Presentation is loading. Please wait.

Presentation is loading. Please wait.

Export-led SME Development & Entrepreneurship in the GMS

Similar presentations


Presentation on theme: "Export-led SME Development & Entrepreneurship in the GMS"— Presentation transcript:

1 Export-led SME Development & Entrepreneurship in the GMS
ASEAN SME Regional Gateway Forum Mekong Institute Khon Kaen, 6 September 2010 Masato Abe Trade & Investment Division

2 About ESCAP United Nations Economic and Social Commission for Asia and the Pacific Asia & Pacific 58 regional members & associated members Policy advocacy, analytical work & technical assistance for regional development Headquarters in Bangkok Nine branches

3 Development Strategies in the GMS
Export & FDI driven development Agro industry development Gradual industrialization toward products with high value added Infrastructure development Technology transfer & adaptation Subregional cooperation (ASEAN, GMS; BIMST-EC) SME development Eco-industry

4 SMEs’ Role Consisting of more than 95% of total enterprises
99% for China; 98% for Thailand (2003); 99% for Viet Nam (2002) Creating about 60% of private sector jobs 75% for China; 65% for Thailand (2003); 77% for Viet Nam (2002) Contributing about 20-30% of GDP 65% of industrial output (China); 47% of GDP & 55% of exports (Thailand); 20% of exports (Viet Nam) (2003)

5 SMEs’ Role (cont.) Innovation & dynamism
Graduating to large enterprises (& multinationals) Many in the informal sector Critical part of the social safety net

6 SME Typology Export Cottage Enterprises Export-oriented Enterprises
Low Tech High Tech Domestic Market-oriented Enterprises Supporting Enterprises Domestic/Local Market (Uchikawa & Keola 2009)

7 Definition of SMEs In Asia-Pacific (& GMS), typically less than employees for manufacturing sector Country Number of Employees Cambodia Micro Small Medium < 10 11- 50 China MSME < 100 Lao PDR ≤ 19 ≤ 99 Myanmar 10-50 51-100 Thailand (4 people per firm) < 50 ≤ 200 Vietnam SME ≤ 300

8 SMEs per 1,000 people Pre-crisis structural adjustment Development of automobile value chains, comprising many A-P SMEs Over-capacity; intensified competition Emerging Asian markets; increased presence of A-P assemblers Emerging global suppliers; competition with SME suppliers Competition over Green (Eco) cars; high R&D cost Excess capacity for export Falling demand weakens automobile value chains hitting the weakest links - SMEs- hardest Market potential in A-P Big potential markets (e.g. China, India, Indonesia and Turkey) Future direction for A-P automotive industry Development of global brands Development of local supplier base – SME development Linking with emerging Asian markets Development of Green (Eco) Cars Source: ESCAP (2009), developed based on data from World Bank ( )

9 SME Life Model Grow to a large firm Profit Maturity Decline Growth
Discontinuation? Years Start-up Loss Different supports needed at the different stages

10 Start-ups in Japan 41.4 years old (Entrepreneurs) 3.9 employees
100K US$ of start-up funds 35%: Own capital 15%: Support of family, relatives and friends 50%: Public grants & commercial loans, including public loan guarantees Man: 84.5%; Women: 15.5% College degree or above: 33.1% 60% of start-ups achieve break-even within 15 months Data: National Life Finance Corporation (2007)

11 Start-up: Difficult Time
2/3 discontinued within 5 years (USA) 40% discontinued within 2 years (UK) Approx. 40% in red after 1 year (Japan)

12 Sector Composition Japan (2006) Thailand (2005) Services 26% 22%
Wholesale/retailer 20% 33% Restaurants/hotels 17% N/A Medical/health care 16% N/A Construction 8% 14% Manufacturing 5% 11% Others 8% 20% Total 100% 100%

13 SMEs’ Net Income in Japan
Income before Tax / Total Sales

14 Policy Objectives Increase the number of start-ups
Facilitate their growth Increase their survival rate Foster SME graduates (to be large enterprises) Facilitate the smooth exist of losers, providing second (& more) chance Encourage to be incorporated Foster SME exporters & supporters

15 Challenges Scattered targets (high transaction costs)
Lack of the economies of scale Limited public resources Limited understanding about the targets, i.e. SMEs Limited communication channels Limited knowledge & skills Limited information on global & regional markets

16 Six Areas for Interventions
Pro-business legal & regulatory framework Supporting infrastructure (e.g. ind. zones) Enhanced access to finance Entrepreneurship development Technology transfer & adaptation (plus R&D and product standards) Business development services Entrepreneur centred development strategy

17 SME Development Approaches
ADB (2000) APO (2007) DFID (2008) GTZ (2010) ILO (2009) JICA (2006) OECD (2005) SDC UNCTAD UNDP UNIDO USAID World Bank (2002) Policy and regulatory framework Infrastructure Access to finance Entrepreneurship / human resource development Technology transfer and adaptation Business development services

18 Entrepreneur Centred Development
Business Environment Access to Finance Infrastructures Export-minded Entrepreneurs Business Development Services Technology

19 SME Business Network Information Incubation Consulting Training
Linkage Policy dialog Information Consulting Training Training Information SME Development Agencies SME Training Institutions Business Associations Export-minded Entrepreneurs Export-minded Entrepreneurs Export-minded Entrepreneurs Export-minded Entrepreneurs Export-minded Entrepreneurs Financial Institutions Technical Centers Technology Standards Certificates Training Finance Information Launching of New Export Businesses Success Case Replication

20 Global Value Chains

21 In the era of globalization…
Can SMEs compete in the international market? Can SMEs learn to be competitive? Will SMEs benefit from the globalization? Can SMEs survive in the global competition? What can we do to bring the benefit of the globalization to the poor?

22 The ideal is… Very difficult for SMEs in developing countries
Selling products directly to the international consumers with “Brand Presence” & “Pricing Power” - Have information related to market/process/product - Have capabilities over the full Value Chain: design, production, marketing, distribution, etc. - Respond effectively to the changing market conditions Very difficult for SMEs in developing countries Alternate option: Reaching global market through global value chains

23 Global Value Chain (GVC)?
Full range of value-added activities involved in conception, design, procurement, production, marketing, distribution, after service, etc. Firm can focus on one or more activities in a VC. When activities are geographically dispersed across borders to multiple countries the value chain becomes global or regional Garment/Apparel Value Chain

24 Characteristics of GVCs
A lead firm (a larger enterprise/a multinational) regulates a GVC with specific competences, making a higher profit Brands, resources, technology, expertise and/or goodwill Customer vs. Production vs. Natural Endowment driven value chains Inviting outside experts on specific functions to manage complicated tasks to maximize the efficiency and effectives of the entire GVC

25 Characteristics of GVCs (cont.)
Contracting with a selected number of capable SMEs typically as subordinate partners for specific tasks or functional support Integration of business process, coordinated behaviours and information sharing among independent firms Mutual investment into business process and long-term relationship

26 Emergence of GVCs: Drivers
Multilateral and regional free trade agreements Policy Liberalization Trade, investment, capital & finance, HR Compliance with local content requirements Technological innovation Transportation and ICT Increasing competition (pressures for lower cost, higher efficiency/ quality etc.) New management strategies JIT, e-commerce, ERP, supply chain management “Production” of Jeans by Levi - Purchase South Korean yarn - Woven and dyed in Taiwan - Cut in Bangladesh - Assembled in Cambodia - Matched with Japanese zippers - Deliver final product to US, EU retailers All by subcontractors Coordinated by Li & Fung from Hong Kong

27 Shift in the GVC governance during the past three decades
TNCs controlling all production Ownership of overseas subsidiaries/ franchises Outsourcing to suppliers (no legal ownership) TNCs focus on core values Source: UNIDO, Integrating SMEs in Global Value Chains Opportunity for SMEs in developing countries: Specialize in a limited set of activities or components in the GVC

28 Levis Case

29 Emergence of GVCs: Consequences
Smaller number of dominant lead firms Emergence of large/strong suppliers Intensified competition toward high-value added activities Competition on continuous skill development and knowledge enhancement Economic disparities at the region, country, community and firm levels

30 Lead Firm’s Objectives with SME Suppliers
Cost down / quality up; QDC (Quality, Delivery and Cost) improvement Strategic focus and outsourcing non-core functions Speed, effectiveness and flexibility Access to expertise / technology Long-term security Control over supply chain networks Local content requirements and local supplier development

31 Opportunities for SMEs in developing countries
Access to international markets Support from TNC (training/investment in business process/information sharing etc.) Technology and knowledge transfer Long term buyer-supplier relationship; secured orders Reputation and brand development Opportunity to up-grade and move up to the next tier

32 Challenges for SMEs in developing countries
Lack of awareness, capacity and resources Infrastructure Capital Skilled labour Managerial expertise Knowledge and technology Contacts / networks

33 Challenges for SMEs in developing countries (cont.)
High entry barriers -- International Standards Have to deliver specified product, required quantity and right quality at competitive price and agreed leadtime Competition is not solely based on cost but also based on product and process related standards, such as quality, safety, environmental preservation and respect for labour

34 Challenges for SMEs in developing countries (cont.)
Unfavorable national business environment Rules and regulations Red tape/corruption Political instability Insufficient business development services

35 Regional average of ease of doing business rank
Source: ESCAP (2009), calculated by ESCAP based on Doing Business 2009, World Bank (2008)

36 The GMS Centre of 3 rapidly growing subregions
Northeast Asia Export & FDI driven development strategy South Asia GMS Increasing amount of FDI in the region Growth of south-south investment Increasing investment in China can stimulate greater FDI throughout the region (FDI is not a zero sum game) TNCs from developed companies (Intel: Vietnam, GM: Thailand- spill over effect possible in neighboring countries)

37 Population by Subregion
1,500 China (90%) (Million) India (75%) 1,350 260 Northeast GMS 310 South ASEAN - GMS

38 Purchasing Power Parity
USA 10,000 China (55%) 11,000 Japan (33%) India (80%) 3,300 670 Northeast GMS 1,300 (US$ Billion) South ASEAN - GMS

39 GMS Markets (GNP, US$ Billion)
$50 Yunnan & Guangxi $20 $20 3 Lao PDR Viet Nam Myanmar $140 $20 4 Thailand Cambodia

40 GVCs in GMS Thailand: various GVCs in auto, electronics, high-tech, agri-business, consumer-goods sectors. Yunnan: VCs mainly serves other provincial markets Viet Nam: GVCs under development in garment, consumer goods, auto and electronics sectors Cambodia, Lao PDR and Myanmar: Agro-business and garments; need promotion to attract GVCs although some FDI have been observed advanced manufacturing sectors recently (underdeveloped domestic markets)

41 Example: Thailand Automotive Part industry
Thailand invested in cluster development, particularly in Rayong and Samutprakan, south of Bangkok Cost competitiveness is based less on productivity, and more on low factor input costs, which are now rising (e.g. costs of labour and land) Key challenge to Thai auto parts suppliers is to improve productivity and lower costs or move up to the next tier within the GVC Subregional coordinated strategy could provide opportunities for neighboring lower cost countries such as Cambodia (which also has rubber) to become lower tier suppliers of selected components to the Thai auto parts cluster

42 Opportunities for SMEs
Geographical advantage Centre of 3 rapidly growing subregions Export & FDI driven development strategy More donor assistance expected The combined resources of donors, governments, the private sector currently provides 20% of needs Underdeveloped intra-regional trade & investment Potential home markets Yunnan & Guangxi’s integration Flexibility & specialization

43 SMEs’ Corporate Strategies
Improve quality and develop brand Reach the global market through existing GVCs that are most likely dominated by lead firms Enter into lower tiers with a low-value role in GVCs Move up GVCs to high-value added activities over time Find adequate financing for the investments and accessing quality workforce Collaborate with other SME players vertically and horizontally in a GVC Establish joint ventures with foreign investors

44 SME actions needed Improvement of quality Performance
Reliability Durability Serviceability Perceived quality Aggressive marketing (networking and branding) Catalogues Trade journals & directories Sales representatives Trade missions / fairs / exhibitions Internet

45 SME actions needed (cont.)
R&D and technology adaptation in cooperation with public/private research/technological institutions Seek finance and credit opportunity with governments and banks Seek services from business associations Develop and involve in producers’ associations Seek aggressively investment opportunity in cooperation with both domestic and foreign investors

46 Government actions needed
Change of FDI strategy: Attract GVCs fit for the country. Develop GVCs by participating in neighbouring countries’ GVCs. Classic SME export promotion Marketing research, export promotion, product development, export financing, trade fairs and missions Create enabling business environment Laws and regulations and their enforcement, ICT and logistic infrastructure and software Enhanced access to SME finance

47 Government actions needed (cont.)
Capacity and HR development for SMEs and related government agencies Fostering capacity and quality of business associations Training on working relationship in a multicultural environment Focus on agri-business value chains Foster stronger backward linkages with SMEs through intra-regional South-South investment

48 Government actions needed (cont.)
Facilitate SMEs’ adoption of world standards and credible certifications Productivity improvement through infrastructure development and logistical improvement Improving the cross-border flow of goods Sector based value chain studies Foster national lead firms – Graduates from the SME sector with quality and brand 

49 Additional GVC strategies:
Government Strategies (cont.) Additional GVC strategies: Supply side capacity building Training/ counseling and advice/ micro financing/ market intelligence etc. Develop opportunities through cooperation (i.e. SME clusters) Economies of scale/ joint action/ information sharing/ enhancing attractiveness to global buyers by reducing transaction costs etc. Promote the GVC mindset

50 GMS Subregional Cooperation
Develop ‘GVC mindset’ in cross-border cooperation among GMS countries Strengthen cross-border (GMS/subregional) logistics systems Focus trade facilitation cooperation (e.g. in GMS Programme) on particular GVCs Facilitate GMS supplier development, including development of SME clusters across borders (and share information/ best practices etc.) Facilitate cross-border linkages of domestic business institutions (e.g. GMS-BF)

51 Further reading Two in-depth studies on SME development in Asia & the Pacific are available at ESCAP website (

52 For further inquiry, contact:
Masato Abe, Ph.D. Economic Affairs Officer Private Sector and Development Section Trade and Investment Division United Nations ESCAP Bangkok, Thailand


Download ppt "Export-led SME Development & Entrepreneurship in the GMS"

Similar presentations


Ads by Google