SME development in a borderless world

Experts from the small and medium enterprise industry discussed the challenges and opportunities of the sector, emphasising the ASEAN Economic Community (AEC) and strategies to transform the sector to become globally competitive.

During the WIEF Roundtable in Cambodia, Tun Musa Hitam remarked on the important role
 that SMEs and startups played in spurring innovation and economic diversification: ‘Not only do SMEs contribute to the nation’s GDP, they can also be engines for job-creation. In the case of Cambodia, there are huge prospects in expanding the potential of SMEs through cross-border trade,’ he said.

a large proportion of SMEs in Cambodia were family-run and operated on a traditional basis, disadvantaging them as they were unable to grow into larger corporations.

Soum Sambath, Secretary-General of the Federation of Associations for Small and Medium Enterprises of Cambodia (FASMEC) described the SME industry in his country: ‘We have about 500,000 SMEs providing jobs for an estimated two million people.’

According to Sambath, who is also Chief Executive Officer, Cambodian Chemical Supply Co Ltd, SMEs in Cambodia faced several challenges. He spoke about their lack of capital, low productivity and inconsistent quality of products. He observed that a large proportion of SMEs in Cambodia were family-run and operated on a traditional basis, disadvantaging them as they were unable to grow into larger corporations.

Another issue was the flow of raw materials out of the country. ‘We lose a lot of value because we’re only selling raw materials instead of processing them, like Thailand or Vietnam do.’

The migration of Cambodian workers was also potentially crippling to the SME industry. ‘About one million Cambodian workers have migrated to Thailand to work. It is also possible that when the AEC is implemented at the end of the year, more Cambodian workers will migrate to Thailand, which has a strong manufacturing industry,’ Sambath said.

For the 97 per cent of SMEs which consist of micro- enterprises, lack of market information and knowledge about international trade laws pose a huge hurdle: ‘The people in micro-enterprises are not highly educated. Lack of English competence is a big problem
for Cambodia, which is trying
to compete with Malaysia, Singapore and the Philippines,’ Sambath said, adding that market information was vital in helping enterprises make decisions
about product development and exports.

Sambath noted promising efforts on the part of the Cambodian Government in 2004 to come up with 13 measures to promote SMEs. One of the most important was to provide SMEs with medium-and long-term financing, which has been done for rice millers to increase their production and exports.

Other measures being taken by the Cambodian Government include addressing product smuggling from Thailand and Vietnam, reducing registration and startup procedures for SMEs, simplifying export and import processes, supporting newly-established enterprises, and promoting links between SMEs and large enterprises.

‘Small is the new big,’ said Dato’ Hafsah Hashim, CEO of SME Corp, Malaysia, in speaking about the AEC and best practices for forging higher productivity and greater SME growth.

‘More than 95 per cent of businesses in ASEAN are SMEs, contributing between 23 per cent to 58 per cent in terms of GDP; 43 per cent to 97 per cent of employment; and 10 per cent to 30 per cent of exports,’ she said, describing SMEs as the backbone of the region’s economic development.

Planning for SME development begins with collecting evidence on SME performance, followed by the development of supportive policy. ‘We work together with the private sector, the business community, academicians and researchers to make sure that the policies we put in place are holistic and able to address the challenges,’ she said.

Malaysia has a comprehensive SME development framework
that includes a master plan, a centralised training programme, annual reports, an information portal, SME partner schemes for private equity, an SME credit bureau, a small-debt restructuring scheme, as well as ongoing transformation of development financial institutions.

Hafsah said that to create a globally-competitive SME industry, several steps must
be taken, including increasing the number of new startup businesses, raising productivity, intensifying formalisation of businesses, emphasising innovation, developing human capital, and engaging non-banking facilities to increase access to finance.

She emphasised the importance of developing SMEs across the ASEAN region: ‘ASEAN is the seventh largest economic region—we are politically stable and connected to a lot of major trading partners. With the shift of the global economy from the developed to developing countries, our opportunities lie in the SME sector.’

Beyond the ASEAN region, Turkey is a country with a very strong SME sector. Salih Tuna Sahin, Vice President of the Small and Medium Enterprises Development Organisation (KOSGEB), Turkey, noted that one factor that set Turkish SMEs apart from those in Asian and OIC countries was the sector’s high contribution to exports at 63 per cent.

He explained that the strong performance of SMEs in Turkey was due to the country’s strategic and action plans, which aimed to increase the competitiveness of SMEs at the international level, increase the share of SMEs in the national economy, and ensure a continuous SME-sensitive and entrepreneurial-sensitive climate in the country.

Turkey has formulated five strategies to meet these aims: supporting the increase of SME competitiveness; increasing SMEs’ internationalisation capacity; developing SME-friendly legislation; supporting R&D and innovation; and increasing SME access to finance.

Sahin elaborated on Turkey’s entrepreneurship development programmes, which included training, grants and incubators for new businesses. He also noted that innovation was another priority
for the Government, which was concerned with transforming the SME sector sufficiently to enter the global economy.

Sahin added that the European Union promoted regional cooperation among SMEs through its Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME) initiative, which supported access to finance, access to markets, developing entrepreneurship and creating a supportive business climate within the member countries.

He added that access to knowledge was pivotal for SME development: ‘We are always talking about money, money; market, market; but it’s on the basis of knowledge. Access to knowledge is a continuous need for all economies, and for that to happen, we need to keep making connections between countries and between institutions.’

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This is based on a report from the Roundtable in Cambodia in 2014.