PROMOTION OF SMEs IN THAILAND


By Mr. Manu Leopairote
Director - General Department of Industrial Promotion,
Ministry of Industry, THAILAND.
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Content:
Introduction
Department of Industrial Promotion
Existing Institution Infrastructure
Factory Acts
Stadardization
Conclusion

Introduction
The policies of the Thai government for SME development are embodied and articulated in various forms. These include Acts of Parliament, National Economic and Social Development Plan, and Cabinet resolutions. These, in turn, are translated into objectives, targets, strategies and action plans by the various ministries. The various instrumentalities of the government operationalise these plans, strategies and action plans into programmes, projects and activities.

Government Industrialisation Policy
The government is presently implementing the five-year Eighth National Economic and Social Development Plan,1997 - 2001 starting on October 1, 1996. Compared to the Seventh National Plan 1992-96 which was full of specific references on small and medium industries (SMIs), the Eighth Plan does not contain as much elaboration of SMIs' role or policy for growth. For example, the Seventh National Plan adopted an Industrialisation Decentralisation Policy in which the development of SMIs formed an important aspect. One significant reason is that the current National Plan introduces a new development paradigm by shifting from growth orientation to people-centred or human development, wherein the state of the people is considered the final measure of success and economic improvement is treated only as a means to improve the well-being of the people rather than as the final objective of development. Hence, the approach in formulating the Eighth Plan is different from that of previous Plans. Another explanation is that the government finds the economic policies, goals and strategies laid out in the Seventh national Plan as still valid and have yet to be fully carried out.In particular, references to SMIs include the following
promotion of greater application of production subcontracting system, such as subcontracting among a parent factory and primary or secondary subsidiary factories. Another option is subcontracting between factories and cottage industries, aiming at the target groups facing problems of low income and underemployment.
development of a marketing system for small-scale and cottage industries by upgrading product quality standards and product design, as well as promotion of grater market diversification.
encouragement of public and private financial institutions to expand credit to rural industries, and especially to cover a greater number of small-scale industries and cottage industries.
dissemination of industrial and marketing information to rural entrepreneurs by promoting the role of private business organisations in both central and rural areas.
decentralisation of administrative and decision-making authorities to government agencies at regional and provincial levels.
development of administrative and managerial capability of rural entrepreneurs by providing training seminars on marketing, finance and administration.

Thailand's Master Plan for Industrial Development articulated its vision for 2012 as: Thai industries being able to maintain competitiveness in the future with new comparative advantage. It is understood that due to a dynamic domestic and international environments, the comparative advantages of Thailand are shifting so that it has to give up some advantages such as labour-intensive, high-import export industries, and to identify new comparative advantages which may be in the area of low-import export industries, high-tech and high value added products. Under Vision 2012, the state of Thai industries and the economy will be characterised by:
strong and flexible industrial exporting economy industrial benefits evenly distributed to the rural areas
sustained development of managerial skills and industrial R&D
increased people's participation in obtaining benefits from industrial and mining operations
assurance of product quality, safety and quality of environment, optimal pollution control without damaging communities and the environment
security in raw materials and energy
information based society

The Ministry of Industry has adopted the following industrial policies to achieve the above vision:
a) promote and encourage the establishment of industrial estates and export zones in the rural areas,
b) revitalise existing industries by improving manufacturing technologies,
c) enhance the potentials and capabilities of main export items,
d) control industrial pollution level according to specified standards.
e) promote the establishment of research institutes and develop the quality of institutes and develop the quality of industrial products.

Department of Industrial Promotion
The Department of Industrial Promotion (DIP) under the Ministry of Industry acts as the lead agency of government for SMEs Promotion and development and follows the guidelines set by the Ministry of Industry and the National Plan in elaborating its own policies to support the sector.
These policies include:
1) encouraging the dispersal of urban industries to rural areas by:
preparing industrial feasibility studies
stimulating, guiding and providing advice to investors
providing industrialinformation and incubator services for new entrepreneurs
2) encouraging investment in SMEs by:
transferring knowledge to rural entrepreneurs
providing advice and incubator service to both existing and new entrepreneurs
promoting the use of the Consultancy Fund for developing SMEs in the rural areas
carrying out career training on cottage and handicraft industries for local people
providing investment loans for cottage and handicraft industries
3) establishing industrial networks by:
promoting rural industries in the form of community industries
promoting linkages between large industries and SMIs
coordinating with government financial institutions on loan policies
promoting rural development
4) promoting investments in highly potential industrial sectors and enhance the competitiveness of Thai industries by:
encouraging investment in and developing technological capabilities of SME supporting industries
undertaking activities according to the master plan for the development of supporting industries
5) enhancing the competitiveness of export-oriented industries by:
developing skilled workers for the gem and jewelry industry
promoting textile industry by modernising its manufacturing technologies
developing the skill of entrepreneurs in business negotiation and joint venture


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A study report on Industrial Sector Development of Supporting Industries in Thailand (March 1995) prepared by UNICO International Corporation for DIP and the japan international Cooperation Agency (JICA) included a proposed master plan for the development of supporting industries but which also affect SMIs in general. The proposal covers six elements, via:
Policy and Legislation
Market Development
Technology Upgrading
Financial Support
Upgrading of Management
Investment Promotion
The details appear in Annex 1. Under Policy and Legislation, for components are mentioned: (1) basic law on SMEs development, (2) law on subcontracting promotion, (3) restructuring of DIP and the Japan International Cooperation Agency (JICA) included a proposed master plan for the development of supporting industries but which also affect SMEs and SSIs promotion, and (4) preparation of industrial statistics. Except for the fourth component which was categorized under third priority, the first three components were ranked as first priority for implementation. For many years now, there have been persistent recommendations form many quarters from donor agencies to development practitioners and industry associations, for a basic law on SMEs which would provide comprehensive and clear guidelines for the promotion and development of SMEs. A draft has long been preparaed by DIP, but the proposal did not take off the ground as some key government officials did not perceive the need for such a law, considered it premature of even redundant to existing laws.
The proposed law on subcontracting promotion would have the objectives of providing measures for the efficient promotion of subcontracting arrangements between SMEs and large industries, including international sub-contracting, as well as of upgrading and strengthening the institutions promoting subcontracting.
Existing Institutional Infrastructure Mandated by Government Policy
Besides the Department of Industrial Promotion and the Ministry which were dealt with separately earlier, there are several Acts of Parliaments which directly relate to SME development. These refer to the setting up of the following institutions and regulations.
Small Industry Finance Corporation (SIFC)
The Small Industry Finance Corporation (SIFC) was established by Act of Parliament in 1991 in order to increase the capacity of small industries in playing an important role in the economic and social development of the country through extension of long-term credit for the establishment of new business, expansion of existing business and for business improvement. It currently operates 2 provincial branches.
Small Industry Credit Guarantee Corporation (SICGC)
The Small Industry Credit Guarantee Corporation Act of 1991 established the corporation to enable collateral-short but viable small industries to obtain more loans from financial institutions, to increase credit extensions form financial institutions, to small-scale industries (SSIs), strengthen the confidence of financial institutions, in providing to small industries, and to accelerate the dispersal of loans to SSIs.
Industrial Estate Authority of Thailand (IEAT)
The Industrial Estate Authority of Thailand (IEAT) was established in 1979 by virtue of Act of Parliament as a state enterprise attached to the ministry of Industry with the main purpose of planning, developing and managing industrial estates throughout the county. The Act was amended to cover private industrial zones so that owners of factories located in privates industrial zones may be given fair protection. The IEAT has two types of Zones whick require specific privileges: the General Industrial Zone and the Export Processing Zone. Altogether, there are about 45 industrial estates in the country.
Board of Investment (BOI)
The Board of Investment is an agency under the Office of the Prime Minister established in 1977 under the Investment Promotion Act as a tool to help promote foreign and domestic investment in Thailand and to provide assistance in such as areas as guarantees, taxes and monetary incentives. The BOI divides the country into three economic promotion zones with varying investment privileges. The BOI cooperates with DIP and private sector business groups as well as specialised government agencies in developing supporting industries through the National Supplier Development Programme with the objective of developing SMI parts manufacturers. The BOI has set up a unit for industrial linkage development called BUILD to implement its subcontracting development programme.
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Factory Act
Three Factory Acts have been enacted (1969, 1975 and 1979). Among the salient features are the requirement of a permit form the Ministry of Industry before a factory can be operated or before a factory can be expanded or altered.

Other laws also apply for specific industries such as the Foods Acts, Drugs Act, Cosmetics Act, Poisonous Substances Act, etc. Other relevant laws are the Machinery Registration Act, the Industrial Product Standards Act, Labour Protection Law, Tax Rebate for Export Goods produced in Thailand Law, Building Construction Control Act, etc.
These laws are enforced to safeguard the health and safety of the workers and the community, protect the environment, and to ensure a conductive working environment.

Trends in Policy Formulation
As already articulated in the past National Plan, the following directions affecting SMEs and SMIs will become distinctly more transparent and gain momentum in the years ahead. These include:
1. Less Governmet
Due to the budgetary discipline imposed by the government, the number for government officers will decrease so that eventually there will be
a leaner but more efficient government staff. There is an ongoing pilot efficiency enhancement programme in selected government agencies
which will be expanded to cover the entire public sector. With less government personnel there will be a corresponding move to limit government service to facilitation in the delivery of service, to institution building and network development to support and strengthen a network of SMI Service providers, to coordination of the network so that in the end government personnel will no longer provide direct assistance to SMEs
Likewise, there will be a faster move towards decentralisation of decision-making authority to local governments. These points were articulated by current Prime Minister Chavalit who was quoted (Bangkok Post, January 19, 1997, as saying that:
Local administrative bodies such as tambon councils must be given the power to make decisions. Power that can be handed to the tambon administrations include approving the establishment of gas stations, grocery stores and small boat landing which must now be approved at a higher level.

2. Private Sector Empowerment
Corollary to the trend towards less government will be the natural devolution to empower the private sector to take over some functions of the state, to be a source of specialised services and to regulate its own rank. Prime Minster Chvalit stated that:
Private individuals would be encouraged to establish organisations to control themselves so state supervision could be done away with.
The role of the public sector should be limited to only servicing and facilitating. Such things as construction and building control should be handled by professional organisations from the private sector.

The Seventh National Plan had already advocated the following:
support for private sector role to relieve some public responsibilities, such as examination of industrial plants, machinery and equipment,
as well as examination of laboratories to promote a greater speed and convenience.
budgetary support to private non-profit organisations to encourage training programmes and support activities for SMIs.
encouraging the private sector to expand joint venture agreements in foreign countries.

The Department of Industrial Promotion (DIP) has supported this policy in various ways through:
sponsoring the establishment of the Productivity Institute as a private body with government support to provide consultancy service to private industry in the areas of productivity and quality management. This meant turning over the consultancy function of DIP's former Industrial Productivity Division to the new institute.

sponsoring the establishment of the Textile Institute as a private body similar to the above. This meant turning over some responsibilities of DIP's Textile Industry Division to the new institute.
setting up of a Consultancy Fund so that SMI clients can access private and non - DIP consultants through government subsidy.
subcontracting studies and surveys to private sector institutions.
sourcing outside DIP for resource persons of training programmes and projects such as the Belgian Government-assisted Off-Farm
Job Creation Project which is subcontracted to CARE.

sponsoring the formation of industry associations such as the Thai Mold and Die Association and the Textile Industry Association so the they
con conduct seminars and other activities on their own.

As a natural consequence of the two factors above - less government and more private sector involvement, there will be a more dynamic public-private sector partnership insofar as sharing of decision making and responsibility for planning, implementing, monitoring and evaluating programmers and activities affecting SMEs as part of a work sharing, cost sharing concept.

More active involvement could be expected form the private sector as an advocacy body, as a consultative advisory group, as joint sponsor and as member of joint public-private sector body such as the Joint Private and Private Sector Consultative Committee (JPPCC)
which is the highest public-private sector joint body chaired by the Prime Minister and having its equivalent setup in the provinces.
The Thai Chambers of Commerce, the Federation of Thai Industries and the Thai Bankers Association are represented in this body. The various committees of the Board of Trade are actively involved in government consultation. Industry and trade associations are also active as a lobby group, in regulating their own ranks and in providing service to their members in terms of training, information, consultancy, business matching, joint marketing, transfer of technology and organising trade fairs, exhibitions and study missions abroad.

3. passage of Laws and Regulations
Due to the ever growing importance of SMEs as an economic and political force and the real need to strengthen the competitiveness of the sector. There will be increasing pressure in Thailand to emulate the example of the United States, Japan, Korea, Philippines and Taiwan in formulating specific laws that directly affect SMEs. These new laws could revolve around:
a basic law on SME promotion (as previously mentioned) containing such provisions as:
- creation of a centralised policymaking or coordinating body responsible for SMI development and to be composed of relevant ministries and specialised agencies with strong private sector representation.
- Incentives for efficient and priority industries as well as industry clusters
- Comprehensive package of measures to promote the sector
subcontracting promotion
modernisation promotion
rural industrialisation promotion
bankruptcy
structural adjustments and stabilisation measures
innovative financing schemes
technology promotion
private sector promotion and participation

It would also mean that private organisations would become more involve in SME promotion and economic development in general.
With the passage of a proposed basic law on SMEs, it is expected that there will be a mushrooming of non-governmental organisations,
private organisations and even small enterprise associations, foundations or institutes which will be attached to leading universities, large companies and non-profit organisations. These will cater to the needs of SMEs in terms of training, research, consultancy, etc. This would mean an enhanced role for existing private organisations such as the FTI, Chambers of Commerce, Board of Trade, Institute for Management Education of Thailand (IMET), Propulation and Community Development Association(PDA), and the Thailand Development Research Institute (TDRI), industry and trade associations, among others. This would also mean more autonomy on the part of government corporations whose operations directly affect SMEs, such as the Small Industry Finance Corporation (SIFC), Industrial Finance Corporation of Thailand (IFCT), Small Industry Credit Guarantee Corporation (SICGC), including the Industrial Estate Authority of Thailand (IEAT), among others.

4. Standardization and Simplification
As part of the basic law, there will be a uniform definition of cottage, small, medium and large industries using the following criterion or a combination of the following factors: employment, total assets, fixed assets, and equity. At present, the Ministry of Industry defines a small-scale industry as having employment not exceeding 50 workers and having invested capital (equity) not exceeding 10 million bath. A medium-scale industry is defined as having employment ranging from 50 to 200 workers and invested capital from more than 10 million bath but not exceeding 100 million bath. The Bank of Thailand, the Board of Investment, the Statistics Office, as well as SIFC and IFCT adopt different definitions.

The will be standardisation and simplification of regulations, forms training, operating systems, etc. so that these will be become more customer oriented and user friendly and con readily be replicated on a mass scale for greater access by the people without sacrificing quality. These moves will definitely benefit SMIs especially in the rural areas.

5. Massive Use of Information Technology
Recognising the benefits and advances in information technology, Thailand realises that knowledge is power, but that proper use and mastery of technology are also important. Office and factory automation and factory automation and communication equipment have revolutionalised the manner of doing business both locally and internationally-faxes, cellular phones, Internet, E-mail Intrancet, etc. The application and accessibility of modern information technology in Thailand will be more widespread and will be less costly as economies of scale are achieved. Investment by both public and private sectors in thailand in information technology both software and hardware will expand significantly as the county joins the information cyberspace mania pervailing in other parts of the world. It is expected that a comprehensive, clearcut policy on this subject will be formulated by the government soon. This trend will force SMIs to apply modern information technology to maintain their competitiveness and enhance their efficiency.

6. Research and Development (R & D)
Thailand's current investment in R&D on science and technology (S&T) is relatively low compared to the newly industrialising countries in Asia and developed countries. However, there is now a growing consciousness to increase R&D in S&T as a result of mass media exposure and the fruits of the dynamic efforts of various specialised government agencies. We will see dramatic increases in R&D investment by both public and private sectors to reach one per cent of GDP by the year 2005. Equally important is the successful commercialisation and protection of R&D results so that attractive returns on their investment can be achieved as an incentive for further investment. This would mean that S&T agencies of the government and the private sector will become increasingly more important and prominent. Comprehensive policies in stimulating investment in R&D are expected to be announced soon. This trend should benefit SMIs.

7. Environmental Consciousnes
As even now already pronounced, environmental consciousness by government and society will significantly increase to protect the country from the adverse effects of environmental degradation. More local and international pressure groups will make their presence felt in the way the ecological environment in Thailand should be managed insofar as renewable, non-renewable sources of energy, forest, marine and land resources, polluting and hazardous industries are concerned. Stricter measures on ecological conservation and stricter compliance of existing regulations would be imposed by the government, while more cooperation among government, private sector and non-governmental organisations would be expected. As part of their social responsibility and under external pressure, SMIs will be bound to invest in environmental protection measures, however, this should be seen as a necessary social overhead for the common good.

8. Internationalisation of Business Facilities
There will be a strong trend towards the establishment of strategic alliances by both government and private sector in different countries and towards international subcontracting to take advantage of each country's comparative advantage. Already visible are the agreements under the Asean Free Trade Agreement (AFTA), Asia-Pacific Economic Cooperation (APEC), the Asean Industrial Complementation Scheme (AICO), under the Indonesia-Malaysia-Thailand Growth Triangle (ITM-GT), Mekong River Project, and recently the partnership in economic cooperation between Thailand and Singapore in jointly developing an industrial park in the Eastern Seaboard of Thailand. These strategic moves would facilitate the movement of goods and services and their production within the agreeing countries. This trend highlights a dichotomy of countries competing in some aspects and complementing in other aspects so that the net result would be positive synergies for all. The implication for SMIs is that they have to enhance their competitiveness to reach out to international market niches and at the same time protect their domestic turfs through more efficient operations.

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Conclusion
In Thailand, dynamic changes are occurring due to various internal and external factors. These changes are affecting both public and private sectors. Among the internal factors include the flotation of the bath last July 2, 1997, the current economic downturn, government budgetary cuts as part of fiscal discipline, the rise in inflation and labour cost, lack of liquidity in the banking system, etc. Among the external factors are trade liberalisation, competition with other devloping countries for foreign capital and markets, negative publicity abroad, etc. All these developments are affecting Thailand's economic progress, hence there is a need to review our targets and strategies. This is now being done by all government instrumentalities headed by the National Economic and Social Development Board (NESDB). Despite these difficulties, Thailand's economy is expected to grow by 6 percent in 1997 lower than the annual growth in the past decade but still commanding a respectable accomplishment. Thailand's economy has strong fundamentals and its prospects for growth are very bright. hence we expect a short-term economic discomfort. During this time of crisis, we have learned to realise our interdependence and our need to put our act together as demonstrated by the backlash that the bath flotation has impinged on the economies of the Philippines, Indonesia, Malaysia and Singapore. We have established in this paper some irreversible trends that have to be considered in formulating policy directions for SMEs and SMIs. In fact, many of them would be treated as urgent under this economic situation to put our economy back on course. The policy implications resulting from these dynamic changer-both positive and negative, are manifold and they have to be studied carefully.

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