SMEs - The Bridge for Creating Equity in ASEAN

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SMEs The Bridge for

Creating Equity in ASEAN

Dyah Purnamasari

Violen Amelia Silkana

ECONOMIX 9TH COMPETITION


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b. Towards the creation of regional economic competitive (regional

competition policy, IPRs action plan, infrastructure development, ICT,

energy cooperation, taxation, and SMEs development);

c. Towards a region of equitable economic development through SMEs

development and Initiative for ASEAN Integration (IAI) programs; and

d. Towards full integration in the global economy (coherent approach in the

external economic relations and encourage participation in the global

supply network).

In order to achieve the AEC objectives, the ASEAN Economic Ministers and

the ASEAN Secretariat then made a guideline in carrying out activities called

AEC blueprint. AEC blueprint itself contains strategic work plans that will be

done in the short term, medium term and long-term. In addition, the ASEAN

Ministers also made the ASEAN Policy Blueprint for SME Development

(APBSD). By establishing this APBSD, a question arises. Why do ASEAN

members focus in developing SMEs in ASEAN?

Being part of an organization that has established for about 44 years did not

provide a big impact enough for the member countries of ASEAN. There werestill many problems occurred in ASEAN, including problems in the economic and

social development which can be seen in the presence of a sizeable gap among

ASEAN member countries. To see how the gaps are, in this paper, we will explain

in three aspects which are income gap, human development gap, and digital gap.

1. Income Gap

Income gap includes differences in state income, calculated with a GDP per

capita. Here, the biggest income gap occurs between ASEAN-6 countries

(Indonesia, Singapore, Thailand, Philippines, Brunei Darussalam, and

Malaysia) and CLMV countries (Cambodia, Lao PDR, Myanmar, dan

Vietnam). Based on the tables and graph illustrated below, the gap is getting

bigger each year.


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Figure 1: Average GDP Per Capita for ASEAN-6 and CLMV

Beside GDP per capita, there is another indicator to see income gap, which

is poverty incidence. Based on data from Asian Development Bank in

2002, more than 30% of the population in Cambodia and Myanmar live on

less than US$ 1 per day. It is so contrast if we compare with other ASEAN

member countries like Singapura, Brunei Darussalam, Malaysia danThailand which live on more than US$ 2 per day.


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Based on datas above, we can see that there is wide in income gap between

ASEAN member countries.

2.Human Development gap

Human development gap is evaluated by HDI (Human Development Index).

HDI is an index that used to measure poverty, literacy, education, life

expectancy, standard of living and other factors. It is used to distinguish

whether the country is a developed, a developing or an under-developed

country, and also to measure the impact of economic policies on quality of

life. The categories of HDI are low human development if HDI 0,8.

HDI for ASEAN countries will be illustrated below.


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From the graph above, there is a wide gap in human development

among ASEAN member countries. Brunei Darussalam and Singapore

include high human development countries. Malaysia, Thailand and

Phillipines include upper-medium human development countries. Vietnam

dan Indonesia include lower-medium, and Lao PDR, Myanmar andCambodia include low human development countries.

Beside HDI, we can also look at life expectancy level. Based on

the illustration below, we can see that there is also a big gap among

ASEAN member countries.


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From the tables above, Singapore, Brunei Darussalam and

Malaysia have high life expectancy level, while Lao PDR and Cambodia

had a low life expectancy level.

Moreover, education also includes one of important factors used to

see how the qualifications of existing people in a country. High levels of

education can stimulate economic growth with productivity of society. To

see how the condition of education among the ASEAN countries, we use

data of the level of illiteracy shown in the table below.


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From the table, literacy rate in ASEAN increase each year, but there is still a

wide gap among ASEAN countries. Brunei is the highest literacy rate

country, while Lao PDR and Cambodia have a very low literacy rate.

3. Digital Gap

Digital gap is gap come from the differences in usage level of Information

and Communication Technology (ICT) among ASEAN countries. Digital

gap can be seen from how the level of development of ICT in ASEAN

countries.To see how much digital gap among ASEAN countries, we willsee from the ICT Penetration Level of Technology and Information, average

growth of ICT Penetration in ASEAN, and the number of telephone lines in

ASEAN countries.


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The tables above show that the usage level of ICT in ASEAN countries is

still low. Only few countries such as Singapore and Malaysia use fairly high ICT.

With the considerable gap among ASEAN member countries, the ASEANmembers then agreed to develop SMEs in order to reduce the gap, so ASEAN can

achieve the objectives of AEC to be a region with equitable economic

development. Developing SMEs is selected because SMEs are the majority

enterprises in ASEAN, both in terms of quantity and employment. In terms of

quantity, SMEs have more than 96% of the total enterprises in ASEAN. In terms

of employment, SMEs are the largest absorber of labor about 50% to 85% of the

total workforce in ASEAN countries. As majority enterprises, SMEs have

contributed significantly in the GDP of ASEAN countries by 30% to 53% and

also to exports by 19% to 31%. With fewer workers, less capital, and easy

establishing, the SMEs become an enterprise which can accommodate all the

people in the community both in developed and underdeveloped areas and also as

a medium for women and children so they can participate in the economy. In other

words, it can be concluded that SMEs are the backbone for the economy of

ASEAN countries.

The percentage of SMEs number and its workforce are illustrated below.

Table 9 : Number of SMEs and SMEs workforce in ASEAN

Year 2000 SMEs as % of all firms SME workforce as % of

total employment

Brunei 98 92

Indonesia 98 88

Malaysia 84 39/m

Philippines 99 66

Singapore 91 52

Thailand 96 76/m


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Cambodia 99 45

Myanmar 96 78

Vietnam 96 85

Source :Asasen, et al. (2003)

Note : Percentages refer to shares in national totals.

/m : manufacturing only.

Unfortunately, as a backbone of the economy in ASEAN, SMEs in

ASEAN still face several obstacles to develop further. The obstacles can come

from the SMEs itself such as financial or human resources problem, and also from

outside the SMEs such as a lack of government support or the lack of information.

Not only facing some obstacles, SMEs in ASEAN also face some challenges. One

of them is how SMEs becoming innovative SMEs so they can meet the standards

and desires of the global market.

Because of that, to maximize the potentiality and participation of SMEs so

they can be used as the tools for overcoming gaps in ASEAN, there are two

approaches that have to be done. They are inside approaches and outside

approaches. Inside approaches is ways that done to increase the quality of the

SMEs so they can struggle in the global market. Besides, outside approaches is

how outside environment can be used as tools to support further development of

SMEs potentiality and also the participation of SMEs themselves.

The first thing that we will discuss further is about inside approaches.

They include in fixing from financial side, human resources, managerial, and also

technological development. Financial problem is a classical problem faced by

almost all SMEs in ASEAN. Limitation of funds make SMEs becoming

underdevelopment, hard making innovations, limitation of products quantity,

decreasing in quality because the raw material used are cheap and also low

quality, which caused hard to get them into the global market because the goods

produced do not fulfill the qualification and standards to entrance the global

market. Because of that, this financial problem has to be overcome. In ASEAN


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Strategic Action Plan for SME Development (SPOA) which is made by ASEAN

Economic Minister (AEM), there are some steps taken to overcome financial

problems that faced by SMEs in ASEAN. Those steps include build financial

institution in ASEAN countries, build ASEAN credit biro, ASEAN money market

for SMEs, determine credit policy for SMEs that will be valid in ASEAN

countries, facilitate SMEs to get loan from bank and cooperate with ADB or

World Bank to make it easy.

Next steps in the inside approaches is about how to increase the ability of

human resources and the managerial ability. SMEs are majority works in ASEAN

countries, but most SMEs are handled simply and personally. The limitation ofgood human resources becomes one of big problems in developing the SMEs

themselves. With inability in the managerial things, they become worst. These

things cause SMEs becoming not innovative, stagnant in the same place, less

coordination in managing the SMEs, and not separate individual wealth and SMEs

wealth. In order to overcome this problem, the ministries have planned to hold

regional training for SMEs in ASEAN as written in SMEs Blueprint. This plan is

good since it can help the SMEs entrepreneurs to get deeper knowledge in

managing the SMEs themselves. The knowledge include in quality control, supply

chain, how to develop ideas and creativity, how to create and look at market

chances, good bookkeeping, and also recruit employees. Before holding this

regional training, it would be better if ASEAN holds sharing experiences about

SMEs in ASEAN in order to find the best way to develop the human resources in

SMEs. After that, every ASEAN members formulate their own ways that relate

with the condition of SMEs in their countries so the training can work well. This

regional cooperation ASEAN can also facilitate SMEs entrepreneurs in each

ASEAN members to do exchange to other ASEAN countries to share their

experience and knowledge. Besides, control from each government in ASEAN

countries and delegations from ASEAN are also needed to make sure that all

SMEs entrepreneurs have the same chance to get into this training.

Then, inside approaches also concern about how to develop friendly

technology that will be used by the entrepreneurs and also give benefits to them.


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These include the availability of information, effective and also efficient

information. Nowadays, technology is tools created and used by human to make

their work easier. SMEs also use this. Unfortunately, only Singapore and

Malaysia have used high technology. The rest of ASEAN members still less in

using technology since their access of technology are still low. In SMEs,

technology is highly needed in order to increase the efficient and effective work.

With technology, SMEs entrepreneurs can increase the productivity not only in

qualities, but also in quantities. The process of buying raw materials, producing,

saving, packaging, promoting, and distributing will also be easier if SMEs use

technology. Because of that, technology transfer is needed between ASEAN

members or from outside ASEAN to ASEAN member to get the best way in

technology that can be used by ASEAN countries and to upgrade the ability of

technology in ASEAN countries. Besides, the governments also have to cooperate

in providing technological facility that can be used by SMEs entrepreneurs in all

ASEAN countries. This cooperation can also be done with others outside ASEAN

like investment in technology. Providing technology also has to be related with

the availability of human resources that can use the technology. So, training about

SMEs technology has to be done in order reach the benefits of doing this.

Last in the inside approaches is how to increase marketing ways for SMEs

in ASEAN. As we know, marketing holds important roles for companies include

SMEs. Good products will not develop if it is not supported with good marketing.

As the vision of ASEAN is to make SMEs in ASEAN can enter the global market,

marketing is really needed for them. But, mostly SMEs in ASEAN still market

their products in regional only whereas abroad products enter ASEAN markets.

This must not be good for ASEANs SMEs. Because of that, as the technology

developed, Entrepreneurs of SMEs can use internet in order to help in marketing

process and promoting since E-commerce develop faster. Strategic Action Plan

made by AEM also stated that government of ASEAN member can hold routines

SMEs exhibition and facilitate the best SMEs from each regional to participate in

that exhibition. They also can choose one thousands best SMEs in ASEAN that

will be promoted through virtual SMEs exhibition portal. This portal can promote

SMEs to international market. ASEAN also can participate in SMEs international


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exhibition that will help them in develop their wings wider and to learn more from

international SMEs.

Second approaches that will be explained further is outside approaches.

Outside approaches are specifically talk about how outside environment can be

used so it can help in supporting potency and participation of SMEs in order to

narrowing development gaps. Outside environment that explained here are

government policies from each ASEAN countries that protect and support SMEs

in the country and also policies from ASEAN delegation to increase the

performance of ASEAN SMEs.

From the side of government policies in each country, governments have

to determine policies that can protect the availability of SMEs in their countries.

Since the rivals of the SMEs not only from outside the countries, but also from

inside the countries like bigger companies, the chances of SMEs to struggle is low

if they cannot provide efficient products and unable to promote their products

well. The policies form can be used like determining regulations or laws that

manage work competition happening in their countries. Besides, it will be better if

in each country, there is a special institution that responsible in coordinate all

activities related with the growth of SMEs in that country and also help in solving

internal and also external problems of SMEs in ASEAN like UKM Center (SMEs

Center). This SMEs Center will also act as supervisor and teacher helping in

developing SMEs in ASEAN

From the side of policies from ASEAN delegation to increase the

performance of SMEs in ASEAN, ASEAN member have to erase the non-tariffobstacles for products that come from other ASEAN members like obstacles in

licensing for the products to enter the country and obstacles in regulations and

specification. Besides, erase this obstacles, SMEs entrepreneurs also can decrease

their tax expense because they do not have to pay tax for import license and

transaction of foreign currency. This ease will motivate them to still develop their

SMEs so SMEs in ASEAN will develop faster and can help in narrowing

development gaps.


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Other things that can be done is integrating SMEs Center that provide

place for ASEAN SMEs. By doing this integration, SMEs Center can help and

work together in solving internal and external problems that faced by ASEAN

SMEs.

Besides, ASEAN countries also have to integrate in order to give award to

one hundred top SMEs in ASEAN. These activities that written in ASEAN

Strategic Action Plan for SME is a good tool in developing and motivating SMEs

in ASEAN to go further. This award also can motivate the SMEs entrepreneurs in

developing their work to be better and better and can help ASEAN in narrowing

those gaps.

As explained before, SMEs have big contribution for ASEAN economics

since SMEs have majority percentage of companies (about 90%) in ASEAN. If

SMEs can develop well, it will have impact to other sectors to develop too. These,

of course, can help a country becoming better, underdevelopment country will try

to chase their fact of having fallen behind, and gaps between ASEAN countries

will be decreasing. If SMEs can be more productive, innovative, effective,

efficient, and entrance the global market, SMEs will earn much benefits to

ASEAN and can contribute higher GDP to the country. The increase of Gross

Domestic Product makes country with low GDP can chase country with high

GDP. Besides, the development of SMEs will create more job for society that

make them earning more income and increase their standard of living.

This high GDP will also give direct impacts to government and also

society. Impacts felt by the government is increasing in income tax caused byincreasing in GDP. Higher income tax can be used to build education tools,

healthy, and good environment for society, and also programs that can create the

society more health and clever. Meanwhile, the society will be ease in accessing

education and health facility. By doing that, poverty, literacy, education, life

expectancy, and standard of living of the society can be increased and human

development gaps happened in ASEAN can be decreased.


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The development of SMEs which needed technology like internet and

telephone will increase the use of ICT in a country. Higher in the societys

awareness of education, higher in needed of information that cause the needed of

ICT will increase too. By increasing GDP along with desire with SMEs that basis

technology and awareness of greater education, therefore, government have to

provide more access to ICT. Moreover, increasing in income of society causes an

ease in accessing the needed of ICT and then, digital gaps in ASEAN will be

narrow.

Based on the explanation on previous points, here we come to the

conclusion. SMEs as the majority sectors in ASEAN have high contribution toreach the vision of ASEAN and also to develop ASEAN to go further to

international. Because of that, as the policy maker and as the supervisor, ASEAN

governments and delegates have to give focus in developing SMEs in ASEAN

especially in their own country in order to reach ASEAN vision to narrowing

development gaps between ASEAN members. Besides, they also have to provide

some tools for SMEs like in regulations sector, financing, technology, and human

resources sectors. By providing tools in those sectors that related and needed by

the SMEs, SMEs in ASEAN can be grown well. Therefore, gaps between ASEAN

countries can be narrowed and vision of ASEAN can be reached.


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