Professional Documents
Culture Documents
24-50
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
1
Editorial Team
Chief Editor: Tulus Tahi Hamonangan Tambunan
Assistant Chief Editor: Ida Busnetty
Editorial Assistant: Willy Arafah
Associate Editors
Advisory Members
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015)
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
i
Guidelines for Contributors
1. All manuscripts should be typed on one side of A4 (8.27" x 11.69") and be
double-spaced, 2 centimeter margin with Times New Roman font type and size
12.
2. The length of the manuscript is approximately 6000-7.000 words or
approximately 15-25 pages (A4 paper).
3. All manuscripts should be sent by email to: ttambunan56@yahoo.com
4. To assure anonymous review, authors should not identify themselves directly or
indirectly in their papers.
5. In sending a manuscript, it should have a cover page which includes the title of
the paper, the author's full name, title and affiliation, mailing address, phone and
fax number, email address, and any acknowledge.
6. Together with the manuscript, the author (s) should attach his/her (their)
biography of 50 words.
7. All pages, including tables, figures, diagrams, appendices and references should
be serially numbered
8. Spell out numbers from one to ten, except when used in tables, figures and lists,
and when used with mathematical, statistical, scientific or technical units and
quantities, such as distances, weights and measures. For example: two days, one
week, 20 years, 4 meters. All other numbers are expressed numerically.
The systematically writing should cover the followings:
1. Title: it should be specific and effective with maximum 150 characteristics
2. Abstract: maximum 200 words and should concisely inform the readers of the
manuscript's topic, its objectives, its methods and its main findings.
3. Keywords: at least four keywords in alphabetical way.
4. JEL classifications: at least two codes
5. Introduction: it should cover systematically the paper's background, motivation,
purposes, and method.
6. Theoretical Framework/Literature Review: the author (s) should explain
theoretical framework used or previous key similar studies/literature
7. Methods: the author (s) should explain analysis method used, including sources
of data, data collection approach, measurements, and operational variable
definition (if any).
8. Results and Discussion: the author (s) should elaborate clearly main research
finding(s). If the author (s) used an econometric or a statistical approach in
his/her (their) research, in this part (section) of the paper, he/she (they) should
prevented from "too mechanic" in explaining/discussing the results. Instead, the
author (s) should answer the question that most likely to be asked by the
readers: "what the findings mean in reality?"
9. Conclusion: it should contain key research findings, meaning of the findings and
suggestion for the future research (if any).
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015)
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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10. Appendices: if any, it should contain further information (which can be in the
form of a table or a figure or a list, or others) directly related to information or
data given in the paper in which the author (s) considered it also important for
the readers.
11. References: only references cited in the paper, and they should be stated with
the following order: author surname, publication year, title of the paper, journal
name and its volume and page number. Or if it is a chapter of a book, it should be
added with surname of the book's editor, title of the book, page number, name of
publisher, and city of the publisher.
Some examples:
-Research/working paper:
Abeberese, A.B (2012), "Electricity Cost and Firm Performance: Evidence from India",
research paper, August, Department of Economics, Columbia University, New
York, NY (https://www.dartmouth. edu/~neudc2012/docs/paper_292.pdf).
-Report:
Anh, L.H, Nguyen T. and Nguyen T.T.P. (2013), "The Inflationary Impacts of Fossil Fuel
and Electricity Price Reform in Viet Nam", report of the UNDP project Fossil Fuel
Fiscal Policies and Greenhouse Gas Emissions in Viet Nam – Phase II-Developing
a Roadmap for Fossil Fuel Fiscal Policy Reform, Hanoi.
-Journal:
Jamal, M. and A. Ayarkwa (2014), "Fuel Price Adjustments and Growth of SMEs in the
New Juaben Municipality, Ghana", International Journal of Small Business and
Entrepreneurship Research, 2(3): 13-22.
-Book:
Tambunan, T.T.H. (2009b), Development of SMEs in ASEAN Countries, Readworthy
Publications, Ltd, New Delhi
-Seminar paper:
Tambunan, T.T.H. (2014b), "Government efforts to improve community access to health
care and education: a story from Indonesia", paper presented at the Second
International Conferece on Social Security", 3-5 December 2014, Social Security
Research Centre (SSRC) and the Department of Development Studies and
Institutions and Economies, Faculty of Economics and Administrations,
University of Malaya, Kuala Lumpur.
-Book chapter:
Tambunan, T.T.H. (2014), "Ongoing trade facilitation improvement: Its impact on
export-oriented small and medium-sized enterprises in Indonesia", in Ravi
Ratnayake, et al. (eds), Impacts of trade facilitation measures on poverty and
inclusive growth: Case studies from Asia, UN-ESCAP and ARNeT, Bangkok.
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015)
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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Submission
Please send your abstract not more than 200 words or full
papers not more than 5000 words including references. With
title of the paper, name(s), e-mail address of the authors(s) and
organization name to
Tulus Tambunan
Email: ttambunan56@yahoo.com
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015)
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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Content
i Editorial Team
ii Author’s Guidelines
iii Submission
24 - 50 The SMEs during Economic Slowdown in Poland. The Experiences from the
Latest Global Financial Crisis.
Anna Bąkiewicz
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015)
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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The Likely Impact of the Implementation of ASEAN
Economic Community 2015 on Local Small And
Medium Enterprises
Abstract
This paper, as part of ongoing research activities by the Center for Industry, SME
and Business Competition Studies, University of Trisakti (Indonesia), aims to assess the
likely impact of the implementation of ASEAN Economic Community by the end of 2015
on small and medium enterprises (SMEs) in ASEAN member states (AMSs). The key
question that this paper tries to answer is the following: through what channels the AEC
2015 will affect local SMEs? Although the economic integration of ASEAN in the context
AEC 2015 is not only on trade but also on foreign direct investment (FDI), capital,
production and human resource/skilled workers, the analysis in this paper focuses only on
regional trade liberalization.
Introduction
the leaders affirmed this commitment with a decision to bring forward the creation
regional economic integration with the adoption of the so-called 2007 AEC Blueprint
for the establishment of the AEC by 2015. The first initiative of AEC 2015 is a vision
for a single market and production base for ASEAN member states (AMSs), to
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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promote the free movement of goods, services, investment and skilled labor across
the ASEAN region. The main aim of AEC 2015 is to foster equitable economic
development across the region and create a highly competitive economic region that
transform ASEAN into a single market and production base, like the European Union
(EU), to enhance ASEAN’s competitiveness. All existing tariffs on exports and imports
will be eliminated and non-tariff barriers (NTBs) will be gradually phased out.
ASEAN investors will be free to invest in all economic sectors throughout the region.
Simple, harmonized and standardized trade and customs requirements are expected
to reduce transaction costs. The AEC 2015 will then boost the development of
production networks, foster the regional integration of priority sectors and allow for
the free movement of business persons, professionals, skilled labor and talents.
An ASEAN single market and production base comprises five core elements:
the free flow of goods, services, investment, capital and skilled labor. A single market
for goods and services will enhance ASEAN’s capacity to serve as a global production
centre to better meet the demands of the global supply chain. According to the
ASEAN Secretariat, sectors targeted to benefit from the single market and production
base include the following priority integration sectors: agro-based products, air
based products, textiles and apparel, tourism, wood-based products, and logistic
services. Many of these sectors are also the most important sectors for MSMEs in all
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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This paper, as part of ongoing research activities by the Center of Industry,
assess the likely impact of regional trade liberalization in the context of AEC 2015 on
local small and medium enterprises (SMEs). The main question of this paper is:
ASEAN Trade
(like ASEAN for countries in Southeast Asia or the EU for countries in Europe) is,
among others, to increase trade among them; known in international trade literature
The facts show, however, that since the birth of ASEAN many decades ago
intra-ASEAN trade has never been larger than extra-ASEAN trade. As of November
2011, total value of intra-ASEAN trade was US $598.24 billion or only about 25% of
ASEAN total trade, whereas ASEAN trade with non-ASEAN was US$1,790.35 billion
(75%). The value of intra-and extra trades, as well as shares in regional total trade,
vary between individual member states (Table 1). For all individual member states,
countries such as China, Japan, the European Union (EU-27) and the USA remain the
most important trading partners for both exports and imports (Table 2).
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
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Table 1
Table 2
(US$ million)
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© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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With respect to exports, as shown in Table 3, the total value of intra-ASEAN
26.4% of ASEAN total export value. Whereas, in that same year, extra-ASEAN export
value was near to US $914.76 billion or almost 74% share. By member state on the
intra-export side, besides Singapore, Thailand has the largest value in intra-ASEAN
export with US $72.23 billion, followed by Malaysia with US $56.05, and Indonesia in
third place with almost US $42.1 billion. On the extra-export side, again besides
Singapore, Malaysia has the largest amount with US $172.13 billion, followed by
Table 3
If the above intra-ASEAN trade results are caused by man-made trade barriers
in individual member states (e.g. high import duties, high export tax, complex custom
procedures) rather than by other reasons (e.g. more preferences for trading with
ASEAN market in 2015 will encourage member states to trade more with each other,
and thus intra-ASEAN trade will, ceteris paribus, automatically increase. But, now the
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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question is: what commodities are likely to increase in intra-ASEAN trade? This
or indirectly (having production or trade links with large enterprises (LEs) or foreign
direct investment (FDI)-based firms) are likely to increase, then it can be expected
that the implementation of AEC 2015 will give benefits to ASEAN SMEs producing
those commodities, ceteris paribus. In this regard, Table 4 shows the main important
goods in intra- and extra- ASEAN trade, based on latest data from the ASEAN
It is most likely that key ASEAN exported goods will benefit more from the
implementation of AEC 2015. Among them are the following top 5 exported goods:
equipment; (2) mineral fuels, mineral oils and their products; (3) machinery and
mechanical appliances; (4) rubber and its products; and (5) animal/vegetable fats
and oils and their cleavage products. In addition to these goods, it is also expected
that ASEAN’s most important intra-traded goods will also increase with the
implementation of AEC 2015. The top 7 ASEAN intra-traded goods are: (1)
animal/vegetable fats and oils and their products; (2) mineral fuels, mineral oils and
their products; (3) organic chemicals; (4) plastics and their products; (5) rubber and
its products; (6) machinery; and (7) vehicles: parts and accessories.
ASEAN for the following goods: (a) chemicals: Singapore and Thailand; (b)
pharmaceuticals: Singapore; (c) office and telecom equipment and EDP: Singapore,
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
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Malaysia, Thailand, Philippines, Indonesia, and Vietnam; (d) telecommunication
equipment: Malaysia, Singapore, Thailand, and Indonesia; (e) integrated circuits and
automation products: Thailand; and (g) textile and garments: Indonesia, Thailand,
Vietnam, and Malaysia. Those member states are expected to continue as the leading
exporters of those goods in ASEAN intra-trade with the implementation of AEC 2015.
2009-2015 (ASEAN, 2011b), “The AEC will establish ASEAN as a single market and
production base making ASEAN more dynamic and competitive with new
movement of business persons, skilled labor and talents; and strengthening the
AEC 2015 will transform ASEAN into a region with free movement of goods, services,
investment, skilled labor, and freer flow of capital. Or ASEAN will become a single
market region like the EU. For the owners or managers of SMEs in all member states,
it is important then to be fully aware that free movement of goods presents market
and production opportunities but also threats for them. Some SMEs will face
for instance, a local SME has a greater opportunity to sell its goods or services to
other member states. Or, as a direct threat, it will face direct competition for its
other member states. Indirect opportunity, for instance, a local SME making certain
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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order because the company is expanding its market to other state members.
Whereas, indirect threats can be that a local SME receives less order from its
assembler as the latter company reduce its production due to heavy competition
from other member states in local market. In other words, because the assembler lost
its domestic market share, its subcontractors also lost their orders.
more threats to local SMEs, it depends on at least two main factors, namely the
no studies so far explicitly on the readiness of local SMEs in facing the AEC 2015.
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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Table 4
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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18 Cocoa and cocoa preparations 1,188.3 1,099.8 2,288.2 2,388.6 1,306.5 3,695.0 3,576.9 2,406.3 5,983.2
Preparations of cereals, flour, starch or
19
milk; bakers wares 1,834.0 1,387.3 3,221.3 2,221.3 1,050.0 3,271.2 4,055.3 2,437.2 6,492.5
Preparations of vegetables, fruit, nuts or
20
other plant parts 364.0 216.5 580.5 2,813.0 837.8 3,650.8 3,177.0 1,054.3 4,231.3
21 Miscellaneous edible preparations 1,946.7 1,537.7 3,484.4 2,244.3 2,005.0 4,249.4 4,191.1 3,542.7 7,733.8
22 Beverages, spirits and vinegar 2,554.2 669.6 3,223.9 1,769.9 3,118.2 4,888.1 4,324.2 3,787.8 8,112.0
Food industry residues & waste; prepared
23 807.9 778.6 1,586.6 1,735.3 6,024.4 7,759.7 2,543.2 6,803.0 9,346.2
animal feed
Tobacco and manufactured tobacco
24 1,510.8 879.0 2,389.8 847.0 1,418.6 2,265.5 2,357.8 2,297.6 4,655.3
substitutes
Salt; sulfur; earth & stone; lime & cement
25 1,084.6 1,428.0 2,512.5 779.8 1,983.8 2,763.6 1,864.4 3,411.7 5,276.1
plaster
26 Ores, slag and ash 405.4 225.5 630.9 9,105.6 2,951.7 12,057.3 9,511.0 3,177.2 12,688.2
Mineral fuels, mineral oils & products of
27 their distillation; bitumin substances;
82,107.8 79,561.6 161,669.5 145,978.5 171,773.6 317,752.1 228,086.3 251,335.2 479,421.6
mineral wax
Inorganic chemicals; organic or inorganic
compounds of precious metals, of rare-
28
earth metals, of radioactive elements or of 1,015.8 874.7 1,890.5 2,137.1 8,915.0 11,052.1 3,152.9 9,789.6 12,942.5
isotopes
29 Organic chemicals 7,628.7 6,321.9 13,950.5 29,118.7 19,428.0 48,546.6 36,747.3 25,749.9 62,497.2
30 Pharmaceutical products 893.4 660.4 1,553.8 6,264.1 7,655.6 13,919.8 7,157.5 8,316.0 15,473.5
31 Fertilizers 1,189.5 975.3 2,164.8 508.7 8,129.4 8,638.1 1,698.2 9,104.7 10,802.9
Tanning or dyeing extracts; tannins &
derivatives; dyes, pigments & coloring
32
matter; paint & varnish; putty & other 1,256.0 914.8 2,170.7 1,636.0 4,519.1 6,155.1 2,891.9 5,433.9 8,325.8
mastics; inks
Essential oils and resinoids; perfumery,
33
cosmetic or toilet preparations 2,692.6 1,709.0 4,401.6 4,579.0 4,019.3 8,598.3 7,271.6 5,728.3 12,999.9
Soap; waxes; polish; candles; modeling
34 pastes; dental preparations with basis of
1,287.5 979.0 2,266.5 2,348.4 1,990.8 4,339.2 3,635.8 2,969.9 6,605.7
plaster
Albuminoidal substances; modified starch;
35
glues; enzymes 415.7 333.3 749.0 808.0 1,215.2 2,023.3 1,223.7 1,548.5 2,772.2
Explosives; pyrotechnic products;
36 matches; pyrophoric alloys; certain
42.0 60.4 102.4 40.5 223.1 263.7 82.6 283.5 366.1
combustible preparations
37 Photographic or cinematographic goods 277.0 76.7
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 1 - 23
© 2015 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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353.8 221.7 950.5 1,172.2 498.7 1,027.3 1,525.9
38 Miscellaneous chemical products 2,997.0 2,345.3 5,342.4 10,114.1 10,386.2 20,500.3 13,111.2 12,731.5 25,842.6
39 Plastics and articles thereof 12,113.6 10,132.6 22,246.2 25,209.5 25,004.2 50,213.8 37,323.1 35,136.8 72,460.0
40 Rubber and articles thereof 12,381.0 5,031.0 17,412.0 40,182.5 7,704.3 47,886.9 52,563.5 12,735.3 65,298.8
Raw hides and skins (other than furskins)
41 250.8 333.1 583.8 770.8 1,636.3 2,407.1 1,021.6 1,969.3 2,990.9
and leather
Leather articles; saddlery and harness;
42 travel goods, handbags & similar; articles
375.5 170.8 546.3 2,037.8 1,798.2 3,836.0 2,413.3 1,969.0 4,382.2
of animal gut [not silkworm gut]
Furskins and artificial fur; manufactures
43 7.5 1.1 8.6 19.5 92.1 111.6 27.1 93.2 120.3
thereof
44 Wood and articles of wood; wood charcoal 1,294.8 1,831.3 3,126.1 12,372.9 1,616.8 13,989.7 13,667.7 3,448.1 17,115.8
45 Cork and articles of cork 0.7 6.1 6.8 1.1 8.6 9.6 1.8 14.6 16.4
Manufactures of straw, esparto or other
46 plaiting materials; basketware & 4.5
11.5 16.0 233.5 19.0 252.5 245.0 23.5 268.5
wickerwork
Wood pulp and waste of paper or
47 293.6 343.2 636.8 1,778.7 2,878.5 4,657.2 2,072.3 3,221.7 5,294.0
paperboard
Paper and paperboard, articles of paper
48 3,315.4 3,506.1 6,821.5 6,769.0 5,627.5 12,396.5 10,084.5 9,133.6 19,218.1
pulp
Printed books, newspapers, manuscripts,
49 883.2 377.2 1,260.4 7,095.1 2,004.8 9,100.0 7,978.3 2,382.1 10,360.4
etc.
Silk, including yarns and woven fabric
50 15.2 5.8 21.0 56.6 112.7 169.3 71.9 118.4 190.3
thereof
Wool & animal hair, including yarn &
51 9.1 15.7 24.7 128.7 351.9 480.6 137.8 367.6 505.3
woven fabric
Cotton, including yarn and woven fabric
52 549.2 455.8 1,005.0 2,278.2 7,310.2 9,588.4 2,827.4 7,766.1 10,593.5
thereof
Other vegetable textile fibers; paper yarn
53 5.0 4.5 95.7
and woven fabrics of paper yarn 9.4 100.9 91.3 192.2 105.9 201.7
Manmade filaments, including yarns &
54 746.2 599.8 1,346.0 2,905.0 2,821.6 5,726.5 3,651.1 3,421.3 7,072.5
woven fabrics
Manmade staple fibres, including yarns &
55
woven fabrics 943.8 732.5 1,676.3 4,175.2 4,107.1 8,282.3 5,119.0 4,839.5 9,958.6
Wadding, felt and nonwovens; special
56 yarns; twine, cordage, ropes and cables
330.2 204.2 534.5 599.0 965.4 1,564.4 929.3 1,169.6 2,098.9
and articles thereof
57 Carpets and other textile floor coverings 79.7 43.6 123.3 216.4 188.3 404.7 296.1 231.9 528.0
58 Special woven fabrics; tufted textile
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fabrics; lace; tapestries; trimmings; 132.8 126.0 258.8 311.1 1,102.3 1,413.4 443.9 1,228.3 1,672.2
embroidery
Impregnated, coated, covered or laminated
59 textile fabrics; textile articles for industrial 867.9 1,941.9 2,809.8
193.0 156.2 349.2 674.9 1,785.7 2,460.6
use
60 Knitted or crocheted fabrics 518.8 367.2 886.0 294.9 4,333.0 4,627.9 813.7 4,700.2 5,513.9
Apparel articles and accessories, knitted or
61 495.1 647.9 1,143.0 17,005.0 1,390.7 18,395.7 17,500.1 2,038.6 19,538.7
crocheted
Apparel articles and accessories, not
62
knitted or crocheted 526.1 326.3 852.5 13,664.0 1,845.2 15,509.2 14,190.2 2,171.5 16,361.7
Other textile articles; needlecraft sets;
63 worn clothing and worn textile articles;
294.8 171.4 466.2 1,350.0 754.9 2,104.9 1,644.8 926.3 2,571.1
rags
Footwear, gaiters and the like and parts
64 571.0 442.8 1,013.8 9,887.2 1,522.6 11,409.8 10,458.3 1,965.3 12,423.6
thereof
65 Headgear and parts thereof 21.3 13.1 34.5 279.6 74.9 354.4 300.9 88.0 388.9
Umbrellas, walking-sticks, seat-sticks,
66 2.6 2.5
riding-crops, whips, and parts thereof 5.1 22.6 61.7 84.3 25.2 64.3 89.5
Prepared feathers, down and articles
67 thereof; artificial flowers; articles of 4.2 4.1
8.3 354.5 55.5 410.0 358.7 59.6 418.3
human hair
Articles of stone, plaster, cement, asbestos,
68
mica or similar materials 554.7 475.1 1,029.7 649.8 1,113.1 1,762.9 1,204.5 1,588.1 2,792.7
69 Ceramic products 424.1 402.4 826.5 1,269.1 1,558.2 2,827.3 1,693.2 1,960.6 3,653.8
70 Glass and glassware 1,381.8 1,215.7 2,597.5 2,152.9 2,572.6 4,725.5 3,534.7 3,788.3 7,323.0
Natural or cultured pearls, precious or
semiprecious stones, precious metals and
71
metals clad therewith and articles thereof; 3,294.4 4,129.8 7,424.2 22,441.9 29,598.6 52,040.5 25,736.3 33,728.3 59,464.7
imitation jewelry; coin
72 Iron and steel 5,166.5 4,097.0 9,263.5 4,215.5 36,127.7 40,343.2 9,382.0 40,224.7 49,606.8
73 Articles of iron or steel 4,998.2 4,081.4 9,079.6 7,479.0 16,483.5 23,962.5 12,477.2 20,564.8 33,042.1
74 Copper and articles thereof 4,300.2 4,087.0 8,387.1 6,293.2 8,274.9 14,568.1 10,593.4 12,361.9 22,955.3
75 Nickel and articles thereof 83.5 31.3 114.8 1,667.7 752.9 2,420.6 1,751.1 784.2 2,535.4
76 Aluminum and articles thereof 1,727.3 1,667.0 3,394.2 3,386.7 8,934.0 12,320.7 5,113.9 10,601.0 15,714.9
78 Lead and articles thereof 139.8 123.3 263.1 216.2 1,039.5 1,255.7 356.0 1,162.8 1,518.8
79 Zinc and articles thereof 122.5 91.4 213.9 269.6 961.7 1,231.2 392.1 1,053.1 1,445.2
80 Tin and articles thereof 2,371.0 2,332.1 4,703.1 3,091.3 360.1 3,451.4 5,462.3 2,692.2 8,154.5
Other base metals; cermets; articles
81 29.7 27.5 57.2 281.0 634.9 915.8 310.6 662.4 973.0
thereof
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Tools, implements, cutlery, spoons & forks
82
of base metal & parts thereof 786.9 381.7 1,168.6 1,650.7 3,609.7 5,260.4 2,437.6 3,991.4 6,428.9
83 Miscellaneous articles of base metal 854.8 637.4 1,492.2 1,172.8 1,983.6 3,156.5 2,027.6 2,621.0 4,648.7
Nuclear reactors, boilers, machinery and
84
mechanical appliances; parts thereof 42,606.5 27,099.6 69,706.1 91,852.4 118,686.8 210,539.2 134,458.9 145,786.4 280,245.3
Electric machinery, equipment and parts;
85
sound equipment; television equipment 58,800.9 53,058.5 111,859.4 190,789.8 168,882.5 359,672.3 249,590.6 221,941.0 471,531.7
Railway or tramway. Locomotives, rolling
stock, track fixtures and parts thereof;
86
mechanical & electro-mechanical traffic 56.4 33.0 89.3 177.0 687.8 864.7 233.3 720.8 954.1
signal equipment
Vehicles, (not railway, tramway, rolling
87
stock); parts and accessories 12,435.5 9,277.8 21,713.3 18,901.4 25,061.5 43,963.0 31,336.9 34,339.3 65,676.2
88 Aircraft, spacecraft, and parts thereof 1,784.2 714.5 2,498.7 6,548.9 15,430.1 21,979.0 8,333.1 16,144.6 24,477.7
89 Ships, boats and floating structures 3,602.9 3,985.3 7,588.2 6,433.6 4,263.0 10,696.7 10,036.5 8,248.4 18,284.9
Optical, photographic, cinematographic,
measuring, checking, precision, medical or
90
surgical instruments/apparatus; parts & 5,587.7 3,613.7 9,201.4 18,463.7 19,691.2 38,154.9 24,051.4 23,305.0 47,356.3
accessories
91 Clocks and watches and parts thereof 1,013.1 674.4 1,687.6 1,553.4 3,049.7 4,603.1 2,566.5 3,724.1 6,290.6
Musical instruments; parts and accessories
92 88.3 76.5 164.7 577.8 360.1 937.9 666.0 436.5 1,102.6
thereof
Arms and ammunition; parts and
93 12.5 25.7 38.2 35.5 474.5 510.0 48.1 500.2 548.2
accessories thereof
Furniture; bedding, mattresses, cushions
etc; other lamps & light fitting, illuminated
94
signs and nameplates, prefabricated 1,037.4 891.5 1,928.9 8,282.9 2,759.5 11,042.4 9,320.2 3,651.0 12,971.3
buildings
Toys, games & sports equipment; parts &
95 491.4 233.7 725.1 2,243.2 1,628.9 3,872.0 2,734.5 1,862.6
accessories 4,597.1
96 Miscellaneous manufactured articles 415.4 319.8 735.2 903.9 1,496.9 2,400.8 1,319.3 1,816.6 3,136.0
Works of art, collectors' pieces and
97 55.6 75.5 131.1 189.0 272.9 461.8 244.5 348.4 592.9
antiques
98-
Others 2,364.9 994.7 3,359.6 53,225.8 29,813.6 83,039.4 55,590.8 30,808.2 86,399.0
99
Total 327,531.8 270,710.4 598,242.2 914,754.6 875,595.5 1,790,350.0 1,242,286.4 1,146,305.9 2,388,592.3
Source: database from ASEAN Secretariat (www.asean.org).
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Table 5
Top Ten ASEAN Trade Commodity Group, November 2012 (US$ million)
Two Commodity Value Share to total ASEAN trade
digit Total
Exports Imports Total trade Exports Imports
HS trade
Mineral fuels, mineral oils &
products of their distillation;
27 228,086.3 251,335.2 18.4 21.9
bitumin substances; mineral 401,530.4 16.8
wax
Electric machinery, equipment
85 and parts; sound equipment; 249,590.6 221,941.0 20.1 19.4
273,577.5 11.5
television equipment
Nuclear reactors, boilers,
84 machinery and mechanical 134,458.9 145,786.4 10.8 12.7
261,453.4 10.9
appliances; parts thereof
39 Plastics and articles thereof 37,323.1 35,136.8 65,626.1 3.0 3.1
2.7
Vehicles, (not railway,
87 tramway, rolling stock); parts 31,336.9 34,339.3 2.5 3.0
57,561.8 2.4
and accessories
40 Rubber and articles thereof 52,563.5 12,735.3 53,638.2 4.2 1.1
2.2
29 Organic chemicals 36,747.3 25,749.9 45,748.1 3.0 2.2
1.9
Natural or cultured pearls,
precious or semiprecious
stones, precious metals and
71 25,736.3 33,728.3 2.1 2.9
metals clad therewith and 41,802.3 1.8
articles thereof; imitation
jewelry; coin
Animal or vegetable fats and
oils and their clevage
15 products; prepared edible 47,256.3 7,211.8 3.8 0.6
40,376.7 1.7
fats; animal or vegetable
waxes
72 Iron and Steel 9,382.0 40,224.7 38,817.1 0.8 3.5
1.6
1,280,131.
Top Ten Commodities 852,481.4 808,188.8 68.6 70.5
6 53.6
1,108,460.
Others 389,805.0 338,117.1 31.4 29.5
7 46.4
Total 1,242,286.4 1,146,305.9 2,388,592.3 100.0 100.0 100.0
Source: database from ASEAN Secretariat (www.asean.org).
Discussion
The past quarter of a century has witnessed, among many countries and
goods and services, either among countries, within regions, or between regions, is
much easier than two or three decades ago. More countries today have undertaken
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significant trade reforms, and engaged in the process of integrating their economies
with the global economy, than ever before. AMSs (as with many other countries in
the world) are committed to fully adopting a free trade regime. Also, today as
investment is different than fixed investment in nature, including the impact on the
host economy, liberalization in FDI rather than free-flow portfolio investment, will
With respect to trade among AMSs, there is little doubt that international
trade liberalization, in the context of AEC 2015, will generate immense competitive
challenges for individual member states (Dhar, 2008). However, the real impacts of
benefits that are generated from an international trade reform include: improved
resource allocation; access to new and better technologies; inputs and intermediate
goods; economies of scale and scope; greater domestic competition; and the
(Falvey and Kim, 1992). Raihan (2008) contends that international trade policy
goods and services through changes in price. These factors, in turn, influence the
level and composition of exports and imports. The change of relative price induced
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opportunities by enlarging the market size and the enhancement of the impact of
knowledge spillover.
the two biggest commitments, namely the Uruguay Round and the Asia-Pacific
Economic Cooperation (APEC), would greatly benefit Indonesia. The ASEAN Free
Trade Area (AFTA), including the planned implementation of AEC 2015, on the other
hand, is expected to contribute little to welfare gain for many and especially
potential for trade creation. Though, the fear of trade diversion from AFTA is no
longer relevant since most member states of ASEAN have undertaken unilateral
Agreement (ACFTA) on the Indonesian economy. The first study highlights a number
Early Harvest Program (EHP), imports of the commodities included in the agreement
(e.g. vegetables, fruits and fish) were increased much faster than the country’s
exports for similar products to China. Secondly, various production costs in the
domestic market were expected to increase significantly. Thirdly, the study also
foresaw the decline of the real gross domestic product (GDP) in both short- and long-
term, primarily because Indonesia was expected to experience trade deficit with
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respect to these commodities. Some provincial regions of the country were expected
to experience larger losses than others. The study also suggests that, should the
China to Indonesia are eliminated, it is more likely that Indonesia’s losses would be
greater than the current simulation setting would suggest. Furthermore, the second
study concludes with the following points. Firstly, ACFTA benefits Indonesia only on
certain commodities, such as rubber and palm oils, particularly when the study
suggests that Indonesian exports for these commodities increase. At the same time,
however, Indonesia would also expect some losses in other trade commodities vis-à-
vis China, especially rice, vegetables and oilseeds. Secondly, with respect to the AFTA,
the same study argues that Indonesian imports from other ASEAN countries would
Following the 1997/98 Asian financial crisis and most recently the 2008/09
global economic crisis, the Indonesian government has revitalized the role of SMEs
by positioning them as the engine for export growth. This is especially the case for
regional/global production linkages/supply chains. Now, the key question is, can this
group of enterprises with all their problems play this new role? Or, can Indonesian
sustain their existence amid growing pressure from economic globalization and
global trade liberalization. Some contributors to the debate are skeptical, given the
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fact that most such enterprises in developing countries are lacking the necessary
in the global marketplace. There is little doubt that, in the era of trade liberalization,
SMEs in developing countries, including those in Indonesia, can only survive if they
possess the capability for internationalization. This is, indeed, a critical factor that
helps measure their competitiveness in the global market (Long, 2006). The weak
competitiveness of SMEs is a serious obstacle for such enterprises to access both the
international and domestic markets, particularly due to the low capacity of their
and other NTBs have the effect of increasing foreign competition in the domestic
market as more and more imported goods and services enter the domestic market.
unnecessary cost components, exploiting external economies of scale and scope, and
the increasing plant size (e.g. scale of efficiency), particularly as local firms adopt
This argument is in line with general theory that suggests size is capable of affecting
export performance of firms positively. The new international trade theory posits a
positive impact of market size in view of economies of scale. It argues that the scale
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economy provides costs advantages in production, research and development (R&D)
activities and marketing efforts. Export marketing literature, on the other hand,
suggests that LEs have greater resources to gather information on markets in foreign
general hypothesis, therefore, it is more likely for LEs, instead of SMEs, to become
export-oriented firms.
The second way in which trade liberalization affects the development of SMEs
is by lowering production costs due to cheaper imported inputs. Local firms benefit
from lower input costs, thereby increasing their price competitiveness, so they can
markets. Having said this, the validity of this hypothesis is only relevant under two
costs) and transportation costs are constant; and (2) many local firms are dependent
on imported inputs because of the absence of domestic production for these inputs,
or trade liberalization pushes prices for imported inputs lower than those made
domestically.
competition will not only induce increased efficiency in domestic firms but it will also
encourage them to export or it will stimulate more exports from the existing
many econometric analyses. However, this theoretical view is acceptable with the
assumption that other factors determining the ability of a firm to export, such as
production capacity, labor and energy costs, and governmental regulations, do not
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The fourth way is by reducing the availability of local inputs. Eliminating
export restrictions on unprocessed raw materials will increase exports, at the cost of
local firms. Theoretically, if domestic products achieve better prices abroad than in
the domestic market, it would encourage domestic suppliers to sell more to abroad
than domestically.
(b) (local made substitution goods) is the competitive effect of international trade
liberalization. If goods and services produced by domestic firms are less competitive
in comparison to those imported from other countries, domestic firms are likely to be
influences businesses in the domestic economy. The example is given where the
entry of new competitors (i.e. imported goods and services) into formerly protected
toward foreign made goods and services, will affect domestic producers of similar
goods and services. Even domestic SMEs only serving local markets with typical local
products, e.g. small restaurants providing traditional foods, will be affected directly
Meanwhile, the combination of lines (c) (imported inputs) and (d) (local made
liberalization. As import tariffs and other NTBs are removed, resulting in cheaper
imported inputs than those produced domestically, domestic production costs are
likely to decline. Line (e), furthermore, is the export opportunity effect of firms. In
this context, domestic firms accrue greater export opportunities from the imposition
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of an open economic system. Finally, the combination of lines (d) and (f) (local made
inputs sold abroad) is the domestic input scarcity effect of international trade
liberalization. The production cost reduction effect and the domestic inputs scarcity
effect can be put together as the overall supply-side effect, whereas the combination
of the competition effect and the export-opportunities effect can be referred to as the
side effects can be negative if the second effect is greater than the first one;
alternatively, it could be positive if it occurs the other way, or if one effect is fully
Figure 1
Four main ways that international trade liberalization affects SMEs
Domestic
(a)
output market(b)
(d) market
(f)
Domestic
input market
many countries, including Indonesia, has been examined extensively at the macro
level. However, academic and policy analyses on the impact of trade liberalization on
liberalization remain scant. Only very few field studies or academic papers on the
effect of trade liberalization on SMEs can be identified so far. Many of them were
published in the 1990s. Among them is Lisk (1997) who argued that trade
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liberalization could have some adverse effects on SMEs development and
competitiveness, at least in the short run. Rapid trade liberalization could lead to a
loss of market share of local SMEs because the products cannot compete in the
domestic market with cheaper imported products that are produced more efficiently.
On the export side, export opportunities of local SMEs could disappear due to lack of
Malhotra (1997) states that, while, trade liberalization proceeds at the same
time as severe global environmental problems, and the growing awareness of the
threat to the ecosystem, recently there have been more conflicts between
for environmental protection purposes. Due to the intensive use of eco-labels for
tradable products, more trade barriers emerge for SMEs. Those enterprises have a
limited marketing budget to cover the costs of an eco-label, and do not have the
resources to inform themselves on the often complicated field of different label types.
As compared to LEs, most SMEs in developing countries, especially micro and small
enterprises (MSEs), have no promoter and/or initiator for the application for an eco-
label. May be less for LEs, but for many SMEs, especially MSEs, the technical
requirements of an eco-label are too stringent, the application procedure takes too
much time and managerial resources, and it is too expensive, therefore, nearly
Hine and Kelly (1997) have sought to identify factors that support and hinder
production networks. The study divided the factors into three different
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environments: the internal environment; the external environment; and the strategic
effective use of information, are all significant internal factors affecting the export
success of SMEs.
wealth between countries, the level of protection (i.e. tariff as well as NTBs policies),
exchange rate policies, red tape and other unnecessary administration procedures,
and multilateral, regional, and bilateral trade policies are all key macro issues
With respect to the strategic environment, there are different theories about
what steps SMEs should take to enter global markets. Generally, a firm enters
process. For SMEs, it is probably better if they export for the first time via agents
with export-oriented LEs, and then when they are good enough to export themselves
it can be done directly. Ramaseshan (1994), cited by Tambunan (2008, 2010, 2014)
also thought the same, that is, in the earlier phase of export activities, SMEs should
Other researchers such as Perry and Pyatt (1995), Koch (1995), and Styles (1995),
cited by Tambunan (2010, 2014) suggest that networking, strategic alliances, and the
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development of a long-term, stable relationship with local LEs, as well as with foreign
firms, are key components to successful SME competitiveness in both domestic and
global markets. Haar (1995), cited by Tambunan (2014), suggests that to compete in
export markets SMEs must have a long-term strategic focus. In similar terms,
Badrinath (1997), cited by Tambunan (2010, 2014) states that SMEs wanting to
increase their global competitiveness, and global market shares, should move from
that for SMEs to succeed in international markets they must believe in, and act on,
continuous learning.
In China, Wang and Yao (2002) found that gradual changes in China’s trade
regime toward liberalization in the late 1970s, precisely after the end of the culture
revolution and the death of the communist leader Mao Zedong, led to much
dynamism among Chinese SMEs. Not only have they grown rapidly, but SMEs have
findings from a much earlier investigation, carried out by Steel and Webster (1991),
cited by Tambunan (2014) who used firm-level data in Ghana, suggests that trade
liberalization squeezes the profit of SMEs as a result of rising input costs, weak
domestic demand and increased competition with foreign firms. Similarly, by using
firm-level data for the 1993-1996 period in Chad and Gabon, Navaretti et al. (2002)
found that the trade reform process, along with devaluation of the currencies in each
country, failed to generate growth for local SMEs. On the contrary, many of these
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Valodia and Velia (2004) investigated the relationship between international
trade liberalization at the macro level, and its micro or firm-level adjustment effects,
in the South African manufacturing industry. Their findings suggest that there is a
strong relationship between the average firm size and the volume of cross-border
trade. More specifically, they found that more than half of firms that are not engaged
in international trade are SMEs. At the opposite extreme, almost half of the firms that
are involved in both importing and exporting are LEs employing more than 200
workers. It appears that LEs have been more successful than their smaller
In Tamil Nadu, Southern India, Tewari and Goebel (2002) carried out research
on the competitiveness of local firms, and found two interesting facts. Firstly, there is
those enterprises that are tied to the low-end of the market segments in large urban
or metro areas appear to be the most vulnerable to cheap import competition from
overseas, suggesting that those enterprises are likely finding trade liberalization
burdensome. Ironically, other SMEs that serve similar market niches in rural areas or
in small towns face the same pressures as those experienced by their counterparts
that serve the lower-end of the market segments. Access to intricate, socially-
source of strength that non-local competitors find too costly to replicate. In other
advantage that SMEs can count on in competing with cheap imported goods and
services.
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Latin American countries’ experiences, on the other hand, suggest that
sector. A study carried out by Goldberg and Pavenik (2003), argues that while in
Brazil there is not much evidence between trade policies and the development of
these enterprises, a case-study done in Columbia indicates that liberal trade policies
help expand the capacity of SMEs to compete with imported goods and services.
Recklies (2001) found that many typical characteristics of SMEs, which are
independently owned or owned by one person or family, are small in size, have close
relationships to customers and business partners, and simple structures, may lead to
(mostly family members), are: limited knowledge about all aspects related to running
adapting corporate culture to new situations and challenges, and potential conflicts
success, high identification with the business, a stable culture, and high commitment.
The main advantage of the small size is specialization that is often successful with
export activities – and capacity for research and development or innovation that is
crucial for winning global market competitions and manpower, along with a lack of
customers and business partners, the main advantages are a stable base for further
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business, an ability to cooperate successfully for mutual advantage and an ability and
willingness to enter partnerships. While the risk of focusing too much on an existing
Regarding a simple structure, the three main advantages are high flexibility and
also has some disadvantages, including that a simple structure not being suitable in
some cases, especially for international business activities, which are often complex
export).
SMEs' owners regarding trade liberalization. The main research questions were the
followings. First, what do SMEs' owners expect from increased trade liberalization or
talk about risk and challenges from further liberalization of the Vietnamese market?
These questions were raised with a large number of SMEs in various provinces in the
country, and it was found that a relatively low frequency of respondents expected
any benefits from the further liberalization of Vietnamese trade policies. Although
this varied between urban and rural SMEs and by form of ownership (i.e. household,
private, collective, and limited and shareholding). Only about 12% of the sampled
SMEs' owners reported positive expectations, with the limited liability and
shareholding enterprises (the most modern enterprise forms) being the most
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optimistic. The number of questioned SMEs' owners expecting losses was also
relatively small. Instead, the most common replies were that the sampled enterprises
claimed not to know what further liberalization might mean, or that they did not
expect any notable changes. In particular, rural household enterprises did not have
any clear expectations about the effects of continuing internationalization: over 70%
replied that they did not know what further liberalization might mean. It is therefore
not a surprise that most of the respondents said that they do not take steps to face
between those that did and did not take steps, varies between urban and rural and by
ownership form.
According to Kokko and Sjöholm (2004), one reason is likely to be very limited
with foreign firms in Vietnam, they do not compete with imports, nor have they been
engaged in exporting activities. Those who do take steps, the most important one
the labor force, identifying new market outlets, and others. Kokko and Sjöholm also
state that one reason for the lack of clear expectations about continuing trade
liberalization and globalization is that most (if not all) SMEs in Vietnam are not
questioned SMEs, imported goods are not considered to pose much of a threat to
them. Not even Vietnamese state-owned enterprises (SOEs) are considered direct
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competitors. This suggests that many of the surveyed SMEs believe they are
operating in market niches that are unattractive for larger and more advanced firms.
and world trade liberalization do matter for SMEs; although there are no definitive
conclusions as to whether the removal of all protective measures and the elimination
development of SMEs. The impact on SMEs may, however, vary by location and
sector or group of industry. It may be true that SMEs in isolated locations, remote
rural areas or those operating in market niches may not feel the impact like those
located in urban areas or cities or those producing tradable goods. But, one thing is
countries in the world are integrating their economies with the global economy.
more crowded domestic market that is open to both domestic- and foreign-made
One way to assess the readiness of local SMEs in individual AMSs to face the
AEC 2015 or their capability to compete not only in regional but also in domestic
markets against imported goods supplied by SMEs and LEs from other AMSs, is by
Unfortunately, data on SMEs’ exports in some AMSs are either not available or
difficult to verify. All AMSs have databases on their SMEs, but mainly on total number
of units, total employment created and total output generated; not on total volume or
value of exports. So, it is not easy to examine how important these enterprises are for
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national exports. However, some limited information sources, mainly research
papers and official estimates/assessments, may give some idea about the role of
to total export earnings in Southeast Asian countries was not more than 20%. This
2003, which shows that SMEs in the region contributed less than 30% of direct
countries are under-represented in the international trade relative to their role in the
domestic economy.
But, as some of these reports also argue, if indirect exports are also taken into
account, SMEs export contributions could be much larger than these percentages.
This is because SMEs in the manufacturing industry often make up a significant part
of the value or supply chain, and may not be included in the direct export data. It is
also suggested by a report on SMEs in Indonesia from the Asian Development Bank
(ADB, 2002) that the relatively low representation of SMEs in exports, compared to
their larger counterparts, is mainly due to a significant part of SMEs’ exports going
$SMEs generate about 30% of direct exports, compared to indirect exports, through
supply chain relationships with other firms (mainly LEs), which could rise to 50% of
total trade. Indirect exports take place through merchant exporters, trading houses
and export houses. Sometimes, these indirect exports are also in the form of export
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orders from LEs, including multinational companies, where SMEs play the role of the
exports in some AMSs. As can be seen, the contributions varied by member states
with Thailand reveals as the member state with the most export-oriented SMEs.
Many factors may explain this variety, such as government supports to exporting
SMEs, infrastructure and logistic which have significant effects on transaction costs
technology, skilled manpower, raw materials and information, and, of course, not less
Table 6
Long (2006) states that the ability of SMEs to compete with imported
competitiveness. SMEs’ low global competitiveness can be a serious obstacle for the
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enterprises to access, not only the regional or international market, but also the
domestic market since their products cannot compete with imported goods.
Unfortunately, little effort has been made, until now, to assess the regional or global
competitiveness of SMEs in ASEAN. Therefore, not much can be said about ASEAN
SMEs; although the above table may give some clues as to the relative
competitiveness of the enterprises in at least some AMSs. The only initiative, so far,
has been from the APEC SME Innovation Center, which conducted a study on SME
2006a,b), also covering some AMSs (Figure 2). In this study, competitiveness is
measured through a score index between one (the least competitive) and ten (the
technology used, adopted methods of production and types of products made with
high/advanced). The study revealed that Indonesia has the least competitive SMEs,
with a score below four. Moreover, according to this study, Indonesia also recorded
the least amount of funding for technological development, which was below 3.5 in
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Figure 2
Indonesia
China
Korea
Philippines
Thailand
Japan
Malaysia
Singapore
Canada
Australia
Chinese Taipei
USA
Hongkong-China
0 1 2 3 4 5 6 7 8 9
Conclusions
No doubt that liberalization of trade and investment such as in the case of AEC
2015 on one hand will create greater market and production opportunities and, on
the other hand, big challenges for any local SMEs in all AMSs. This paper is not an
empirical study but merely a theoretical paper which suggests that there are two key
channels or markets through which the implementation of the AEC 2015 will affect
local SMEs, namely output and inputs markets. The effects can be in the form of
opportunities but can also become threats for their long-term growth or exist. The
key challenge for local SMEs with respect to the implementation of the AEC 2015 is
how they can make the effects to become their opportunities, and that will depend to
a larger extent on themselves, i.e. their readiness, and to a lesser extent, appropriate
government supports.
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Thus, every individual SMEs in all AMSs certainly will face a great challenge,
namely can they successfully compete not only in their own domestic markets
against imports but also in ASEAN market. For Indonesia, for instance, can local SMEs
compete with imported furniture made by SMEs in Viet Nam or can they export their
AEC 2015 will turn out to be a serious threat in the form of losing domestic market
shares.
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The SMEs during Economic Slowdown in Poland.
The Experiences from the Latest Global Financial
Crisis.
Anna Bąkiewicz
Abstract
The paper explores the reaction of small and medium enterprises in Poland to the
latest economic slowdown. In order to show some regularities that occurred in the way
the small businesses responded to the crisis numerous studies that represented different
perspectives and methodologies are summarized in the paper. The experiences of Poland
provide some convincing evidence that the resistance to the negative external factors of
particular subsectors of the SMEs depends on the specific futures of small businesses.
Moreover, it becomes evident that conservative business strategies adapted by the
majority of the SMEs make the later more resistant to the crisis. Generally, the results of
the study stand in opposition to the popular view in which small businesses are identified
with dynamic entrepreneurship and development.
Introduction
The latest financial crisis initiated by the collapse of Lehman Brothers Bank
universal truth that the effects of macroeconomic turbulences for the companies
could be different and some of the businesses would just stay in a market, some of
them might even get stronger and some might fail to survive. The final effect
would be an outcome of many determinants, both external e.g. the strength and
scope of the macroeconomic changes, and internal ones, such as the features of
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individual businesses and their resistance to macroeconomic shocks. In particular,
the reaction to the change of the exterior conditions could depend on the size of a
company and special futures related to this. And, it is generally accepted that
smaller businesses are more vulnerable to the influence of external factors than
larger companies as the later have more power to influence the environment they
intensively studied for many years. The examinations have been made both within
income and employment generation), as well as the management studies (with the
SMEs have been usually analyzed during "normal" settings, which is the time of a
relatively stable economy. Some studies only refer to the periods of economic
instability, crisis or slowdown. The later are certainly inspiring, if only because the
the specificity of these businesses and their particular role in the economy
(Steinerowska-Streb, 2011).
The aim of the following study is to enrich our knowledge on the factors
that determine the reaction of SMEs to economic crisis. Picking up the issue is also
destruction” and what mechanisms that occur during the crisis, stimulate the
of SMEs is the very basic objective of our investigation. The case of Poland as a
"green island" - the only economy in Europe which throughout the period of
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economic downturn had a positive rate of growth is used here as an interesting
and informative case. Previous studies have already provided a glimpse of the
changes that took place in the non-financial enterprise sector in Poland during the
latest global financial crisis (Bąkiewicz, 2015). We know that the sector of SMEs in
Poland as a whole coped pretty well with the economic slowdown and after rather
deep but short-term decline, they quickly and strongly returned to the path of
dynamic growth.
1. What specific features of SMEs are important for their reaction to the external
shocks?
2. Which of the characteristics make the SMEs resistant to the economic crisis?
3. Which of the typical attributes of the SMEs make them especially susceptible to
the slowdown?
4. What changes that occur during the crisis are especially harmful for the SMEs?
5. What strategies are adopted by the SMEs in the face of the crisis?
And, the present study aims at answering at least some of the questions.
There are some premises to say that the resilience of SMEs to the crisis is
foremost the priority to survive and the conservatism associated to this. With such
a conservative approach to the economic activity the SMEs might be more flexible
and adapt quickly to fluctuating market conditions, which could then result in
their special role in balancing economic and social development during economic
turbulences. In other words, as we might be rather more inclined to argue that the
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sector is full of enterprises oriented towards tradition and conventional practices
the above thesis goes against the popular wisdom stressing entrepreneurship and
author. The analysis is conducted at the sectoral level of particular size classes of
enterprises and the specificity of the SMEs. Then we present the picture of the
SMEs in Poland with special focus on the changes that occurred during the latest
global financial crisis. Next, in the empirical part of the paper we review the
results of our investigations of the sources of the SMEs competitiveness during the
economic slowdown. In conclusions, both the outcomes of our study and possible
Following the very basic ideas of marketing approach (Kotler, 2012) to the
issue we can offer the following set of determinants of the operation of any
company:
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relations, scientific and technical progress, staff and management skills,
Internal factors - material and intangible assets are those for which the
company has the ability to modify. With the heterogeneity of the internal
synthesizing factor because he/she is responsible for the entire operations of the
business venture that shapes the effective and efficient management of available
resources owned by a company and the ability to use it in order to take effective
action in response and reaction to the changes and transformations taking place in
operate in a specific region, at the local market and in a branch. All those platforms
generate both opportunities and threats. Moreover, the complexity of the external
increasingly less able to influence it (Borowiecki, 2010). As we want to find out the
regularities that occur during the latest global financial crisis the issue of the
external turbulences becomes especially important. The crisis and the dramatic
perspectives:
determine long-term development and the later enables the growth of short term
efficiency. As far as the specificity of the SMEs is concerned it is has been stated
that both from micro- and macroeconomic perspective small and medium
And, the majority of the literature on the SMEs is quite enthusiastic as far as the
efficiency and the role in the economy of the sector are concerned (Gibb, 2000).
weaknesses of the small business both from the point of view of their
development potential and their impact on the economy. They mostly point at
poor employment conditions in the SMEs, lower wages, poor innovativeness of the
majority of micro and small enterprises, low exports potential and high sensitivity
to the negative impact of external factors (see eg. Bąkiewicz, 2010, 2012a;
Matejun, 2007; Piasecki, 1998). Poor human capital and managerial qualifications
together with high barriers to the access to information are identified as one of the
factors have direct impact on the possibility of acquiring customers and making a
company. They might also put into question the positive impact of the SMEs on the
As we deal with the reaction of the SMEs to the financial crisis, one thing
Many studies stress the importance of the financial barrier for the development of
the SMEs. Among the most stimulating is the research made by Klein (2014) that
is based on the premises that the SMEs have especially limited access the external
financing. In particular, during the financial crisis the credit supply is being
strongly restricted by the banking sector so the small businesses have poor
settings to cope with the crisis and to restore their dynamics. And, the conclusion
made by Klein is that the financial crisis is especially harmful for small businesses
and the later hinder the economy to get out of the crisis.
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The above issue is related to the overall problem of SMEs’ external
financing. The theory of agency offers here quite promising framework for the
examination of the issue (Barney and Ouchi, 1986). The agency costs in this case
standardized and recorded. During “normal” times this tendency induces banks to
prefer as their borrowers the bigger firms as the later have better organized
2011). But, other studies found that during economic slowdown when the
economic conditions change over the above tendency does not operate (D’Aurizio
et al., 2014). In those special circumstances the reduction of the supply of credit
affects all the companies, but the limits hit bigger companies harder than smaller
ones. It comes from the observation that in the period of high economic
instabilities when the extra attempts are made by banks to reduce the risk
involved in credit provision the role of “soft” information, and gathered informally
within direct contacts with the companies becomes more important for the
creditors. It then effects in better access to credit for smaller companies. It relates
to the smaller agency costs assigned to the SMEs (Presbitero et al., 2014).
SMEs together with the great expectation concerning the functioning of SMEs in an
economy make the research on the reaction of small businesses to the economic
According to the law of 1999, the enterprise sector in Poland is divided into
four size categories (Table 1). The definition takes into account both employment
Table 1
Definition of SME in Poland.
Employment Turnover
The statistics of the enterprises of different size show that the majority of
firms in Poland are very small ones (Table 2). More than 95% of enterprises
employ less than 10 workers. Small enterprises account for 3.56% of enterprises
and medium firms constitute almost 1%. Large enterprises make up only 0.19% of
the business sector in Poland. The shares of SMEs in employment and value added
are visibly smaller than their shares in the number of enterprises. SMEs employ
less than 70% of total labor force in non-financial sector and produce slightly
more than half of value added. This is consistent with the universal rule that TFP
(total factor productivity) in SMEs is lower than the one in LEs (Bąkiewicz, 2010).
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Table 2
Size structure of enterprise sector in Poland and EU, 2015 (per cent). 1
Size class Number of enterprises Number of employment Value added
(employment) Poland EU-28 Poland EU-28 Poland EU-28
Micro
95.27 92.29 36.62 28.86 14.89 21.5
(0 – 9)
Small
3.56 6.46 13.80 20.69 14.59 18.28
(10 – 49)
Medium
0.98 1.05 18.73 17.4 20.89 18.55
(50 – 249)
Large
0.19 0.2 30.85 33.05 49.62 41.67
(250+)
Total 100 100 100 100 100 100
SMEs 99.81 99.98 69.15 67.95 50.38 58.33
Source: EUROSTAT (2015)
The signs of the global financial crisis have been well described in the
decline in gross capital formation (housing, structures, plant and equipment) and
much stronger growth in exports of goods and services than final domestic
1
Eurostat’s structural business statistics cover the ‘business economy’, which includes industry,
construction and many services (Sections B to N and Division 95); financial and insurance activities
(Section K) are treated separately within structural business statistics because of their specific nature and
the limited availability of most types of standard business statistics in this area. As such, the term ‘non-
financial business economy’ is generally used to refer to those economic activities covered by Sections B
to J and L to N and Division 95 and the units that carry out those activities. Structural business statistics
do not cover agriculture, forestry and fishing, nor public administration and (largely) non-market
services, such as education or health (EUROSTAT, 2015).
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deterioration in of financial liquidity of many companies related to this
investments and production growth were significantly reduced. The rise of the
confidence in financial markets were also important for the reduction of the
availability of credit after the collapse of the Lehman Brothers Bank. The rise of
uncertainty in the market forced many banks to tighten the credit risk assessment
unemployment also reduced demand for goods and services. It all resulted in the
bankruptcy (Euler Hermes 2009). So, it is not surprising that even in Poland,
where the financial crisis was relatively mild, almost ¾ of the companies
Member States. Among the East-European economies Hungary and Romania were
especially seriously hit by the crisis, and the other countries of the region as Czech
Republic and Slovakia, were hardly touched by the economic slowdown. For
Poland the manifestations of the crisis were rather slight and the economy
maintained the positive rate of growth over the entire period of the slowdown
(GUS, 2014). GDP growth in Poland dropped from more than 6% in 2006 and
2007, 5,1% in 2008, to 1,6% in 2009, 3,9% in 2010, 4,5% in 2012, 2,0% in 2013
and 1,6% in 2014. More, domestic demand (adjusted for inflation) was higher in
the highest in Poland (7%) compared to average minus 4% for EU-28. The export
change 2008-2013 was positive in the majority of EU members, with the average
7% for EU-28 and 20% for Poland. Summing up, Polish economy was one of not
many that experienced rather shallow economic decline and fast recovery from
the crisis.
The statistics show that just before the crisis the dynamics of the SMEs was
significantly higher than in the rest of the economy (European Commission, 2012;
GUS, 2015).2 And, in the very beginning the crisis strongly hit the SMEs and the
later were responsible for the majority of bankruptcies in Poland at that time
(Table 3).
Table 3
The changes in the enterprise sector in Poland during the global financial
crisis, 2008-2015 (2008=100).
Number of Employment Value-added Gross
enterprises investments
Size class
2009 2015 2009 2015 2009 2014 2009 2011
(employment)
Micro
92.75 94.80 94.85 92.60 77.36 96.58 64.45 64.63
(0 – 9)
Small
93.05 100.97 96.82 99.94 75.75 116.45 63.47 67.34
(10 – 49)
Medium
99.95 91.73 99.51 93.40 81.43 105.12 66.98 70.50
(50 – 249)
Large
98.21 88.80 96.90 92.81 83.00 115.34 68.51 70.92
(250 +)
Total 92.86 94.96 96.62 93.76 80.70 110.07 67.32 70.00
SMEs 92.82 94.98 96.49 94.20 78.63 105.34 65.72 68.77
Source: Bąkiewicz (2015)
2
As we know, this is a part of the long-term trend of the Polish economy that started with the
transformation from the centrally planned economy and leads to being like the structure developed in
high-income European economies (Bąkiewicz 2012b).
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The data on the number of enterprises, employment, production and investment
that include the de-lamination of the non-financial businesses into four size
classes make an interesting picture of the enterprise sector in Poland during the
economic slowdown. First, the small enterprises recorded the strongest slowdown
in the very first months of the crisis. And, in this sector the recovery was the
fastest one and the final results were the most visible one. In other words, the
economic growth in the longer term was recorded mostly in small enterprises.
And, this reaction of the SMEs to the crisis confirms their big sensitivity to the
Second, as far as the large enterprises are concerned, they were the second most
active sector in Poland during the slowdown. The results of the crisis became
visible here with a few months delay and the recovery was then quite intensive.
Although the sector lost much employment in 2009 it then regain the value added
in the largest companies took place, so the crisis forced the modernization of the
sector.
Third, the micro enterprises managed to pass the crisis with a visible loss. As we
know, many of them stay in a market regardless the production level or revenue
as they are the only source of employment and income generation (Bąkiewicz,
2015). But, following the development model of mature economies, they lose their
share in production and the crisis seems the accelerate the process.
Finally, the records of medium size companies are rather disappointing. Their lost
quite a lot of employment from 2008 level and did not managed to regain their
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pre-crisis production level up to 2014. It points at the weakness of this size class
high-income economies.
As we know Polish economy has coped quite well with the crisis and the
slowdown was rather mild. The final effect was surly a result of a aggregated
reaction of all economic agents, the SMEs among them. In this paper we argue that
the reactions of the SMEs to the global turbulences were determined by the
characteristics of small business. The major features of the SMEs from the crisis
The sharp reduction of the availability of external financing is the very first
symptom of the financial crisis that one may call over. The impact of this factor
depends on the company’s demand for external financing and scale of the drop of
supply of external funds. As far as the first factor is concerned the SMEs in Poland
use any external financing to a lesser extent (60.1% in 2010) than larger
companies (71.4%, respectively) (PARP, 2013) and the leasing is the most popular
form of external financing used by the SMEs in Poland. As far as the demand for
credit for investments is concerned ¾ of the SMEs in Poland use their own
finances only. The structure of finances in Polish SME only slightly differs from the
companies that use external financing only. It may be associated with a significant
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Table 4
Finances of the SMEs, Poland and EU average, 2009 (per cent).
Sources of financial capital Credit applications
Own Own and External With Not submitted
only external only other Fearing Lack of Other
sources refusal own reasons
funds
EU 27 16 31 28 22 7 39 30
Poland 13 27 41 19 8 43 29
Sources: GUS (2011), European Commission (2009)
According to the study made by National Bank of Poland (NBP, 2009) the
majority of the owners of the SMEs are anxious to use external financing. Bank
eventual rescue at risk of bankruptcy. More, the loans are regarded as costly and
time consuming source of funds. That is why the majority of the managers of small
business in Poland has any experience in applying for credit or even subsidy.
Paradoxically, the better the company’s condition the bigger its knowledge about
the possibilities of external financing and the higher its involvement in external
financing.
majority of SMEs in Poland (IWI, 2009). Namely, the majority of them operates
according the conservative strategy, does not take risky actions, innovate or make
result, a typical SME in Poland is not engaged in risky financial operations, its
external liabilities are small and its dependency on external financing is not
significant one (IBDPP, 2009). Such a cautious approach might reduce a dynamic
influence of SMEs on the economy, but it can reduce the danger of bankruptcy
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under economic downturn and still have a stabilizing effect on the economy in the
turbulent times.
concerned in 2008 during the first wave of the crisis the banking sector reduced
the supply of credit sharply and lifted their expectations concerning guarantees
and formal requirements. The data on the value of corporate loans in Table 5 show
that in 2009 compared to 2008 the businesses lending fell by more than 5%. The
large enterprises faced much sever reduction of credit (over 12%) while the value
was recorded in 2010, too, but the drop was not as big as the year before. The
increase of loans to SMEs in two subsequent years was very high and almost twice
exceeded the growth in loans to large enterprises. And, the data show that
restriction on bank lending at the beginning of the crisis was much more focused
external financial conditions, but too much smaller extend. As we can see, the
availability of credit during crisis for companies of different size in Poland is not
consistent with the statements Klein (2014) regarding the availability of funds in
Summing up, weak dependence on external financing of the SMEs in Poland and
moderate only and temporary worsening of financing conditions make the direct
impact of financial factors on the SMEs operations rather insignificant. More, there
are premises to say that the experiences of small businesses in Poland are in line
with the records of the Italian SMEs during the economic turbulences. In the latter
case rising instability in financial markets during the crisis made the banks more
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sensible to informal “soft” information that in turn made small business more
Table 5
Credit for the enterprises in Poland, 2008-2013 (million PLN and per cent).
Value of total credit (million Change of the value of total loans (per
PLN) cent)
Year Total SMEs LEs Total SMEs Les
2008 233,3 125,3 108
2009 222,1 127,2 94,9 -5,27 1,5 -12,13
2010 219,7 127 92,7 -1,08 -0,16 -2,32
2011 264,5 159 105,5 20,39 25,2 13,81
2012 272,3 164,9 107,4 2,95 3,71 1,8
2013 278 163,9 114 2,09 -0,6 6,14
Source: UKNF (2014)
Aggregated demand is one of the basic factors that determine the level of
production. In case of Poland during the global financial crisis the drop of demand
was recorded in exports mainly and the changes of domestic demand were rather
small (Table 6). More, the drop of exports in Poland in 2008 compared to the EU
average (12%) was not very big and in 2009 the growth of exports was recorded.
In the 2nd quarter of 2009 only the drop of domestic demand in Poland occurred.
Though the initial decline of demand, the upward trend has been maintained.
Table 6
Domestic demand and exports change in Poland, 2008-2009 (per cent).
I Q II Q III Q IV Q I Q II Q
2008 2008 2008 2008 2009 2009
Domestic
demand 6,4 6,3 5,0 2,9 0,9 -1,4
Exports growth 0,0 -0,8 -0,1 -0,2 0,9 2,9
Source: GUS (2015)
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The impact of two basic components of demand on the enterprises depends
on the structure of their market – domestic versus foreign one. As the data in
universal regularities in which the smaller the enterprises the lower is the
production. In other words, for the SMEs in Poland the domestic demand is much
Many studies confirmed that the local demand and the level of living of the local
population is the most important factor here (Wach, 2007). The SMEs in Poland
are strongly represented across all sectors with the exception of financial services
and capital-intensive sectors like energy and cement production (see figure
the above mentioned regularity is the strongest among small businesses operating
So, we can explain good records of the SMEs in Poland during the latest
financial crisis at least partially with the low level of internationalization of the
sector. In other words, their concentration on domestic market helps them to pass
the crisis rather smoothly and it may also explain the relatively rapid return of
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The perception of the crisis by the SMEs and their strategic response
As the study made by Kaliszczak and Urban (2009) shows 1/3 of the SMEs
have not taken any special action during the economic slowdown. The actions, if
any, concentrated on costs reduction (41% of companies that make any special
steps) and investments’ cuts (14%). It means that the majority of the SMEs resign
from using the crisis to modernize. The other study displayed that almost a half of
(Table 8). SMEs are more active towards crisis than the micro ones. The other
studies made by PKPP Lewiatan and Deloitte (2009) and WOG (2011) suggest also
Table 7
Internationalization of enterprises in Poland, 2007-2011 (per cent).
Size of employment 2007 2008 2009 2010 2011
Importers (per cent of enterprises)
Total 6,0 5,4 5,3 5,2 7,1
0–9 4,5 3,6 3,5 3,4 5,4
10–49 37,7 41,8 39,2 39,6 39,2
50–249 55,8 59,8 58,5 57,4 57,3
> 249 86,9 90,2 87,2 88,2 89,1
Exporters (per cent of enterprises)
Total 3,4 3,3 3,6 3,5 3,9
0–9 2,2 1,8 2,1 2,0 2,6
10–49 28,4 32,0 32,1 32,4 28,6
50–249 43,9 47,7 48,6 47,5 45,0
> 249 64,3 69,1 66,1 66,3 66,9
Exports as a share of total sale
Total 13,4 13,1 13,7 14,6 15,2
0–9 3,3 3,0 2,9 3,2 3,1
10–49 7,3 6,4 7,6 8,4 8,0
50–249 10,8 10,4 10,7 11,3 12,3
> 249 20,3 19,1 18,8 19,1 20,2
Share of SMEs (10+) in exports 26,8 26,5 27,3 26,3 25,7
Source: GUS (2015)
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Branch structure of enterprises of different size in Poland, 2012.
Table 8
The attitudes towards economic crisis by the entrepreneurs.
Acceptance of the statements in per cent The enterprises
Micro Small Medium
During the economic crisis a company must follow its
precise plan of action. 41 52 63
The way my company operates during the economic
crisis depends only on the steps made by the company. 52 49 41
I am optimistic as far as the future of my business is
concerned and I believe the economic situation will
improve soon. 65 68 59
I am afraid my company will go bankrupt if the currents
economic crisis last a little bit longer. 19 17 14
Crisis can be a good opportunity for searching new
chances to develop my business. 46 50 51
During the economic crisis a company should aim to
survive and do not invest. 37 35 23
I am so concentrated on the current problems of my
business that I do not have time to think about
development. 21 26 16
Source: Orłowski et al. (2010).
EU. 14% of adults in Poland in 2009 have started their business or were taking
steps to start one, compared to 12% in EU (European Commission, 2012). But, the
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studies concerning the organization and the controlling of the small businesses
give rather poor picture of the managerial qualifications. Study by Kaliszczak and
Urban (2011) showed, the overwhelming majority of the SMEs do not have any
medium businesses and exporting enterprises only are better prepared for the
economic slowdown. And, more than ¾ of the entrepreneurs have any long-term
duties that are regarded as so time consuming that there is no time left for
planning. They - as a rule - do not see the need to build comparative advantage as
they concentrate on short term financial outcomes. The strategies for building
relations with customers and employees are very rare. The importance of human
times of crisis rather that to build human capital as a routine operation. The plans
if any concentrate on market penetration (39% of the SMEs that have formal
contain precise steps that are to lead to the aims pursued. One could also take into
consideration the fact that the SMEs in Poland are the less innovative in European
Union (18 per cent of the SMEs in Poland were innovative ones in 2006-2008
far as the latest global financial crisis is concerned more than half of the SMEs
owners were quite optimistic about the economic situation in Poland during the
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first wave of the crisis (BCC, 2009). In September 2008 almost ¾ of the SMEs
predicted and increase of revenues, more than 70% expected growing income and
1/3 expected their market share to rise, 40% planned to introduce new product to
the market. They expected better access to external financing, European funds
next 2-3 years - such high scores are recorded in Austria and Norway only and the
lowest rates were recorded for Greece and Malta - less than 20%) (European
The problems were identified mostly in the reduction of orders and revenues.
Even at that time less than 20% of entrepreneurs were afraid of bankruptcy due to
well the condition of the branch their operate in than the market for their own
perception of the major barriers of their operations and the competition, taxes and
made by Kaliszczak and Urban (2011) showed for the majority of the
entrepreneurs the intuition rather than market research was the foundation of
their decision making. And it could suggest, that the entrepreneurs were shaping
their ideas concerning the crisis on the basis of the media reports and popular
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opinions and not their own business experiences. The good records of both
domestic and external demands in case of Poland during the global domestic crisis
seem to confirm the thesis, that for many entrepreneurs the crisis remained a
that shapes their perception of the chances and threats offered by the market.
And, the awareness of the crisis by the SMEs in Poland could be a result both of the
scale of the economic slowdown and the access to the information by the
explain quite limited steps undertaken by the majority of the SMEs during the
slowdown.
Conclusions
The SMEs in Poland fared quite well during the global financial crisis. After
a relatively deep but short deterioration, they quickly returned to the growth path.
In general the impact of the economic crisis on the majority of the SMEs was
rather limited. The majority of entrepreneurs did not make any radical changes in
investments’ cuts, if any. The search for new markets, products and technology
modernization was observed in a few cases only. They were usually concentrated
rather mild slowdown in Poland during the global financial crisis. But, there are
promises to say that the crisis exposes poor strategic thinking among small
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businesses in Poland as the entrepreneurs in reaction to the crisis would rather
hold their breath for a while to get some time to look at the situation around,
the problem that the majority of small businesses are run without professional
management, and they lack long term strategy and risk taking procedures.
prevents them from using the crisis to modernize. But, on the other hand, such an
At the macroeconomic level response to the crisis, SMEs can be crucial for
determining the role of these enterprises in the economy. Indeed, there are
reasons to believe that the specific features of small businesses are the base for
risk taking and investments in unstable conditions may limit the role of the SMEs
in innovations and development. All in all, it may mean that – opposite to the
than accelerator. And this is definitely an important issue that deserves further
study.
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Entrepreneurship in the Shadow Economy: A
Review of the Alternative Policy Approaches
Colin C Williams
Abstract
The aim of this paper is to review the various policy approaches that can be used
to tackle entrepreneurship in the shadow economy. To do this, it firstly reviews four
possible policy options, namely taking no action, eradicating shadow entrepreneurship,
moving legitimate entrepreneurship into the shadow economy, or transforming shadow
entrepreneurship into legitimate entrepreneurship. Revealing that transforming shadow
entrepreneurship into legitimate entrepreneurship is not only the most viable option but
also the approach most commonly adopted by supra-national agencies and national
governments, a review is then undertaken of how this can be achieved using either direct
controls, which seek to increase the costs of shadow entrepreneurship and/or the
benefits of legitimate entrepreneurship, or indirect controls that seek to generate a
commitment to compliance and greater self-regulation. How these approaches can be
combined is then reviewed. The outcome is a comprehensive review and evaluation of the
various policy approaches available to policy-makers for addressing shadow
entrepreneurship along with some recommendations regarding the way forward.
Introduction
in the shadow economy (Achua and Lussier, 2014; Aidis et al., 2006; Bruton et al.,
2012; Bureau and Fendt, 2011; Kus, 2014; Mróz, 2012; Welter and Smallbone,
2011; Williams, 2006; Williams and Nadin, 2010a). This literature has investigated
not only the prevalence of shadow entrepreneurship (Autio and Fu, 2014;
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Williams, 2013) and the determinants of its variable prevalence (Dau and Cuervo-
Cazurra, 2014; Siqueira et al, 2014; Thai and Turkina, 2014), but also who
Williams and Nadin, 2010b; Williams and Round, 2007, 2008; Williams and
Youssef, 2013) and their motives, such as whether they are necessity- and/or
opportunity- driven (Adom, 2014; Adom and Williams, 2012; Maloney, 2004;
Perry et al., 2007; Williams et al., 2009). However, despite this growing
entrepreneurship in the shadow economy. The aim of this paper is to fill this gap
in the literature.
To do this, the next section evaluates the range of potential policy options
followed in the fourth section by a review of the direct controls that can be used to
controls that can be used to do so. Rather than treat these direct and indirect
controls as either/or choices, the sixth section then reveals the various policy
approaches that can be adopted which combine direct and indirect controls when
slope approaches. The seventh and final section then draws conclusions about the
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comprehensive review of the policy approaches and measures available to policy
economy is here defined as monetary transactions not declared to the state for tax,
benefit and/or labor law purposes when they should be declared but which are
legal in all other respects (Williams and Nadin, 2010a). The working definition of
2002). Shadow entrepreneurs are therefore those starting a business or are the
the state for tax, benefit and/or labor law purposes when they should be declared
but which are legal in all other respects. The only illicit aspect of such endeavor in
consequence, is that when trading licit goods and/or services, some or all of their
monetary transactions are not declared. Entrepreneurs trading illicit goods and
services (e.g., drug trafficking, gun-running) are not shadow entrepreneurs, but
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policy options might appear a little far-fetched, commentators have advocated
them all in recent decades. Consequently, one cannot reject any of them without
Take no action
for doing nothing about shadow entrepreneurship are that it is a seed-bed for new
venture creation, a breeding ground for the micro-enterprise system and a test-
bed for fledgling enterprises and therefore no action should be taken. Indeed, a
2012 survey of 595 small business owners in the UK reveals that 20% report that
they traded in the shadow economy when starting-up their business venture, with
64% stating that the main reason for doing so was to test the viability of their
relationships with the legitimate sector), customers (e.g., lack of legal recourse if a
poor job is done) and governments (e.g., reduced public revenue) (for a review,
see OECD, 2015; Williams, 2014a, 2015). Until now however, no evaluations have
been conducted of the extent to which such deleterious impacts are valid in
practice. This is a significant gap that needs to be filled in future studies. Despite
this lack of evidence however, the strong consensus of both scholars and policy-
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a feasible option. Interventions are viewed as necessary. What type of
shadow economy. Although not explicitly argued by any commentators, there have
been policy proposals which err in this direction. Some scholars advocate a de-
the market (Sauvy, 1984; De Soto, 1989, 2001). The consequent objective is to de-
regulate the legitimate realm so that all activities are performed in a manner akin
to what is currently the shadow sector, although they would no longer be shadow
remain.
nevertheless is that decreasing the level of state intervention does not result in a
this option is not viable. Indeed, few currently advocate such a possibility.
shadow entrepreneurs are viewed as “rational economic actors” who evade tax so
long as the pay-off is greater than the expected cost of being caught and punished
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(Allingham and Sandmo, 1972), eradication can be achieved by altering the
Richardson and Sawyer, 2001). This can be achieved by raising the costs of
likelihood of detection and secondly, the penalties and sanctions for doing so. In
practicality side, the issue is whether this is effective. Although some studies
reveal that improving detection and/or penalties reduces the shadow economy
(De Juan et al., 1994; Slemerod et al., 2001), others identify that the shadow
economy grows (Bergman and Nevarez, 2006; Murphy, 2005) and thus that “it is
not sensible to penalize illicit work with intensified controls and higher fines”
(Schneider and Enste, 2002: 192). This is because a penalizing approach alienates
shadow economy by reducing their belief in the fairness of the system (Murphy,
2005).
potential asset that needs to be fostered (e.g., Williams, 2006). Eradicating this
al., 2010; European Commission, 2007, Renooy et al., 2004; Small Business
Council, 2004, Williams, 2006; Williams and Nadin, 2012a,b, 2013, 2014; Williams
and Renooy, 2013). The benefits of doing so vary according to whether legitimate
(Evans et al., 2006; Renooy et al., 2004). It would also enable the business
community to pursue a “high road” rather than “low road” approach by shifting
safety and labor standards (Grabiner, 2000; Renooy et al., 2004; Williams and
relationships with the legitimate realm (Gallin, 2001; Williams and Windebank,
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1998) and achieve the same levels of legal protection as legitimate entrepreneurs
(ILO, 2014; Morris and Polese, 2014). They are also able to secure legitimate
intellectual property rights for their products and processes (De Beer et al., 2013)
and overcome the structural impediments which prevent business growth such as
their lack of access to advice and support as well as capital (ILO, 2014).
are that such customers benefit from legal recourse if a poor job is done, have
access to insurance cover, enjoy guarantees with regard to the work conducted,
and have more certainty that health and safety regulations are followed (Williams
This would leave intact the current negative impacts on legitimate entrepreneurs
(e.g., unfair competition), shadow entrepreneurs (e.g., the inability to gain access
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to credit to expand), customers (e.g., no guarantee of health and safety standards)
and governments (e.g., taxes owed are not collected). Secondly, transforming
because little evidence exists that de-regulation reduces the shadow economy and
be the most viable policy option. How, therefore, can this be achieved?
outweigh the costs of working in the shadow economy. This is accomplished either
(“carrots”). Indirect controls meanwhile, shift away from using “sticks” and
“carrots”, and instead focus on developing the psychological contract (or what
might also be called the social contract) between the state and its citizens in order
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the measures available for transforming shadow entrepreneurship into legitimate
entrepreneurship.
comprehensive approach to reduce the costs and increase the benefits to business
therefore, firstly, the use of deterrence measures to detect and punish non-
Deterrence measures
During the early 1970s, Allingham and Sandmo (1972) argued that the
evade tax when the pay-off is greater than the expected cost of detection and
entrepreneurship (e.g., Grabiner, 2000; Hasseldine and Li, 1999; Job et al., 2007;
Richardson and Sawyer, 2001). When using deterrence measures, this is achieved
by increasing the actual and perceived risks and costs associated with
compliance (Feld and Frey, 2002; Murphy, 2005; Varma and Doob, 1998; Shaw et
al., 2008; Webley and Halstead, 1986). Instead, it raises non-compliance, not least
due to a breakdown of trust between the state and its citizens (Ayres and
Braithwaite, 1992; Murphy and Harris, 2007; Tyler et al., 2007; Williams, 2001).
Indeed, the most telling critique of the use of deterrents is the finding that many
voluntarily comply even when the level of penalties and risks of detection would
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suggest that they should not if they were truly rational economic actors (Murphy,
Another reason for caution with regard to the use of deterrents is that their
other hands of government wish to foster. When this is combined with the
result has been a questioning of the value of such measures. New measures have
thus emerged.
Incentive measures/“bribes”
entrepreneurship, rather than eradicating it, a shift has taken place away from
Williams, 2006). Put another way, rather than punish “bad” (non-compliant)
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compliance so as to make it easy to do so, the use of direct and indirect tax
On the other hand, measures can be introduced that provide incentives for
their customers and providing them with incentives to use legitimate rather than
voluntary disclosure schemes and the introduction of schemes that facilitate them
measures that again in effect “bribe” customers to use legitimate rather than
shadow enterprises when sourcing goods and services. These include the use of
for example service vouchers and targeted direct and indirect tax incentives (see
Williams, 2015).
The problem with using direct controls to alter the cost/benefit ratio
confronting shadow entrepreneurs is that they are not only expensive but also
often effective (Alm, 2011). Rather than “bribe” somebody to be compliant for
commitment in them to being compliant so that self-regulate. The result has been
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a move beyond the use of “sticks” and “carrots” and the adoption of indirect
entrepreneurs (Alm et al., 1995; Torgler, 2003; Weigel et al., 1987; Wenzel, 2002).
To understand the tools that can be used to achieve this, it is first necessary
to recognize that there exists an institutional asymmetry between the laws, codes
and regulations of legitimate institutions and the norms, beliefs and values of
and beliefs (informal institutions) differ to the laws and regulations (formal
being seen as socially legitimate in terms of the norms, values and beliefs of
therefore, there is a need to reduce this asymmetry between the formal and
To change this institutional asymmetry, one approach is to change the norms, values and beliefs of
potential and existing entrepreneurs regarding the acceptability of working in the shadow economy so
that these are in symmetry with the formal institutions. This can be achieved by improving tax
knowledge, using awareness raising campaigns about the costs of shadow entrepreneurship and benefits
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Improving tax knowledge.
important if the norms, values and beliefs are to be in symmetry with the codified
types of education. Firstly, there is the need to educate entrepreneurs about what
Secondly, and more broadly, entrepreneurs also need educating about the
spent by informing them of the public goods and services they receive (Bird et al.,
2006; Saeed and Shah, 2011). Signs such as “your taxes are paying for this” on civil
construction schemes (e.g., new roads) are one way of doing so by conveying a
clear message of where taxes are being spent. Signs in hospitals, schools, medical
Awareness-raising campaigns.
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in the shadow economy; potential customers of the risks and costs; entrepreneurs
using the legitimate economy. Indeed, the evidence is that such advertising
campaigns are effective and cost efficient. In the UK, an evaluation of the
advertising campaigns run by the tax office reveals that as a result, some 8300
additional people registered to pay tax who would not have otherwise done so,
paying tax of £38 million over three years, providing a return of 19:1 on the
£41 million a year spent on all its compliance work in 2006-07 (National Audit
Office, 2008).
potential way forward. Their effectiveness depends in part on the nature of the
appeal made. Chung and Trivedi (2003) examine the impact of normative appeals
on a friendly persuasion group who were required to both generate and read a list
of reasons why they should comply fully and compared with a control group not
asked to do so. The participants in the friendly persuasion groups report higher
align them with the formal institutions, policy can also seek to better align the
formal institutions with the norms, values and beliefs of society. This is
societies where entrepreneurs do not believe that they receive back from
government what they expect. Two types of change are required so far as formal
(Braithwaite and Reinhart, 2000, Murphy, 2005; Taylor, 2005; Tyler, 1997,
the tax administration as treating them in such a manner, then entrepreneurs are
more likely to be compliant (Hartner et al, 2008; Murphy, 2003; Murphy et al.,
2009; Torgler and Schneider, 2007; Wenzel, 2002). As Wenzel (2006) finds,
interactional fairness. Being treated politely, with dignity and respect, being given
a say, and having genuine respect shown for one’s rights and social status all
enhance compliance (Alm et al., 1993; Feld and Frey, 2002; Gangl et al., 2013;
Hartner et al., 2008; Murphy 2005; Tyler, 1997, 2006; Wenzel, 2002).
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Developing procedural fairness.
they are paying their fair share compared with others (Kinsey and Gramsick,
more likely to trust the authorities, accept its decisions and follow its directions
(Murphy, 2005). The fairness of the tax system is one of the most important
2007, 2011; Kirchgässner, 2010, 2011; McGee, 2005, 2008; McGee et al., 2008;
Molero and Pujol, 2012). Conversely, where there are grievances among
the goods and services they deserve given the taxes that they pay (Kinsey and
Gramsick, 1993; Kinsey et al., 1991; Richardson and Sawyer, 2001; Thurman et al.,
1984). Taxes are the prices paid for the goods and services provided by
government. The question for the moral evaluation of taxes is whether this price
corresponds to the value of these goods and services (i.e., whether it is seen as
are more likely to break the psychological contract with the state, the less they
perceive the tax system as fair. To achieve commitment, the tax system must be
seen as fair. If entrepreneurs do not receive the goods and services they think that
they deserve given the taxes they pay, then non-compliance increases (McGee,
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2005). The result is that entrepreneurs need to be educated about where their
taxes are spent. When entrepreneurs do not know, or do not fully understand
what public goods and services are provided with their taxes, then compliance is
lower (Lillemets, 2009). There is thus a need for government to explain how taxes
are spent and to elicit agreement regarding the public goods and services
provided by government.
developments.
change the products of formal institutions in terms of the wider economic and
2013, 2014). Until now, there have been three contrasting theoretical standpoints
regarding what broader economic and social developments are needed to reduce
shadow entrepreneurship.
2012). Secondly, the “neo-liberal” thesis asserts that the prevalence of shadow
entrepreneurship directly results from high taxes, public sector corruption and
state interference and therefore that tax reductions, resolving public sector
corruption and reducing the regulatory burden are required (De Soto, 1989, 2001;
London and Hart, 2004; Nwabuzor, 2005; Sauvy, 1984; Schneider and Williams,
2013). Third and finally, the “structuralist” thesis argues that shadow
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entrepreneurship is the outcome of inadequate levels of state intervention in work
and welfare. The focus therefore should be less upon transforming shadow
help vulnerable groups (Castells and Portes, 1989; Davis, 2006; Gallin, 2001;
2013, 2014; Williams et al., 2013a). Analyzing the relationship between cross-
variations in the various aspects of the broader economic and social environment
government bureaucracies and those with lower poverty levels, more equality,
greater levels of social protection, more effective redistribution via social transfers
and greater state intervention in the labor market to protect vulnerable groups.
direct or indirect controls. Although most national governments have used direct
shadow entrepreneurship (see OECD, 2015; Williams, 2015a), this does not mean
that the solution is to use either “bribes” or indirect controls. These approaches
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Indeed, a growing recognition has been that even if indirect controls are a
Williams and Renooy, 2013), they are insufficient on their own. Direct controls are
also needed. For example, governments may change the culture of tax offices
relation to those who do not comply, they may also pursue improvements in the
indirect controls. The emergent consensus is that both are needed. Instead, the
major issue is determining which specific policy measures in each approach are
most effective and what is the most effective way of combining and sequencing
amnesties and voluntary disclosure schemes. However, whether these are the
most effective combinations and sequences are not known. Despite this, two
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Responsive regulation
consistent with the law. This is an approach that seeks to win their “hearts and
although this approach gives primacy to the use of indirect controls, it does not
The Australian Tax Office for example has gone some way to adopting this
responsive regulation approach. In the first instance indirect controls are used to
facilitate voluntary self-regulation, followed by persuasion and only for the small
2009; Job et al., 2007). Pu another way, this approach is based on a regulatory
pyramid. This sequence’s the measures used from the least intrusive which are
used first to the most intrusive which are employed as a last resort. It is founded
upon the belief that tax authorities do not need in the majority of cases to pursue
measures and only if these do not work, does the level of intrusiveness escalate
until it reaches the policy intervention that elicits compliance. This is founded
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Whether this ordering is the appropriate combination and sequence is
“slippery slope framework” (Kirchler et al., 2008). This distinguishes two types of
to have power (i.e., the ability to get citizens to do what they were before not going
to do, in the way in which the authorities wish them to do it). When there is
power of authorities and/or trust in the authorities. The direct controls approach
puts the emphasis on increasing the power of authorities, whilst the indirect
practice however, these are not mutually exclusive. Both can be used together. The
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Wahl et al. (2010) randomly presented participants with one of four
other hand, as either powerful or powerless. Their results reveal that participants
paid significantly more taxes when both power and trust were high. They
additionally revealed that voluntary compliance was highest when the authorities
were both trustful and powerful, while enforced compliance was highest when
and the greater power of authorities are viewed as a potent combination. Based on
this, the suggestion is that pursuing both is the most effective means of tackling
Conclusions
safety standards) and governments (e.g., taxes owed are not collected). There is no
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evidence, moreover, that de-regulation of the legitimate sector tackles shadow
and enterprise culture that they otherwise wish to foster. Transforming shadow
To show how this can be achieved, this paper has revealed how either
direct controls or indirect controls can be employed, and the various direct control
measures have been reviewed along with the various indirect controls. This has
displayed that the currently dominant approach of using direct controls that seek
that there is a much larger toolkit available for tackling shadow entrepreneurship.
Moreover, the various tools are not mutually exclusive. To display this, this paper
has outlined various ways of combining direct and indirect controls when tackling
framework. The outcome is that a comprehensive review has been provided of the
various policy approaches available to policy makers along with some suggestions
regarding how they can be combined. If this paper thus encourages governments
will have achieved its goal. If it also encourages more research on the most
effective means of combining and sequencing these measures, then it will have
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‘Collectivism’ and Innovation: Small and
medium-sized enterprises as local/rural industry
in some East Asian countries
Tomoko Oikawa
Euro-Asia Centre,
Dept of Economics,
Kemmy Business School,
University of Limerick
Castletroy, Co. Limerick, Ireland
Email: tomoko.oikawa@ul.ie
Abstract
Introduction
SMEs are fundamental for local economy in terms of job creation and local
innovative for survival, development and prosperity. This is the case for Japan in
for multinationals. However, the paper is concerned with rural industry, which
shown a remarkable development and they could show the potential for further
district in these Asian countries and their linkage to the dynamic of ‘collectivism’
in relation to innovation. Such kind of culture could have been a major drive for
their fight to survive against hard times. Such culture could have inspired and
Asian countries. How such a relationship would have worked out in these
countries. This is the main argument in this paper. The case studies about
Thailand, Indonesia and Japan are presented here. They are built up on the basis
Thailand and Indonesia are at the different phases from Japan in terms of
studies (Mizuno, 1996; Sakata, 2012; Kurose, 2011; Yokomoto, 2008; Nakamura,
village, one product (OVOP)’ movement and policy both in Thailand and Japan
2006). In reality, there have arisen a number of issues in the process in this
movement and policy. This could be explained from the viewpoints of historical,
The paper argues: (1) there are differences between Thailand, Indonesia
Shibayama, 2011), and Thailand and Indonesia have witnessed the rise of
2011; Yokomoto, 2008). (4) ‘collectivism’ has shown the dynamic of innovation
The paper is divided into five sections as follows: (i) literature review; (ii)
‘One village one product movement (OVOP)’ and other rural/local SMEs in Japan;
(iii) ‘One Tambon (villages) one product movement (OTOP)’ in Thailand; (iv)
Literature Review
social process where the optimal choice is taken via interaction among various ideas.
Černe et al., 2013; Morris et al., 1993) found so far. These studies focus on the
Although the term ‘‘collectivism’’ is not mentioned, Fujimoto (2007) indicates that
out through integration of various ideas from various divisions in the company.
Japanese cultural values. This aspect further leads to the principles of the keiretsu
relationships as the cultural core values in Japanese society (Oikawa, 2011). The
based on the cultural core values - trust and dependence as social relations in
Japan. These values are embodied in the keiretsu relationships and could be at the
when it is approached from the viewpoints of history, political economy and social
ethnographically, the point is to try to make sense of why things were how they
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were, how they got to be that way, and what was making them change (Wolf,
1982).
innovation as empirical studies (Goncalo and Staw, 2006; Yao, et al., 2012) may
innovation. The former (Goncalo and Staw, 2006) compares individualism with
groups are more creative than collectivistic groups. The latter investigates Chinese
generation behavior. It concluded that partial correlation results showed that both
implementation. All in all, most of these studies shown above have taken the
– established company.
Classification of SMEs
innovation. Concerning (i), Kiyonari (1972) classified SMEs into four categories: 1)
(White Paper on Small and Medium Enterprises in Japan). Kiyonari (1972) defines
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Community-based industry mainly develops out of traditional industries and
is a corporate group that procures its labor resources and raw materials
from pre-existing local markets. In many cases, the labor supply for such
small to petty in scale. The products manufactured are in many cases locally
typical items, and the markets for them are not limited locally, but located
2009).
revitalization of the village’s economy. Its catch phrase was ‘Let’s go to Hawaii on
holidays planting plums and chestnuts.’ This is called NPC (new plum and
chestnut) movement. The village is mountainous and each farmer’s rice field was
very small. 80 per cent of the village is forested mountains and fields. Despite of such
circumstances both the central and prefectural government encouraged the increase of
rice production and of livestock farming. Many villagers were working in forested
mountains and as seasonal workers to earn additional income. The villagers with the
agricultural cooperative and the mayor of the village started the campaign to contribute
to local economy development and poverty alleviation. The original concept of this
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movement was to select products unique to the region. The village is naturally suitable
for plums and chestnuts ubiquitous, which require light labor and earn much income.
At present, apart from plum and prune, the main focus is mushroom – enoki and then
shiitake added - , for which saw dust is used and it is plentiful in the village. In
addition, wild herbs are on the list. Older people are joining to collect herbs, which are
highly valued in the market. Above products are just the main examples. OVOP
branding of local products in local economy. The basic principle of this movement is
that the grassroots in the community are the leading driver of self-reliance, and the
administration is for indirect support, not financial but technical help. The governor of
Oita prefecture subsequently backed this movement. In this movement the education of
people is most important, which makes it feasible to be self-reliant and creative, for
sustainable development, and 'local link, global reach'. The movement has continued,
developed, and expanded. There have arisen problems, depopulation for example, but
they have found a solution. The principle is the ‘products must be super best quality
and local people must be employed (Yahata Kinji, the President of the Oyama
In 2001 the Thai government introduced 'One Village One Product (OVOP)'
promote rural and local development. By that time Thai had fulfilled a high
between urban and rural areas. While having supported Thai economy supplying a
plenty of resources and cheap labor force, rural areas had suffered poverty,
village for development projects and at the same time established a Village and
Rural Revolving Fund, which serves as a source of capital for the OTOP project as a
movement in terms of drive (Fujioka, 2007). It is the Thaksin government that had
taken the initiative throughout the process. The distinction is obvious in particular
and the central government. The OVOP in Japan is by and for local people, who are
the subject of the movement, and the local government was the main helper even
against the central government. The OTOP project in Thailand took priority to
initiative. In fact no new organization was established in Tambon, the base of the
grassroots community. It is noted that in most communities there had been only
limited people who participated in local products in terms of labor force, raw
materials, design and market before the OTOP project is introduced and the
project had no actual attempt to break such a situation. The OTOP project targeted
at the support for superior, promising producers rather than for strengthening
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weak ones’ technology and group management. As a whole, the project even had
created the gap expanding between local producers rather than alleviating. The
grassroots communities did not take a keen interest in sharing the benefit from
the project. It is getting difficult for the local people to maintain solidarity, and
Recently, the Thai government launched the “sufficient economy policy”, in which
the government claims to strengthen rural communities. However, this does not
2009). It is the reality that OTOP project created new job and chance to be
employed. People are not necessarily to work away from home (Kaewmanotham,
2008), but there also exists the fact the income is not enough for their living,
depending on the types of process where they are engaged in and whether they
enterprises producing more or less the same products, are located in Java
This section will explore two case studies on rural weaving industry in
West Java. One is village-level textile industry with more than 50 years' history
(Mizuno, 1996), and the other silk weaving industry with about 10 years’
(Yokomoto, 2008).
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During the late 1960s and 1970s big business advanced and rural
surveyed rural weaving industry was developing into a factory production system
capital, cooperatives, and pribumi entrepreneurs who are the owners of most
Background – (1)
In 1993 the governor of West Smatra visited Oita for OVOP movement.
Since then until 2002 the West Smatra government organized the exchange event
with Oita prefecture every year. However, the OVOP movement has never been
materialized in Indonesia. There seems to be three main reasons for this (Matsui,
2007): 1) the central government had been indifferent to the OVOP movement. In
particular the Suharto government had held fast to the centralized administrative
framework and ruined the potential of local revitalization measures based on the
local initiative before it had a chance to develop; 2) the existence of village was
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government and destroyed the traditional framework of naturally developed
village. Under such circumstances village itself is weak in identity; and 3) under
the Suharto government the village is not located as the subject for development,
but the object for the administrator to enter, to monitor and to develop. In line
with this policy, ‘the movement back to village (GKD)’ was advocated by the
governor in 1995. The GKD movement consists of four factors: One village one
of village market. The basic idea of this movement is that the development of
villages depends on funds, talent and technology provided from the outside.
Background – (2)
After the collapse of the Suharto government in 1998, the new Habbie
changed. In this process the locally produced using local resources movement is
Case studies
1996)
The Majalaya region in West Java has a long history as weavers. During the
late 1960s the weavers were not able to continue the factory system they had
organized up until that time. It was not until 1976 that this surveyed village began
to see any chance of recovery from the disastrous situation that had occurred in its
weaving industry over the previous three years. The villagers and surrounding
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areas took the following measures to overcome the crisis: i) they experimented
with a number of new products, the market for had not yet been monopolized by
the large textile firms and power-loom weaving firms, and attempted to make
existing products cheaper than power-loom weaving firms; ii) for this purpose
they made concerted efforts to cut production costs; iii) they organized a new
attempt to open new urban markets for their products among middle- and low-
end consumers. And a large number of locally based traders took innovative
measures to open up new marketing networks. Measures (iii) and (iv) were
around the village was formed, which was freed from dependence on either
factories or wholesalers in other regions. The weaving business within this new
division of labor put out some work to home workers and hired very little wages
commodity production”. This new division of labor reflects the village’s economic
status differences. This makes it possible for members of the village’s lower and
middle strata to easily set up weaving and cloth trading businesses with very
small amounts of initial capital. Further there are added issues in terms of cultural
values.
this community-based weaving rural industry. One is that in spite of the fact that
the pay is better working for others as wage labor or weavers, the choice of lower
which prefers self-employed work to working for someone else. Another is that
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independent businesses, despite the low income offered for weavers, produce
about the same amount of income as rice farming among middle-strata owner
2008).
In this prefecture, the Sericulture Cooperative took the lead in the silk
industry, buying cocoons from farmers, producing silk and selling the silk
products and the sericulture farmers play the role of suppliers of raw material. In
doing so, the industry secured stable supply of raw material and created new job
1993 PT Indo Jado Sutera Pratama started operation of silk mill, which is the
largest in Indonesia. This company bought cocoons from sericulture farmers and
sold silk mill to silk industry in Indonesia. In fact most cocoons are imported.
However, since the Asian economic crisis it became impossible to import because
cocoon price. The company was closed down in 2003, October. This has led to
system, and forming social division of labor of local industry. Such rural/local
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workers. It creates low-cost production system and chance of employment for
ordinary workers.
‘One Village One Product’ movement in Japan started from a small village as
cooperatives’ movement which may ascend to before the Second World War
slowly but steadily (Matsui, 2006). In fact there have existed a lot of similar
present. They are not always limited in OVOP policy, but their targets are same,
establishment of the basic rural/local industry (Nakamura, 2009, 2013). For this a
through innovative activity to establish local economic circulation. Local SMEs are
expanding the keiretsu networking to new ‘meshing’ (2007 White Paper on Small
cooperatives and joint projects, joint R & D, or Joint production. They shift to local
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circles (64.1%). They exchange information, ideas or knowledge with other SMEs.
The main aim is that each enterprise brings in their own strength each other for
the cooperatives and creates new value-added commodities (2008 White Paper on
Small and Medium Enterprises in Japan). They pay a visit to other companies on a
daily basis and get merits such as, that they are able to judge precisely their
to modify or to propose technical matters with their clients (65.1%) (2010 White
Paper on Small and Medium Enterprises in Japan). The keiretsu principles as the
cultural core values, trust and dependence, (Oikawa, 2011) should provide a solid
the early 1980s among NGO activists, researchers and intellectuals (Shigetomi,
motion above around the 1980s rural people created new type of economic
were funded and managed by the people themselves. This thought, watthanatham
chumchon, has spread wide in Thai society and had considerable impact on
Indonesia has two outstanding cultural values, gotong royong (mutual and
and unanimous) has a long history in Indonesia. It goes back to the village
2008). Musyawarah mufakat has been functioning well outside the parliament, for
example in the case of labor dispute. Its principle is a democracy based on the
Conclusions
enterprises employ local people, and use rural/local resources, less wasteful. They
surroundings.
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Relationship Management in Tourism
Microenterprises as an Element in Building a
Competitive Advantage
Abstract
Tourism is central to the growth of numerous regions across the world, including
Poland. A substantial part of infrastructure designed to serve tourists is created by
microenterprises. These entities possess limited human or financial resources, and this
translates into reduced possibilities for applying diverse competitiveness instruments. It
seems that an attractive concept recommended to be pursued for their growth is
relationship marketing. For the purposes of this paper, the authors conducted consumer
research using the PAPI method and a series of interviews within the companies
discussed. The results obtained helped to positively verify the hypothesis presuming that
microenterprises enjoy substantial potentials for establishing relationships, though these
potentials are not fully used. Moreover, the findings from the consumer research revealed
the factors pivotal in delivering tourist satisfaction, which is then an essential
requirement for developing positive relationships.
Introduction
which proves to be at the core of regional growth across many areas. It should be
also highlighted that following a certain decline over 2008-2010, the tourism
occurred in the supply domain and they show up as: an increased number of
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also the case in Poland evidenced by a robust expansion of hotel facilities, with a
advantages which are likely to stimulate the demand for their services.
a situation results from several factors, among which two prevail. First, it is
Basically, this is a country standing out for its immense attractiveness, though at
countries such as, e.g. Italy, France, Spain, or Greece. As a result, the prevailing
group of tourists in Poland are domestic visitors. This situation is significant for
that they will return and stay at the same place again, which certainly provides the
Poland as well as for the majority of countries, a key reason behind tourism
travels is a leisure motive. However, that does not imply that a cognitive motive is
irrelevant. After all, it is more typical for incoming tourists, and for numerous
product. This is a product where a remarkably vital role is given to services and
specific manner, which proves to be the bedrock for positive relationships or even
relatively easy to imagine that deficiencies in the facility will be offset by the
attitude and behaviour exhibited by the owner or their employees and despite
in their case such activities may be seen as innovative and a vital source of the
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Relationship marketing in the light of the literature
and profits will follow” (page 22). This statement specifies relationships
enterprise. Whereas Sherrell and Bejou (2007) bring attention to the fact that
their intangible character and thus resultant strong interactions with customers.
for. Kotler and Keller (2012) define it as activities aimed at building mutually
marketing partners and entities from the financial industry. Importantly, they
argue that the cultivation of these relationships becomes the overruling aim of
marketing.
conducted by Otto (2004). The author underscores that the essence of the concept
the authors above place an emphasis on the fact that the source of organizational
benefits may not only be building relationships with customers but also
relationships – the six market model (Christopher, et al., 1994). Its authors
highlight the expedience of building a positive image and relationships with such
potential employees, and thus it is possible to generate better value for customers,
addressed by Shirazi and Som (2011, 2010) who argue that its aim is to create
they seem to be the key to forging any relationships. The focus on that topic and a
management concept concerned with the whole marketing activity and generating
the reference literature. A wide range of authors point out benefits produced by
when a client is familiar it is easier to tailor the offer to his needs; and (iii) a
Clearly, these benefits seem fairly obvious, but on the other hand, while observing
appreciated. Many doubts as to the application of the concept discussed and the
quest for maximising its effectiveness causes that relationship marketing, also in
the tourism sector, comes into spotlight of scientists and their research efforts.
analyses centred on tourism enterprises are in short supply (Richard and Zhang
2012). And if there are any, the majority of them refer to larger organizations,
specifically travel agencies and hotels. For example, Goswami and Sarma (2014)
substantially surpass expectations. In another study which did not actually pertain
satisfaction on the B2B market while showing that the price is not necessarily the
Jang, et al. (2006) who, using a group of 39 hotels, examined correlations between
the level of websites use utilized to cultivate relationships with customers and
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financial performance. The results gained corroborated the existence of a robust
develop relationships with customers. For instance, such an analysis for hotels
was completed by Ku (2014) who turned the attention to the shift in the
importance if IT systems across enterprises analyzed. The author argues that their
role not only involves the support of transaction processes but increasingly strives
The literature also includes, though fewer, empirical studies devoted to the
attention should be paid to the research carried out by Choo and Petrick (2012)
among customers staying at American farms. They showed that relationships not
only with owners of facilities they made use of, but also with other tourists and
enterprises in the region were pivotal for the respondents, and these findings will
commitment and loyalty among customers. The efficacy of activities in this respect
entails the need to alter the philosophy and mind-set in many enterprises.
Specifically, Morais, et al. (2005) place the spotlight on such transformation driven
underlying this shift were clearly illustrated in Table 1. Principally, it provides the
stimulating his shopping, or reveals the implications of the quality and issues of
customer service.
Table 1
Transaction marketing versus relationship marketing
Transaction marketing Relationship marketing
Focus on single sale Focus on retaining a customer
Product attributes are principal Benefits yielded by purchase of the product are
principal
Short-term operating scale Long-term operating scale
Customer service not so important Customer service tremendously important
Limited customer commitment to the company High customer commitment to the company
Minor contact with a customer Continuous contact with a customer
Production departments responsible for quality Everybody responsible for the quality
Source: Payne (1996), Marketing usług, PWE, Warsaw, p. 53.
purchase of the product offered by the specific marketer. However, it seems that
recommendation, which should stimulate the demand for them. This effect is
motive in their travels, in most cases fail to return to the same site. Yet, at the
when he walks away from the cash desk” (page 17). Certainly, this assertion
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suggests the need to address the topic of creating appropriate relationships
operating on the tourism sector, will be explored in further sections of this paper.
tool. In the first approach (in line with the model – Figure 1) the issue discussed
emphasis should be placed on the fact that customer loyalty will not be effectively
created due to accidental, one-off and unplanned operations. Above all, its
activities.
“customer creation” begins; over this period the initial contact between the
entrepreneur and the tourist is established, and subsequently promises that are
made will be verified during the stay. If the entrepreneur promises more than he
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is capable of providing, it may give rise to customer disenchantment and
Figure 1
Building relationships – process approach
intermedia
ry
5. - no contact – relationship,
- possibility of return;
- possibility of recommendation 4. Stay 4. Purchase
prevent the disparity from occurring, and accordingly when practising long-term
be purchase made, which thus result in the stay at the specific destination and use
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place, thereby delivering satisfaction or dissatisfaction with the purchase
such positive behaviours in the case of lack of satisfaction with the purchase made.
between a tourism entrepreneur and his individual customers do not take place,
which appears to be the most common consumer behaviour. Even in the case of
satisfaction delivered by the stay, the tourist typically does not experience any
prevailing incentive behind travelling, a tourist does not consider quick return to
process viewpoint. On the whole, it was stressed that the process starts once the
promotional activities are launched when initial contacts are established between
an entrepreneur and a client and the promises are made. In addition, attention
was also drawn to the relevance of the demand and its satisfaction for further
behaviours exhibited by consumers. However, this model passed over the tool
expand it by an instrumental model which will set the stage for the research
conducted.
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Figure 2
Tool model – building relationships with a customer of the tourism
microenterprise
Promotion Promotion
instruments
H1
Promise
H4
Internal
quality
The aim of the paper prepared and, as a consequence the research presented, is
to disclose the specifics and identify the opportunities for setting up relationships with
analysis which produced the model presented in Figure 2 made it possible to formulate
accommodation services
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H2: A crucial factor contributing to the satisfaction with the demand, which
questions. First, the authors intended to recognize the factors guiding the
assumed that key factors driving purchase decisions made by tourists are similar,
customers are to induce them to make a repeated purchase and recommend the
which was also emphasised in the third hypothesis, satisfaction with the stay
raise the question of which factors generate customer satisfaction? The second
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hypothesis supported that elements distinguishing micro-facilities include
hospitability, specific ambience and opportunities for direct contact with owners,
which translates into limitations concerned with affecting their environment. This
fact involves relatively scant potentials for harnessing tools designed to stimulate
tourists to return, though on the other hand these specifics should foster the
with the goal of generating extra value for customers. Rewards stemming from
collaboration with other stakeholders should emerge across all stages of building
It should be noted that a tourist while leaving his dwelling place not only
typically buys access to attractions or a one-off tourism service. More broadly, the
attractiveness or service costs. The upshot of the situation is the fact that robust
research was conducted. The first part, being the consumer survey in its character,
rested on the PAPI (paper and pencil interview) method. Its aim was to recognize
consumer behaviours with regard to the topics addressed in the paper. As a result,
carried out in the paper form where respondents faced questions related to
recommend it to acquaintances.
needs to be drawn to the fact that persons aged below 25 accounted for 73%
which will certainly have implications for the survey findings. However, these are
persons who largely make use of smaller accommodation facilities rather than
hotels. Moreover, young people stand out for their high tourism activity. Another
feature characteristic to the group selected is the fact that nearly half of the
respondents come from large cities, which may leave these people relatively more
eager to travel to areas marked by superior environmental appeal, and the survey
region.
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Table 2
Characteristics of respondents
Respondents’ sex
Men 36% Women 64%
Respondents’ age
Below 25 years 25-35 36-45 Above 45 years
73% 17% 9% 1%
Respondents’ place of residence
Countryside Town up to 10,000 Town 10,000- Cities above 100,000
100,000
22% 8% 22% 48%
Source: Own study based on the survey results
entrepreneurs, and its objective was to verify consumer's expectations with real
was aimed at 166 entities functioning in the territory of the Nowosądecki District
the survey and provide responses to the interview questions. Due to the low
The first issue addressed in the consumer survey was an attempt to answer
the question of whether loyalty to regions and tourism facilities has a significant
presented in Table 3, the answer should be affirmative. More than 71% of those
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sample size, suggest immense relevance of the problems analysed. These insights
who return for operating their enterprises, while 90% said that they experience
travels practiced by the respondents. Over half of them travel once a year or even
more rarely which, combined with their age structure, means that they did not
Table 3
Collective compilation of answers to questions selected
Frequency of travels for purposes of tourism
1 a year or more rarely 2-3 times a year More than 3 times a year
54% 35% 11%
Frequency of returns to the same locality
Frequently Sometimes Rarely Never
23% 48% 25% 4%
Frequency of returns to the same accommodation facility
Frequently Sometimes Rarely Never
24% 40% 25% 11%
Frequency of recommendations given to the accommodation facility
Frequently Sometimes Rarely Never
11% 47% 17% 15%
Source: Own study based on the survey conducted
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consumers, because these are elements to be exploited in promotion. As can be
seen in Table 4, key factors include price, room standard, facility amenities and
friends’ recommendations. Thus, it should not come as a surprise that the highest
average rating went to the price – which is a measurable factor and holds the key
to the selection in the case of most products. Subsequent places were taken by the
offering components that determine its quality, which alongside the price, appear
to be the second key incentive for purchase decisions. Though focus should be
brought to high ratings of factors related to location of the facility, e.g. transport.
These are product components offered by the enterprise which remain beyond its
control. Whereas high ratings for recommendations and opinions corroborate the
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Table 4
Factors guiding the selection of the accommodation facility
Factor Average Factor Average
rating rating
Price 4,55 Availability of stores 3,65
Room standard 4,24 Opportunity of purchasing breakfast 3,6
and lunch
Facility amenities 4,15 Development of the area around the 3,51
guesthouse
Proximity to attractions 4,06 Discounts on services provided by 3,47
other entrepreneurs in the region, e.g.
restaurants, excursions
Friends’ recommendations 3,97 Parking spaces 3,45
Facility appearance – photos on 3,97 Extra services offered by the 3,36
website guesthouse, e.g. fitness, sauna,
fireplace room, etc.
Accessibility to transport 3,83 Options to use the kitchen 3,29
Opinions in the Internet 3,79 Options to stay with pets 1,84
Options for reservation through the 3,73
Internet
Notice: Respondents assessed the relevance of individual factors within the scale 1-5
Source: Own study based on the survey findings
accommodation facility was the stay in it, consumption of its product, which
purchase made is, as shown in the hypothesis 3, the mainstay for building loyalty
the elements of the product that create satisfaction with the stay.
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Table 5
Implications of the selected product elements of the accommodation facility
for satisfaction with the stay
Factor Average Factor Average
rating rating
Cleanness of rooms 4,78 Delicious breakfasts 3,86
Respect for privacy 4,69 Options to spend time in front of the 3,72
guesthouse, e.g. barbecue
Attractive price 4,69 Access to the kitchen 3,52
Conformity of previous promises 4,55 Free coffee, tea, or cake 2,78
(e.g. from the website) with the
reality
Convenient location 4,34 Fireplace room in the guesthouse 2,5
Friendly and helpful host 4,31 Option to be given a lift to the 2,36
railway station by the hosts
Room amenities – e.g. hair-dryer, 4,06 Little welcome gift 2,24
fridge, towels, etc.
Properly operating Internet 4,02
Notice: Respondents assessed the relevance of individual factors within the scale 1-5
The factors that topped the list were “cleanness of rooms”, “respect for
privacy” and “attractive price”, namely the elements that will strongly influence
satisfaction, also in the case of larger entities (see Table 5). But it is necessary to
emphasize that the fifth place was occupied by “friendly and helpful host” which is
available to them and sets the tone for facility hospitability. Also, this parameter is
influenced by product elements that scored the last positions in the list, receiving
lowest ratings, i.e. option to be given a lift or a little welcome gift. Yet, it seems that
despite low ratings they should not be discarded, because while striving to create
enhancement.
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In Table 5 the spotlight should be placed on the place 4 and high ratings
keep to reality and refrain from making promises unlikely to be delivered so that
the tourist does not have a feeling of being deceived when running promotional
activities and making promises with regard to the product offered. And if such a
cleanness in the facility” was ranked 2, and furthermore high positions were
guests” and “we are available to guests”. Moreover, elements related to the
amenities in the facility received high ratings. All in all, with all limitations to the
survey taken into account, it may be claimed that entrepreneurs properly identify
its services, which is the most manifest evidence of loyalty to the product.
behaviours among his customers. The subsequent question of the survey referred
purchase of the product. The highest ratings were given to “ensuring a good
product during the stay”, which is consistent with the assertion displayed in the
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hypothesis 3. Additionally, it should be also noted that two subsequent spots, with
slightly lower rating average, were taken by the financial rewards offered to
tourists for their repeated purchase made. Such behaviours should not be a
Table 6
Assessment of tools encouraging to repeated use of the facility services
Factor Assessment Factor Assessment
Ensuring a good product during 4,06 Competition for customers, e.g. a 2,85
the stay will be the best incentive photo from the stay, or memory
to the return from the stay. For the winner,
e.g. free stay
Discount coupons for subsequent 4,01 Sending acknowledgement for 2,66
stay granted at departure the stay together with a photo
Regular customers granted 3,96 Questionnaires used to measure 2,32
discounts for an offer provided satisfaction with the stay
by other entrepreneurs in the
neighbourhood, e.g. in
restaurants
Loyal programmes offering 3,66 Sending holiday greetings 2,12
increasing discounts during
subsequent stays
Sending information about 3,48
special offers for regular
customers
Notice: Respondents assessed the relevance of individual factors within the scale 1-5
Source: Own study based on the survey findings
“they strive to offer top-class services” and “the key to the return of customers is
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their satisfaction with the stay”. Moreover, 7 persons confirmed the use of
for creating loyalty was indicated by more than 3 respondents, which implies their
pointed to their minor influence. Though, on the other hand, these tools are largely
cheap instruments, and their use could contribute to better perception of the
Table 7
Importance given to selected elements of facility location and their impact
on purchasing decisions
Factor Assessment Factor Assessment
Competent information about 3,99 Organizing tours to 3,61
neighbouring attractions neighbouring attractions
Discounts on other attractions in 3,96 Discounts on restaurants 3,49
the neighbourhood
Discounts on ski lifts 3,82 Cooperation with travel agency 3,24
– offer of travels to the
neighbouring area
Cooperation with a transport 3,63 Cooperation with producers of 3,19
company – transport facilities local products – their offer in
for customers of the guesthouse the guesthouse
Notice: Respondents assessed the relevance of individual factors within the scale 1-5
Source: Own study based on the survey findings
Frequently, it is exposed that microenterprises possess limited financial
However, these entities should not abandon opportunities to create value for
the surrounding environment, and the last hypothesis set in the survey assumed
their purchasing decisions. Though, it should be kept in mind that in the question
with other entities operating on the territory of the specific destination. The
hypothesis 4, and lead to the conclusion that potentials related to the environment
and complementary among tourism products are not fully exploited, which is
“In our region many people hold the view that it is better to act alone
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“Collaboration is seen as competition, everybody wants to retain guests at
Above declarations, even though they only represent some examples, show
awareness among owners of the stakeholder group analysed are an essential step
along the road to the extensive use of horizontal relationships (with other
Conclusions
opportunities ensued. Taken together, it seems that during the surveys numerous
managing microenterprises who took part on the survey indicated limited use of
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In essence, detailed hypotheses formulated in the research section of the
paper helped extend the contents concerned with the second part of the
hypothesis set. Their verification allowed for identification of key factors being
elements being integral to the product offered by the enterprise, the key role in
The surveys found that consumer satisfaction with the stay is an issue
the findings from surveys carried out among agritourism enterprises by Laureiro
marketing communication.
type of cooperation were corroborated by, for instance, the findings from the
resources, and the surveys show that it has relevance for intensity of activities
(2014).
interesting conclusions, but on the other hand they failed to address all questions
posed, and they simply provoked new questions, e.g. why don’t entrepreneurs use
happen to make them cooperate more closely. Therefore, further studies are
entrepreneurs.
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Exploring characteristics of FTA use among SMEs
in Malaysia
Menaka Arudchelvan
Ganeshan Wignaraja1
Abstract
The rapid proliferation of free trade agreements (FTAs) in Asia has sparked
academic and policy interest in FTA preference use by SMEs. Using firm survey data, this
paper evaluated the characteristics of SMEs that utilize FTA preferences in Malaysia, and
the policy implications. The econometric analysis indicates that certain SME
characteristics - firm size, a good understanding of FTA provisions, exposure to trade, and
a central geographical location – are positively associated with the likelihood of using
FTAs. The descriptive analysis suggested that key reasons for non-use of FTAs by SMEs
are a lack of information on the implications of FTAs and the absence of FTAs with major
trading partners. Concluding FTAs with major trading partners and improved business
support for SMEs (though public and private service provision) will help facilitate SME
use of FTAs.
Keywords: small and medium enterprises (SMEs), free trade agreements (FTAs), Asian
regional economic integration, empirical studies, survey
1
The views expressed in this article are solely those of the authors and should not be attributed to the Asian
Development Bank or the Asian Development Bank Institute.
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Introduction
engagement in global value chain (GVC) trade and are actively pursuing
trade agreements (FTAs) (Kam, 2013; WTO, 2014). Although the People’s
also an active participant and accounted for 2.7% of global and 5.2% of Asian GVC
trade over the period 2009–2013.2 Interestingly, Malaysia ranks as the fourth
most active Asian economy in GVC trade and is only behind the PRC, Japan, and the
developed nation status by 2020, targeting a gross national income per capita of
One of the six Strategic Reform Initiatives under the ETP is related to trade
enhance capacity through greater foreign investment and technology, and foster
2
Authors estimates based on gross trade in parts and components and using data from the UN Comtrade database.
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(WTO, 2014). Since signing the Association of Southeast Asian Nations Free Trade
Area (AFTA) in 1993, Malaysia’s network of FTAs has grown to 12 bilateral and
regional FTAs with 18 trading partners as of 2014. A further six agreements are
trade, there is mixed evidence of FTA utilization (Kawai and Wignaraja, 2011,
2013; Tambunan and Chandra, 2014) and there is scarce literature on the use of
FTAs by SMEs. In Malaysia, SMEs account for 97% of all enterprises but only 19%
of total exports. This paper seeks to improve our understanding of SME use of
FTAs in Malaysia. Policy implications from the research are also explored.
firm-level use of FTA preferences. Section 3 maps the pattern of FTA use by SMEs.
Section 4 considers the SME characteristics associated with FTA use. Section 5
looks at SME perceptions of impediments to FTA and FTA strategy. Finally, Section
6 concludes.
The “new new” trade theory of Melitz (2003) and Helpman et al. (2004)
emphasize that firm heterogeneity matters in international trade (i.e., that firms
are considered different in terms of efficiency and fixed and variable costs when
involved in trade). Accordingly, only a few highly efficient firms are able to export
and invest overseas as only they are able to make sufficient profits to cover the
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Implicit in the above theory is the notion that SMEs are at a disadvantage in
participating trade and using FTAs. Compared to larger firms, SMEs face many
potential markets and customers, and global competition. He also argued that
there is a high risk SMEs will be wiped out if they do not increase their
challenges, the probability of SMEs engaging in international trade and using FTAs
One of the major challenges to researching the impact of FTAs is the lack of
preferential tariff purposes are filed with the authorities of origin, such as national
albeit in the Thai language. Using Thai data, Chirathivat (2008) has shown that the
overall actual utilization rate for Thailand’s FTA partners has been rising, and
nearly doubled (from 16% to 27%) during 2005–2008. The 2008 utilization rates
of Thailand’s partners vary by market, with 72% for the Thailand–Australia FTA
and 28% for AFTA. Using data from Thai secondary sources, Kawai and Wignaraja
(2013) have shown that the overall actual utilization rate for Thailand’s FTA
partners rose further to around 61% in 2011, while the FTA utilization rate for the
and government supported programs they find that SMEs are by far the least
active economic actors in the region to make use of the flourishing trade
agreements.
The Asian Development Bank (ADB) and the Asian Development Bank
years on the business impact of FTAs in several Asian countries (Kawai and
Wignaraja, 2011). The economies of Japan, the PRC, the Republic of Korea, and
three Southeast Asian countries (Singapore, Thailand, and the Philippines) were
included in the first round of surveys of 841 firms, with 28% indicating they used
FTA preferences. Interestingly, the average FTA use among the three Southeast
giants like Japan and the PRC. Furthermore, only 20% of the sampled firms said
Weighing up the firm-level evidence, the study concluded that concerns about the
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Asian FTA “noodle bowl” effect on business might have been overstated at the
time of the surveys.3 Nonetheless, the study noted the risk of an Asian “noodle
bowl” problem in the future with the growing number of FTAs in the region.
Some studies have explored the factors affecting FTA use at the firm level
using econometric analysis. Using a sample of Japanese firms, Takahashi and Urata
(2008) examined the influence of several enterprise characteristics (e.g. firm size,
trading relations with FTA partners, the ratio of overseas sales to total sales,
overseas business bases, and manufacturing membership) on FTA use. Firm size
and trading relations with FTA partners were found to be positive and significant
parameters. The authors concluded that large firms were more likely to use FTAs,
reflecting the costs of such practices, and that trading experience in FTA markets
al. (2009) tested the relationship between firm size and FTA use, and various
enterprise characteristics (e.g., the share of local inputs among total inputs, the
share of imports with zero tariffs, and sector and country dummy variables). One
key finding was that large firm size (proxied by employment) positively correlated
with FTA use. Another was that firms actively engaged in international
FTA use at the firm level. However, they also focus on firms from Japan—a
3 The “noodle bowl” refers to the observation that multiple rules of origin in overlapping Asian FTAs may
raise transaction costs for businesses, particularly SMEs, for using tariff preferences in FTAs.
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institutions—from which it is difficult to extrapolate to newly industrializing
instance, in Takahashi and Urata (2008) the exclusive use of dummy variables as
regressors resulted in a model with weak explanatory power. On the other hand,
sample of Japanese MNCs but only a few explanatory variables were explored,
firm-level data produced some interesting results. Key results included: firm-
heterogeneity matters in FTA use. Acquiring knowledge about FTAs through in-
house efforts and actively forging links with FTA support institutions, building
(RTA) use. A lack of information about FTAs and the absence of FTAs with major
trading partners are the main reasons for non-use of RTAs. Key policy implications
include the need to improve business support for RTAs, to conclude RTAs with
major trading partners, and to create a database on preference use in RTAs. The
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Mapping Patterns of FTA Use by SMEs
In 2012, ADB and ADBI developed and conducted a survey of 234 exporters
garments; food and beverages; wood and wood products; electronics and
components; and automotive parts firms were targeted. The survey was
conducted across Malaysia covering firms in the northern, central, and southern
regions.
Firms in the sample were asked whether they used tariff preferences in
FTAs for exports, imports or both. These questions, along with those covering firm
characteristics, form the basis of this analysis of SMEs that use FTA preferences.
For more information on the survey please refer to Appendix (Table A1).
preferences is positively related to size with over 85% of giant firms in the sample
Table 1
Use FTA preferences by firm size
Firm Count
Small 45
Large 12
Giant 6
Total 63
% of firms
Small 21.7
Large 60
Giant 85.7
Total 26.9
Source: Authors’ calculations based on ADB/ADBI survey data.
4 The Malaysia survey was conducted as a part of the ADB/ADBI research project on the business impact of
FTAs. For the methodology for the firm surveys and the first wave of results, see Kawai and Wignaraja
(eds. 2011).
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Narrowing in on SMEs we consider the FTAs that are currently in use and
those SMEs plan to use (Table 2). The bigger FTAs involving large regional groups
and large economies for example AFTA and ASEAN-PRC have greater use/planned
use. FTA use is also positively related to the FTA age, with older FTAs such as
use/planned use than newer FTAs like Malaysia-Chile, which was came into effect
just before the this survey was conducted in January 2012. Large markets offer
greater business opportunity and economies of scale when doing business. With
the phased reduction in tariffs older FTAs note only offer grater margin of
Table 2
Profile of SMEs that use, plan to use FTAs, by FTA
Malaysia-Chile FTA
Malaysia-India ECA
ASEAN Korea CEP
ASEAN-Japan CEP
Malaysian-Pakistan
ASEAN-India CEP
Malaysia-NZ FTA
ASEAN FTA (01
2010)
Number of SMEs
Used/Using 37 34 17 9 8 6 4 3 4 1 0
Plan to use 63 65 36 41 36 32 29 22 11 14 5
Use and plan to use 100 99 53 50 44 38 33 25 15 15 5
Number of SMEs as a share of total SMEs (%)
Used/Using 18.0 16.5 8.3 4.4 3.9 2.9 1.9 1.5 1.9 0.5 0.0
Plan to use 30.6 31.6 17.5 19.9 17.5 15.5 14.1 10.7 5.3 6.8 2.4
Use and plan to use 48.5 48.1 25.7 24.3 21.4 18.4 16.0 12.1 7.3 7.3 2.4
Note. The entry into force of each FTA is shown in the parenthesis. Multiple answers allowed.
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Characteristics of SMEs that Use Free Trade Agreements
In seeking out the SME characteristics related to FTA utilization we use a probit model.
responds positively to the question “does your firm use tariff preference in FTAs
to be positively related to FTA use. The larger the SME, the more resources it is
AGE is measured as the number of years the SME has been in operation.
Once again, we are ambivalent about the direction of causation. Older firms may
be more experienced in navigating trading rules and utilizing FTAs, but could also
be set in their ways and less inclined to utilize preferential tariff rates.
with FTA use. Firms concentrated in major industrial centers are more likely to
use FTAs than geographically isolated firms, for two reasons. First, geographical
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clusters of networked firms are characterized by information spillovers and
administration). Second, public and private sector FTA support institutions are
The sectoral dummy AUTO takes on the value of 1 if the firm is in the auto
therefore firms engaging in auto trade have a greater incentive to use preferences
PROPORTION OF RAW MATERIALS IMPORTED capture the extent to which the firm
use. The greater the outward orientation the higher the likelihood the firm is
FTA preferences, rules of origin, and custom procedures). Additionally, firms with
higher exposure to international trade have more to gain for using preferences
has some knowledge of FTAs or 0 otherwise. The variable captures the firm’s
proactive efforts in better understanding FTAs. FTA texts are complex, lengthy
law, customs procedures, and business strategy) to derive the benefits of FTAs.
Given this firms that invest time in acquiring relevant in-house FTA expertise and
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that actively build linkages with FTA support institutions are more likely to be
Results
The regression results of factors affecting the use of FTAs are summarized
(equations ii–iv). In the discussion that follows we will be referring to the full
model (i.e., equation iv). The pseudo R2 in equation (iv) suggests that the
Table 3
Probit model of factors influencing FTA use
Malaysia
(i) (ii) (iii) (iv)
SIZE 0.0125 0.0135 0.0106 0.0103
(0.00)*** (0.00)*** (0.00)** (0.00)**
AGE -0.0110 -0.0118 -0.0075 -0.0081
(0.01) (0.014) (0.01) (0.01)
AUTO 0.4716 0.4321 0.6732 0.6119
(0.23)** (0.24)** (0.25)*** (0.26)**
LOCATION 0.5142 0.8069 0.7889
(0.21)** (0.23)*** (0.24)***
FOREIGN OWNERSHIP -0.6325 -0.5235
(0.56) (0.57)
EXPORT SHARE OF SALES 0.0062 0.0082
(0.00) (0.00)*
PROPORTION OF RAW 0.0157 0.0135
MATERIALS IMPORTED (0.00)*** (0.00)***
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Standard errors are reported in parentheses. ***, **, and * indicate
Size is significantly and positively associated with FTA use, suggesting that
even among a group of SMEs it is the larger firms that are more likely use FTA
preferences. The model suggests that the probability of use increases from 17% to
25% as the firm size increases from 25 to 50 employees. It increases further from
FTA use among firms in the auto industry is also significant and positive,
with the probability of using FTA preferences increasing by 15% for firms in the
auto industry. SMEs located in central Malaysia are also more likely to use FTAs
increases by 19% if the SME is located in central Malaysia, highlighting the greater
availability of support and technical assistance in major industrial centers and the
and the proportion of raw materials imported are positive indicators of FTA use.
The probability of FTA use increases from 24% to 30% when the export share of
total sales increases form 50% to 75%. Similarly, as the proportion of raw
materials increases from 50% to 75%, probability of FTA use increases from 31%
financial and human resources captured by size, exposure to trade captured by the
This section looks at descriptive information from the firm survey on the
perceived impediments to using FTAs, views on FTA content and support services
sought by SMEs.
Perceived Impediments
The survey results suggest that the most significant barrier to FTA use
among SME firms is lack of information, with 114 SMEs ranking lack of
information as one of their top three reasons for not using FTAs (Figure 1). Two
other major barriers are that firms do not see the need to use FTAs and that firms
Figure 1
Impediments to FTA use
(number of firms)
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SME Views on FTA Content
With the proliferation of FTAs there is a need to future proof FTAs to cover
21st century issues. So FTAs not only eliminate tariffs and non-tariff barriers to
trade in goods and services and agriculture, but also seek to establish or expand
rules on a wide range of issues including intellectual property rights, foreign direct
investment, competition and consumer policy, trade and labor, trade and
When enquired about the issues most pertinent to SMEs their response
was strongly in favor issues that reduce the cost of doing business and increasing
international engagement (Figure 2). Trade facilitation was ranked as the most
pertinent issue for SMEs. That is simplifying the procedures and controls
governing the movement of goods across national borders. For example increased
little need for multiple documents in different formats and with different data
and standardizing documents and electronic data requirements will all reduce the
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Figure 2
SME responses to areas appropriate to be covered by FTAs
(number of firms)
easier for foreign investors to invest in the market under consideration. For
don’t face unfair discrimination when competing with local firm and other
source of funds but also a key vehicle for launching themselves onto the
international market.
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Support Sought by SMEs
To encourage greater FTA use, the SMEs in the sample would like the
consultations before, during, and after FTA negotiations (Figure 3). This suggests
there is a real role for public policy in addressing limited FTA use.
Figure 3
Services requested by firms to adjust to FTAs
(number of firms)
The most sought public sector organizations for FTA-related issues were
Malaysia’s Ministry of Trade and Customs department (Figure 4). Among private
commerce.
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Figure 4
Forms of institutional support sought by SMEs when encountering problems with FTAs
(number of firms)
Conclusions
preferences in Malaysia, and the policy implications. The analysis was carried out
using survey data of 234 exporters and importers. It sought to improve our
scant literature.
Several findings come out of the econometric analysis. First, SME size is
positively associated with FTA use capturing perhaps the costs associated with
encourages greater use of FTAs. Firms that invest resources in acquiring relevant
in-house FTA expertise and that actively build linkages with FTA support
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institutions were found to be more likely to use FTAs. Third, the study also found a
export share of sales and the proportion of raw materials imported, and FTA use.
This result is not surprising since the greater the outward orientation, the higher
the likelihood the firm is aware of international markets and trade regulations
more to gain from using the preferences made available in FTAs. Fourth, firms
located in central Malaysia are also more likely to use FTA preferences,
major industrial centers and the scope for information spillovers and exchanges
between firms.
The descriptive analysis on the barriers to FTA use found that lack of
information is the predominant reason for not utilizing preferences under an FTA.
Other top responses included firms not seeing the need to use FTAs and firms not
being interested in trade with the current FTA partners. For instance, a given firms
main trading partner might be the United States and Malaysia presently lack an
FTA with the United States. The Trans-Pacific Partnership (TPP) – which includes
the United States and Malaysia – was under negotiation at the time of writing this
paper.
Increased trade facilitation is seen to reduce the transaction cost at the interface
between business and government while greater foreign investment helps SMEs
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gain greater access to finance and launch themselves onto the international
market.
The above findings from Malaysian firms reinforce what researchers have
related to firm-level trade performance and FTA use (e.g. Greenaway and Kneller,
2007; Tambunan and Chandra, 2014). The findings also provide new insights on
support services to SMEs. This would also involve close coordination among the
following intuitions: the Ministry of Trade and Customs, business and industrial
Malaysia and Asia may internationalize more efficiently and access the global
market.
(such as the United States) can discourage FTA use by SMEs. If a TPP (including
both Malaysia and the United States) eventually gets concluded, Malaysian SMEs
will have an incentive to make use of such an agreement with a major trading
partner.
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Some limitations in the data and methodology should be noted. Firstly,
given the small sample size, the statistical power of the estimation is reduced
model are static as only cross-sectional data were available. As panel data
becomes available over time, we will become increasingly able to investigate the
changes in policy and enterprise responses. Finally, there are other factors that
may influence FTA preference use, such as trade policies, domestic regulations,
policy factors in future econometric work may provide additional insights. Thus,
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References
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Appendix
Characteristics of firms
The survey included both exporters and importers and the majority of
firms (216) were importers compared with 86 exporters (Table A1). Of these
firms, 69 were both exporters and importers of goods. The firms were distributed
across five key manufacturing sectors and were predominantly small firms—
88.5% of the firms in the sample were small firms with fewer than 100 employees.
Table A1
Characteristics of surveyed firms
C %
ount
Type of Traders
Exporters only 17 7.3
Importers only 147 62.8
Export and import 69 29.5
No answer 1 0.4
Size
Small 2 8
07 8.5
Large 2 8.
0 5
Giant 7 3
Sector
Textiles and garments 4 2
9 0.9
Food and beverages 2 1
6 1.1
Wood and wood products 2 9.
3 8
Electronic products and 8 3
components 7 7.2
Automotive and parts 4 2
7 0.1
Other 2 0.
9
Foreign Ownership
Foreign owned 2 1
4 0.3
Domestically owned 2 8
10 9.7
Total Number of 2 1
Respondents 34 00
Source: Authors’ calculations based on ADB/ADBI survey data.
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Table A2
Pearson correlation coefficients
Export Proportio
Foreign
Electronic Tech. Labor share n of raw
Size Age Auto Central ownershi R&D ISO
s license productivity of materials
p
sales imported
Size 1.00
Age 0.25 1.00
Auto 0.06 0.02 1.00
Electronics -0.07 -0.03 -0.38 1.00
Central -0.05 0.01 0.07 -0.06 1.00
Foreign ownership 0.28 -0.04 0.01 -0.01 -0.10 1.00
Tech license 0.31 0.02 -0.10 0.09 -0.05 0.49 1.00
R&D 0.05 -0.10 0.06 0.10 0.06 0.28 0.25 1.00
ISO 0.35 0.15 0.15 -0.04 0.05 0.23 0.22 0.31 1.00
Labor productivity -0.08 -0.10 -0.03 -0.03 0.25 -0.02 -0.05 -0.08 -0.05 1.00
Export share of sales 0.36 0.02 -0.05 -0.08 -0.14 0.37 0.42 0.15 0.14 -0.06 1.00
Proportion of raw
materials imported 0.18 -0.04 -0.10 -0.03 -0.15 0.44 0.33 0.14 -0.01 -0.06 0.67 1.00
Some knowledge of FTAs 0.02 0.02 0.20 -0.21 0.09 -0.06 -0.08 -0.07 -0.01 0.07 -0.06 0.10
FTA = free trade agreement, R&D = research and development.
Savita Shankar
Abstract
Introduction
Broadly, the term denotes the application of business techniques to address social
problems. While activities that are similar to social entrepreneurship have existed
for a very long time, it is estimated that the term was used for the first time in
acknowledged that the term became popular in the early 1980s, as a result of its
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usage by Bill Drayton, the founder of Ashoka, a not for profit organization that
supports a global network of social entrepreneurs1. Since then, there has been
very quickly progressed into a distinct and popular field of study in universities
of United Kingdom and Canada, have articulated policies with respect to social
enterprises, reflecting the important role envisaged by them for these entities.
research and find that that the growth in literature on the subject from 1999
onwards has been exponential. According to “Google Scholar”, the number of new
approximately 2370 by 2011, more than double the number for 2009. Similarly,
peer reviewed articles on the subject made an appearance in 1999, but numbered
more than 50 per year by 2011. These trends are indicative of a significant growth
1 https://www.ashoka.org/.
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Major contributions to the social entrepreneurship literature
however have come from Western sources. Hackett (2010) points out that most of
the debates in the current literature on social enterprises are focused on Western
countries as most of the “expert voices” on the subject are from these countries.
She gives examples of important political and economic debates about social
enterprises and shows that these are relevant mainly in developed country
contexts.
per cent of the world’s population lives. The commonly cited reasons for the need
failure, Government failure and inadequacy of public budgets are very relevant in
the case of most Asian countries. While the developing countries in Asia have
countries, social enterprises have a role to play to address other social problems
Method
state of knowledge about the social enterprise sector in Asia. Granovetter (1985)
enterprises are even more embedded in the local context (Guo and Bielefeld,
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2014). It is therefore useful to analyze the literature that is relevant to the specific
context.
social enterprises in South, East and Southeast Asia. The articles can be grouped
into two categories. The first category highlights Asian case studies in their
studies in-depth a particular Asian country or set of countries and focuses mainly
on the themes of evolution of the social enterprise sector and the typologies of
social enterprises commonly observed. The next section entitled “Review of the
literature” will attempt to summarize the existing literature. The following section
on “Discussion about the existing literature” will assess why certain aspects
relating to social enterprises in Asia have been researched while other aspects are
yet to be studied. The “Conclusions” section will highlight the gaps in the literature
a pressing social need (small value loans for low income Bangladeshi women) in
an innovative manner. In many ways, the Grameen Bank case exemplifies the
with the Grameen Bank example (e.g. Bornstein and Davis, 2010).
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The Grameen Bank example is also used by Mair and Marti (2006) who aim
enterprises. Two out of these are examples from South Asia: Grameen Bank from
Bangladesh and Aravind Eye Hospital from India. While Grameen Bank provides
financial services to low income women, Aravind Eye Hospital established in 1976
of the cost in developed countries. Mair and Marti (ibid) explain how these
thereby change the existing social structures. The objective is to create both social
and economic value, though the emphasis is on the former. The creation of
(2010) when they trace the origins of the debate on social entrepreneurship in the
United States. They mention that part of the debate was fueled by the activities of
Bill Drayton and Ashoka whose approach was exemplified by Muhammad Yunus
Hackett (2010) discusses the cases of Grameen Bank and Grameen Energy
(also known as Grameen Shakti) to show that the debates in the social
contexts. Grameen Shakti, a not for profit company of the Grameen Bank group
addressing social problems caused by market failures. In the United Kingdom for
instance, social enterprises have been acclaimed for helping with social exclusion
the Government, business or social enterprises are best placed to address these
market failures. In developing country contexts however, there are often multiple
market failures that make the analysis more complicated. Social enterprises in
developing countries such as the Grameen Bank often traverse formal and
informal sectors and hence are often well placed to fill in gaps in the services.
policies. The funding for social enterprises in developing countries often comes
from foreign sources, which changes the political equations considerably. Another
stark difference in the two contexts is that while in Western countries there is
debate about whether social enterprises can balance their social and financial
goals, in developing countries the more important question is about the extent to
which market based approaches can be used to address the large development
challenges. Using all these examples, Hackett (ibid) makes the point that the
country contexts are very different and hence the debates surrounding them need
to necessarily vary.
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Evolution of the social enterprise sector in the Asian context
Defourny and Develtere (1999) point out that social enterprises emerge
issue. However this by itself could merely lead to individual survival strategies or
top down public policies. However if individuals realize the shared nature of their
collective potential, social enterprises to address the issue are likely to emerge. In
Western countries, even though there is prosperity, there are pressing issues such
as that of environmental degradation or the need for good quality food products.
Western societies may not display collective dynamics but the high level of
education and the awareness of specific challenges have resulted in the formation
numerous occasions in Asian countries and hence social enterprises have emerged
summarized below.
organizations, which have a long history in the country, starting in the aftermath
the pioneering social enterprises in the world (Bornstein and Davis, 2010) was set
up in Bangladesh in the year 1976. Since then, numerous social enterprises have
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been set up. However, Hackett (2010) points out that there is not much scrutiny or
enterprises and the social movement for independence has been observed (Idris
and Hati, 2013). The modern concept of social entrepreneurship was however
identify, train and fund local entrepreneurs. Three factors were identified by Idris
influence of Islam and the presence of aristocratic leaders. Based on the study,
they identify three factors that could positively influence the development of the
Asian financial crisis in 1997 when unemployment increased. In the early 2000s,
the Hong Kong Government introduced schemes to encourage the growth of social
enterprises and units to oversee their growth. The objective was to make subsidy
In Taiwan, during the period 1990 to 2010, a number of social issues led to
competition for resources among them. This prompted some not for profit
The Government also started partnering with social enterprises to address issues
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such as unemployment and this gave a further boost to the sector (Chan et al.,
2011).
In China, since the late 1970s when market reforms were introduced, the
rural communes both as a provider of public services such as health and education
and as a provider of social protection. This posed both a financial and a managerial
to mobilize resources from and partner with the market economy as well as the
the country. The other driving forces were the growing interest of private sector
In South Korea, the concept of social entrepreneurship had its roots in civil
society and citizens’ movements before finding a place in the Government agenda.
The particular features of the labor market in the country placed a number of
individuals at risk of social exclusion and this led the Government to enact the
Social Enterprise Promotion Act in 2006, which gave recognition to these entities.
The policy discourse on social enterprises in South Korea was very much
influenced by the experiences in Europe and USA (Bidet and Eum, 2011).
(Kaneko, 2013). The first generation enterprises were started during the period
enterprises commenced during the period 1975 to 2000 and consists of not-for-
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profit organizations and community businesses that like the first generation ones
have a strong social mission but are wider in scope. Many of these organizations
came into existence after the Great Kobe earthquake that struck in 1975.
spurring the growth in their numbers. The third generation is distinct from the
first two due to its greater market orientation and higher degree of innovation,
Before proceeding to the Asian case, it is useful to note that Defourny and
enterprises in Europe and the United States. In Europe, social enterprises were
helped them access Government support which came through legal frameworks
and at times through subsidies and fiscal exemptions. In the United States on the
other hand, the aforementioned safety features did not always exist and hence
in both Europe and the States, the concept of social entrepreneurship was actively
2010).
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Yu (2011) points out that the absence of any specific legislation on
and human resources for social enterprises. Second, the ownership structure
ownership structures are not common. A unique aspect in China is that not for
profit organizations do not receive favorable tax statuses. This makes it harder for
such organizations to raise funds. The governance model that is most popular in
China is the stewardship model which places the management in the most
In Japan, social enterprises follow the European tradition in the sense that
they are community based and receive institutional support from the Government
(Kaneko, 2013). However, the extent of support they receive is not as much as
that received by European enterprises. The only support they currently receive is
with regard to tax incentives for grass roots donations to not for profit
to explain the emergence of social enterprise in Japan – the earned income not for
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profit approach, the not for profit cooperative approach and the social business
approach. These approaches have in turn led to the emergence of three common
care institutions, work integration social enterprises and social businesses. While
the former two are usually specified not for profit organizations, the latter are
typically incorporated as for profit stock companies. Laratta (ibid) identifies three
major constraints that bind social enterprises based on the organizational form
they adopt when incorporated. These are the legal requirements that are imposed,
the level of trust they enjoy from the general public and the sources of funding
profit organizations in Japan do not enjoy much trust from the general public as
Japanese not for profit organizations also faced another disadvantage until 2011
as donations to them did not receive tax exemptions. In recent years, special
banks (known as cooperative banks) have been set up to lend to not for profit
organizations though these are few in number. Until then, such organizations
could mainly borrow only from individuals due to lack of understanding about
as physically challenged people) and try to integrate them into the work force.
After 2006, when the Social Enterprise Promotion Act was passed, organizations
that want to be called “social enterprises” need to apply for certification to the
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Ministry of Labor with proof of the connection between their activities and a social
mission. Four types of social enterprises can received certification, those that
percent of the employees are disadvantaged, the “mixed” type which shows
characteristics of both the first two types and finally the “others” category in
which social enterprises that don't fit into any of the other categories (such as
encouraged to support social enterprises in various ways, for which they can
receive tax rebates. Another kind of social enterprise in South Korea is the “self
collective ownership where at least one third of the employees are beneficiaries of
the National Basic Livelihood Scheme (NBLS). NBLS is a scheme under which
conditions receive public aid. Besides these two forms, there are “de facto” social
academic community but are not labeled such as per South Korean regulations.
Overall, the South Korean model follows the European model but is more “top
down” with the Government controlling the use of the term “social enterprise”
(2014) found that the governance models commonly discussed in the literature on
social enterprises in the United States and Europe did not fit the South Korean
context. The authors found that 70 per cent of the social enterprises studied fall
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into a category they call “the interdependent model” where a range of stakeholder
interests are represented, there is strong control over the chief executive and the
mission is more likely to be social rather than commercial. This seems to indicate
that “mission drift” is not as big a concern in the case of South Korean enterprises
as in the case of their U.K. counterparts (Bertotti et al., 2014, Spear et al., 2007).
Contrasting the social enterprises in Hong Kong and Taiwan, Chan et al.
point out that the former are more market oriented compared to the latter. While
oriented enterprises, business oriented ones are dominant in Hong Kong primarily
due to the capitalistic nature of the society. In Taiwan on the other hand, due to
enterprises are also substantial in number. The study also found that more
number of social enterprises in Hong Kong obtained their revenues from sale of
products and services than in Taiwan. Government grants and fees was a bigger
entities are required to prioritize purchase from such enterprises and hence
represent a big market for them. It was found that Hong Kong enterprises were
Taiwan, profits from a social enterprise set up by a not for profit organization
were often used for the overall financial management of the not for profit
organization.
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Defourny and Kim (2011) attempt a cross-country analysis of social
enterprises in Eastern Asia and find that the diversity among social enterprises
makes it impossible to isolate a single typical model per country or region. The
authors also argue that the social enterprise landscape in East Asia is marked by
the strong influence of state policy. While in Western Europe, social enterprises
can be said to be located “at the crossroads of market, public policies and civil
society” (Nyssens, 2006) in East Asia, they are currently located mainly at the
intersection of state and the market though the influence of civil society is
environment.
journals about social enterprises in Asia is very limited at present. While the
Grameen Bank case is often used as an example in papers dealing with conceptual
typologies of social enterprises in East Asia were the result of research conducted
consider the level of social enterprise activity in Asia. For example, in India,
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reports such as the Asian Development Bank’s India Social Enterprise Landscape
Report (2012) 2indicate that the sector is growing rapidly. The report further
mentions that India is one of the most advanced impact investing markets 3in
terms of number and size of investments even though the impact investment
The first factor is the prevailing state of research in the field. Social
Lumpkin (2009) review the literature on social entrepreneurship and argue that
research on the subject is still in an embryonic state. Their literature review found
that there was very little scholarly output in mainstream journals on the subject
and that conceptual papers greatly outnumbered the empirical studies. The
empirical studies that were published also often lacked formal hypothesis and
rigorous methods. While there has been an increase in the number of journal
articles since 2009, the number of empirical studies till date still remains low. As a
The second factor has to do with the lack of legislative mention of social
pointed out by Short, Todd and Lumpkin (2009), despite increased interest in
2 http://adb.org/sites/default/files/pub/2012/india-social-enterprise-landscape-report.pdf.
3 Impact investment refers to investments made into companies, organizations and funds with the objective of
generating measurable social and environmental impact along side a financial return (www.thegiin.org).
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social entrepreneurship, scholarly research has been challenging because
definitions of the concept have been developed in different domains and a unifying
definitions of a social enterprise, researchers have a basis for their research. For
primarily social objectives whose surpluses are principally reinvested for that
purpose in the business or in the community, rather than being driven by the need
enterprises exist, which means delineating the various types of social enterprises
that exist in a country is in itself a challenging task. While awareness about social
enterprises is increasing, not all organizations with social missions call themselves
social enterprises. For example, even though Grameen Bank is often quoted as an
entrepreneurs. The only exception is Grameen Bank itself as Yunus (2007) defines
the enterprises that are part of the Grameen group as social businesses. This
some may be “de jure” social enterprises while others might be “de facto” social
4https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31677/11-1400-guide-
legal-forms-for-social-enterprise.pdf.
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A third factor is the nature of the debates in the social entrepreneurship
literature. As pointed out by Hackett (2010), these have so far been framed in
Western terms and some of the debates are irrelevant to Asian contexts. As a
concepts, restating the underlying assumptions and modifying the basic research
questions.
Conclusions
indicates that there is indeed a large gap in the research relating to Asian contexts.
Peer reviewed journal articles relating to Asian social enterprises usually confine
underline how social enterprises are deeply embedded in the local context. For
example, the studies on Hong Kong and Taiwan show how though the countries
are geographically close to each other but on account of their different socio-
various contexts to more fully understand the concept and make the discussion on
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In the case of developing countries in Asia, social enterprises can play an
important to study the conditions that favor their growth and the constraints that
they commonly face that need to be addressed. Another important area that needs
issues need to necessarily play a central role in the social enterprise debate.
Including sociological and public policy perspectives into the debate on social
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References
Bidet,E. and H. Eum (2011), “Social Enterprise in South Korea: History and Diversity”,
Social Enterprise Journal, 7(1):69-85.
Bornstein, D. and S. Davis (2010), Social Entrepreneurship: What everyone needs to know,
Oxford University Press, New York.
Chan, K., Kuan,Y. and S.Wang (2011), “Similarities and Divergences: Comparison of social
enterprises in Hong Kong and Taiwan”, Social Enterprise Journal, 7(1):33-49.
Defourny, J. and S.Kim (2011), “Emerging models of social enterprise in Eastern Asia: A
cross country analysis”, Social Enterprise Journal, 7(1):86-111.
Idris, A. and R.H. Hati (2013), “Social Entrepreneurship in Indonesia: Lessons from the
Past”, Journal of Social Entrepreneurship, 4(3):277-301.
Kaneko, I. (2013), “Social Entrepreneurship in Indonesia: Lessons from the Past”, Journal
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Nyssens,M. (ed.)(2006), Social Enterprise- At the cross section of market, public policies and
civil society, Routledge Books, New York.
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Past Contributions and Future Opportunities”, Strategic Entrepreneurship Journal
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Spear,R., Cornforth, C. and M. Aitken (2007), "For love & money", Governance and Social
Enterprise commissioned by Social Enterprise Coalition, London.
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Yunus (2007), Creating a world without poverty: Social Business and the Future of
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About The Authors
Tulus T.H. Tambunan is a lecturer in the Faculty of Economics, University
of Trisakti in Jakarta (Indonesia). Currently he is also the head and the main
researcher of the Center for Industry, Small and Medium Enterprises, and
Business Competition Studies in the same university. He was graduated and holds
Since 1995 he has been the country researcher representing Indonesia for the
World Economic Forum (WEF) in Geneva, which publishes, annually, The Global
micro, small and medium enterprises, economic crises, regional trade, and
inclusive development.
at University of Warsaw, Poland, and now she professor at the University of Social
Bank Institute (ADBI). Her research interests in applied economics are in trade,
regional integration, SME and inclusive growth. Prior to joining ADBI, she worked
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as an economist at the New Zealand Ministry of Foreign Affairs and Trade and as a
the ADB Institute in Tokyo. Previously, he has held positions at the ADB, the
Management, Keio University, Japan. She has earlier taught at the Asian institute of
Research, India. She did her Ph.D. at the Lee Kuan Yew School of Public Policy,
Singapore. Prior to her academic career, Savita has ten years of work experience
in corporate banking with ICICI Bank, India’s largest private sector bank and
research interests are in the areas of financial inclusion, microfinance and issues
relating to micro, small and medium enterprises. She has led research studies
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involving primary data collection in India, Philippines, Cambodia and Pakistan.
She has consulted for the Asian Development Bank, Habitat for Humanity
the University of Sheffield in the United Kingdom. His research interests include
the informal economy, entrepreneurship and the future of work. His books include
Confronting the Shadow Economy: evaluating tax compliance and behaviour policies
(2014, Edward Elgar), The Shadow Economy (2013, Institute of Economic Affairs)
and The Role of Informal Economies in the Post-Soviet World: the end of transition?
(2013, Routledge).
and medium enterprises (SMEs) in both Europe and Asia, in terms of innovation,
organization and cultural values. She has done many studies on rural SMEs in
‘collectivism’.
University of Social Sciences, and he was former Dean of the Faculty of Economy
and Rector of Warsaw School of Social and Economic Studies, Head of Department
MBA programs. He is the author of the book: Creating a strong brand, coauthor of
Tourism policy. The creation - development - main areas, and the author of over 50
conferences.
Warsaw (Poland). Since 2005 he has been working at Consulting Plus Ltd., and
Interested in crowd funding, and a co-founder and board member of the Polish
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