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Small and Medium Enterprises (SMEs) are key drivers of the Thai economy, contributing significantly to social and economic development. They represented 99.5 percent of business establishments and 78.8 percent of employment between 2007 and 2012. SME production also accounted for 37.5 percent of GDP during the same period. SMEs play crucial roles and functions in assisting large enterprises, particularly in regional production networks. In addition, they are key factors in linking all important units of industry and filling gaps in industrial clusters that may not be completed by large enterprises alone. They are also key suppliers of goods, services, information and knowledge for large enterprises, and play a pivotal role in the production process of export goods. As a subset, Thai manufacturing SMEs also played a leading role in the economy, accounting for 20 percent of business establishments, 20.7 percent of employment and 11.6 percent of GDP from 2007 to 2012
Focusing on Thailand’s trade, exports substantially increased after the 1997 financial crisis due to the Baht depreciation, the easing of a reduction in the demand for labor, and reversal of persistent real wage growth experienced before the crisis. The trade deficit disappeared after 1997, averaging surpluses of 353,910 million baht and 304,479 million baht during 1998-2000 and 2007-2009, respectively, as shown in Table 2. The country’s trade balance, however, moved into deficit at 82,754 million baht on average during 2004-2006 as a consequence of decelerating export growth along with faster growth in 2005 (Bank of Thailand, 2005). The trade deficit was also observed at 179,497 million baht on average between 2010 and 2013: a consequence of the decline in foreign demand resulting from weak global economic conditions as well as limitations from flood-damaged production capacity (Bank of Thailand, 2012). According to the direction of trade from 2010 to 2013, Thailand mainly exported to ASEAN, followed by the NAFTA nations, the EU and Japan. Thailand also mostly imported goods from Japan during 2010-2013, followed by ASEAN, the EU and the NAFTA nations.
A study from Teerawat Charoenrat (Khon Kaen University, Thailand) and Yot Amornkitvikai (Rangsit Univerisity, Thailand) who published their paper, entitled Determinants of Export Participation: Evidence from Thai Manufacturing 9 Small and Medium-Sized Enterprises" at NIDA Economic Review employed the 2007 Thai Industrial Census to empirically examine the determinants for export decisions among 65,111 Thai manufacturing SMEs. The binary variable for export participation is used as the dependent variable. Focusing on the significant factors affecting a firm’s export decision-making process, firm size, productivity, government assistance, foreign investment (ownership), municipal location, research and development, firm age and skilled labor were found to be significantly and positively related to the decisions of Thai manufacturing SMEs. Furthermore, a significant and positive non-linear relationship between firm size and export decision was also found for these SMEs, while a significant and negative linkage between a firm’s age and its export decision was revealed.
According to the empirical results, an increase in firm size should be promoted among Thai manufacturing SMEs including SMEs, since large firms can earn sufficient profits to recover sunk costs incurred during exporting. In addition, larger firms may gain more advantages in collecting market information, launching overseas sales-promotion campaigns, bearing exchange rate and other risks, and adapting their products to foreign markets. A number of government policies should be implemented for Thai SMEs, such as (i) facilitating SMEs to obtain bank loans with affordable interest payments and an increase in equity via listings on the Market for Alternative Investment (MAI) or equity and knowledge aids from the Office of Small and Medium Enterprises, and (ii) encouraging an increase in their investments, which in turn can enlarge firm size. Promoting their investments can be encouraged via tax and non-tax incentives approved by the Board of Investment (BOI). These recommendations are aimed at helping Thai manufacturing SMEs reach an adequate size.
Labor productivity among Thai manufacturing SMEs should be enhanced, since the most productive firms can compete in highly competitive markets. Greater productivity can mitigate the additional costs associated with entering export markets, such as transportation, marketing and production costs in tailoring existing products for foreign customers.
Similarly, skilled labor should be promoted among Thai manufacturing SMEs. Therefore, government policies focused on improving the workplace environment and social welfare are recommended, such as i) launching worker training programs within SMEs, ii) creating mentoring and consulting systems as well as labor standard certifications within formal and informal systems, iii) upgrading knowledge and skills of entrepreneurs and employees by developing learning mechanisms to improve their capabilities, and iv) providing facilities (e.g., on-the-job training programs, e-learning schools and university programs) to enhance knowledge among employees. Human resource development should also be implemented in line with the real demands of the manufacturing sector and cooperative networks should be built among educational institutions.
In addition, government assistance through BOI privileges should be promoted for Thai manufacturing SMEs, including those in all groups, since such aid provides financial support (e.g., credit assistance, income tax exemptions or reductions, and exemptions from import duties on essential raw materials). Moreover, government non-financial support, such as managerial and technical assistance and training support, should be considered in line with financial support. This would contribute positively toward the international competitiveness of Thai manufacturing SMEs’ export performance.
Foreign investment (ownership) should also be promoted for Thai manufacturing SMEs since foreign partners bring new foreign markets and distribution, financial support, new products, managerial know-how and advanced production, all of which would help SMEs participate in export markets. Moreover, research and development (R&D) should be promoted among Thai manufacturing SMEs since it would contribute positively toward their export participation and competitiveness. Policies that aim to help young manufacturing SMEs to participate in foreign markets are also necessary, such as (i) promoting cross-learning between young firms and old firms, (ii) providing business training for young firms, and (iii) providing tax holidays for young firms. Finally, municipal-based Thai manufacturing SMEs have more advantages in terms of transport costs, infrastructure, spillover effects, labor and natural resources. Policies focused on improving the country’s infrastructure and facilities crucial for exporting, therefore, should be promoted for Thai manufacturing SMEs. Finally, policy implications addressed in this study are based upon the empirical results obtained from the 2007 Thai Industrial Census. Therefore, in-depth interviews of entrepreneurs or chief executive officers in specific sub-manufacturing SMEs should be conducted for further studies.
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