Success of Small and Medium Enterprises in Thailand - Essay Example

What is below the surface and what are the underlying success factors for small and medium enterprises (SMEs) in Thailand? College of Business Comprehensive Examination Jimmy Johnson Spring I 2010 • Table of Contents • What is below the surface and what are the underlying success factors for small and medium enterprises (SMEs) in Thailand? 1 What is below the surface and what are the underlying success factors for small and medium enterprises (SMEs) in Thailand? 3 Paper 1: RESEARCH 3 Abstract 3 Introduction 3 Background: SMEs in Thailand and their Importance 3 Background: Support of SMEs in Thailand 4 Problem Statement 5 Study Objectives, Research Questions, Terms and Definitions 6 Approaches to Research Methodology 7 Selected Research Methodology & Adopted Design 8 Conclusions 11 References 11 What is below the surface and what are the underlying success factors for small and medium enterprises in Thailand? 14 Paper 2: CORE CURRICULUM 14 Abstract 14 Introduction 14 Advantages of SMEs 15 Studies on SME Management and Leadership 15 Underlying Success Factors 18 Case Study: Critical Success Factors of SMEs 20 Rationale of the Study 21 Significance of the Study 21 Conclusions 22 References 22 What is below the surface and what are the underlying success factors for small and medium enterprises in Thailand? 25 Paper 3: CONCENTRATION CURRICULUM 25 Abstract 25 Introduction 25 Underlying Success Factors 25 Further Challenges and Solutions 26 Financing of SMEs 27 Case Study Revisited 28 The Current Direction of SMEs 29 Conclusions 29 References 30 • List of Tables • Table 1: Research areas and possible information sources 9 Table 2: Research design model 11 Table 3: Areas of focus and critical success factors of ABC Company Limited 20 Table 4: Order of priority for domestic and foreign customers of ABC Furniture Company Ltd 29 • List of Figures • Figure 1: Business success factors for SMEs 18 Figure 2: The Thai business model for financing SMEs 27 What is below the surface and what are the underlying success factors for small and medium enterprises (SMEs) in Thailand? Paper 1: RESEARCH Abstract SMEs are an important foundation of business activity in the Thai economy representing over 99% of the country’s businesses. The government is keen to support SMEs because of the potential economic and social benefits, and it has therefore devised several support initiatives. Various success factors are identified in addition to government support such as leadership and management skills, organizational culture and technology. After considering the three approaches to research methodology, it is decided that a mixed-method would be suitable because there is valuable data that can be collected and at the same time, more insightful qualitative information can be obtained. The descriptive research design will involve a survey to identify certain characteristics of SMEs and further research to gather qualitative information. Introduction This paper considers how three different approaches in research methodology (quantitative, qualitative and mixed design) could be applied to the topic area ‘What is below the surface and underlying success factors for small and medium enterprises in Thailand?’ using examples from the literature. We will explain which approach is most suitable by analyzing the options, and then formulate a proposed design detailing what reliable and valid secondary data would be collected and how to address the research question. First, a brief introduction to SMEs in Thailand is given to introduce the subject area of the proposed study. This includes what they are, their role, and important statistical facts. This is followed by a preliminary overview of some support initiatives provided to SMEs mostly by the Thai government. The identification of possible success factors helps to better focus the proposed study. Background: SMEs in Thailand and their Importance SMEs are defined by both number of employees and amount of fixed assets. These are fewer relative to larger enterprises. In terms of their function, they are an important foundation of business activity in most economies including the Thai economy. As of April 2009, the number of reported SMEs in Thailand is around 2.4 million, of which 400,00 are classified as genuine according to the Thai National Statistical Office (Pongvutitham, 2009). The Office of Small and Medium Enterprise Promotion (OSMEP, 2008) acknowledges that SMEs play an immensely important role in Thailand’s economy and represent over 99% of the country’s businesses. SMEs make an immense contribution to Thailand’s economic development “as they are the resources of job creation and revenue distribution for people in general” (innovationsme.com, 2008). Significantly, they are also the driving force behind the competitiveness and globalization of Thai products. An early study of trends of SMEs in Thailand was conducted by Wiboonchutilula (2002), which reviewed their evolution. It showed that although total employment by SMEs fell during the latter part of the last century prior to the economic crisis of 1997, this was largely confined to very small firms (with fewer than 10 workers), and was attributed to high economic growth. Nonetheless, SMEs still account for much of employment in Thailand. Thus, SMEs benefit employment, income distribution, national economic growth, and global economic competitiveness, attract foreign investment, and link with larger enterprises. It is therefore incumbent upon the government to support SMEs. Background: Support of SMEs in Thailand The government is keen to support SMEs because of the potential economic as well as social developmental benefits. The Thai government established the Office of SMEs Promotion (OSMEP) in 2000. It is the central planning office responsible for “formulating SMEs promotional policies and strategies as well as coordinating governmental and private working systems in achieving the firm and sustainable growth of SMEs” (OSMEP, 2010). The present Director General of the Office of SMEs Promotion (OSMEP) is Wimonkan Kosumas. OSMEP’s new integrated plan will serve the national SME promotion plan and has the following assigned roles: (1) coordination, (2) facilitation for all SMEs promotional agencies, and (3) promotion and support for all SMEs promotional agencies (innvocationsme.com, 2008). The current 2007 to 2011 five-year SME Promotion Plan is a continuation of the previous 2002-2006 plan (thailand.prd.go.th, 2007). Supporting SMEs also fulfils Thai’s national strategy for economic restructuring. In addition, the ASEAN has also tasked OSMEP to reap Asian Economic Community (AEC) benefits through better integration with the goal of strengthening regional competitiveness and increasing demand (Pongvutitham, 2009). This is to be achieved in two stages by first focusing on product manufacturing, and then expanding to the service sector, in particular tourism. A plan to strengthen venture capital for SMEs is also underway so that SMEs have access to greater liquidity. In the Thai digital content and games industry for example, the Thai government is playing an important role by undertaking the following measures: Making direct investment Offering business privileges related to business performance Establishing relevant laws and regulations SMEs are specifically encouraged to enter such industries and are assisted to establish their presence in the world market (Chooprayoon, 2007). The Thai government does not only serve the business sector but is also concerned with the social aspects such as engaging in projects to assess the impact on communities. The Department of Industrial Work in Thailand (DIW) also promotes environmental programs among SMEs such as ‘Green Productivity’ through examining their past manufacturing strategies (Anussomnitisam et al, 2009). However, as their survey of executives’ viewpoints showed, there is a general lack of importance attached to the environment among SMEs themselves in Thailand. A recent event held to support the SME food market was held in December 2009 in Bangkok. It was launched in cooperation with the Office of SMEs Promotion and the Ministry of Industry “in a bid to distribute income within the community as well as promoting the SME business market strategies” (Tancharoen, 2009). For supporting SMEs within the IT sector, The National Science and Technology Development Agency (NSTDA) under the Thai Ministry of Science and Technology and the Ministry of Industry launched ‘WebsiteSpark’ with the help of Microsoft (The Nation Technology, 2010). The program had the aim “to boost business development for professional web developers and designers by providing them with relevant tools and helping their work gain greater recognition in order to encourage new business opportunities”. The program is in line with the government’s Creative Economy Initiative and desire to reinforce the Thai IT ecosystem and long-term development. In the short term, the goal is to help develop “tools and solutions that are suitable and affordable for use by SMEs”. A leading bank that specifically supports SMEs in Thailand is called SME Bank. This bank aims to develop and strengthen the competitiveness of Thai SME entrepreneurs (smebank.co.th, 2010). The government of Thailand has designated SME Bank as “the core agency to assist, promote and develop Thai SMEs” (ibid). Problem Statement Despite the immense contribution of Thai SMEs to Thailand’s economy, they are also overall, characterized by limited managerial, administrative, marketing and technological knowledge and skills, and do not have sufficient access to credit as enjoyed by larger enterprises. Consequently, while some SMEs do demonstrate success, in general many SMEs either underperform or eventually fail. The problem of lack of training in SMEs for example, was highlighted in a study by Thassanabanjong et al (2009). It was found that most Thai SME managers are young and highly educated but invest little time or money in training. Instead, there was only evidence of informal and unstructured OJT (on-the-job training) except for advanced industries such as IT or among financially better off SMEs. The situation is even more acute in family owned SMEs (De Lema & Durendez, 2007). In fact, their approach to Human Resource Management (HRM) in general tends to be much more informal and negligible compared to the West (Forth et al., 2006). The proposed study could therefore highlight the importance of training as one of the success factors, which is an essential component of business activity (Garavan, 2008). Problems faced by SMEs in gaining access to additional funding or credit, severely limit their resources and therefore scope of activities and future prospects. It puts them at a great disadvantage (Fernandez & Nieto, 2005). This particular issue of financial constraints is not peculiar to Thai SMEs however. The situation is more or less the same worldwide, as pointed out in Europe for example (European Commission, 2006, p.52). Various reasons for this situation include lack of knowledge of availability of sources of long-term finance, lack of financial management skills to satisfy lenders, inability to meet rigorous assessment criteria, and bureaucratic screening processes (Atrill, 2006, p.276). SMEs are therefore also more prone to bankruptcy as happened in large numbers during the 1997 economic crisis. Other problems that hinder SMEs from succeeding include coping with globalization and access to international markets (Worthington & Britton, 2009, p.48), being less skilled in establishing ties with local networks among global SMEs (McNamara, 2005), and in developing successful growth models to expand the enterprise either regionally or globally (Li & Tan, 2004). Study Objectives, Research Questions, Terms and Definitions This study has the objective of examining what is below the surface and identifying the underlying success factors for SMEs in Thailand. The research questions are expressed by the title of this study. By success factors is meant those factors that are involved in or lead to an SME being perceived as successful. These and other important terms are formally defined below. SME – Stands for ‘Small and Medium Enterprises’; Business enterprises that are relatively small, especially in terms of the number of employees or amount of fixed assets. The Institute for Small and Medium Enterprises Development (ISMED, 2010) distinguishes between enterprises in the production/service, wholesale trading and retail trading sectors for each of the two aforementioned criteria. For example, an enterprise in the retail sector would be classed as medium as long as the number of employees does not exceed 30 or its assets do not exceed Baht 60 million. For enterprises in the production/service sectors, these upper limits are 200 employees or fixed assets worth Baht 200 million, and for wholesale traders, these are 50 employees or fixed assets worth Baht 100 million (sme.go.th). Success factors – These factors contribute to the success of the enterprise, as measured for example, by growth in the amount of sales, profits, or exports. Some success factors are listed in Figure 1 which pertain to characteristics of the entrepreneur such as education and experience, the SME such as source of capital and size, and other contextual variables such as business plan, marketing, technology, social network, and government support. Underlying success factors – These are the more fundamental or pervasive factors that form the basis of success. For example, a manager could be highly knowledgeable and his/her role in the enterprise is prominent that causes business success. Business performance – A measure of how efficiently and effectively the business achieves its set goals including meeting customer requirements in comparison to its competitors (see Chen, 1999). Approaches to Research Methodology There are three possible approaches that a research methodology could take to further the research on precisely what underlying success factors exist for SMEs in Thailand. These are quantitative, qualitative or a mixed-method. Firstly, a brief outline of the three options and possible types of information they could yield. 1. A quantitative only approach could yield useful numerical information related to SMEs in Thailand from which we could then surmise the actual success factors. This could be related for example, to the key indicators of the Thai economy, characteristics of SMEs in Thailand such as how many there are and of what types and details of financial support schemes from the government and others. 2. A qualitative only approach could provide insight into the general nature of the economy and types of support from the government and other institutions as well as internal characteristics of the SMEs themselves such as their managerial and cultural features. 3. A combined approach (mixed-method) has the potential to provide information on both the above. The study by Thassanabanjong et al (2009) mentioned above used a quantitative descriptive design involving a paper-based survey among 438 urban SMEs in Thailand using a drop-off questionnaire followed by some in-depth interviews. It had the objective of filling a research gap on the investment of SMEs in training and their approaches to training. The findings were not surprising, but one of the limitations of this study by the author’s own admission was that although it showed relatively low investment in training it did not explain why this was the case. It was also restricted to SMEs in urban areas. Another but purely quantitative study by The Asian Foundation (2001) examined the current and future use of the Internet an e-commerce by Thai SMEs and which necessarily took the form of a survey. Mostly however, there have been qualitative only studies on SMEs in Thailand. As an example, Phusavat et al. (2008) studied knowledge transfer across SMEs with the goal of identifying current practices. Explicit forms that were found to be in use were formal meetings, site visits and audits, and specific assignments of certain persons. Tacit forms were story telling, social interactions, etc. (ibid). A number of case studies have also been conducted on particular SMEs or industries with large numbers of SMEs or issues related to SMEs. For example, Thanitcul (2008) on SMEs and competition law in respect of goods supplies to larger retail stores, Likhitvorakul & Phungrassami (2009) on the eco-design of a cooling tower, and Chirico (2008) on how family owned SMEs value organizational learning. Selected Research Methodology & Adopted Design A mixed-method approach will therefore be suited for this study because there is valuable quantitative data that can be collected and at the same time, it will be necessary to gather more insightful qualitative information that a quantitative study alone would not be able to provide. Besides, many innovative organizations nowadays “go beyond the tried-and-true methodologies and use creative combinations of research techniques to gain deep insights to aid in their sophisticated decision making” (Cooper & Schindler, 2008, p.8). The quantitative phase will be useful to obtain numerical information such as demographic characteristics, size of enterprise, and performance figures. The qualitative phase will be useful to gather other information that cannot be quantified such as marketing strategies, sources of finance, use of technologies, details of governmental support, etc. Combining different methods of collecting and analyzing data is also justified for strengthening the reliability and validity of results as discussed further below. The type of study will be largely descriptive because we are attempting to simply identify and obtain information on certain underlying factors behind the success of SMEs. Descriptive research goes beyond exploratory research, “as it is undertaken to ascertain and describe the characteristics of the pertinent issues” (Collis & Hussey, 2009, p.4). However, we will also be interested in looking for causal relationships to be sure that the factors identified do contribute or lead to business success. This approach takes descriptive research a step further to identify how the factors lead to success (ibid). Data will be collected and it will be observed which factors are significant but we will not be overly concerned with why they are so. This type of research is popular “because of its versatility across management disciplines” (Cooper & Schindler, 2008, p.19). Thus, we will be concerned with the questions of what, who, when, where, and how, and the latter will address issues of quantity, efficiency, effectiveness, cost and adequacy. To analyze the relationships that suggest they lead to success (as measured by performance), the chi-square test for independence of correlation coefficients might be used. Data collection will be made by conducting a survey among SMEs to identify their characteristics that could be contributing to their successful operation, and in addition an analysis of information pertaining to external bodies that interact with SMEs such as governments, international institutions, non-governmental organizations and financial institutions. The sample of SMEs will therefore be complemented by a sample of SME managers and other bodies, and the type of data will be both qualitative and quantitative. The survey questionnaire, which will be delivered by mail to SMEs, provides a low-cost method; permits data to be collected from a diverse geographical range (Cooper & Donald, 2001), and provides a means for confidentiality. The participants for the survey will be obtained by cluster sampling from a directory of Thai SMEs. The response rate from mail-administered surveys of small businesses tends to be low and this could become a methodological issue (Dennis, 2003). However, a sufficiently large number of mails could yield a satisfactory response rate and by providing a prepaid return envelope and specifying a deadline for submission etc., more respondents can be encouraged. Moreover, the survey will be complemented by other qualitative data collection methods, i.e. making a few case studies of successful SMEs and interviewing a select number of successful SME managers to obtain the qualitative understanding and validate the study conclusions. In addition, several document analyses will be carried out as far as possible from the list of sources identified in Table 1. During the course of conducting research for this study proposal on the support given to SMEs in Thailand and considering further possible parts of the support structure, the areas listed in the table below have been identified by the researcher as possible lines of inquiry. Along with each is a mention of possible sources for more detailed information. Although these would be more suited to industry level analysis, individual SMEs are also affected by such environmental conditions. Therefore, the analysis will include only those variables that are found to be relevant to firm-level analysis. Table 1: Research areas and possible information sources Research area Possible information sources Economic conditions Key economic indicators from government and independent statistics and reports Government support Reports and websites of government agencies or departments involved with SMEs; speeches of government officials; government organized Financial support Provision by government and private banks Demographic trends Official and independent statistics Extent of competition Industry studies; information from conferences; local surveys Leadership and management skills Education and training literature Organizational culture Business research; public opinion surveys Technology Exhibitions and conferences; industry studies and surveys; Internet/e-commerce usage statistics Two important issues related to this research, apart from ethics discussed further below, are reliability and validity of results. Reliability is what ensures that the results obtained are consistent, that they accurately represent the population, and are replicable (Joppe, 2000). “Validity determines whether the research truly measures that which it was intended to measure …” (ibid). Although both reliability and validity issues will pertain particularly to the quantitative phase of the proposed study, to an extent they can also be applied to the qualitative phase (Golafshani, 2003) but in terms of precision, credibility and transferability (in ibid). To improve the reliability and validity of quantitative results and qualitative findings, several measures will be taken. The questionnaire will be devised with care to elicit the desired information; participants for the interviews will be selected with care to ensure they are trustworthy; all data collected will be triangulated, and the study in general will be conducted with rigor and with quality as paramount. In addition, to make the results representative of the population and improve external validity, the following variables will be controlled to obtain a fair sample: (1) location, (2) size, and (3) type. The location of enterprise will be controlled by conducting the survey across a wide geographical region (by mail), the size of enterprise by including SMEs of different sizes in terms of numbers of employees/assets, and the type of enterprise by including SMEs from different industries and sectors. The independent sample t-test may be used if there appears to be any significant difference between those participants that respond early to the questionnaire and those that respond late. Research ethics will be upheld by being better acquainted with applicable laws in Thailand, informing all participants about the purpose and nature of the research, respecting their privacy and confidentiality, securing all data collected, being frank with intellectual property, and adhering to APA guidelines. Table 2: Research design model Part 1 (Data collection and analysis) Part 2 (Amalgamation) Part 3 (Presentation) QUANTITATIVE PHASE Primary research: This will be largely descriptive based on a large sample obtained through a mail-administered survey. Secondary research: Analyses of statistical data gathered from secondary sources. Comparison of quantitative results and qualitative findings of the study Construction of composite model of success factors of Thai SMEs and formation of research conclusions QUALITATIVE PHASE Primary research: This will involve a few case studies of Thai SMEs and interviews of Thai SME managers, plus document analyses. Table 2 summarizes the key features of the research design model. It can be seen from the above design that the quantitative and qualitative phases will be undertaken concurrently rather then sequentially. Also, an equal emphasis will be given to both so it will not be unduly quantitative or qualitative overall. The results and findings will then be amalgamated for triangulation before forming the study conclusions. Conclusions SMEs are clearly a highly significant part of Thailand’s economy and this explains why the Thai government is keen to support them. The chosen mixed-method research method was justified for taking advantage of both types of data and the descriptive design is suited for addressing the main research question, which requires identifying certain factors. References Anussomnitisam, Pornthep et al. (2009). Environmental consideration and small and medium enterprises’ competitiveness improvement. 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What is below the surface and what are the underlying success factors for small and medium enterprises in Thailand? Paper 2: CORE CURRICULUM Abstract SMEs enjoy a number of advantages over LEs such as adaptability and community relations although they also have to face a number of difficulties such as access to finance. The main quantitative and qualitative findings of an important study by Vichitdhanabadee et al (2009) are outlined and good management practices highlighted. For example, it is shown that manager and SME characteristics are significantly related to business performance. Another study although not conducted for Thai SMEs points out some underlying success factors that could equally be applied. These are categorized under characteristics of the entrepreneur, SMEs and other contextual variables. A case study emphasizes the need for commitment to quality and customer satisfaction. Good leadership characteristics include a clear vision, working closely with employees and giving importance to the customer. These management characteristics are usually simpler for SMEs but their performance is more greatly affected by the educational background and past experience of the SME owner. The proposed study could help identify particular management skills that can be improved. It is shown that supporting SMEs is important because of the many desirable effects on the development of the economy. Introduction This paper seeks to examine and critically analyze the seminal works on leadership and management related to the topic area ‘What is below the surface and underlying success factors for small and medium enterprises in Thailand?’ The contributions, and shortcomings of academic and practitioner research surrounding this topic will be addressed. This will be followed by highlighting particular contributions that this research will address and thus why this research is significant. It considers why this research is being done and what has been found in the literature that leads us to believe that the research is worth pursuing. This will include a discussion of generalizability of the findings to related research contexts and questions. Possible advantages of SMEs are listed before examining some studies in the field of SME management and leadership highlighting some characteristics and success factors. Underlying success factors related to management of SMEs are then examined in detail. A case study focuses on more critical success factors based on the experience of a particular SME and its consequences for management. With this knowledge in mind, the rationale for the proposed study and the significance of the same are outlined to support the case for conducting a further study in the field. Advantages of SMEs Advantages of SMEs over larger enterprises: Independent management i.e. owned by their management Closer relationships with staff and customers They are more adaptable for catering to changes in the business environment Low capital requirements and investment Usually greater use of local skills and resources Can provide uniquely tailored products instead of mass production Have closer connection with the local community and environment The community benefits arise through a range of activities such as manufacturing, construction, transportation, supplies, financing, etc. It is therefore expected that governments are keen to support SMEs because they in turn promote the economic growth of the country (Cheungsuvadee, 2006). Studies on SME Management and Leadership Vichitdhanabadee et al (2009) studied performance management practices among manufacturing, trading and service sector SMEs in the Chang Mai province of Thailand. Survey data was gathered in combination with a select number of interviews in this triangulated study. It was found that “SME owners/managers appeared to understand the importance of business performance management in day-to-day business operations but due to time constraints were often not able to give adequate attention to performance management issues”. The survey results were in conformity with those of other studies showing that SME and owner/manager characteristics tend to influence business performance and its management. Business performance was measured in terms of net profit, total sales, turnover of inventories and number of customers. The main quantitative and qualitative findings are listed below. It should be pointed out that as the data was only collected from a particular province, this is a major limitation of the study and this affects the ability of the findings to be generalized. On the other hand, reliability tests were performed on the data so this is a positive aspect of the study. A longitudinal examination from a cross-section of SMEs in different locations besides different types and sizes is really needed to obtain significant findings. Nonetheless, this is still a very useful study in the field. Main quantitative findings: Of the 234 respondents (response rate: 78%), over a half were in the manufacturing sector, less than a third in the service sector, and over an eighth in the trading sector. Most business was conducted locally (55%) whereas 28% was with export customers and 17 with tourists. Nearly three-quarters of the SMEs were founded by the present owner. Most of the businesses (72%) employed less than 30 people while over a half employed less than 16. Fewer than three-quarters had assets less than one million Australian dollars (Nb. the choice of currency owes to the fact that this was an Australian study of Thai SMEs). Main qualitative findings: Manager and SME characteristics such as educational background and work experience, number of employees, value of capital, are significantly related to business performance. Larger SMEs tend to have higher business performance likely due to greater number of workers, larger budgets, greater use of technologies and better management. Greater business performance is also associated with greater knowledge and work experience, and higher education of the management. These managers are better and more quickly able to adapt to changes in the business environment. By greater performance is meant achievement of goals and meeting of customer requirements with relatively greater efficiency and effectiveness than competitors (Chen, 1999). The majority of SME funding derives from personal savings and family investment rather than from external sources which are difficult to access. Most SMEs lack financial and accounting information and have financial statements prepared by external accountants. Most SMEs seldom focus on management planning as in larger enterprises. Instead, they are found to plan usually in ‘fire-fighting mode’ (Garengo et al., 2005) and in a highly personalized way, and only for the short term. A noticeable improvement in business performance since 2007 is attributed to increased government and international support that commenced with the launch of ‘The Horticultural World’ international project (Vichitdhanabadee et al., 2009). Performance management involves processes that are consistently repeated so that the organization can meet its goals effectively and efficiently (McNamara, 2007). Gary (2007) defines it as a process in which plans are put into operation and lead to results. If individual, team and organizational goals are aligned, and information and resources are also aligned, performance is enhanced. The issue of satisfactorily measuring performance was considered by Dalrymple (2004). He used the International Business Profile Benchmarking to help identify the strengths and weaknesses of individual SMEs. Although this is an instrument developed in the UK, it has proven useful to diagnose European SMEs. Some of these benchmarks could be used and others modified to use for Asian SMEs. Thus, good management and leadership are at the heart of successful SME operation as with any size of organization. Performance management in particular, is also important for SMEs because it allows information to be gathered that can be used to aid decision-making and directing the business, enables progress to be evaluated, and organizational strengths and weaknesses to be identified (Ali, 2003). As SMEs are owned by the manager with full responsibility, management issues are more acute in SMEs than in larger organizations with several levels of management and stakeholders. Kotey (2005) noted that management practices in SMEs tend to be “informal, unstructured and seldom focus on strategic planning, procedures and policies”. However, it is usually sufficient for SMEs to implement a simple system of management (Phusavat, 2007) as they usually have limited finance and other resources. One of the most important concepts in the field of management and international business literature is that of quality management (QM). Chileshe (2007) showed that QM can be applied to areas such as customer, supplier, HRM and process orientation, and that these are interrelated and support one another. Other seminal works on SMEs include Madsen & Servais (1997), which examined the rise of global SMEs, Tiessen et al. (2001), which examined the new challenges posed by globalization and e-commerce, and Li & Tan (2004), which examined the business growth models of SMEs. Other seminal works in the field of international business not specifically concerned with SMEs were McDougall’s (1989) article exploring differences between domestic and international entrepreneurship (in Acs et al., 2003). The Li & Tan (2004) study recognized the failure of SMEs in transforming into larger enterprises. It used three cases of companies that successfully emerged as multinationals, and based on the insight gathered, developed a framework for business growth strategies and discussed its implications for SMEs. Underlying Success Factors The Vichitdhanabadee et al. (2009) study mentioned above highlights a number of areas that need attention and support, but it also points out some positive factors for SMEs in Thailand that lead to success for the SME management and consequently also for the SME. These are contained in the diagram (fig.1) below, which although taken from a study focusing on SMEs in Indonesia (Indarti & Langenberg, 2004), is useful in the context of Thailand as well. This lists underlying success factors generally applicable to SMEs under three categories: characteristics of the entrepreneur, characteristics of SMEs, and contextual variables. Figure 1: Business success factors for SMEs Source: Indarti & Langenberg, 2004 The aforementioned study (Indarti & Langenberg, 2004) examined the success factors among SMEs in Indonesia through a survey of 100 SMEs. Some of these points could equally apply to Thai SMEs as well, and it should be pointed out that both countries are in the same geographical region and both are developing countries and share some socio-cultural and economic characteristics. Based on this survey, it was revealed, “marketing, technology and capital access affect the business success in a positive way, while legality does so in a negative direction”. To be successful therefore, the authors suggested: “The owners of SMEs should pay more attention to improve marketing strategy, to advance technology, and to get capital access. Other interested parties with development of SMEs such as government agencies, universities, and business service development (BDS) should also be prepared for giving assistances in those fields… Simplification of bureaucracy and deregulation of legal aspects are also recommended to foster the development of the SMEs…” In the case of Thailand, the country already enjoys substantial support from the government and other interested agencies including a bank specifically for SMEs. NGOs are also active in supporting Thai SMEs and this is surveyed below. Of the first three points mentioned in the above quote, marketing strategy and the adoption of technology are two things that can be handled at management level and which are therefore to be highlighted in this focus on management practices. Apart from this, we could emphasize the importance of education and experience from the list of entrepreneurial characteristics. One NGO that supports SMEs worldwide, directly and indirectly, is the Global Reporting Initiative (GRI). The GRI focuses on providing specialized support and resources for supply chains through first identifying the needs of SMEs. They assist in preparing sustainability reports. As an example, the Sustainability Report of Art on Stitch Co., Ltd. (2007) prepared for a medium sized Thai business in the knitwear industry mentions the importance of creating “a harmonized working environment” and corporate social responsibility. Other success factors mentioned include production planning and quality control, leadership training, increasing revenue “by offering more value added products to our customers”, and its participation in the Thai government sponsored Productivity Improvement Program. Another NGO that specifically works to support SMEs in Asia is KIAsia (Kenan Institute of Asia). It believes that “providing low-income individuals with the skills necessary to succeed as entrepreneurs is one of the best proven means of raising incomes and bringing people out of poverty” and therefore assists SMEs to be successful. It arranges training and project management programs for example, in order to improve their competitiveness. Its latest engagement related to Thailand is the Thailand-EU SME FTA Enhancement Program in which it is assessing the ASEAN-EU free trade agreement’s impact on Thailand (KIAsia, 2009). On the problem of SMEs gaining access to sources of finance, venture (or private equity) capital is one possibility for long-term capital (Atrill, 2006, p.277). Venture capitalists are often willing to lend to SMEs despite their perceived risk because of the potential high returns. However, it remains to be seen what the scope is for venture capital in Thailand. The businesses would typically need to demonstrate solid growth potential and the ability to realize it. Other sources of safer finance as opposed to short-term loan sharks are government loan schemes The ability to innovate is important for every company especially in today’s highly competitive and fast-paced world. Smaller enterprises however, can take advantage of innovation to get an edge over larger enterprises because they are inherently more flexible and able to implement changes much quicker (Lynch, 2009, p. 186). This would require strong leadership with good imagination and ideas, and knowledge of latest information, technologies and market opportunities that can be exploited. As for coping with globalization, SMEs have a number of options even if they are faced with limited finances and other resources. These include forming strategic alliances, franchising, licensing to firms in other countries, and establishing joint ventures with other SMEs (Worthington & Britton, 2009, p.48). Case Study: Critical Success Factors of SMEs This case study is focused on an SME that was awarded two consecutive awards in 1998-1999 viz. ABC Furniture Company Limited. The company was studied by Apibunyopas and Songmuang (2007) for an international conference on business and information. This company is committed to quality and customer satisfaction as enshrined in its vision. The study identified three areas of company focus and five critical success factors listed in the table below. The customer relationship is so strong that the study points out there is trust between the company and its customers. Table 3: Areas of focus and critical success factors of ABC Company Limited Areas of focus Critical success factors Knowledge of customer and market Building customer relationship Building customer satisfaction Leadership Cooperation between marketing and production Modern production technology Employee training program Employee morale and incentive program As far as leadership and management is concerned including management practices, the critical success factors identified all revolve around these. Leadership itself is the topmost critical factor, ensuring cooperation between marketing and production is the responsibility of the management as is adopting modern production technology. In addition, employee morale and training is seen as necessary and again the management can give the right priority to these considerations for the sake of organizational success. In regard to the company in focus, the successful leadership at the company is described in the following words: “Managing director of the company has clear vision and possesses good leadership. He works with his employee and shows them how serious he is with regards to service to the customers. He will repeatedly act and stress during the meeting to let everyone know that the customer is important.” Rationale of the Study The brief literature review showed that management characteristics in SMEs are usually simpler as compared to larger enterprises because there are limited personnel, finances and resources. In addition, they tend to have a more centralized structure because the owner is usually a single manager or a partnership. It was also shown above that performance in SMEs is greatly affected by characteristics of the manager and SME. For example, Garengo & Bernardi (2007) identified such characteristics as capital value and size for the SME, and education and past experience of the manager. To this we could add SME location, technology use, knowledge of owner and access to information, contacts and resources. Indeed, the success of SMEs is almost entirely dependent on the manager and for this reason; a focus on the manager and management practices in SMEs is essential in order to understand the underlying success factors of the SMEs. Moreover, the large proportion and significance of SMEs in Thailand makes this country an ideal location for studying SMEs. Furthermore, the study has the potential for improving the foundations of SMEs through identifying management skills that can be improved, which would also indirectly impact upon Thailand’s economic development. Significance of the Study That this study is important is also closely related to the consideration of whether or not it is necessary to support SMEs. This was the subject of a study by Huang (2003), in particular whether there is “an enhancement of equity at the cost of efficiency” and the advantages of SMEs compared with larger enterprises (LEs). “SMEs were found to possess many desirable characteristics, including the high usage of labor, the economic use of capital, and the high relation towards more equitable distribution of income and rural development” (Huang, 2003). On the other hand, SMEs have relatively lower productivity than LEs in many industries. This suggests that there could be a risk of reduction in efficiency by promoting SMEs. Consequently, the study recommends “attention should be placed on balancing policies between industrial sizes and implementing more suitable policies and support for potential SMEs that enhance growth in Thailand’s industrial sector” (ibid). In fact, SMEs in all economies are important because they are a major driver of business and trade and therefore contribute towards the development of a country’s economy. The situation in Thailand though is that although the number of SMEs is a significant proportion of all enterprises, they are also faced with numerous problems such as lack of business knowledge, difficulty of access to funding, and inability to utilize efficient managerial practices as found in LEs. The findings of this proposed study could be a source of valuable information for SME managers on good business practices and available sources of funding. By knowing more about the success factors, SMEs can emulate some of these as appropriate, or otherwise modify them to their advantage or at least seek the kind of support they really need. Conclusions The study by Vichitdhanabadee et al. (2009) provided good information on management practices conducive to making SMEs succeed while highlighting typical problems that they also have to face. Although most SMEs cater to local markets, a significant number are shown to be involved in exports and catering to tourists. The importance of knowledge, education and experience of the manager cannot be understated because the manager is clearly at the centre of the organization and occupies are far more pivotal role than in larger enterprises. Equally unsurprising was the finding that SMEs have problems with access to external financing and managers have to rely largely on personal savings. This is most likely because SMEs are perceived as a greater risk than larger established enterprises due to poor record keeping of accounting information that makes financial institutions unwilling to lend to them (Sarapaivanich, 2003). It is true that the first few years are often turbulent for a SME, but it is challenging for the owner to steer the enterprise towards success, and in doing so, s(he) has the privilege of being independent and at the helm of his/her own business affairs. The critical success factors pointed out by the case study are also predictable in that customer relations and satisfaction are of central importance, the need for employee training and so on. The proposed study has the potential to further point out desirable management and leadership characteristics in particular. References Acs, Zoltan et al. (2003). Toward new horizons: The internationalization of entrepreneurship. Journal of International Entrepreneurship, Vol. 1, No. 1, pp. 5-12. Ali, I. (2003). A performance measurement framework for a small and medium enterprise. University of Alberta thesis. In Vichitdhanabadee et al., 2009. AOS. (2007). Sustainability report of Art on Stitch Co., Ltd. Retrieved February 25, 2010 from http://www.globalreporting.org/NR/rdonlyres/DA494B2E-3CEA-4607-A13C-D22EC96CC0D1/0/2007SustainabilityReportOfArtOnStitchCo.pdf. Apibunyopas, Preeyanuch and Songmuang, Dusanee. (2007). Thai SMEs critical success factors: a case study of ABC Furniture Company Limited. Paper presented at the International Conference on Business and Information, July 2007, Tokyo, Japan. R.etrieved January 30, 2010 from http://ibacnet.org/bai2007. Atrill, Peter. (2006). Financial management for decision makers. 4th edition. Financial Times Press. Chen, W. H. (1999). The manufacturing strategy and competitive priority of SMEs in Taiwan: A case survey. Asia Pacific Journal of Management, Vol. 16, pp. 331-349. Cheungsuvadee, K. (2006). Business adaptation strategies used by small and medium retail and increasingly competitive environment: a study of Ubon Ratchathani, Thailand. Edith Cowan University. In Vichitdhanabadee et al., 2009. Chileshe, Nicholas. (2007). Quality management concepts, principles, tools and philosophies: A valid methodology for deployment within UK construction-related SMEs. Journal of Engineering, Design and Technology, Vol. 5, Issue 1, pp. 49-67. Dalrymple, John F. (2004). Performance measurement for SME growth – A business profile benchmarking approach. Second World Conference on POM and 15th Annual POM Conference, Cancun, Mexico, Apr.-May, 2004. Garengo, P., Biazzo, S. and Bittitci, BS. (2005). Performance measurement systems in SMEs: A review for a research agenda. International Journal of Mangement Reviews, Vol. 7, No. 1, p.25. Garengo, P. and Bernardi, G. (2007). Organizational capability in SMEs: Performance measurement as a key system in supporting company development. International Journal of Productivity and Performance Management, 56(5-6): 518-532. Gary, C. (2007). Performance management: Creating economic value. Industrial Management, 49(2): 7-14. In Vichitdhanabadee et al., 2009. GRI. (2010). Support for SMEs. Retrieved February 25, 2010 from http://www.globalreporting.org. Huang, Ing-wei. (2003). Importance of SMEs development in Thailand. Forum of International Development Studies, 23, Mar 2003. Kraus, Dr. Sascha (Ed.). (2010). International entrepreneurship and SME internationalization. Call for Papers. International Journal of Entrepreneurship and Small Business. Retrieved February 24, 2010 from http://www.inderscience.com/browse/callpaper.php?callID=1311. Indarti, Nurul and Langenberg, Marja. (2004). Factors affecting business success among SMEs: Empirical evidences from Indonesia. Paper presented at the second bi-annual European Summer University, University of Twente, Enschede, The Netherlands, Sept. 2004. Retrieved January 30, 2010 from http://nurulindarti.wordpress.com/publications. KIAsia. (2009). Entrepreneurship, business and economic development. Retrieved February 25, 2010 from kiasia.org/web/upload/newsbytes/24.pdf. Kotey, B. (2005). Goals, management practices and performance of family SMEs. International Journal of Entrepreneurial Behaviour and Research. 11(1): 3-24. Li, Hui-Hong J. K. and Tan, Kim Hua. (2004). SMEs’ business growth model: a medium to big effort. International Journal of Management and Enterprise Development, Vol. 1, No. 3, pp. 195-207. Lynch, Richard. (2009). Strategic management with strategic management companion website student access card. 5th edition. Financial Times Press. Madsen and Servais. (1997). In Ian, 2010. McNamara, C. (2010). Employee performance management. Free Management Library. Retrieved January 30, 2010 from http://www.managementhelp.org/emp_perf/emp_perf.htm. Phusavat, K. (2007). Role of performance measurement in SMEs’ management processes. International Journal Management and Enterprise Development, 4(4): 441-457. Sarapaivanich, Naruanard. (2003). The use of financial information in financial decisions of SMEs in Thailand. A paper for the small enterprise association of Australia and New Zealand, 16th annual conference, Ballarat, 28 Sept-1 Oct, 2003. Retrieved February 25, 2010 from: http://www.cric.com.au/seaanz/resources/4Sarapaivanich.pdf. Tiessen, James H. et al. (2001). A model of e-commerce use by internationalizing SMEs. Journal of International Management, Vol. 7, Issue 3, pp. 211-233. Vichitdhanabadee et al. (2009). Performance management practice in the Thai SMEs. PMA Conference, April 2009. Retrieved January 30, 2010 from http://www.pma.otago.ac.nz/pma-cd/papers/1027.pdf. Worthington, Ian and Britton, Chris. (2009). The business environment. Financial Times Press. What is below the surface and what are the underlying success factors for small and medium enterprises in Thailand? Paper 3: CONCENTRATION CURRICULUM Abstract A positive outcome of the aftermath of the 1997 crisis was that many SMEs have adapted themselves to the new globalised economic conditions. SMEs now have the potential to propel Thailand forward and the government is keen to support them. Initiatives such as improving access to finance are an immense help, and web presence helps SMEs reach out to a wider audience. In the international business environment, SMEs also need to adhere to international standards and as shown by a case study, give special attention to customer relations. Introduction Drawing from recent literature on the topic area ‘What is below the surface and underlying success factors for small and medium enterprises in Thailand?’ this paper will evaluate the unique contributions and extensions of the research questions to the discipline on International Business. It will draw upon personal experience and a case study as well as the greater body of literature to address the intersection of the seminal work discussed in the earlier paper two with the current state of literature on International Business and the chosen research question. This paper begins with a brief examination of some underlying success factors of relevance within the context of the international business environment, and then discusses some further challenges and possible solutions including the important issue of financing of SMEs. The case study revisits the company introduced in paper two by focusing on its international business relations. It ends with a brief look at how SMEs are coping in the current competitive and globalised economic climate. Underlying Success Factors Although the economic crisis of July 1997, known locally as the ‘Tom Yum Kung disease’ and which followed a devaluation of the currency, made thousands of Thai SMEs bankrupt, a positive outcome of the aftermath of this crisis was that many SMEs have adapted themselves to the new globalized economic conditions. They have become more “tolerant to the changing economy and new environment” (Srivihok & Intrapairote, 2004). Large enterprises (LEs) had also been hit but SMEs were looked upon as hope for economic recovery. The resilience of SME has been evident in later crises such as SARS in 2003 and the tsunami in 2005. The contribution of SMEs to GDP was 40% in 2006 and to industrial exports was 75% in the same year (Yadav, 2008). For Thailand, SMEs have the potential to propel Thailand forward in the highly competitive and globalized world we live in today. Although the country is lacking in capital and labor for technology-based production, “SMEs seem to offer a way to tap the country’s rich local wisdom and cultural heritage to produce various unique high quality products” (Srivihok & Intrapairote, 2004b). The government is therefore keen to promote SMEs as discussed in paper one because they help to generate employment, improve labor skills, and can also attract foreign currency and foreign investment. Linking with Internet based companies such as directory sites can enable SMEs that either cannot make their own website or have little expertise with information and communication technology, to reach out to a wider audience. A recent success story is of Jatujak Market, an online shopping directory for a range of Thai products in the categories of art and antiques, gifts, furniture, sports goods, handicrafts, pet accessories, clothing and clothing accessories, and home utensils. Jatujak Market is a physical shopping area in Bangkok but with the creation of their website in December 2009, they now have the capability to sell their products and services online in a global marketplace. Initiatives such as this one are a great boon to SMEs. Further Challenges and Solutions At the international business level, it is also necessary to adhere to international standards. While SMEs may enjoy certain advantages in what they produce and how they conduct their business, the international arena is a different ballgame. It is a challenge of ‘craft versus standard’. On the other hand, there are also foreign SMEs operating in Thailand such as Korean and Japanese manufacturing SMEs that have strong links with their home country but weaker links in the country of operation. They are usually “adept in adjusting to international market standards, but less skilled in forging ties with local sector networks” (McNamara, 2005). In other words, they are adept at globalization but not localization. Examples of local ties include networks with specialized home producers, local knowledge in respect of laws and regulations, organizational culture, machinery and state resources. A suggestion put forward by McNamara at the 2005 APEC Conference in Korea was to create a regional ‘learning environment’ among SMEs for “driving a continual process of integrating local craft with global standards”. The main advantage for SMEs would be technology transfer and the main advantage at a global level would be innovation. He promotes knowledge as “the key to flexibility” and knowledge can transfer both vertically between locals and transnationals, and horizontally within a particular local industry. Learning communities can help foster effective sharing of knowledge among local and foreign SMEs, and APEC has the potential to play a major role in this regard (McNamara, 2005). Another line of action is to assist SMEs in Internet based and electronic commerce. The advantages of doing so include “decreasing costs, expanding marketplaces, enhancing competitiveness, improving business image, and increasing revenues” (Srivihok & Intrapairote, 2004b). Information technology attracts customers due to the convenience factor, access to detailed information, and greater range of products, and e-commerce allows the conduction of real-time transactions remotely and at low operating costs. Moreover, advances in the adoption of information and communication technologies can help Thailand “to survive and compete in a highly competitive globalised world” (Srivihok & Intrapairote, 2004b). Physically located enterprises are restricted by geographical constraints whereas e-commerce websites can reach out globally. For example, Oil Painting Repro is a Thai based company that specializes in reproducing oil paintings that are now able to take orders and deliver worldwide through their website oilpaintingrepro.com. Financing of SMEs On the subject of financing, an article in Cab Calling (Yadav, 2008) discussed innovative ways in financing SMEs in Thailand and Vietnam. It is noted that banks in South East Asian countries are taking a greater interest in supporting SMEs because of their important role in economic development. The following common problems being faced by SMEs are pointed out: “access to finance, collaterals, obsolete technology/machineries/equipments, deficiency of business development services, marketing, infrastructural bottlenecks, poor financial and managerial knowledge, and inadequacy of inputs/skilled labour…” From the perspective of bankers, SMEs are considered a high risk and as having ‘inadequate managerial competence’. There have been government supported initi Read More