Sectoral Approach to Improve the Business and Investment Climate for SMEs

Federico M. Macaranas, Ph.D.Executive DirectorAIM Policy Center

Objective of Presentation

Provide an overview of strategies to improve the investment and business environment for small and medium enterprises Highlight notable practices that could be emulated by Asian Economies

Outline of PresentationI. State of SMEs: Selected Asian EconomiesII. SME Policies: Selected Asian EconomiesI. Common Strategies to Improve Business and

Investment Climate for SMEs• Increasing Productivity• Sectoral Niching Strategy• Proximity vs. Globality Concept• Macroeconomic Stability

II. Summing Up

State of SMEs: Selected Asian Economies

Source: www.actetsme.org/DTI

Country Percent of SMEs to Total Enterprises

Percent of Total Work Force

Employed in SMEs

Value-Added Contribution to the Economy

China 99.7 74.0 60.00Korea 99.0 69.0 46.00Malaysia 94.4 40.4 26.00Philippines 99.6 69.1 32.00Taiwan 97.8 78.4 n.a.Thailand 98.0 55.8 n.a.

SME Policies:

•Strict operational limits on foreign services to protect domestic

•Testing and standards bodies•Fair goods tests and standards for imports and exports. •Fair and transparent policy environment•Reducing and remitting taxes

•Grain Bag Policy to increase rice production•Rural development including training of farmers•Number One Document of 2005 on agricultural policies

SERVICESINDUSTRYAGRICULTURE

CHINA

SME Policies:

KOREA•Enhancing market access of small and medium enterprises

• Providing Effective Financial Service

• Ensuring Stable Supply of Human Resources for SMEs

• Long-Term Promotional Plan for the Motor Industry

• Agricultural Policies center on rice

• Policies focus on strengthening the competitiveness of agricultural products

• Growth in agriculture leans on R&D of mechanical, technical and biological technologies.

SERVICESINDUSTRYAGRICULTURE

SME Policies:

•Tax deduction for R&D training

•Shift from an industrial approach to cluster-based approach•Free Trade Zones•Tax incentives and holidays•Monetary exchange control regulations to ease transfer of funds

•Third National Agriculture Policy (NAP3)•Encouraging large-scale paddy production•Encouraging of private sector to venture into agriculture through incentives, support and infrastructure•High-tech production of vegetables; R&D•Agricultural and forestry education

SERVICESINDUSTRYAGRICULTURE

MALAYSIA

SME Policies:

PHILIPPINES•Emphasis of job creation on high skill industries and services•Infrastructure•Human resources skills development

•Focus on export winners•Investment Priorities Plan 2005-2010•Special investment zones•Big Enterprise-Small Enterprise Program

•Ginintuang Masaganang Ani (GMA) Program•Clustering•Special credit facilities•Agricultural research•Support Programs

SERVICESINDUSTRYAGRICULTURE

SME Policies: TAIWAN

•Promotion of R&D-pharmaceutical, biotech, tech industries •English as quasi-official language

•Emphasis on precision, high value and vertical integration•Science and industry parks•Emphasis on technical education and industrial R&D•Patents and IPR protection•Close ties of SMEs with MNCs

•Promotion of recreational agriculture•Increased productivity through horizontal and vertical technical integration•Agricultural Biotech Park Scheme

SERVICESINDUSTRYAGRICULTURE

SME Policies:

THAILAND•Improve credit access•Training•Government Support Services

• Import tariffs •Incentives were also given to industries (guarantee against price controls, Tax exemptions, and Tariff surcharges)•Human Resources Development•Development of industrial networks

• Credit Access•R&D Support

SERVICESINDUSTRYAGRICULTURE

Common Strategies to Improve Business and Investment Climate for SMEs

Making SMEs more competitive through provision of basic platform to increase productivitySectoral niching strategyProximity vs. Globality conceptMacroeconomic stability

Increasing SME Productivity

Access to Credit• Provision of Credit Windows• Establishment of credit lines through selected

financial Intermediaries• Investment incentives

Increasing SME Productivity

Training• Provision of human resource development

training programs and consulting and advisory services

Increasing SME Productivity

Technology• Technology transfer programs that provide

SMEs with general access to technology• Promotion of technology transfer through

business networking/ alliances

Increasing SME Productivity

Enabling Business Environment for SMEs• Harmonization and streamlining of processes

vital for enterprises • Review of government rules/ procedures to

reduce costs of doing business• Improve laws affecting SMEs

Country Days RankKorea 22 20Malaysia 31 26Thailand 33 30China 41 38Taiwan 48 43Philippines 50 44Indonesia 151 55

World Competitiveness Survey 2005"Number of days to start a business"

Increasing SME Productivity

Source: WCY 2005

Increasing SME Productivity

Enabling Business Environment for SMEs• Harmonization and streamlining of processes

vital for enterprises • Review of government rules/ procedures to

reduce costs of doing business• Improve laws affecting SMEs

Increasing SME Productivity

Marketing• Promotion of SME products in the domestic

and international markets

Sectoral Niching Strategy

Identification of sectoral niches of key growth areas

Establishment of economic and industrial zones

Proximity vs. Globality ConceptOutward orientation of small and medium enterprises to broaden market base

Macroeconomic StabilitySound economic fundamentals:• Stable aggregate level of prices• Low interest rate• Exchange rate• Sterling economic performance

Common Strategies to Improve Business and Investment Climate for SMEs

Making SMEs more competitive through provision of basic platform to increase productivity• Access to Credit• Training• Technology• Enabling Business Environment• Marketing

Sectoral niching strategyProximity vs. Globality conceptMacroeconomic stability

Summing Up

An improved business investment climate for SMEs is an extensive goal that requires the ready and efficient collaboration between Government, private/business sectors, the Academe and non-government, socio-civic groups and associations.

• Governments promote free and fair competition, and improve regulatory schemes for credit/financing, S&T transfers and from market pressures to assure a stable macroeconomic and political environment for SMEs to thrive on.

Summing Up

• Private-sector collaborations (Chambers, councils) streamline product lines to benefit domestic industries and promote notable business undertakings through various conferences, exhibits, network strategies, etc

• Academe lends R&D competencies for SME-workups and HR development, this includes effective knowledge transfer and provision of supplementary skills.

• NGAs and socio-civic groups provide alternative outlets for HRD, livelihood initiatives, channels for various business-related issues and broad networks for clustering.

Summing Up

Sectoral Approach to Improving the Business and Investment Climate for SMEs

Dr. Federico M. MacaranasExecutive DirectorAIM Policy Center