and to support their moves throughout the region. Singaporean and Malaysian banks and telecoms, for instance, have invested heavily in the region and seem to be slightly ahead of other competitors in better preparing themselves for the AEC.

Executives have to adjust strategy. Inside the AEC, managers will increasingly have to pursue sales opportunities across the region while focusing relentlessly on cost efficiencies by integrating their operations across the region, managing through lean techniques but also developing effective corporate centralization.

Asean members still view each other as competitors, for inbound investment and jobs, reported USITC. Ultimately, these distinctions should start to fade to some extent but in the future the line between competitor and collaborator within Asean may become less clear. The Asean members will need legally binding means to enforce compliance with the objectives of the roadmaps, suggested the report.(Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. http://www.business-in-asia.com/asia/asean_economic_community.html )

Hard infrastructure

ASEAN SME Working Group (ASMEWG) will be important in enhancing the capacity of SMEs to ensure a more progressive SME sector towards the overall economic growth and the realisation of the ASEAN Community.

the ASEAN SME Working Group (ASMEWG) will be important in enhancing the capacity of SMEs to ensure a more progressive SME sector towards the overall economic growth and the realisation of the ASEAN Community. Greater competition, rapid technological advances, more demanding and constant changes in market and consumer requirements mean that SMEs have to be innovative and forward looking in order to manage with success the challenges of the global, regional and domestic markets. The formation of SME-based clusters, and inter-firm networks and linkages within ASEAN will help leverage collaboration and collective efficiency, including scale economies across the value chain, thus creating further opportunities for business development and supply linkages for SMEs and their entrepreneurs in the region.

ASEAN SME Case Study Project JustificationThe project was proposed to undertake a baseline and benchmarking study for SMEs in three identified priority sectors of the ASEAN.

The study hopes to document, through case studies, the common development problems, areas for improvement, interventions and solutions made as well as identify best practices within the priority sector in each of the ASEAN countries.

The establishment od baseline characterization of SMEs in the Association of Southeast Asian Nations (ASEAN) can provide the basis for the establishment of credit risks of SMEs to qualify under development finance facilities. The proposed characterization could be used as a basis for risk mitigation financing policies of development banks.

Shift in the Areas of the Case StudiesOriginal Area of Study based on priorities and country champion definition and identified by ASEAN Revised Area of study

SME Success Model

SME Entrepreneur Success Model Source: Naqvi, S.W.H.; Critical Success and Failure Factors of Entrepreneurial Organizations: Study of SMEs in Bahawalpur, Pakistan; ISSN 2222-1905, Vol 3, No.4, European Journal of Business and Management; 2011

Indicative Characteristics of ASEAN SMEs

Universal Characteristics of SMEs Across the ASEANSMEs are generally personality driven whether the enterprises are found in Malaysia, Singapore, the Philippines and Indonesia, which are market economies, on the one hand, and in command economies with a strong informal market environment, on the other; and

SME have universal and common concerns such as the absence of a harmonized regional development policy framework for SMEs transitioning from community to domestic to export markets. In addition, Juico emphasized that there was also the absence of harmonized regional financing and/or credit guarantee programs for SME sectors and subsectors.

ASEAN Free trade agreement (FTA) will free movement of skilled labor across ASEAN and the absence of a harmonized regional skilled labor certification program could promote a two-tier labor rate system.

The implications of such a two-tier system will be significant particularly to the Philippines and Indonesia which have the largest manpower pools in the region.

Indicative ASEAN SME Contribution Gearing Up Smes For Asean Economic Community 2015, Rafaelita M. Aldaba, Pids , 13 August 2015

Diversity in the Electronics and ICT SME Sector Across the ASEANSME sector is not a monolithic sector across the ASEAN Region. Ignoring the diversity of the SME Sector across the ASEAM may be counter-productive due to the varying financial and technical characteristics of the sub-sectors where SMEs operate.

In case of the electronics and e-ICT subsectors in Malaysia and Singapore where both subsectors exhibited strong performance as ODM and as EMS production platforms with of substantial financial and R&D government support. Both subsectors in both countries enjoyed strong performance in both the domestic and export markets.

The same subsectors in the Philippines and Indonesia, however exhibited different characteristics with the electronics and e-ICT industries transitioning from a mom-and-pop to corporate operations mainly as subcontractors to domestic-based multinational companies. Juico also stated that these subsectors in the two countries were operating as OEM production platforms at the lower end of the global supply chain as they transitioned from the domestic to the export market.

Diversity in the Characteristics Agro-Processing SME Sector Agro-industries are grouped according to the main raw material being processed. Typical groupings are the food-processing industry, livestock industry, fisheries industry and forestry industry.

The SMEs in the ASEAN are generally a household driven enterprise and generally involves minimal technology inputs.

Agro-processing aimed at the consumers is the type of processing that adds the most value. Those activities are called processing at the higher end of the value chain, whereas the more simple and general processing is said to be at the lower end of the value chain.

Diversifying into higher value-added agro-industries can be a strategic move for countries in the Asian and Pacific region, since it increases the income potential of the workers in agro-based industries in rural areas.

Source: (Khadka, K.R. and Ichsan, S.; Implications Of Globalization For The Development Of Agro-Based Industries In Developing Countries Of The Escap Region: An Overview; ESCAP UN; 2003

Common Solutions to the Universal and Diverse Characteristics of the SME Sector Forthcoming implementation of the ASEAN Free trade agreement (FTA) should enable free movement of skilled labor across ASEAN and the absence of a harmonized regional skilled labor certification program could promote a two-tier labor rate system. The implications of such a two-tier system will be significant particularly to the Philippines and Indonesia which have the largest manpower pools in the region.

In addition to proposing a harmonized skilled labor certification program during the forum which seeks to promote a more responsive credit risk profiling for the ADB, Juico broached the possibility of speeding up efforts towards a regional SME business registration to facilitate enterprise identification for financing and/or credit guarantee programs and domestic and export market access.

The End

Proposed Policy frameworksUniversal SolutionAdopt a common Business Registration System for SMEs across the ASEAN to enhance credit rationing and facilitate intra-ASEAN trade.

Adopt a common Labor Rating System for the Agro-Processing, Electronics and E-ASEAN Sector to promote the portability of labor skills across he ASEAN Region.

Diverse SolutionsAdopt a common development policy framework for the Electronics and E-ASEAN and Agro-process.

Proposed Framework for Harmonized Business Registration and IdentificationMany good practices have emerged over time. Some are common among the 10 economies making it easiest to start a business, such as offering one-stop shops.

Reducing or eliminating the minimum capital requirementIn 2008 Germany introduced a new type of limited liability company, the Unternehmergesellschaft, or UG, with a minimum capital requirement of 1, similar to that in France. The aim was to foster the economic activity of small entrepreneurs.While many still opt for the traditional form, 12,000 new UGs were created between November 2008 and January 2010

Creating a single interfaceSingle interfaces for business start-up not only save time and money. They also can make procedural requirements more transparent and easier to access. While some one-stop shops are solely for business registration, others carry out many integrated functions, including postregistration formalities with tax authorities or municipalities. Some one-stop shops are virtual; others are physical, with one or morewindows.

Introducing a unique company IDSingle-access points function best when a centralized database is in place linking all agencies. To make interagency coordination even more effective, many economies assign unique company ID numbers. This allows all government services to easily identify new and existing companies and to cross-check information.

Using information and communication technologyElectronic registration is possible in more than 80% of high-income economies but only about 30% of low-income ones.

ASEAN General SME Policy BenchmarksSource: Yamada, Y.; Connecting SMEs for CLMV Development, Greater Mekong Investment Policy Forum; Economic Research Institute for ASEAN and East Asia; 28 March, 2012

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