PRELIMINARY FINDINGS OF NINETEEN CASE/INDUSTRY

STUDIES
OF SMES IN THREE IDENTIFIED ASEAN PRIORITY
SECTORS
FOR THE ASEAN SMEWG MEETING

Prof. Philip E. Juico PhD

Association Of South East Asian Nations (IND/SME/09/003/REG)
Asian Development Bank Brown Bag Seminar
May 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.

Hard infrastructure

Asia Opportunities: Asean Economic

Community (AEC) in 2015

At 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 )

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 Justification

The 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 Studies

Original 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 ASEAN
1. SMEs 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
2. 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.
3. 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 ASEAN

SME 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 AgroProcessing 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 AgroBased
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 frameworks

Universal Solution
Adopt 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 Solutions
Adopt a common development policy framework for the Electronics and EASEAN and Agro-process.

Proposed Framework for

Harmonized Business Registration and
Identification

Many 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.
1. Reducing or eliminating the minimum capital requirement
In 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
2.

Creating a single interface

Single 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 more windows.

3.

Introducing a unique company ID

Single-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.

4.

Using information and communication technology

Electronic registration is possible in more than 80% of high-income economies but only about 30% of low-income ones.

ASEAN General SME Policy Benchmarks

Source: Yamada, Y.; Connecting SMEs for CLMV Development,

Greater Mekong Investment Policy Forum; Economic Research
Institute for ASEAN and East Asia; 28 March, 2012