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NEWS UPDATES Asean Affairs    29 May 2012

SMEs of Thailand: 'least competitive' among 5 Asean nations

29 May 2012

After the recent increase in the minimum wage, the competitiveness of Thai small and medium-sized enterprises was ranked the lowest among five key Southeast Asian countries, from second previously, in a recent survey by Dhurakij Pundit University Research Centre (DPURC).

The centre's director, Kiatanantha Lounkaew, said yesterday that this change resulted from a 40-per cent increase in labour costs after the government raised the daily minimum wage to 300 baht (US$9.4) in April while labour quality remained unimproved.

Kiatanantha said the research made use of the World Bank's Enterprise Survey Data from 2006 to 2009 with total sample size of 3,161 enterprises from five countries: Thailand, Malaysia, Vietnam, Indonesia and the Philippines, the so-called New Asean Tigers.

The ranking is based on relative efficiency of SMEs. The underlying argument for using this as a criterion is that most SMEs operate in an intensely competitive environment.

Efficiency, therefore, is essential to the survival and growth of the enterprise. An econometric method called the Stochastic Production Frontier was used to calculate efficiency scores of each of the 3,161 SMEs. These enterprises were then ranked, with a score closer to 1 representing a more competitive firm.

Before the wage increase, Thailand was ranked No 2 after Malaysia, while Vietnam, Indonesia and the Philippines followed respectively. But after the change, Thailand dropped to No 5, while Vietnam was ranked No 1 followed by Indonesia, the Philippines and Malaysia.

Kiatanantha said these results were a direct consequence of a long-neglected labour-quality policy in Thailand. He noted that research by the Asian Productivity Institute in 2004 found that from 1980 to 2000, deteriorating labour quality hampered the growth of gross domestic product in Thailand.

This negligence is now manifesting itself in terms of stagnant labour productivity.

The result is supplement by a field survey on Thai SMEs' preparation for Asean integration. The survey polled 1,073 SMEs from 18 provinces nationwide. It found that only 26.4 per cent of the respondents indicated that they had a clear idea about what had to be done to make them more competitive, while 73.6 per cent did have a clear idea on the matter.

The survey also solicited opinions about SMEs' readiness for the implementation of the Asean Economic Community, which will come into effect in three years. It reported that 36.4 per cent of all participants said they wanted to improve their productivity; 31.5 per cent wanted to develop their workforce, including communication skills, cultural knowledge, and analytical thinking; 11.8 per cent would seek new markets; 10.1 per cent would focus on better financial management; and 10.2 per cent were thinking about new machinery and factory relocation.

Kiatanantha said that what Thailand needed was not a piecemeal productivity improvement policy. "If Thailand wants to reclaim its competitiveness, we have to have a big reform programme to upgrade the way our SMEs are doing business."

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