Small and medium-scale enterprises (SMEs) in Southeast Asia that successfully join the supply chain trade share a number of general characteristics, according to a new international study.
In a study of data on SMEs in five Southeast Asian countries, Ganeshan Wignaraja, advisor to the Asian Development Bank and study author, found that while SMEs are regarded as vehicles of growth, Southeast Asian SMEs “make relatively little contribution to supply chain trade as exporters” compared to SMEs in more developed economies.
The five countries analyzed were Malaysia, Thailand, Philippines, Indonesia, and Vietnam.
He said the SMEs in these nations “are more engaged in (the) supply chain trade as suppliers than exporters compared to large firms,” with Malaysia and Thailand having a higher proportion of their SMEs in supply chain trade than others.
The findings are contained in the report titled “Factors Affecting Entry into Supply Chain Trade: An Analysis of Firms in Southeast Asia.”
Speaking recently at a business forum in Makati City, author Wignaraja said findings indicate that some firms are better at joining supply chains than others. This is linked to various factors, including company size, technological capabilities, skills, access to credit, company age, and foreign ownership.
Firm size is an important factor initially, he said, noting that “economies of scale and fixed costs are significant in the early stages of joining supply chains.” However, this becomes less relevant in the longer term.
“SMEs may form clusters or embark on niche market strategies to overcome the disadvantages of firm size,” he pointed out.
Efficiency also improves an SME’s chances of joining the supply chain. Firms that invest in technological capabilities and skills training, have ISO certification and product patents, and have a workforce that is educated have an advantage.
At the same time, access to commercial banks is likewise a plus, while the age of the company is equally influential. Surprisingly, the study finds that younger firms are likely to be more nimble in joining supply chain trade than older firms as they more easily use information and knowledge.
In addition, foreign ownership is a plus, since it facilitates participation in the supply chain trade through access to marketing and technological know-how.
The Southeast Asian SMEs surveyed, meanwhile, identified many barriers to their supply chain participation, said Wignaraja. On the supply side, these include the lack of access to finance, high electricity costs, poor transport systems, inadequately educated workers, the high cost of Internet connection, and labor regulations.
On the policy side, they raised issues against tax rates and administration, customs and trade regulations, business licensing, and political uncertainty and economic instability.
Other concerns aired involve crime, corruption, and practices of competitors in the informal sector.
In addressing these hindrances, Wignaraja underscored the importance of policies and incentives that address behind-the-border issues that hamper SME drive to participate in the supply chain.
“Specific policies to support SMEs (e.g. to form industrial clusters) could be useful, but further research is required on what works as there is a risk of government failure,” he added.
He also recommends getting the private sector such as business associations “involved in formulating policies for supply chain trade in Southeast Asia as they have first-hand knowledge and experience of rapidly evolving supply chains.”
He noted, too, the significance of having reliable national statistics from which supply chain trends can be tracked. This can help in effective policy development and enable better mapping of exports. PHILEXPORT News and Features