SMEs in Asian Developing Countries

This book is about SME development in developing Asian countries, which include China, India, Pakistan, Indonesia, Malaysia, Thailand, Lao PDR, Bangladesh and Vietnam. It is often argued in the literature that the key to increasing the competitiveness of SMEs in developing countries is to increase their capacities through improved technology.

The importance of SMEs

This reflects the fact that in the first group of companies using advanced technology, the level of labor productivity is much higher for a given amount of capital than that of the second group of companies using traditional technology or non-mechanized modes of production. SMEs are also important in ensuring the basic necessities of life for this segment of the population.

Definition, concept, and characteristics of SMEs

Like certain other countries, the Philippines has changed the official definition of SMEs several times since 1991. Therefore, the service sector (trade and repair) is the largest group of the total number of SMEs.

Table 1.1Definitions of SME in some Asian developing countries Member countryEmployeesAnnual sales/turnoverFixed/ productive assets Invested capitala Brunei Darussalam(1) MIE SE ME

Scope, objective, and structure of the book

Second, registered capital is not an "effective" criterion, since at the time of classification, a company's working capital needs may change and exceed previous requirements. In fact, besides the number of employees, the annual turnover or the value of invested capital as criteria to define MIEs, SEs and MEs, MIEs in developing countries can be easily distinguished from SEs or MEs just by referring to their different characteristics in many respects. such as market orientation, socio-economic profiles of their owners, nature of employment, organization and management system, degree of mechanization (nature of the production process), sources of raw materials and capital, location, external relationships, and degree of women's involvement as entrepreneurs ( table 1.2).

Table 1.2 Main characteristics of MIEs, SEs, and MEs in Asian developing countries AspectMIEsSEsMEs Formalityoperate in informal sector, unregistered and pay no taxessome operate in formal sector, registered and pay taxesall operate in formal sector, reg

Key theories

The production composition of SMEs in the manufacturing industry also appears to be changing with development. To summarize, the "classical" theories of SMEs maintain that in the course of economic development, reflected by the increase in real income per inhabitant/.

Table 2.1 Level of economic development and the size of the SME sector in selected countries

Main factors affecting the pattern

Changes in the level of real per capita income also affect the pattern of changes in employment in SMEs through the supply side of enterprises, i.e. through the labor market in terms of the flow of labor to (or from) LE or SMEs in other industries. or sectors. The level of demand in rural areas for products manufactured in rural areas depends not only on the level of real income per capita (and other factors), but also on the density of the rural population, among other factors.

Table 2.3 Pattern of SME development from “Modern” theories perspective Level of income per capitaVariableLevel of variables MIESEMELE Low– Employment shareHighest HighLowerLowest – Output shareHighest HighLowerLowest – Number of unitsHighest LargeSmaller

Regional evidence

However, data from individual countries, although limited, show that in some Asian developing countries SMEs do have relatively high GDP shares, averaging more than 50 percent. For example, the GDP share of SMEs in Cambodia reached nearly 77 percent in 2001; in Indonesia it reached almost 57 percent in 2003;.

Table 3.1 Number of SMEs in selected Asian developing countries

Detailed evidence from selected countries

Indonesia

Examples of the third type are textile weaving clusters in Majalaya and Pekalongan, furniture clusters in Jepara, wig and hair accessory clusters in Purbalingga and handicraft clusters in Kasongan. In the case of the fat-cigarette cluster in Kudus, its products outperform those of Philip Morris and British American Tobacco (BAT).

Table 3.2 SMEs’ contribution to GDP in selected Asian developing countries (%) Country1990199519961997199819992000200120022003200420052006 Brunei Darussalam(1)—66——————————— Cambodia(2)——6037.551.260.564.576.7————— Indonesia——————54.754.85756.855.453.553.3

Vietnam

Unlike the Indonesian case presented above, Table 3.10 suggests that Table 3.9 Distribution of SMEs by size class and business type. The concentration of SMEs in HCMC may be related to the distinctive industrial structure of HCMC, where major industries are mainly located in special industrial zones in Table 3.11 Breakdown of SMEs by size class and province.

Thailand

Perhaps more interestingly, however, the annual growth rates for SMEs' value added during the same period were not so different from the country's GDP growth rates. Even in some particular years, SME value added growth rates were higher than GDP growth rates, and this positive difference in favor of SMEs, which started in 2005, tends to continue (Figure 3.4).

Table 3.13 Distribution of SMEs’ value added in three main economic sectors (%)

The Philippines

Next, combining data from the Department of Trade and Industry, Philippines, as presented in Aldaba (2008), and more recent data from the same department, Tables 3.17 and 3.18 show time series data on the growth of the total number of firms and employment in them, respectively, by size in the manufacturing industry. Finally, Aldaba (2008) also provides information on the distribution of value added by firm size in the manufacturing industry.

Table 3.15 Total enterprises by size category and region

Cambodia

The Ministry estimated the number of SMEs in the informal sector based on the estimated total number of enterprises in the informal and formal sectors without registered SMEs. MoC data from the same year (not shown in the table) show that there were only 46 MEs and 274 LEs in the manufacturing industry.

Table 3.17 Total manufacturing enterprises by size category

Lao PDR

Most of the smaller companies in the industry acted as subcontractors of the larger ones. Nevertheless, the export value of the Laotian garment industry (including that of manufacturing SMEs) increased after the abolition of quotas, as did manufacturing employment, probably for two reasons.

Malaysia

Total SMEs in this sector together with those in the manufacturing sector accounted for 204,699 enterprises or 96.1 percent of total enterprises in 2000. The total number of employees in the SMEs was 131,130 or 57.5 percent of total workers in the agricultural sector.

Figure 3.8 Distribution of manufacturing enterprises by size category (%)

Brunei Darussalam

Brunei's SMEs also responded to the increasing opportunities in the tourism and hospitality industry. For example, these companies accounted for nearly 90 percent of all non-oil/gas private sector employment.

China

The largest economic sector for incorporated SMEs is manufacturing, particularly in the machinery, metal products, textile and food industries, followed by the wholesale and retail trade sectors, construction and transport and storage (Table 3.41).

Table 3.39 The share of SEs and MIEs in the manufacturing industry (%)

India

According to Das (2008a, pp.70–1),10 who focuses on the enterprises in the manufacturing sector, about 99.5 percent of the total number of SMEs in the sector are very small or small units (which can be categorized as MIEs). For example, the township of Panipat accounts for 75 percent of the total blankets produced in the country.

Table 3.42 Growth rates of SSIs (%) Year Growth rates of

Pakistan

In urban areas, the largest share of MIEs was in the textile, clothing and leather industry (78.7 percent), followed by other manufacturing. Overall, the share of manufacturing SMEs (other than MIEs) in urban areas was the largest (93.8 percent).

Table 3.45 Growth rates of manufacturing industry by size of enterprise (%)

Bangladesh

Within this category, the share of textiles, clothing and leather was 43 percent, metal products 15.8 percent, food and beverages 12.8 percent, wood and wood products 11.6 percent, and other activities 16.8 percent. According to BSCIC data, as cited by Ahmed (2001b), the average annual growth in the number of SEs and MIEs from 1981 to 2001 was 6.4 percent and almost 3 percent, respectively; while employment growth in these companies was 7.6 and 3.7 percent, respectively (table 3.51).

Figure 3.14 Yearly compound real rate of growth of SMEs and LEs (%)Table 3.51 Growth of SEs and MIEs

Nepal

Out of a total of 3,557 enterprises with ten or more employees, 3,485 (89 percent) are enterprises with less than 50 million NR fixed asset investment and they contribute 63 percent of the total value added of production. Since these enterprises are labor-intensive in nature, they account for about 40 percent of total gross fixed assets, compared to 60 percent for LEs.

Table 3.53 Registered manufacturing MIEs and SEs Period No. of

Overall export performance

In the manufacturing industry, SMEs in the region often represent an important part of the value chain or supply chain and therefore may not be involved in direct exports.

Detailed evidence from selected countries

Indonesia

However, the share of SMEs in total manufacturing industry exports is much smaller than that of their larger counterparts. Palm oil and products - Rubber and rubber products - Food and beverages - Electrical equipment - Copper and tin products.

Table 4.2 Exports of SMEs and LEs, 2000–6 (Rp billion) Sector*2000200120022003200420052006 SMELESMELESMELESMELESMELESMELESMELE (1) (2) (3) Total

Thailand

Electrical machinery and equipment and parts are the largest contributors to Thai SMEs' exports. Exports of MSP grains have grown rapidly in many of the top ten markets, namely Iran, the United Kingdom, China and Singapore.

Table 4.6 SMEs contribution in top ten exports (%) Product20002001200220032004Growth 2003–04 (%) Electrical machinery and equipment and parts19.8616.5417.2915.617.629.8 Machinery and mechanical appliances and parts———8.79.125.2 Motor vehicles and parts——

Malaysia

At the national level, OSMEP data show that SMEs' exports have always amounted to less than 50 percent of their total production (Figure 4.6). In the agricultural and service sectors, exporting SMEs were only about 0.2 percent of all SMEs in all sectors.

Table 4.10 Export of motor vehicle and parts by SMEs to different markets Export markets2003 (THB million)2004 (THB million)SMEs % change 2003–04 SEMESMESEMESME Netherlands Japan Singapore Australia Indonesia Sweden Cambodia Myanmar US Lao PDR UK Philipp

Vietnam

As in the case of Indonesia and Thailand, many Malaysian SMEs export their products indirectly through multinational companies and local export-oriented companies, as a significant number of Malaysian SMEs are involved as suppliers of parts and components to these large companies. As shown in Table 4.15, exporting SMEs are mostly engaged in labor-intensive products, which mostly fall into the broad areas of Vietnam's comparative advantages, such as food products, non-metal products and other manufacturing.

Table 4.15 Distribution of all SMEs and exporting SMEs by manufacturing subsector, 2002 (% share)

Philippines

Clothing other than footwear - Leather and articles thereof - Leather footwear - Articles of wood and cork - Furniture other than metal - Paper and articles thereof - Printing and publishing - Industrial chemicals - Other chemicals - Oil refineries - Rubber articles - Plastic articles - Earthenware . The most developed export-oriented SMEs in the country are located in Cebu, which is an international business center in the Central Visayas Islands.

Table 4.16 Export-oriented SMEs in manufacturing industry

India

Another piece of research is from Van Helvoirt and van Westen (2008) who found that the most important foreign market for SMEs in Cebu is the United States, as 59 percent of the 54 firms they surveyed indicate that their main buyers was from this country. . Comprehensive data on SE exports in India is provided by the Office of the Development Commissioner, Ministry of Micro, Small and Medium Enterprises (MSME).

China

Within the group, the foreign market ratio varies between SOEs and SOEs, i.e. about 18 percent for SOEs versus almost 38.8 percent for SOEs, suggesting that SOEs focus primarily on the domestic market. The ratio also varies by region, as the percentage of exporting SMEs is higher in the eastern area than in the rest of the country.

Trade liberalization and its effect on SMEs

In Indonesia, among the many existing studies on SMEs in the country, perhaps the only one that provides evidence on the effects of trade reforms prior to the 1997/98 economic crisis on SME exports is from a field study conducted by Berry and Levy (1994). . SMEs in more protected industries before the crisis were expected to be more affected than those in less protected ones.

Competitiveness

The group is spread over several towns in the Batur District of the Klaten Regency. Among the sectors, SMEs in the manufacturing sector registered the highest value added per employee at RM 64,089, followed by SMEs in the services (RM 47,151) and agriculture (RM 27,526) sectors.

Transfer of technology

Main channels

These policies should be considered as part of structural adjustment programs in the trade and investment liberalization process. For Indonesia, national data show a continued increasing share of imported intermediate and capital goods in the country's total imports.

Figure 5.5 FDI stock/GDP in developing and LDCs in Asia (%)

Tegal metal working industry: A story from Indonesia 13

In the early 1980s, the first subcontracting activity began in the district, sparking government activity to develop the metalworking industry. In particular, producers in the Tegal metalworking industry have a tradition of cooperation, as demonstrated by the important role of the recently initiated Takaru cooperative.

The regional picture

The lack of technology and skilled workers means a lack of innovation needed for quality improvement and higher productivity, and therefore output growth. Instead, they are highly dependent on their trading partners to market their products, within the framework of either local production networks and subcontractor relationships or orders from customers.

Table 6.1 Four most important constraints facing SMEs in Asian developing countries CountryRaw materialsMarketingCapitalEnergy*InformationTech

Detailed evidence from selected countries

Indonesia
The Philippines
Vietnam
Lao PDR
Thailand
Malaysia
Brunei Darussalam
China
India
Pakistan

Capital investments in SMEs in the region are only 1.54 percent of that of the country as a whole. Constraints are in the areas of technology (old/obsolete technology, inability to adopt and acquire new technology, low R&D), marketing (dependence on very few customers, lack of effective marketing efforts, inability to identify products of suitable and their acceptability and sustainability in the market in preference to branded products, delayed realization of receivables, and so on), human resources (impossibility to create a second line of management, total focus on the promoter, etc. ) and finance (low capital base, late payments from customers, low profit margins, improper or even failure to keep financial records in some cases, late submission of audited financial data to banks, and so on) .