|Needs and Characteristics of a Sample of Micro and Small Enterprises in Thailand - Working Paper N°5 - Micro and Small Enterprise Development and Poverty Alleviation in Thailand - Project ILO/UNDP: THA/99/003 (ILO-ISEP - ILO - UNDP, 1999, 102 p.)|
|3.0 Characteristics, problems and needs of Thai MSEs|
From the results of the small field survey, combined with the past experience and accumulated knowledge of the consultant, the characteristics, problems and needs of Thai micro and small enterprises (MSEs) can be summarized as shown below.
3.1.1 Supported microenterprises
The entrepreneurs: The entrepreneurs in this group are mainly individuals or groups of laid-off workers, or some of the unemployed local population, who have their own ideas about income generation. They have approached the various agencies for financial support to establish their enterprises. Most already have the skills needed to operate their business, acquired either through previous employment or training. However, most of them do not have experience in marketing or financial management. In general they are aged between 30 and 50 years, with education at the elementary, high school or vocational school level. Although no discrimination is evident in the support policies and programmes, there are significantly more women than men in this group of supported microenterprises. This gender aspect will be dealt with in more detail later.
The enterprises: Most of supported microenterprises are found in the manufacturing sector. All of them are new enterprises, only one or two years old. They are mostly very small, even smaller than typical independent microenterprises.
Start-up: As stated above, this category of entrepreneurs already have their own business ideas and operational capabilities. However, start-up would not be possible without the financial support received from the various government agencies. No other funding seems to be accessible. The capital needed for the start-up may vary between 20,000 and 200,000 Baht. Apart from financial difficulties, finding proper premises for business seems to be the most significant problem. Most end up using community facilities or their residences as business premises, which in many cases can hinder or limit business activities.
Production or operations: Production operations in supported microenterprises are generally relatively simple, labour-intensive and use traditional technology. Given that most entrepreneurs skills lie in the production or operational part of the business, this should be the strongest characteristic of the enterprises. However, enterprises are found to be complacent about their production operations and use of technology. They do not seem to look for better methods, improved effectiveness or enhanced efficiency.
Marketing: Sales are usually made in the area close to the business premises with customers coming to the enterprise to make purchases. Occasionally these enterprises are called on to join trade fairs organized by government agencies to assist their marketing. Significant sales are made at these fairs. Some enterprises even rely on the fairs for a good proportion of their income.
Finance: As financial support from agencies is given as a lump sum when the businesses start up, many enterprises later find that these funds are not adequate to meet their working capital needs. Because few, if any, other external sources of finance are available, business activities have to be limited and as a consequence these enterprises face certain financial disadvantages. Basic book-keeping is used for cash and inventory records only.
Legal environment: Legal aspects seem to be scale-neutral for these supported microenterprises. They appear to be neither a constraint nor helpful to the business. Besides, most entrepreneurs know very little about the commercial law, tax law or regulations related to or governing to their business. At present, the benefits allowed by the regulations, such as tax exemptions, have very little or no effect on these enterprises.
Business development services (BDS): At present no formal BDS are found for supported microenterprises. Some advice or marketing assistance (mainly fairs or flea markets) is provided, normally based on the initiative of individual officials. If possible, the enterprises would want to obtain marketing assistance.
Associations: The enterprises are not members of business associations. They are not represented as members operating in the private sector of the country. They do not understand the important role of representative associations and they do not see the usefulness of such associations.
Entrepreneurship: Entrepreneurship is not a precondition, a criterion or qualification required in order to be able to receive assistance through the programmes provided by the Government. Some entrepreneurs and government officials alike even see these programmes as temporary measures to solve social and economic problems, rather than as support for business creation
3.1.2 Independent microenterprises
The entrepreneurs: The entrepreneurs in this group are individuals who have gained experience from their former employment, are unemployed, or else have never been employed. They have adequate resources and wish to create an enterprise of their own. They are seekers of opportunities and resourceful enough to realize their entrepreneurial ambition. They can be either male or female, and aged around 30 to 40 years. Their educational background may be at elementary, high school, vocational, or university level.
The enterprises: The independent microenterprises are operating as manufacturing, service, or trading firms. Most of them are new enterprises, between one and five years old.
Start-Up: In general, the independent microenterprises are started up with the entrepreneurs own financial resources. They may get some assistance from relatives or friends, but seldom from financial institutions. The amount of start-up capital needed may vary between 100,000 and 500,000 Baht. Apart from financial difficulties, finding proper premises - especially for service and trading businesses - seems to be the most significant problem. Most operate from rented premises, rather than owning their own premises.
Production or operations: The production operations in independent microenterprises are generally simple, using traditional technologies. And again, as most entrepreneurs are skilled in the production or operations area, this should be the strongest part of their enterprises. Again, the enterprises are found to be complacent about their operations and technology. They do not seem to look for better methods, effectiveness or efficiency. Only very few enterprises are found to be interested in seeking the most appropriate technology for their business. Marketing: Sales are usually made in the area of the business premises, with customers coming to the enterprise to make purchases.
Finance: Access to funding from financial institutions for independent microenterprises is limited due to the lack of assets for collateral. In many cases, the working capital is financed by suppliers. Book-keeping is restricted to cash and inventory records. The enterprises generally use an external accountant to perform official book-keeping and tax filing functions.
Legal environment: The legal aspects of their businesses are scale-neutral for these enterprises. Laws and regulations appear to be neither a constraint nor helpful to business. In addition, most entrepreneurs know very little if anything about the commercial law, tax law or regulations related to or governing to their business. At present the benefits allowed by the regulations, such as tax exemptions for professional services, etc., have very little or no effect on these enterprises.
Business development services (BDS): At present no formal BDS exists for these independent microenterprises. Some advice or information is received from friends, customers, and suppliers.
Associations: The enterprises are not members of business associations. They are not represented in the private sector of the country. They do not understand the role of associations, and do not see the usefulness of associations.
Entrepreneurship: Entrepreneurship is strong in this group. These business people had to invest their own resources in the business and overcome many obstacles in order to establish an enterprise of their own. However, many entrepreneurs view their enterprises as an occupation or income-generation activity, rather than as a real business. They generally feel complacent after the enterprise has reached a certain level of operation, and will not seek or do not feel the need to seek further opportunities to grow or expand, especially when any degree of risk is involved. Some even turn down opportunities that have been offered to them in order to avoid the accompanying risks.
3.1.3 Small enterprises
The entrepreneurs: The entrepreneurs in this group are individuals who have gained experience from former employment, or have never been employed, or who were unemployed. They have adequate resources and wish to own an enterprise of their own. They are seekers of opportunities and resourceful enough to achieve enterprise ownership. In fact many of them are successful microenterprises which have been continuously expanded to become small enterprises. There are more males than females in this category, and they are aged between 30 and 60 years. Their educational background may be at elementary, high school, vocational, or university level.
The enterprises: The small enterprises are engaged in manufacturing, service, or trading activities. Most of them are relatively old enterprises, and have been established for five to 15 years.
Start-up: As stated above, most of the small enterprises began as microenterprises and expanded. By the time they reached the small category, they had already accumulated considerable assets. Thus, when they expanded to small enterprise level, they were usually able to access loans from financial institutions. Since many entrepreneurs prefer to accumulate wealth in the form of hard assets rather than as cash or short-term investments, the expansion of these enterprises is most often financed by bank loans using those assets as collateral. The value of assets of small enterprises varies quite widely from 50,000 to 500,000 Baht, to more than 20,000,000 Baht. And, unlike the microenterprises, most operate from their own premises.
Production or operations: The production operations in small enterprises are generally simple with mainly traditional technologies, but they can be more sophisticated and/or involve more hired skilled workers than in microenterprises. Thus, operational efficiency relies more on the workers skills than on the entrepreneurs own operational skills. The technology used in the operations of these small enterprises is generally selected on the basis of the past experience of the entrepreneurs, or from information provided by suppliers of equipment. Again, the enterprises tend to be complacent about their operations and use of technology, and are quite confident that their customers are satisfied with their product quality. They either do not seem to look for better methods, effectiveness or efficiency, or do not know where to search for the relevant information. Only a few enterprises are found to be interested in seeking the most appropriate technology for their business.
Marketing: The principal market for these small enterprises is their local province. However, they also have to make sales in the wider market represented by other provinces, and a few are involved in exports in order to create adequate income. Still marketing is seen as a passive activity, relying on customers approaching the enterprise to make purchases. As such, they have problems attracting or reaching out to customers or potential customers in areas further away from the nearby area.
Finance: For these small enterprises, access to funding from financial institutions is highly probable. However, most of the time the amount of funding is strictly limited to the value of assets to be mortgaged, and sometimes this is not adequate. As such, the growth or level of operations is sometimes determined (or limited) by the amount of credit given. Book-keeping is still one of the small enterprises weaknesses. Proper accounting is seldom practised, and most use an external accountant to carry out official book-keeping and tax filing functions. The entrepreneurs themselves have only a vague grasp of the actual performance of their enterprises, which they judge on the basis of their cash position.
Legal environment: The legal aspects also have a rather neutral impact on these small enterprises. They seem to be neither a constraint nor helpful to the business. However, the level of involvement with laws and regulations is more evident with the small enterprises than with the microenterprises. This is, perhaps, because the small enterprises are more visible, or because they have a greater impact on society. The legal aspects which touch these enterprises are mostly specific regulations governing particular sectoral activities, such as the Food and Drugs Administration (FDA) regulations, forestry regulations governing timber transportation, transportation regulations affecting trucking firms, etc. These aspects have created some problems or difficulties for some enterprises, depending upon the type of their operations. Besides, most entrepreneurs know very little if anything of the commercial law, tax law or regulations related to or governing their businesses. At present, benefits allowed by the regulations, such as BOI privileges, tax exemptions for professional services, etc., have very little or no impact on these enterprises.
Business development services (BDS): At present the BDS support for small enterprises is mostly in the form of training provided by government agencies, trade associations, or other organizations. However, the proportion of small enterprises benefiting from such training is still very small and almost insignificant. Enterprises also received some training, technology transfer, and information from suppliers, as well as receiving some advice or information from friends and customers.
Associations: Most of the enterprises are not members of business associations. A few, especially those in the provinces, are members of chambers of commerce or the Federation of Thai Industry. Still, most of them are not represented in the private sector of the country. They do not understand the role of associations and do not see the usefulness of associations.
Entrepreneurship: Entrepreneurship is strong in this group. They have invested their own resources in their businesses, and overcome many obstacles in order to reach the small enterprise level. However, many entrepreneurs view their enterprises as having attained their goal. They generally feel complacent and do not seek or do not feel the need to seek further opportunities to grow, especially when any degree of risk is involved. Some even turn down opportunities that have been offered to them in order to avoid any accompanying risks.
From the results of the survey and the characteristics of Thai micro and small enterprises (MSEs) as described above, the problems and needs of the enterprises can be summarized as shown below.
3.2.1 The lack of or limited access to credit financing
This problem was found to affect most of the micro and small enterprises in the survey. Most of the supported and independent microenterprises which did not have substantial assets which could be used for collateral, did not have access to credit financing at all. In the case of most small enterprises, and a few microenterprises, although they have access to credit financing, the amount of funding is very much limited to the value of assets available as collateral. This has limited and sometimes denied these enterprises the opportunity to grow or expand to their real level of potential.
3.2.2 The lack of access to wider markets
As entrepreneurs in MSEs generally have to perform all of the management functions in the enterprise, they usually do not have time and/or resources to reach out or to develop access to the markets beyond their immediate location. Given the absence of business development services (BDS), they generally do not have knowledge or information about other markets. This has limited the ability of the MSEs to market their products to larger groups of customers and expand their business. This problem was found to be more serious in the microenterprises included in the survey, than in small enterprises.
3.2.3 The lack of capability for business planning
Most entrepreneurs have not been trained in business management. Most had started and operated their enterprise without proper business planning. As a result, many enterprises had encountered problems such as inadequate funding, inadequate marketing, inappropriate equipment and technology, inadequate access to skills and skilled workers, etc. These factors have combined to cause the MSEs many difficulties and contributed to their poor return on investment. Had the business been properly planned, many of these problems could have been avoided by these entrepreneurs.
3.2.4 The lack of or limited skills of workers
This problem was found more in the small enterprises surveys, as their operations rely on more and better skilled workers than is the case for the microenterprises. With the very limited skills development services that are available, especially in the provinces, most enterprises hire unskilled workers and then train them on the job. This has adversely affected their productivity and has been an added burden for these enterprises.
3.2.5 The lack of knowledge or information on technology
The equipment and technology employed by the enterprises surveyed are typically based upon the limited exposure and past experiences of the entrepreneurs themselves, as well as on information provided by suppliers, friends and relatives. These enterprises have hardly any agencies that they can contact to acquire relevant information. This has made their choices of equipment and technology, and their chances of upgrading for greater efficiency, very limited. Furthermore, the information received is frequently dependent on accepting a proposal from one particular supplier or another. This problem seems to be more serious in the province (Phetchaburi) than in Bangkok.
3.2.6 The lack of skills in financial management and simple accounting
As reported above, most enterprises do not have any proper internal book-keeping system to provide them with the financial information that is vital for effective management. This is because of the lack of or inadequate skills of the entrepreneurs in financial management and accounting, and because the enterprises cannot afford to hire a full-time accountant. It was found that this problem was as serious in the microenterprises as in the small enterprises. However, judging from the consequences arising from this problem, it is more urgent to address this issue in small enterprises than in microenterprises.
3.2.7 The lack of knowledge or information on other markets and on business opportunities
At present and in the absence of BDS, the MSEs have virtually no sources of information on other markets or opportunities outside their immediate surroundings. Most enterprises lack the knowledge or ideas needed to develop their products or services in order to capture wider markets. This has made market expansion too heavily dependent upon speculation, sometimes too costly for the enterprises, and thus limited the new market opportunities to grow or to expand their businesses.
3.2.8 The lack of knowledge or information on tax laws, and other commercial laws and regulations
As reported above, most micro and small enterprises (MSEs) operate with little or no knowledge of the laws governing their business practices. When conflicts arise or when they are required to do so by law, these enterprises - especially microenterprises - are usually dictated to by government officials who may not fully understand or appreciate their businesses. This has created difficulties and problems which could have been avoided if the enterprises had had a greater knowledge and understanding of the laws and regulations.
In order to overcome these problems, proper financial and business development services (BDS) and improved access to these services should be made available to the micro and small enterprises (MSEs). In particular, the services needed by the MSEs can be summarized as shown below:
· Non-collateral credit or non-loan financing scheme, particularly for start-up and for expansion;
· Marketing and networking assistance, especially for markets outside of the enterprises immediate surrounding area;
· Training focusing on simple accounting and financial management, including budgeting;
· Advisory and information services on technology management, taxes, laws and regulations, market opportunities, and product development;
· Access to skilled workers, as well as to skills development for existing workers;
· Training in business concepts, business environment and business planning;
· Training in entrepreneurship development and opportunity identification.
As can be expected, the findings from the survey as described above are not totally unique. Although its target groups were quite different, the 1997 survey of Small and Medium Industry commissioned by the Department of Industrial Promotion (DIP) drew quite similar conclusions about the problems facing the enterprises, including5:
· The lack of technical and managerial capabilities;
· The lack of access to wider markets;
· The lack of access to finance;
· The lack of skilled workers and skills development;
· The lack of access to information vital to business.
5 Advanced Research Group Co., Ltd., Report on the Survey of Small and Madium Industry (SMI) submitted to DIP August, 1997; and Manu Leopairote, Role of SMEs in Reviving after the Economic Crisis.
In addition, a study report was conducted in 1996 with funding from ILO, as part of the Rural Income Opportunities Programme (during the Investigation and Planning Phase). This involved microenterprises created in the rural areas within the assistance program of the Ministry of Agriculture and Cooperatives. The studys findings were quite similar, and showed that the needs for support services to these microenterprises were6:
· group formation and organization;
· business ideas and technology transfer;
· business management training and advisory services;
· marketing assistance;
· access to capital; and
· a coordinating referral mechanism for access to additional expertise.
6 David Lamotte and Maitree Wasuntiwongse, Report of the Investigation and Planning Phase, Rural Income Opportunities Programme THA/93/002, March 1996.
Thus, it can be concluded from the results of this particular ILO/UNDP survey that the characteristics, problems and needs of Thailands urban-based micro and small enterprises (MSEs) appear to conform with previous information and knowledge relating to the small enterprise sector. Consequently, it can be confirmed that past experiences and best practices which had been suggested earlier for MSE development are still highly relevant and applicable.