Project ILO/UNDP: THA/99/003
WORKING PAPER 1
Business development services for micro and small enterprises in Thailand
SERIES EDITOR: Gerry Finnegan
July 1999
Download the "word" version of the paper:thai1.doc
Foreword
I am pleased to see this series of reports as outputs from the recent collaboration between ILO and UNDP in Thailand in the form of the Micro and Small Enterprise Development and Poverty Alleviation Project in Thailand. As the UN agency with special responsibility for employment matters, the ILO is concerned about employment in all sizes of enterprises, in both the formal and informal sectors. The ILO is equally concerned about the quality, as well as the quantity, of jobs created. This point is well amplified in the recent report on "Decent Work" by the ILO DirectorGeneral, Mr Juan Somavia.
From related studies carried out by the ILO following the financial crisis in East Asia, it is apparent that both the level of employment and the quality of employment conditions in Thailand have been adversely affected by the crisis. Consequently, the work being undertaken by this project is most timely, assessing as it does the role of micro and small enterprise (MSE) development in poverty alleviation and employment creation.
Governments are no longer expected to be the principal providers of jobs jobs are created by successful, wellmanaged private sector enterprises. However, governments do have a vital role to play in ensuring that the policy environment is 'enterprise friendly'. The path into enterprise should be smooth, and entrepreneurs should be able to receive relevant advice and support (both financial and nonfinancial) in a highly effective manner from both government and private sector agencies. The needs of the MSE sector should be clearly identified, and linked with a better understanding of the scale and scope of the enterprise sector and its role in national development.
All of these important aspects are addressed in this set of six working papers. Together they provide a substantial body of knowledge and significant inputs for policymakers and decisionmakers in Government, the private sector, international organizations and the donor community, as well as for entrepreneurs themselves.
Given the prominence of the small and medium enterprises (SME) sector in Government policy, this information is being made available at an appropriate time. It is also highly relevant, coming as it does at a time when the ILO is carrying out a Country Employment Policy Review in Thailand, as well as providing support to make its Start and Improve Your Business (SIYB) training materials available for extensive use in Thailand.
W R Simpson
Director, ILO/EASMAT
Bangkok, Thailand
July 1999
This working paper, Business Development Services for Micro and Small Enterprises (MSEs) in Thailand, prepared by Maurice Allal, has been produced as part of the ILO/UNDP Support for Policy and Programme Development project on Micro and Small Enterprise Development and Poverty Alleviation in Thailand (THA/99/003). A full description of this project can be found in the project document which is available on request.
This series of six working papers is the combined output from the team of national and international consultants engaged by the ILO in Thailand between March and June 1999. Preliminary findings for each of the reports was shared with a group of key informants at a workshop/consultation, held at the Royal Princess Hotel, Bangkok, in May 1999. We are indeed grateful for all comments and feedback received at that workshop. While every effort has been made to ensure the accuracy of the information in these reports, we regret any omission or error contained herein. These working papers are intended as a means of advancing the public debate on the small enterprise sector in Thailand, and the ILO is eager to share this information with the widest possible audience.
The term "micro and small enterprise" (or MSE) is not commonly used in Thailand, as more frequent reference is made to the designation, "small and medium enterprise", or SME. Each of the ILO consultants has made some reference to the issue of definitions of micro, small and medium enterprises, and Paper six in the series is dedicated to this topic. Therefore, to facilitate a clear and unambiguous understanding of these working papers, we have been at pains to make distinctions between different categories of small enterprises. We believe that the issue of definitions is not simply one of semantics.
One basic premise of this project is that there is a significant number of smaller enterprises which do not fit into the conventional enterprise support programmes of the Royal Thai Government. With targeted forms of support, these enterprises could improve their productivity and competitiveness, make a greater contribution to generating wealth and alleviating poverty among the families of owners and workers alike, and create more jobs.
The ILO has been supporting micro and small enterprise development for more than three decades. In 1998, in a significant landmark event for the Organization, the ILO's Conference at which Thailand was represented unanimously adopted a new Recommendation on Job Creation in Small and Mediumsized Enterprises (No.189). Because of its extreme relevance to the subject of our enquiry, we have reproduced this Recommendation as an Annex. Particular attention is drawn to sections 11 and 8, dealing with the development of an effective service infrastructure and actions in times of economic difficulties, respectively. In addition, to coincide with this new Recommendation, the ILO launched a global International Small Enterprise Programme (ISEP) to provide technical assistance for member countries, including Thailand. The work carried out under this ILO/UNDP project is also part of the ILO's ISEP programme.
Gerry Finnegan
Senior Specialist & Series Editor
ILO/EASMAT, Bangkok
July 1999
Foreword
Preface
Contents
Acronyms
Executive summary
Summary of recommendations
1. Introduction to institutional BDS providers in Thailand
1.1. Background and context 7
1.2 Sources of information and methodology
1.3 Institutional BDS providers in Thailand
2. The Ministry of Industry
2.1 The Department of Industrial Promotion (DIP)
2.2 The Office of Industrial Economics
2.3 The Industrial Estate Authority of Thailand (IEAT)
2.4 The Foundation of Thailand Productivity Institute (FTPI)
2.5 The ThaiGerman Institute (TGI)
2.6 The Thailand Textile Institute and the National Food Institute
2.7 The Institute for Small and Medium Enterprise Development (ISMED)
2.8 The SME Promotion Office 3
2.9 The provision of BDS by the Ministry of Industry: overall findings and issues to be addressed
3. The provision of business development services by other government agencies
3.1 Ministry of Labour and Social Welfare
3.2 The Board of Investment (BOI)
3.3 The Ministry of Commerce (BOC)
3.4 Organizations partly mandated to support micro and small enterprise development
4. The provision of business development services by private sector organizations, NGOs and private consultants
4.1 Private sector organizations
4.2 Private consultants and consultancy firms
4.3 NGOs and CSOs
4.4 A note on financial services
5. Overall findings and proposed strategies for improved access to business development services
5.1 Overall findings
5.2 Strategies and guiding principles for facilitating MSEs' access to quality BDS
6. Recommendations to facilitate access to business development services
6.1 Elaboration and application of a dual MSE development policy to unlock the job creation potential of MSEs and modernize the sector
6.2 Recommendations on new SME support structures
6.3 The definition of SMEs and the informal sector
6.4 Improving access to quality BDS by MSEs
6.5 Promoting associations of micro and small enterprises
6.6 ISMED
6.7 Minimizing the duplication of functions and restructuring government orga nizations
Annexes
Annex I: Institute for SME Development
Annex II:Draft SME Promotion Bill
Annex III:Bibliography and websites of Thai organizations involved in SME development
Annex IV: ILO Recommendation concerning General Conditions to Stimulate Job Creation in Small and Medium Enterprises, 1998 (No. 189)
Acronyms
AFC Asian financial crisis
BAAC Bank of Agriculture and Agricultural Cooperatives
BMA Bangkok Metropolitan Administration
BOI Board of Investment, Prime Minister's Office, Royal Thai Government
CBO Communitybased organization
CSO Civil society organization
DCD Department of Community Development, Ministry of the Interior, Royal Thai Government
DCR Department of Commercial Registration, Ministry of Commerce, Royal Thai Government
DES Department of Employment Services, MOLSW
DIP Department of Industrial Promotion, Ministry of Industry, Royal Thai Government
DPW Department of Public Welfare, Ministry or Labour and Social Welfare, Royal Thai Government
DSD Department of Skills Development, Ministry of Labour and Social Welfare, Royal Thai Government
ECONTHAI Employers' Confederation of Thai Trade and Industry
ECOT Employers' Confederation of Thailand
DEP Department of Export Promotion, Royal Thai Government
FTPI Foundation for the Thailand Productivity Institute
IEAT Industrial Estate Authority of Thailand
IFCT Industrial Finance Corporation of Thailand
ILO International Labour Organization
IYB Improve Your Business (training programme of the ILO)
KTB Krung Thai Bank
MINT Ministry of the Interior, Royal Thai Government
MOC Ministry of Commerce, Royal Thai Government
MOI Ministry of Industry, Royal Thai Government
MOLSW Ministry of Labour and Social Welfare, Royal Thai Government
MOPH Ministry of Public Health, Royal Thai Government
MSE Micro and small enterprise
NGO Nongovernment organisation
NHA National Housing Authority
NPSC National Social Policy Committee
NSTDA National Science and Technology Development Agency
OCRDP Office of the Committee for the Rehabilitation of Disabled Persons
PIO Provincial Industrial Office
PLR Policy, Legal and Regulatory
RTG Royal Thai Government
SBMO Small business membership organisation
SED Small enterprise development
SICGC Small Industry Credit Guarantee Corporation
SIFC Small Industry Finance Corporation
SIYB Start and Improve Your Business
SME Small and mediumsized enterprise
SMED Small and mediumsized enterprise development
SOE Stateowned enterprise
SPC Social Protection Committee
SPPD Support Services for Policy and Programme Development
SSI Smallscale industry
STDB Science and Technology Development Board
SYB Start Your Business (training programme of the ILO)
TCC Thai Chamber of Commerce
TISI Thai Industrial Standards Institute
TISTR Thailand Institute of Scientific and Technological Research
TTC Technology Transfer Centre
UCDO Urban Community Development Office (of NHA)
UNDP United National Development Programme
VAT Value added tax
Executive summary
This working paper is part of a series of six prepared under the ILO/UNDP project on micro and small enterprise (MSE) development in Thailand. Three reports in this series cover the MSE sector in Thailand, the policy and regulatory environment and its effects on the growth of this sector, and access by MSEs to various types of financial services. The remaining three reports deal with the provision of and demand for various types of business services required by MSEs. This report reviews and assesses the provision of business development services (BDS) in Thailand by a wide range of institutional providers. Readers interested in getting a full understanding of the various issues underlying the supply of and demand for business services in Thailand are encouraged to review these three reports together.
The business development services covered by this report include access to various types of information of direct interest to MSEs: consultancy services; skill and business training; marketing services; and technology transfer and development.
This report is primarily intended for individuals and organizations, both in the private and public sectors, involved in micro and small enterprise (MSE) development in general, and in the development and the provision of BDS in particular. The potential beneficiaries of the services are the very large number of micro and small enterprises, in both the formal and informal sectors, and in all sectors of the economy (manufacturing, trade, services, construction, and transport).
The report describes the services provided by a number of institutional BDS providers in both the public and private sectors, including government agencies, semiprivate organizations, professional membership organizations, associations of micro and small enterprise associations, NGOs and private sector consultancy firms. It attempts to assess their impact, outreach, effectiveness and sustainability. The quality of these services is also assessed whenever it has been possible to locate reports evaluating the services provided. Subsequently, recommendations are made on how to improve access to quality and sustainable BDS by MSEs, including recommendations for adjusting and strengthening the current institutional framework.
Following the review of the services offered by the above BDS providers, and an assessment of their performance on the basis of the selected criteria (in particular, their outreach, efficiency, impact and current or potential financial sustainability), the report makes a number of recommendations aiming at facilitating access by MSEs to relevant demanddriven, quality and sustainable business development services.
The review and assessment of the major institutional BDS providers in Thailand yielded the following major findings.
This report makes a number of recommendations aimed at facilitating access to relevant and quality business development services by MSEs. These recommendations are based on international best practice in this area. The ultimate goal of these recommendations is to help initiate a longterm process for the modernization of the Thai private sector with a view to helping this sector face the challenges of globalization and trade liberalization. Micro and small enterprises can play an important role in this process through effective linkages they may establish with the larger enterprises. However, they must also modernize before they can play this role fully. Facilitating their access to quality BDS should help accelerate the modernization process.
This report comes at a very opportune time, the Government having recently adopted a number of policies related to the provision of business development services by Government
agencies. The objective of these policies is to have these agencies gradually transfer their direct business services delivery functions to BDS providers outside the Government. The translation of these policies into concrete measures and programmes will require careful consideration of all the options related to the above transfer of functions. It is hoped that this report will help the Government reach the right decisions on this issue.
Summary of recommendations
Recommendation 1:
To establish, under the overall coordination of the SME Promotion Office, a committee to elaborate a policy document on the modernization of the small enterprise sector, incorporating the above and other relevant proposals, as well as a concrete plan of action for its implementation. The committee should also be responsible for supervising the implementation of the small enterprise modernization plan by the relevant public and private sector organizations.
Recommendation 2:
The functions of the SME Promotion Office should be limited to the following:
c) Prepare and manage the Office's budget.
Recommendation 3:
Membership in the SME Promotion Committee should include representatives of micro and small enterprises.
Recommendation 4:
The SME Promotion Fund should be used exclusively for funding projects of government departments, other government agencies, state enterprises and private sector organizations. Furthermore, the SME Promotion Office should not engage in any direct operational or technical activities
Recommendation 5:
The working group in charge of elaborating a new definition for SMEs should consult the ILO/UNDP Working Paper 6 which provides a methodology and proposes a new definition of SMEs.
Recommendation 6:
Government should arrange to carry out an indepth study of the informal sector with a view to better understanding its characteristics, constraints and potential, and to formulating policies which will induce informal sector operators to join the formal economy. ILO survey methodology and associated training materials could be made available for this purpose.
Recommendation 7:
The SME Promotion Committee should urgently initiate measures for the transfer of direct BDS services from government agencies to private sector and notforprofit organizations. Such a transfer should preferably be completed by a set date.
Recommendation 8:
The Ministry of Industry, the Ministry of Commerce and the Ministry of Labour and Social Welfare should consider establishing a Task Force which will be assigned the responsibility of promoting the establishment of private sector BDS providers and the strengthening of existing ones. These BDS providers should be established according to the guiding principles discussed earlier. The task force should develop guidelines based on these principles to be used for training the staff of the existing and future BDS providers.
Recommendation 9:
The SME Promotion Committee should subcontract a study on the main sources of information used by MSEs and investigate which information dissemination option(s) would have the largest outreach and impact.
Recommendation 10:
The SME Promotion Committee should initiate a national dialogue among all sizes of enterprises with a view to defining the conditions which will help strengthen private sector linkages and promote, by the same token, the direct access to BDS by MSEs without having to rely on a BDS provider. The limited representation of small enterprises in Chambers of Commerce, employers' organizations, sectoral organizations, etc. should also be investigated and remedial action initiated. Membership of these organizations could achieve a double purpose: strengthening private sector linkages, and helping the MSEs access useful business services provided by the organizations.
Recommendation 11:
It is important to undertake a study on the reasons and factors contributing to the lack of associations of MSEs in Thailand. Without such associations, it is extremely difficult to reach the majority of MSEs, and the unit cost of delivering business services can be prohibitive.
Recommendation 12:
The SME Promotion Committee should consider the desirability of merging BIED and ISMED with a view to reducing any duplication of functions and helping to establish an effective SME promotion organization.
Recommendation 13:
The SME Promotion Committee should establish a working group to investigate the feasibility and desirability of merging the functions of various private sector and government organizations with a view to reducing any duplication of functions and creating more effective organizations.
1.1 Background and context
The success of an enterprise, in terms of growth and competitiveness, is first of all the result of the entrepreneurial spirit of its owner. This implies the ability to take calculated risks, striving to acquire more knowledge and skills required for a more effective business operation, keeping abreast of new developments in the industry, being responsive to client needs and wishes, and being concerned about the quality of the goods or services offered.
These entrepreneurial characteristics are not shared equally by all individuals. Some are what is often referred to as "born entrepreneurs", while others might never succeed in business, whatever their efforts. This has important implications for those in the public or private sector who are responsible for running enterprise development programmes. To achieve the greatest effectiveness and impact, these programmes should aim at providing support services mainly to those who can make the best use of them for the benefit of their enterprise, as well as for the benefit of society as a whole. The limited financial and other resources available for enterprise development programmes should first target those exhibiting and demonstrating the required entrepreneurial characteristics. This report will provide some guidance on how this can best be achieved.
While an entrepreneurial spirit is a necessary condition for running a successful business, it is not sufficient in itself. External factors also play an important role. First, the macroeconomic environment affects all enterprises, as illustrated by the recent financial and economic crisis in Asia. Second, the policy and regulatory framework (fiscal and monetary policies, trade policies, business regulations) can inhibit the growth of enterprises or, on the contrary, allow them to achieve their full potential. Third, public investments (e.g. for infrastructure development, education and training) play a major role in facilitating the creation and growth of enterprises. The availability of a large pool of educated and trained labour will help contribute to increasing enterprise productivity and competitiveness. In this way, a good road network and efficient transport facilities will help enterprises establish themselves in most parts of the country, as well as expand their market. Similarly, a good telecommunication infrastructure will facilitate communications with clients and suppliers.
Fourth, finance is needed for starting a new enterprise or expanding an existing one. Banks are supposed to be the main source of financial services, and this is the source used by most medium and large enterprises. On the other hand, banks are often reluctant to lend money to micro and small enterprises. Thus, the owners of these enterprises are often obliged to depend on their own savings, borrow from friends or relatives, or rely on moneylenders who apply very high interest rates. Consequently, even those exhibiting an entrepreneurial spirit may not be able to establish a business or expand an existing one for lack of investment funds.
Finally, all enterprises need a variety of services for the optimal performance of their business. The owners of enterprises need access to information on new products and processes, on market trends, on new policies and regulations, etc. They also need specialist advice (e.g. consulting services) on how to increase productivity, access new markets, diversify production, manage the business, etc. Similarly, their workers may need further skills training and the owners themselves can benefit from business training. In general, most medium and large enterprises have inhouse expertise in all these areas so they can afford the services of consultants if they lack expertise in some highly specialized domains. On the other hand, micro and small enterprises often depend only on the knowledge of the owner and/or some of the workers and frequently cannot afford the full cost of services of private consultants. This lack of access to effective business development services thus can constitute a constraint to the further growth and competitiveness of the business.
To summarize, while an entrepreneurial spirit is a prerequisite for running a successful business, factors external to the enterprise and the entrepreneur can also play a very important role in achieving success the macroeconomic environment, the policy and regulatory framework, the available physical infrastructure, and access to business and financial services. This working paper has been prepared as part of an ILO/UNDP Support Services for Policy and Programme Development Project(1) on Micro and Small Enterprise Development and Poverty Alleviation in Thailand (THA/99/003) which focuses on all these issues, and on their impact on the growth and competitiveness of the micro and small enterprise (MSE) sector. Separate working papers on the business environment and access to financial services in the MSE sector in Thailand have also been prepared under this project.
This report focuses exclusively on the supply of business development services (BDS) and access to the latter by MSEs. It complements two other reports on the same issues Working Paper 4:(2) a report on the demand for business services, including training, by MSEs (this report is based on a sample survey of micro and small enterprises carried out by this project); and Working Paper 2 which reviews international best practice in the provision of quality and sustainable business development services (BDS) and assesses their replicability in Thailand. The three working papers should be reviewed together, also taking account of the three remaining reports in this series of working papers.
This report describes the services provided by a number of institutional BDS providers in both the public and private sectors, and attempts to assess their impact, outreach, effectiveness and sustainability. The quality of these services is also assessed whenever it has been possible to locate reports evaluating the services provided. Subsequently, recommendations are made on how to improve access to quality and sustainable BDS by MSEs, including
recommendations for adjusting and strengthening the current institutional framework.
The report covers the following main BDS services usually needed by MSEs:
i) Information: on technology, markets, regulations, sources of supplies, training facilities, etc;
ii) Training: in business and skills training;
iii) Advice and consulting services: on all business operations (e.g. choice of products and processes, finding new markets, improving quality, increasing productivity, business management, skills training, accessing financial services); and
iv) The provision of specialized services: product testing, technology upgrading, leasing of equipment, etc. provided free of charge or on a commercial basis.
The provision of each of the above types of services will be assessed separately for each of the organizations surveyed in this report.
1.2 Sources of information and methodology
This paper will use the following sources of information in the process of evaluating the institutional business service providers in Thailand:
Using the above information, an assessment will be made of the following:
Subsequently, recommendations will be made relating to the following issues:
* The role of government agencies in the provision of BDS: what types of BDS they should provide and those they should discontinue? Under which conditions? For which types of clients (if the objective is to achieve maximum impact with the limited resources available)?
* What should be the role of private sector organizations, such as employers' organizations and chambers of commerce? How to promote the extension of services provided by these organizations to MSEs, which are usually poorly represented among their members?
* How to promote the provision of quality BDS by the private sector on a commercial basis, or as part of some commercial transactions?
* How to promote the establishment of associations of MSEs which could also play a very important role in providing a wide range of BDS to their members, or in facilitating access to other BDS providers?
1.3 Institutional BDS providers in Thailand
Institutional BDS providers in Thailand include a number of Ministries, parastatal organizations, private sector organizations and NGOs, and many of these organizations that were included during this study are listed below. Their BDS activities are then reviewed in detail and assessed. It should be noted that many such organizations (especially those outside the Ministry of Industry) are only or mostly involved in financial services. Some of them have started the provision of such BDS services only
recently, following the financial and economic crisis. For this type of organization, comments and suggestions will be made on their potential capacity to complement the offer of financial services with that of BDS.
The following list of government agencies, private sector organizations and NGOs includes most of the organizations which offer some business services or training to the owners and workers of MSEs. Most of them offer a very limited range of BDS services, often as a complement to financial services (usually in the form of small loans). Thus, only those organizations which are more heavily involved in the offer of BDS, or have the potential of becoming important BDS providers, are reviewed and assessed in this report.
1.3.1 Government organizations
The list of BDS providers in the public sector includes:
Ministry of Industry, and Department of Industrial Promotion in particular
Ministry of Commerce
Office of the Board of Investment
Ministry of Labour and Social Welfare, Department of Public Welfare, Department of
Skill Development and Department of Employment in particular
Ministry of Interior (not covered in this report)
Ministry of Agriculture (including Cooperatives) (not covered in this report)
Bangkok Metropolitan Administration (BMA)
Bank of Agriculture and Agricultural Cooperatives (BAAC) (not covered in this report)
The Government Saving Bank (GSB)
The most important BDS provider in the above list is the Ministry of Industry. However, this Ministry's clientele covers mainly MSEs in the production sector. The Ministry of Labour and Social Welfare plays an important role in the area of vocational training, and implements some income generating activities, especially in the form of small loans to groups or individuals. The other organizations are indirectly or marginally involved in the offer of BDS to MSEs, as well as to other sizes and categories of enterprises, although some of them, such as the Ministry of Commerce, could play an even more useful and important role in this area.
1.3.2 Universities
Universities in most countries offer MBAs and/or run courses in business management for people already in business. This is the case of many universities in Thailand. This report reviews the activities of an institute of the Chulalongkorn University which is actively involved in research and training activities in the area of small and medium enterprise development the SASIN Graduate Institute of Business Administration.
1.3.3 Private sector organizations
While there are many private sector memberbased organizations which provide business services to their members, it was not possible to obtain information on all of them. However, the information collected from the organizations surveyed is sufficient for a preliminary assessment of the outreach and impact of the business services provided by some of these private sector organizations. These include:
the Thai Chamber of Commerce (TCC);
the Employers' Confederation of Thai Trade and Industry (ECONTHAI); and
the Federation of Thai Industries (FTI); and
the Employers' Confederation of Thailand (ECOT).
2. The Ministry of Industry
The Ministry of Industry is made up of a number of government agencies and state enterprises, as shown below (Figure 1.)
Figure 1. Ministry of Industry component bodies
|
Government agencies Office of the Secretary to the Minister Office of the Permanent Secretary Department of Mineral Resources Department of Industrial Works Department of Industrial Promotion Thai Industrial Standards Institute Office of Industrial Economics |
State enterprises Industrial Estate Authority of Thailand Petroleum Authority of Thailand Thailand Productivity Institute (Foundation of TPI) ThaiGerman Institute National Food Institute Thailand Textile Institute |
|
Independent orgaizations under the Industrial Development Foundation, MOI The Manufacturing System Certification Institute Automotive Institute Electrical and Electronics Institute Key Government Agency State Enterprise Independent organization under the Industrial Development Foundation, MOI | |
This report covers most of those agencies and state enterprises which offer business development services to MSEs. Recommendations are also made about some units which could offer services to the MSE sector as a whole, or to MSEs within specific manufacturing subsectors.
2.1 The Department of Industrial Promotion (DIP)
The DIP is currently the main government agency responsible for promoting small and mediumscale enterprises, mainly those in the production sector, through the provision of training and other business development services, as well as with limited financial services. The DIP was established more than 50 years ago under the Ministry of Industry (MOI). Since then, it has been restructured a number of times. The latest restructuring seems to have taken place in 199899, when some of the DIP units were transformed from divisions into bureaux and a number of the previous divisions became state enterprises under the direct responsibility of the MOI. This restructuring is still going on.
In April 1999, the Cabinet approved the establishment of an Institute for SME Development (ISMED) which, according to its proposed functions, may take over some of the major functions of the DIP, particularly in the areas of training and consulting. Annex I describes the proposed structure and functions of ISMED. In December 1998, the Cabinet also approved a draft SME Promotion Bill (see Annex II) which will be implemented under an "SME Promotion Office". This Office will be a "special executive agency" (a semigovernmental, autonomous agency) which will probably take over some more of the current DIP activities. It has been proposed that the DIP act on behalf of the Office during an unspecified interim period.Thus, it is not clear whether the DIP will continue to exist as an MOI department with reduced functions, or if it will be transformed into a new body within the Ministry.
In addition to the abovementioned restructuring, the Government has been very active since mid1998 in initiating new policies and programmes in favour of SME development in the form of an SME promotion Bill (see above), a fiveyear industrial restructuring plan and other initiatives which are still underway. These new moves are a reflection of the increased importance attached by the Government to the promotion of small and medium enterprises for the purpose of creating new jobs and reducing poverty, following the recent economic crisis.
Under these circumstances, the review and assessment of past and current DIP programmes and activities should take into consideration the above new developments. In particular, it is important to assess the new structures it is proposed to put in place in order to find out whether they are in line with international best practice.The assessment of past DIP programmes and activities will be less useful in attempting to improve DIP outreach, impact and effectiveness if some of its functions are to be transferred to other structures. On the other hand, such an assessment will guide us in reviewing and assessing the new proposed structures.
Sections 2.1.2 to 2.1.4. will review the information collected from material published by the DIP as well as information from the DIP website. This information will be subsequently complemented by information collected through interviews with a number of DIP officials (Section 2.1.6).
2.1.1 Structure of the DIP
According to the most recent information at hand (which differs from that in current DIP brochures), DIP is made up of seven headquarters units (the Office of the DIP Secretary and six technical bureaux) and 11 regional industrial promotion centres. A brief description follows:
The above brief description of the functions of these bureaux indicates that all of them are probably directly or indirectly involved in MSE development. More detailed functions of these Bureaux will be further reviewed and assessed later.
2.1.2 Target beneficiaries of the DIP
The DIP's main target beneficiaries include: small and mediumscale industries, including cottage industries and handicrafts; rural industries; and the personnel of public and private organizations involved in the development of enterprises in the production sector.
Thus, the DIP covers mainly the production sector. The trade and services sectors are not normally covered although, as shown from the listing of business and industrial establishments, these two sectors represent over twothirds of all establishments. It is also not clear whether the DIP's clientele includes micro enterprises (i.e. establishments with one to four workers see Working Paper 6 on the definition of MSEs). It is probable, however, thatrural industries, the handicraft sector, and cottage industries include a proportion of micro enterprises. One important issue worthy of consideration is whether the DIP's services are provided to
enterprises of all sizes, or whether the larger small and mediumsizedenterprises receive more benefits. This issue will be discussed later.
2.1.3 The vision and policies of the DIP
A number of DIP brochures and papers provide statements of the DIP vision and policies (e.g. DIP mission statement) which aim at promoting small and mediumsized enterprises. None of these documents makes specific reference to micro enterprises or the informal sector.
The DIP is designated as the core organization for promoting, supporting and developing the capacities of small and mediumsized enterprises (SMEs), with a view to helping them achieve the level of competition required by a global economy and market liberalization. In order to achieve this objective, the DIP has assumed three main missions:
i) to recommend (to the Government) policies and strategies aimed at developing and enhancing the capabilities of SMEs in accordance with the country's social and economic development objectives and changes in the world economy;
ii) to cultivate and develop the capabilities of SMEs in compliance with government policies; and
iii) to improve the skills of the personnel of enterprises, especially in the areas of technology and management, with a view to raising productivity in line with international standards.
Other DIP objectives are listed in some of the available documents. These are:
i) to strengthen small enterprises, especially in relation to the improvement of the quality of finished goods, with a view to promoting linkages with the larger enterprises and subcontracting;
ii) to promote consultancy services and information transfer to SMEs in the areas of production, technology, marketing, finance and management, with a view to improving their competitiveness and growth;
iii) to promote rural industries through NGOs established in rural communities, as part of the Rural Industrial Development Project; and
iv) to promote subcontracting from urban to rural enterprises.
In order to achieve the above objectives, the DIP has adopted two sets of measures aimed at both itself and other organizations involved in SME development: to improve the efficiency and effectiveness of other agencies and promote greater coordination of their activities; and to improve the skills and knowledge of DIP personnel in order to increase the Department's impact on national industrial development.
The main document which provides more insight into future policy options for the DIP is a paper prepared by the DirectorGeneral of the DIP, Mr Manu Leopairote, on the promotion of SMEs in Thailand. This paper provides some more details of the objectives and programmes of the DIP, as well as of future policy options. These options are briefly summarized below.
i) Reducing the role of Government in providing direct assistance to SMEs
The role of government should be limited to facilitating the delivery of services by others, to promoting networking of service providers, and to helping coordinate the network's activities. Furthermore, decisionmaking should be decentralized to local governments (tambon administrations).
ii) Private sector empowerment
The private sector should take over some of the functions of the State, be a source of specialized services, and regulate its own ranks. Some measures along these lines have already been advocated in the Seventh and Eighth National Economic and Social Development Plans, including the transfer of some public responsibilities to the private sector (e.g. examination of industrial plants), and budgetary support to NGOs and notforprofit organizations to help them provide training and consulting services to SMEs.
The DIP has initiated specific activities aimed at applying the above, including:
Similarly, the Ministry of Industry has transformed some of its sectoral development divisions into more autonomous state enterprises, such as the Thailand Textile Institute and the National Food Institute.
The twin policies of "less government involvement" and "more private sector empowerment" should induce a greater dynamism in publicprivate sector partnerships, with more sharing of decisionmaking and joint responsibility for planning, implementing, monitoring and evaluating SME development programmes. Such partnerships should be further strengthened through the membership of a number of private sector organizations in the Joint Public and Private Sector Consultative Committee (JPPCC).
Other policy initiatives proposed by the DirectorGeneral of the DIP include the elaboration and adoption of a basic law on SME promotion.This law includes, among other items, the creation of a centralized policymaking body which will be responsible for SME development. The membership of this body will include representatives of relevant ministries, specialized agencies and the private sector. It is expected that such a law will induce existing private sector organizations so as to increase their involvement in SME promotion in areas such as training, research, and consulting services. It should also promote the establishment of a larger number of similar organizations, and increase the autonomy of government corporations. This Law has now been approved by the Cabinet as the SME Promotion Bill. A clearer definition of small and mediumscale industries will be contained in the new law. In addition, the Government should actively promote greater use of information technology by SMEs; adopt new policies for stimulating research and development (R&D) and increasing investments in science and technology by government agencies and the private sector; formulate policies to induce SMEs to invest more in environmental protection measures, and develop policies to enhance the competitiveness of SMEs in order to help them secure international market niches and ward off foreign competition at home.
The above policy options are similar to those advocated in the report of the Industrial Restructuring Plan (IRP) prepared by the IRP Working Group on 4, August 1998 (see Strategies for Incubation and Strengthening of Small and Mediumscale Industries under the fiveyear Industrial Restructuring Plan, 19982002).
The policies outlined by the DirectorGeneral of the DIP are significant in view of their convergence with those advocated internationally by the majority of SME development specialists in recent years. They clearly reflect new thinking on the respective and complementary roles of the public and private organizations in promoting the SME sector. The fact that some of the policies have already been applied by the DIP is also a very positive sign. However, many of the policies described in the paper have not yet been formally adopted, and there are still some questions regarding the future structure and functions of DIP, as well as those of the proposed new bodies.
2.1.4 Services provided by the DIP
The Department provides four major types of services: skills and management training; consulting services; financial services, and laboratory services. Although information is available on the content of these services, it has not yet been possible to obtain quantitative information on the volume of services, or information on their quality and impact.
i) Training
A total of 60 management training courses are listed (including a number of popular courses which are repeated), covering a wide range of subjects (e.g. salesmanship, production technology, job relations, quality control, strategic personnel management, introduction to ISO 9000, marketing strategies, etc). A cursory review of the range of training courses shows that these are more intended for upscale small enterprises and medium enterprises, than for the "smaller" enterprises, including in particular microenterprises. Three quarters of the courses (45) have been provided in Bangkok, while the remaining 15 courses have been provided in the regions. However, it is possible that some trainees came from the regions to attend the Bangkok courses. It is not clear whether the courses have been provided by DIP staff, or subcontracted to other government agencies or private sector organizations. Furthermore, there is no information on whether the courses are provided free of charge, provided for a fee based on a partial subsidy, or commercially priced to cover all costs involved.
As an additional contribution from the ILO to SME development in Thailand, the ILO has agreed to fund the adaptation and translation of its Start and Improve Your Business (SIYB) training materials for use in Thailand. This is in response to several requests from the Royal Thai Government, more specificaly from the Ministry of Labour and Social Welfare (MOLSW), Department of Industrial Promotion (in the Ministry of Industry), and the SOFO Office. A Task Force is being convened to oversee the process of adaptation and translation, and membership of the task force will comprise Department of Industrial Promotion, various Departments from MOLSW, and the ILO.[Editor's update]
A total of 76 courses (including repeated courses) is listed. These cover skills training related to a number of manufacturing sectors, such as ceramics, furniture production, leather goods, weaving, welding and fibre glass products. It would seem from the titles of the courses, that the technical level would apply to small enterprises using standard technologies. Information is not available on the total number of trainees, or whether some of the training courses have been subcontracted to other organizations, or concerning the quality and impact of the courses. From the information at hand, it would seem that five of the 76 training courses have been given in the regions. This is a lower percentage than in the case of management training courses. It could be indicative of the lack of sufficient technical training facilities in the regions.
ii) Consulting services
Consulting services are provided in the following areas: finance including access to sources of funds, financial planning and financial management; personnel management; business management and marketing; and production. Twenty topics are listed under business management and marketing services, presumably reflecting the recent demand for such services. Eight topics relate to the furniture industry, three to the hotel/tourism/restaurant industry, and others to more general topics.In the area of production, over 20 production sectors are listed for which consulting services are provided. Information has not been obtained on the volume of consulting services, on the effects or impact of such services, or whether the services are provided free of charge or for a fee. It is also not clear whether some of the consulting services are provided through other organizations or private sector consultants. The existence of the Consultancy Fund suggests that some of the consulting services are provided by others for a fee, partly subsidized by the DIP's support scheme (see below for more details).
iii) Financial services
The DIP provides loans from a revolving fund directly operated by the Department, the terms of which vary, depending on the type of loan. The loan size varies from 50,000 Baht to 500,0000 Baht; the interest rate ranges between 6 and 8 per cent; and guarantees include securities and/or third party warranty. It would seem from interviews with DIP staff members that most of the loans are made by the Bureau of Cottage and Handicraft Industries Development. (Financial support for MSEs is the subject of Working Paper 4 in this series.)
iv) Laboratory services
The DIP performs laboratory tests for clients on various raw materials and finished/semifinished goods, including tests on durability and strength, chemical and Xray testing, etc. Information has not been obtained on the number of tests performed each year, or on whether the tests are provided freeofcharge or at subsidized rates.
2.1.5 Programmes and strategies proposed for implementation under the fiveyear Industrial Restructuring Plan
A fiveyear Industrial Restructuring Plan has been elaborated for the period 19982002. This Plan lists a number of major programmes of direct interest to SME development. It is interesting to review the subprogrammes for which the lead agency is the Ministry of Industry as some of them are probably under the direct responsibility of the DIP, although precise information on this matter has not been obtained. Furthermore, it is not clear which programmes have already been implemented or are under implementation. The programmes include:
(i) Establishment of institutes closely associated with the Government for the purpose of supporting targeted industries. These institutes will carry out policy research and recommend (to the Government) policies and measures aimed at responding to the immediate problems confronting these industries and at ensuring their longterm development. (It is not clear whether ISMED is one of these institutes.)
(ii) To develop the infrastructure (transport, utilities, etc.) with a view to improving the delivery of quality services to the manufacturing sector at lower prices and, therefore, increasing its global competitiveness.
(iii) Facilitating access by SMEs to quality raw materials and intermediate inputs at competitive prices. This subprogramme is to be implemented jointly with the Ministry of Agriculture and Cooperatives.
(iv) A programme for strengthening small and medium supporting industries, with two major components: (a) encouraging the local production of parts and intermediate products by amending the current regulations and procedures (e.g. tax refund procedures) and lowering import duties on raw materials and processing equipment; and (b) providing inducements and tangible advantages for using domestic parts and components (reducing the tax burden, hidden costs and complex procedures). This programme, intended to increase the competitiveness of local industries, will be jointly implemented by the MOI and the Ministry of Finance.
(v) Improving product design and packaging with a view to increasing valueadded production and responding to the requirements of international markets. Providing incentives and longterm loans for product research and development, including new products which will help save natural resources and reduce pollution. This programme will be jointly implemented by the MOI and the Ministry of Commerce.
(vi) Programme for the decentralization of labourintensive, nonpolluting industries to rural areas. This programme covers three subprogrammes:
It is expected that some of the above subprogrammes will be jointly implemented by the MOI and the Ministry of Labour and Social Welfare.
(vii) Programme for reducing industrial pollution and promoting cleaner technologies, including the reprocessing of waste material. This programme is to be jointly implemented by the MOI and the Ministry of Science, Technology and the Environment.
It is interesting to note that most of the above programmes or subprogrammes do not deal directly with SMEs' access to business development services. They refer mostly to a range of policies and incentive measures which could, indirectly, facilitate such access. The issue of business development services (BDS) is dealt with more directly in another document: Strategies for incubation and strengthening of small and mediumscale industries under the 5Year Industrial Restructuring Plan, 19982002. These strategies have been agreed upon by representatives of public and private sector agencies involved in SME development. They are
summarized below:
(i) Developing an enterprise culture through the organization of nationwide road shows and seminars to alert SMEs to the need to change and adapt to the requirements of globalization (use of a more marketdriven, customeroriented business culture), and to the availability of support and assistance from state agencies and public organizations.
(ii) Promoting industry associations and business linkages.This strategy includes:
(iii) Providing various incentives and facilitating access to financial services
This includes promoting the availability of longterm, lowinterest loans; encouraging commercial banks to increase the volume of loans to SMEs; incentives for relocation in rural areas, and promoting joint ventures.
(iv) Restructuring the management and improving the efficiency of the Small Industry Finance Corporation (SIFC).
(v) Facilitating access by SMEs to technical assistance and business services, including:
Assistance in accounting and financial systems by certified consultants.
(vi) To develop and strengthen the roles of public organizations and SME development agencies.
This strategy includes the following measures:
These strategies present a number of attractive and innovative features, especially those implying the delivery of business development services by associations of SMEs, or through the strengthening of private sector linkages. On the other hand, the proposals for the establishment of Statefunded institutes for the delivery of training, consulting and other services by the State, local agencies and educational establishments is debatable and at odds with the stated policy (see above) for "less government" and "more private sector empowerment".
Other important issues concern the implementation of the strategies. What will be the role of the private sector and that of State agencies in implementing the strategies? Will the issues of sustainability, effectiveness, outreach and impact be taken into account when implementing the strategies? Will sufficient resources be available for the effective application and implementation of the strategies, and what will be the sources of funding? It is also not yet clear if these strategies have been formally adopted in their present form, and who will be the overall coordinating agency.
2.1.6 Additional information collected through interviews with DIP officials and international organizations
i) General information on the DIP
The DIP is a Ministry of Industry Department with a clientele made up mostly of "formal" small and medium scale enterprises in the manufacturing sector. It has less dealings with enterprises in the trade and services sectors, although these sectors may be included more in the future. The clientele is approximately divided as follows: 40 per cent of owners of cottage industries and handicrafts production units (including probably some microenterprises); and 60 per cent of the personnel of small and medium enterprises, including management staff, supervisors and workers. The Ministry of Industry and Department of Industrial Promotion are currently considering working with cooperatives. Although the DIP does not apply strict rules on selecting its clients, it would seem that there are few microenterprises. Furthermore, most DIP clients are formal sector enterprises which have been duly registered with the relevant authorities.
The DIP's total staff is estimated at 1,200, with half of the staff being regular government employees and the other half made up of nonpermanent employees. Approximately 400 to 500 staff members work at the Bangkok Headquarters, while the rest work in the 11 DIP Regional Industrial Promotion Centres. The total DIP budget in 1998 amounted to approximately 700 million Baht, with 50 per cent of the budget covering DIP fixed costs (salary staff, maintenance and repair of facilities, etc.). The rest of the budget is used for DIP projects.
A recent DIP project is the establishment of a consultancy fund to help entrepreneurs access quality consulting services. Entrepreneurs are free to choose a DIP consultant or a private sector consultant. The fund covers 50 per cent of the consultancy fee, to a maximum of 200,000 Baht.The beneficiaries are small manufacturers, although the criteria are not strictly applied. The approval procedures are relatively simple. The entrepreneur describes her/his problems to DIP staff, who then prepare terms of reference for the consultancy. Bids are made by two or three consultants, and the lowest bidder is selected.
Some estimates are available on the number of clients serviced by the DIP in 1998. Some 10,000 have benefited from skills and business training (250 to 300 enterprises), provided mostly by the Bureau of Cottage and Handicraft Industries Development; consulting services have been provided to a few hundred enterprises (less than 1,000); a few hundred laboratory tests, mostly related to the testing of textile products, were also performed by the sectoral bureaux of DIP.
More detailed information on the activities of some of the DIP bureaux, which are more directly involved in the provision of BDS to small and medium enterprises, or are involved in developing policies aiming at promoting access to BDS, is provided below.
ii) The Bureau of Industrial Promotion, Policy and Planning
This Bureau is not directly involved in the provision of BDS. However, it is responsible for elaborating policies and programmes which would facilitate access to BDS by small and medium enterprises. The Bureau has been actively involved in the preparation of the SME Promotion Bill and in drafting the paper outlining the functions, legal status and funding of the Institute of Small and Medium enterprise Development (ISMED). It will probably play a major role in following up these two initiatives in the future, and this Bureau may act as the interim SME Promotion Office to be established under the Bill. Finally, the policies underlying the programmes and strategies proposed for implementation under the 5year Restructuring Plan have been elaborated under the guidance of this Bureau. It is quite clear that these policies, if fully implemented, will substantially improve access to quality BDS by MSEs.
iii) The Bureau of Cottage and Handicraft Industries Development
This Bureau is one of the few within the DIP which provides business services, training and financial assistance to both micro and small enterprises, particularly cottage industries and craft producers. The Bureau has approximately 350 staff members (35 per cent of total DIP staff), twothirds of whom are trainers. The rest includes 20 designers, 20 economists and 50 administrative staff members. Staff numbers have remained stable over the past few years. It is estimated that the Bureau absorbs and uses approximately 40 per cent of the total DIP budget (some 280 million Baht in 1998). The Bureau works mostly outside Bangkok in the rural areas and the provinces. In the past it provided assistance to rural migrants in Bangkok, although this support has recently been discontinued.
Initially the Bureau was only involved in skills training. Subsequently, it took up two additional functions provision of financial support, and promoting the establishment of small enterprise associations/groups. The Bureau also works through industrial cooperatives, especially with a view to promoting subcontracting. The Bureau is structured around three sections, dealing with skills training and group promotion, marketing handicrafts, particularly product design, and financial support.
The size of enterprises serviced, in terms of the number of persons engaged, ranges from one to 100 persons. It was not possible to obtain a distribution of the enterprise sizes served. Thus, it would seem that if the number of persons engaged is the only enterprise classification criterion, the Bureau clientele would be made of micro, small and medium scale enterprises (see Working Paper 6 on the definitions of the MSE sector in Thailand). However, if the value of registered capital is also taken into consideration, the Bureau clientele would probably include micro and small enterprises only. The relatively large number of persons engaged is probably due to the additional presence of cooperatives and associations within the Bureau's clientele.
At the time of the interview, it was not possible to obtain an estimate of the number of clients serviced annually or in 1998, the most recent reporting year.
The Bureau manages a credit scheme of 240 million Baht. Loans are provided under two separate schemes which are a dependent on the loan size:
Information was also provided on another financial scheme, whereby SMEs are provided loans of up to 1,000,000 Baht at an interest rate of 6 per cent if they agree to provide support to community development efforts. This scheme was initiated as a response to the economic crisis. No information was provided on the impact of the loans on the beneficiary MSEs. Owners of micro enterprises are not forced to register their enterprises in order to receive a loan unless the latter is over 50,000 Baht (see Working Paper 4).
The Bureau provides skills and management training courses. Skills training is provided free of charge, whatever the size of the enterprise. Management training is provided at halfcost to medium and small enterprises, and free of charge to micro enterprises. However, a definition of these sizes of enterprises was not provided, and definitions were not felt to be useful. It was stated that the charging fees still faces great resistance from the entrepreneurs, especially for services other than training. It was also stated that the Bureau often subcontracted training to other organizations, as part of its extensive networking with these organizations.
The Bureau provides support to both individual enterprises as well as to group of enterprises. Most craft enterprises tend to be individual enterprises. In general there are few, if any, associations of micro or small enterprises.
The Bureau policy is not to attempt to achieve a maximum outreach by itself, but to play mostly the role of a facilitator and to induce others to deal directly with SMEs.
iv) The Bureau of Industrial Enterprise Development
This Bureau performs three main functions: entrepreneurship development training; identification of investment opportunities and servicing investment projects (linkages with foreign investors and subcontracting arrangements); and disseminating industrial information.
It was not possible to obtain detailed information on all the above functions. However, sufficient information was collected on the provision of BDS by the Bureau, especially its entrepreneurship development programme.
The Bureau's Entrepreneurship Development Programme (EDP) started in 1980, and covers the whole Kingdom. A few thousand existing and potential entrepreneurs have benefitted from this programme. The EDP covers seven major types of activities.
The EDP runs workshops for existing and potential entrepreneurs over a threeweek period. These workshops use games, lectures, discussion groups, factory visits, visual aids, etc. The trainers and lecturers originate from the public and private sectors and universities, or are themselves successful entrepreneurs. Followup is provided in the form of consulting and technical services for selected projects. It includes feasibility studies, financial and technical assistance, marketing studies, etc. Efforts are also made to form groups of entrepreneurs in each province with a view to promoting business linkages. The EDP works closely with the DIP Regional Industrial Promotion Centers. The EDP also covers specific manufacturing sectors, in collaboration with the DIP Bureau of Industrial Sector Development and the MOI sectoral development institutes.
It has not been possible to obtain information on the overall impact of the EDP. The only information it was possible to obtain is that, during the period 1980 to 1998, the Bureau organized 63 EDPs in 24 provinces. They benefitted altogether 1,971 new and existing entrepreneurs.
In 1997, a new fouryear project was initiated within the Bureau with the financial assistance of the Federal Republic of Germany and the technical assistance of GTZ: the Smallscale Industry Promotion Project (SSIPP). This project integrates the GTZ/CEFE entrepreneurship training approach and that of the of the Bureau's EDP. CEFE was first introduced in Thailand as a pilot project within DIP in the form of a Technopreneur Development project which aimed at promoting a new breed of Thai entrepreneurs with technical, vocational and engineering background. SSIPP covers currently two pilot areas the Upper North and the Lower Northeast regions of Thailand. The project is headed by the DIP DirectorGeneral as Project Director. It has a steering committee composed of representatives of all DIP Bureaux. This committee is in charge of supervising the project's progress and conceptual development. A SSIPP management team at DIP coordinates and plans activities in cooperation with the regional SSIPP teams. The latter are made up of representatives of DIP Industrial Promotion Centers and other local BDS providers.
The main project objective is to promote the development of regional small industries in selected provinces of Thailand. This is to be achieved through two complementary approaches: improvement of the quality of BDS provided to enterprises in the industrial sector; and enhancing the effectiveness of the BDS network. By the end of the project, MSEs in the selected provinces should have benefitted from the EDPCEFE entrepreneurship training programme, and should be able to access quality services provided by DIP and local BDS providers, the capacity of which would have been enhanced through this project (provision of a wide range of needsoriented services to an increasing number of clients). It is also hoped to establish an effective network of BDS providers in the selected provinces.
The entrepreneurship development training aims at unlocking the capacity of potential entrepreneurs to plan, start and manage their businesses successfully, and at enhancing the capacity of existing entrepreneurs to improve, expand or diversify their businesses. Various training packages are adapted to suit the unique requirements of different target groups. The project implements four major types of activities:
It is still too early to assess this project. However, it has a number of attractive features, especially the project objective of improving the capacity of local BDS providers in the private sector. On the other hand, it is not clear whether one of the project components, namely the improvement of DIP's BDS delivery capacity, is in line with the current MOI policy to transfer the DIP BDS delivery function to the private sector and local organizations. However, during an interview with members of the project team, it was emphasized that the project relies mostly on local service providers in areas where DIP is not present, such as Chambers of Commerce and universities. It was noted that DIP was changing its role from a direct business service provider to one of a coordinating agency and a facilitator. It was also shedding its traditional approaches and using new management techniques.
v) Bureau of Industrial Sector Development
The main objective of this Bureau is to promote small and medium size industry in a number of industrial sectors through technical assistance, training, information and other services. The Bureau has initiated activities relating to a wide range of industrial sectors, including furniture, ceramics, agroindustry, mold production industry, fiberglass industry, textiles, jewelry, etc. The Bureau provides three main types of services to enterprises: (i) consulting services, (ii) business and technical training, and (iii) laboratory testing. These services are, at times, provided in collaboration with other DIP Bureaux and/or DIP Regional Industrial Promotion Centers.
The Bureau also produces profiles on specific industries (e.g. leather goods, ceramic products), maintains statistics on enterprises and employment in some sectors (e.g. textiles sector), and prepares studies on trends or problems of selected industries. It was not possible to obtain information on the clientele of the Bureau, the volume of services offered, or the impact of these services. There is also the issue of potential overlap between the activities of this Bureau and those of the sectoral institutes associated to the MOI, such as the National Food Institute and the Thailand Textile Institute.
vi) Bureau of Supporting Industries Development
This Bureau's two main functions are to enhance the capacity of industries which produce equipment, packaging materials, etc required by small and medium enterprises; and to promote subcontracting. It would seem that the functions and activities of both the Bureau of Industrial Sector Development and the Bureau of Supporting Industries Development overlap with those of some of the organizations associated with the Ministry of Industry, such as the ThaiGerman Institute, the National Food Institute and the Thailand Textile Institute (see below).
2.2 The Office of Industrial Economics
The Office of Industrial Economics is a Government agency, and is part of the Ministry of Industry (MOI). While this Officeis not directly involved in the provision of BDS, it can play an important role in coordinating and promoting access to quality and sustainable BDS by MSEs since it acts as the Secretariat of the National Industrial Development Board. The Office is also responsible for coordinating and synchronizing the MOI's policy directions in accordance with Thailand's National Economic and Social Development Plan, and is in charge of monitoring and evaluating all the programmes and projects of the Ministry. Thus, the Office could contribute to the elaboration and implementation of coordinated policies for promoting the provision of BDS by both the private and public sectors.
2.3 The Industrial Estate Authority of Thailand (IEAT)
The IEAT is a State enterprise established in 1972 with the aim of helping implement the Government's industrial development policy in an orderly manner, in line with government rules and regulations, such as those applying to the protection of the environment. Under the MOI, the IEAT currently operates 26 industrial estates, either by itself or jointly with the private sector. Two types of industrial estates are available: general industrial zones and export processing zones. Other industrial estates are operated by the private sector. The IEAT has established a onestopservice centre in each estate. These centres offer a wide range of services: the securing of all the necessary permits; information and advice on investments, tax and other incentives, factory design, etc.; after sale services; marketing assistance; and other useful services. The estates provide a good physical infrastructure to the tenants.
While it was not possible to obtain precise information on the clients of the industrial estates, it would seem that most of them are mediumsized enterprises. It is not clear whether the IEAT has adopted an active policy for attracting small enterprises. If not, such a policy would be of interest to both the small and large enterprises in view of the mutually beneficial linkages which could be established between them.
2.4 The Foundation of Thailand Productivity Institute (FTPI)
The FTPI was established in 1994 as a foundation under the Ministry of Industry, and enjoys a large degree of autonomy. It was originally part of the Ministry of Industry, but has since moved out of the Ministry, albeit with few original staff only five to six staff members moved to the new foundation. The FTPI operates under the aegis of a board of directors made up of representatives of the MOI, other government agencies and the private sector. FTPI functions are similar to those of national productivity organizations. It aims to establish itself as a leader in all productivity matters in Thailand. Using highly selective recruitment criteria, it has recruited highly qualified staff members who are payed higher salaries than those in the government service. The benefits enjoyed by the staff are similar to those provided in the private sector, except that they do not receive performancebased bonuses.
The main functions of FTPI include:
2.4.1 FTPI staff
The FTPI has 150 staff members 80 consultants, 20 research and development staff (R&D), and 50 administrative staff. Altogether, 80 per cent of the professional/technical staff is involved in consultancy work and 20 per cent in training.
2.4.2 Clientele
The FTPI clients include small enterprises (less than 50 workers) and medium enterprises (50200 workers). However, the proportion of small enterprises is very small. The average number of workers in its client enterprises is 150. The main reason for the limited representation of smaller enterprises is that many cannot afford the fees. Recently, an attempt has been made to attract more small enterprises by providing training and consulting services to groups of 10 small enterprises. Small enterprises which benefit from the DIP Consultancy Fund are also potential clients of the FTPI. For example, the consulting fee for a group of 10 small enterprises (100,000 Baht) is split equally between the Consultancy Fund and the group. Thus, each small enterprise need only pay 5,000 Baht.
In 1998, 130 companies benefitted from consulting services, as well as a range of training programmes covering thirty different topics. A total of 30,000 trainees participated in the training programmes. In addition to inhouse trainers, outside trainers are used from time to time.
2.4.3 FTPI structure
The FTPI is made up of the following main departments:
i) Consulting services department, divided into two sections:
ii) Training department for training of the owners of enterprises and their employees, and training the clients of the consulting services department.
iii) Promotion department for marketing services, awareness of the importance of productivity, etc.
Currently, the FTPI focuses on four main sectors: the automotive sector; agroprocessing; electronics; and leather/footwear.
2.4.4 Feedback from clients
According to FTPI sources, the clients who benefitted from consulting services for productivity improvement were satisfied by these services but considered the fees too high. Clients who participated in the training courses were generally satisfied
2.4.5 Financial sustainability
The FTPI charges a 100,000 Baht consultancy fee for helping clients increase productivity. The duration of the consultancy is, on average, four months. The services are provided by two consultants who handle three jobs at the same time. Currently, this fee barely covers the salaries of the consultants. For inhouse training the fee is 20,000 Baht per day, with a training period of one to three days. Training is usually provided for groups of 30 to 50 persons. Altogether, FTPI seems to provide useful services in the area of productivity improvement. Its current clientele is mostly made up of medium enterprises. The relatively high fees and other unspecified reasons prevent FTPI from servicing a larger number of micro small enterprises (MSEs). It is important that a solution be found in the future to correct this imbalance. The fact that FTPI aims to achieve full financial sustainability by year 2002, clearly shows that this objective could also be achieved by other institutional nongovernmental BDS providers in Thailand.
The FTPI budget for the first five years (19941999) is fully covered by the Government, after which funding will be gradually reduced. FTPI estimates that it should become financially sustainable by year 2002.
2.5 The ThaiGerman Institute (TGI)
The TGI was established in the MOI with the technical and financial assistance of the Federal Republic of Germany, and in collaboration with the Federation of Thai Industries. TGI has been granted independent status as a notforprofit organization and has its own steering committee. Its mission is to effectively support the transfer of advanced technologies to Thai manufacturing industries in order to improve their competitiveness in international markets. Its objective is to be a centre of excellence providing Thai manufacturers with: (a) further training of company employees, focusing on the transfer of high technology suited to the company's needs; and (b) consulting and other services, such as the supply of technical information, HRD advice, skills testing, etc.
Training is provided in the form of modular training courses each lasting three to five days, as well as training in a simulated factory environment, and small group training. In addition to training and consulting services, TGI helps manufacturers improve production and quality through what it calls "industrial projects", which put advanced equipment and high engineering skills at the disposal of the manufacturers.
The TGI complements, to some extent, the work of the FTPI by providing services to improve productivity in various engineering fields, and training in the acquisition of advanced technical skills. It has not been possible to obtain information TGI clientele. It would seem, however, from the content of the courses that it is probably made up of medium and large enterprises. Training courses are provided for a fee (e.g. 16,800 Baht per participant in a fiveday training course in tools and die technology). It is not clear whether these fees fully cover the cost of the courses, and the extent to which TGI is subsidized by the Government and/or the Federal Republic of Germany.
2.6 The Thailand Textile Institute and the National Food Institute
These two institutes were previously agencies of the MOI, and recently became semiautonomous bodies under the Industrial Development Foundation.
The National Food Institute has the following functions: providing consultancy services; organizing seminars and training courses for entrepreneurs in the food industry sector; and providing technical information and services which include quality control testing, carrying out research and development (R & D), as well as technology transfer. These functions are performed by three main departments: the Technological Services Department; the Information Services Department; and the Laboratory Services Department.
The Thailand Textile Institute provides technical services. It also organizes training courses and seminars, and carries out research and testing services for entrepreneurs in the textile sector. Other services include the supply of data and information on trade, production, investment, and manufacturing technology, as well as information on current issues concerning the textile industry worldwide.
2.7. The Institute for Small and Medium Enterprise Development (ISMED)
ISMED was officially established in June 1999 as a joint initiative of the MOI and the Thammasat University, to respond to the high priority attached by the government to small and medium size enterprise development. Although this new structure will be independent of the MOI, it is discussed in this section because it has been initiated, to a large extent, by this Ministry. This initiative will have important repercussions particularly on the current mandate and functions of the DIP.
A large number of government agencies, educational institutions and private sector organizations will be involved in the operations of ISMED. Thus far, the designated collaborating agencies are:
It is anticipated that other educational establishments and specialized institutes will join the above group of collaborating agencies in the future.
2.7.1 Key functions of ISMED
ISMED will perform the following main functions by itself or within a network of partners involved in MSE development:
2.7.2Target clientele of ISMED
It is anticipated that the target clientele of ISMED will include SME personnel, including in particular the owners of SMEs, the middle management staff and technical staff; SME BDS providers, such as business consultants and technical experts, and students and graduates wishing to choose entrepreneurship as a career option or to become SME advisers.
ISMED will use innovative training methods, with more emphasis on helping trainees acquire practical tools rather than theoretical knowledge. A wide range of consulting services will be provided. ISMED will also promote associations of SMEs and business linkages, and promote networking of agencies involved in training and the delivery of business services in order to maximize the outreach, effectiveness and impact of ISMED activities. The sources of ISMED funding will include the SME Promotion Fund (see below), private sector contributions, grants from foreign donors, and training and services fees.
It would seem, from the above description of ISMED's objectives and functions, that it will take over some of the functions of DIP (in particular, those of the Bureau of Industrial Enterprise Development). It will produce training materials (e.g. training curricula for SME owners, managers and people who provide business and financial services to SMEs), and promote the development of consultants specialized in diagnosing enterprises, etc. This issue is discussed in a later section of this report.
2.8 The SME Promotion Office
The establishment of an SME Promotion Office is being considered under the SME Promotion Bill approved by the Cabinet on December 22, 1998. In common with ISMED, the SME Promotion Office would be independent of the MOI; however it is discussed in this section for the same reason as ISMED was because it could have significant repercussions for the current mandate and work of the DIP. This Office would act as the Secretariat of an SME Promotion Committee, to be chaired by the Prime Minister, with the Minister of Industry as cochairman and the Ministers of Commerce, Agriculture and Finance as committee members. The Director of the new office would be the Committee Secretary. The Committee would have a total of 25 members, with at least 12 members from the private sector, including at least three regional SME entrepreneurs.
The key responsibilities of the Committee will include:
The SME Promotion Office would have the status of a "special executive agency" i.e. a semiautonomous governmental agency. Its responsibilities would include, among others, recommending a definition of SMEs to the Committee, coordinating the formulation of an SME Promotion Action Plan, preparing the SME Status Report, and managing an SME Promotion Fund. The Office would be empowered to carry out lending, make investments, hold shares, and provide financial assistance to SME promotion agencies. It is not clear whether the Office will also make loans directly to SMEs.
The Office is expected to work under the aegis of an Executive Committee chaired by the Permanent Secretary in the Ministry of Industry, with the Director of the Office acting as the Secretary of the Committee. The latter Committee would consist of 15 members, five of whom should be appointed by the private sector. The DIP is expected to act on behalf of the Office during an interim period to be determined.
It would seem that the SME Promotion Office will not be directly involved in the provision of financial assistance to SMEs. The SME Promotion Fund will instead be used for funding agencies involved in SME development, such as ISMED. It would also seem inevitable that the Office will take over some of the functions of DIP, especially those of the Bureau of Industrial Promotion, Policy and Planning. The establishment of ISMED and of the SME Promotion Office raises obvious questions on the future role and functions of DIP.
2.9 The provision of BDS by the Ministry of Industry: Overall findings and issues to be addressed
This section reviews and assesses the findings on the current and expected delivery of BDS by the various agencies within the MOI, as well as those closely related to the Ministry, such as State enterprises, institutes, ISMED and the SME Promotion Office. These findings are based on information which the consultant was able to collect from available documents, as well as from interviews with a number of Ministry officials. However, time and other constraints did not allow the collection of detailed information on the BDS activities of some of the agencies, or a full assessment of their outreach, impact and sustainability. Therefore, it would be useful for those directly interested by these findings, such as the concerned officials within the Ministry of Industry and especially officials from the DIP, to review these findings with the purpose of correcting possible inaccuracies and omissions. These findings constitute the basis for the recommendations which are made at the end of this report for improving and rationalizing the delivery of BDS by the MOI and its associated agencies.
2.9.1 Geographical and sectoral coverage
With the exception of the DIP Bureau of Cottage and Handicraft Industries Development, which is only active in the regions outside Bangkok, all MOI organizations (including ISMED and the SME Promotion Office) are supposed to cover the whole Kingdom. However, the human and financial resources of these organizations (e.g. FTPI, the Bureau of Industrial Enterprise Development or ISMED) would not allow them to cover the whole country by themselves. Therefore, many such organizations collaborate with the DIP industrial promotion centres, regional universities and other BDS providers located in the regions, with a view to extending their services to micro and small enterprises outside Bangkok.
In view of the MOI's mandate, all the organizations under the direct responsibility of the Ministry are supposed to deal exclusively with enterprises in the production sector. Thus, the expertise available within the MOI is mostly of interest to enterprises within this sector. Therefore, it can be deduced that the MOI covers only 25 per cent of all enterprises, the remaining 75 per cent of the enterprises being outside its mandate i.e. those enterprises in the services, trade, hotels/restaurants and transport sectors. (For more details on these percentages, see Working Paper 6 on the definitions of the MSE sector in Thailand). However, through interviews with MOI officials, it would seem that the Bureau of Cottage and Handicraft Industries Development provides services to handicraft traders, although producers constitute the majority of the clients.
ISMED, which was officially established in June 1999, will provide assistance and services to enterprises in all sectors. It may be noted that the members of the Board of Directors of this institute is made up of representatives of a number of ministries, as well as those of various private sector organizations. Similarly, the SME Promotion Office will cover enterprises from all sectors, although the functions of this Office are temporarily implemented by the DIP.
Therefore, with the exception of ISMED and the SME Promotion Office, which are not strictly under the only authority of the MOI, this Ministry is to a large extent responsible for enterprises in the production sector only. It will be shown later that enterprises in the services, trade and transport sectors receive very limited institutional support in the area of business development services (BDS).
2.9.2 Clientele
The clientele of most organizations within the MOI is made up of formal, small and mediumsized enterprises, with the average size of the small enterprises probably closer to the upper limit of 49 workers than the lower limit of 5. The percentage of microenterprises in the MOI clientele is probably very low. Information at hand indicates that it is mostly the Bureau of Cottage Industries and Handicraft which provides support and services to these enterprises. Furthermore, most client enterprises are part of the formal sector, although there are no specific policies preventing informal sector enterprises from receiving assistance and support form the Ministry. Therefore, the potential MOI clientele covers at most 10 per cent of the total population of enterprises in the production sector, since it is estimated that informal sector enterprises make up 90 per cent of this sector (see the section relating to the informal sector in Working Paper 6 on the MSE sector in Thailand). This potential clientele is estimated at 60,000 enterprises out of a total of 600,000 enterprises within the production sector. If we include enterprises outside the manufacturing sector which are not covered by the MOI mandate, the total potential clientele of the MOI may drop to approximately 3 per cent of all enterprises.
The MOI clientele also includes groups/associations of small enterprises, as well as cooperatives. However, there is not a large number of industrial cooperatives or associations of small enterprises in Thailand.
2.9.3 The MOI outreach in the provision of BDS
To the extent that the above statisticsare reliable, the total potential clientele of the MOI with the exception of ISMED, is approximately 60,000 enterprises in the production sector. What is the proportion of these enterprises actually reached by the Ministry on a regular basis? An attempt has been made to estimate this outreach on the basis of information collected through interviews with a number of MOI officials. However, it was not possible to get a precise estimate of the proportion of enterprises serviced by the Ministry because records on the clients of some of the MOI organizations were not readily available. Estimates on the total number of MOI clients are provided separately for Bangkok Metropolitan Administration (BMA) and the regions, but it is possible that there is some overlap between these estimates. For example, the estimates provided for the DIP Bureau of Cottage and Handicraft Industries Development probably concerns the regions only. Estimates on the number of clients serviced by the DIP for 1998 are provided below:
An estimate of the number of FTPI clients is also available. As indicated earlier, in 1998 FTPI provided consulting services to 130 enterprises and ran 30 different types of training courses, catering in total for approximately 30,000 trainees from 150 to 200 enterprises.
It was not possible to obtain statistics on the number of clients of the other DIP bureaux, such as the Bureau of Supporting Industries Development or the Bureau of Industrial Sector Development. Similarly, statistics on the clients of the National Food Institute and the Thailand Textile Institute were not readily available. Considering that these organizations provide fairly specialized services to mostly the larger small and medium enterprises, the number of clients per year is unlikely to exceed 2,000 enterprises for both institutes.
Excluding the financial services provided by the Bureau of Cottage and Handicraft Industries Development, the total number of enterprises which benefited from business development services provided by the MOI organizations, including those closely related to the Ministry, probably does not exceed 3,000 to 4,000 enterprises. This number includes medium and large enterprises. Thus, the total number of micro and small enterprises should be somewhat lower. Altogether, it would therefore seem that the MOI every year reaches 5 to 7 per cent of its potential clientele of 60,000 enterprises in the production sector. According to this consultant's extrapolations, this corresponds to 0.5 to 0.7 per cent of the total number of enterprises in this sector. If one were to include enterprises in the services and trade sectors, this percentage would be further reduced to approximately 0.2 per cent.
ii) Business development services (BDS) provided by the staff of DIP Regional Industrial Development Centres
DIP operates 11 regional industrial development centres (RIDCs) with a total of 700 to 800 staff members. It is estimated that 400 staff members are fully involved in training and the provision of BDS. It was not possible to obtain the number of clients serviced by each RIDC. Therefore, it was necessary to obtain estimates of the number of clients based on educated estimates of the number of clients which could be serviced each year by a staff member. International experience shows that, in the case of services provided to individual clients, this number may not exceed 60 clients per year. This estimate takes into consideration repeat visits to the clients, time spent for training courses, consulting services, and transport, as well as the time required to study the client's case. Thus, under the best circumstances, the total number of clients serviced by the 11 RIDCs is unlikely to exceed 25,000, unless a large proportion of the services are provided on a group rather than on an individual basis. This number corresponds to approximately 3 per cent of the total number of enterprises in this sector.
To summarize, the outreach of the MOI in the provision of business development services is at best 3 to 4 per cent of the total number of enterprises in the production sector. The percentage of micro enterprises and the lower end of the small enterprise sector is probably much lower. If enterprises in the trade and services sectors are included, the percentage of enterprises serviced by the MOI may be lower than 1 per cent.
Some officials from the MOI agree that the Ministry's outreach is very limited. They see the role of the Ministry as one of a promoter of BDS providers, rather than that of a direct service provider. Indeed, this is the official policy line clearly stated in a number of policy documents of the Ministry. However, this is a recent policy which has not yet been actively and systematically applied. The key issue is whether there are sufficient private sector and/or notforprofit BDS providers in Thailand who could expand their clientele with support from the Ministry, or whether it would possible to promote a larger number of these BDS providers with the resources available to the Ministry. Another issue concerns the demand for BDS by MSEs, as well as their willingness to pay the full or part of the cost of the services. The recent experience of FTPI shows that while MSEs may be willing to pay for training costs, they are less willing to pay for other business services. The Consultancy Fund operated by DIP attempts to solve this problem by subsidizing the provision of BDS. However, it is too early to conclude whether this approach will succeed in increasing both the demand and supply of BDS. Thus, the issue of outreach is closely related to that of financial sustainability of BDS providers. This will be discussed later in this report.
2.9.4 Range of business development services provided by the MOI organizations
The Bangkokbased MOI organizations provide a wide range of business development services. These include skills and business training; the collection and dissemination of information of interest to enterprises; a wide range of consulting services; services for improving productivity; marketing assistance; assistance in establishing business linkages, especially subcontracting arrangements; and special services, such as laboratory tests and the provision of technical assistance. Some of these services are provided by only some of the MOI organizations, while others are provided by most of the organizations. Lately, they have also included support and training for BDS providers, including NGOs and other notforprofit organizations. Most of the MOI organizations have produced training materials and developed methodologies and guidelines to support their BDS activities. It has not been possible to review and assess these materials and guidelines.
Although it was not possible to review the types of BDS provided by the staff of the 11 DIP RIDCs, it is expected that the range of BDS provided by these centres is much narrower than that provided to enterprises in Bangkok. While the overall range of business development services is fairly complete, it would seem that it is not based on an assessment of demand. Thus, it is not clear whether the training curricula or the types of consulting services provided to enterprises are in line with the needs of the potential clients. This question may not be easily answered because the services are provided mostly free of charge, and it cannot be ascertained whether they are in fact demanddriven.
2.9.5 Duplication of functions performed by MOI organizations
Another issue is the possible duplication of functions performed by the various MOI organizations. Table 1 summarizes the functions of these organizations and indicates that some duplication is probably present. Thirteen organizations are listed, along with 12 separate functions. For illustration purposes, FTPI and TGI are listed in the same column in view of the close similarities of their functions. All functions seem to be carried out by at least two organizations, as indicated below:
The above review of the functions performed by the various MOI organizations shows that there may be some duplication of the BDSrelated functions by all organizations. However, the extent of any duplication is not known because this would require detailed information on the activities actually carried out by each organization under each function. Furthermore, it could be difficult to eliminate some of the duplication if the functions are performed by organizations which are not under the full responsibility of a single body (e.g. a function performed by a Bureau of DIP, a State Enterprise or ISMED).
There are two main reasons for avoiding any likely duplication of functions. First, it may lead to a wasteful use of limited financial and other resources if the organizations concerned compete for the same clientele. Second, it may result in the development of different and confusing approaches and methodologies by the various organizations. These two reasons may apply in the case of Thailand, although their actual impact on the use of available resources may not be easily estimated.
2.9.6 Impact of business development services provided by the MOI organizations
While it is widely recognized that the availability of quality business development services can help improve the performance of enterprises, it can be difficult to assess the actual impact of these services. If services were provided at a nonsubsidized fee, an increase in demand for services would be a clear sign from the "market" that the services are appreciated, presumably because they helped entrepreneurs improve the performance of their enterprises. Thus, an increase in the demand for BDS should mean that, on average, the services do yield a positive impact, and that benefits attributed to them are larger than their cost.
However, it was shown earlier that most MOI organizations provide services and training either free of charge, or at highly subsidized fees. Thus, even if there is an increase in demand for BDS, one cannot conclude that the services are having a significant and positive impact on the beneficiary enterprises. In any event, precise statistics on the number of BDS clients over the years do not seem to be available. It is, therefore, difficult to estimate trends in demand for BDS. Under these circumstances, a reliable assessment of the impact of BDS would require the carrying out of sample surveys of enterprises which accessed the BDS provided by the MOI organizations, as well as of enterprises which did not access these services (these enterprises would constitute the control group). These surveys should be carried out before and after the provision of BDS to the enterprises in the sample and should focus on a number of indicators of impact, such as the increase in the volume of sales and in the number of employees, new investments, access to new markets, etc.
It does not seem that the MOI organizations have carried out this type of surveys. According to the consultant's findings, the only organization which attempted to get some feedback from clients is FTPI, but such feedback may not be considered as a reliable estimate of impact. Firms which benefited from training provided by FTPI indicated that they appreciated the training, and those which were provided consulting services felt that the cost was too high. These responses from the firms are helpful, but do not constitute a complete measure of impact. [Elsewhere, the DIP reported that it had carried out at least two evaluations of its small enterprise training programmes, the most recent of which was conducted by Chiang Mai University Editor's note]
2.9.7 Costeffectiveness of services provided by the MOI organizations
Another important issue is the costeffectiveness of the services provided by the MOI organizations, even if the full costrecovery of these services is not a major issue. The question is whether the limited resources available to the MOI organizations can be used differently for greater outreach or impact. To answer this question would require an indepth assessment of the procedures and methods used by these organizations. Time and resource constraints did not allow such an assessment. Thus, a different approach was used to assess costeffectiveness in the case of DIP, based on information on the 1998 budget of this organization. While this approach may be less reliable than the previous one, it should provide some useful clues on the costeffectiveness of the services provided to enterprises.
The approach compares the direct provision of BDS by DIP staff to that of channelling available resources through other BDS providers. The DIP has recently started channelling resources through other BDS providers in the context of the recently established Consultancy Fund (see information on this Fund provided earlier). This technique compares the number of clients reached through the direct provision of BDS by the DIP, to that which could be reached if resources were fully channelled through other BDS providers. The DIP budget in 1998 is approximately 700 million Baht (it is not clear whether this budget includes all grants from the government and donor funds). Information provided by DIP officials indicates that approximately 350 million Baht may be considered as contributing to the fixed costs of the organization, and 350 million Baht are used for the approved projects and programmes (i.e. they may be considered as constituting the variable costs). It is assumed that the 350 million Baht are used for the provision of BDS and the production of BDSrelated materials. It was shown earlier that the total outreach of DIP is estimated at around 28,000 clients per year. Thus, a rough approximation of the cost per client may be estimated at 12,500 Baht.
Information obtained from the FTPI on the newly established Consultancy Fund indicates that small enterprises are willing to pay part of the cost of the services if the rest is covered by the Fund. For example, FTPI provided services and training to groups of 10 small enterprises at a cost of 100,000 Baht, with 50,000 Baht covered by the Fund and the rest by the enterprises, at 5,000 Baht per enterprise (i.e. use of a 50 per cent subsidy). Thus, this example indicates that it may be possible to reduce the cost of services per client from 12,500 Baht to 5,000 Baht, leading to more than a doubling of the outreach of DIP with the same available resources. Even if the level of subsidies were to be lowered, the level of outreach would still be higher. Furthermore, other BDS providers may apply cheaper fees than FTPI, and the fee for microenterprises could be even lower. Although the approach used to assess the costeffectiveness of DIP services may not be fully reliable, it does suggest that a shift from the direct provision of BDS to one of sponsoring other BDS providers, in line with the recent MOI policy on this issue, could significantly increase the costeffectiveness of the provision of BDS.
2.9.8 Financial sustainability of MOI organizations involved in the provision of BDS
The issue of financial sustainability raises a number of questions. Is financial sustainability a desirable objective to be achieved by all institutional BDS providers? Is it realistically achievable? If not, should organizations strive to reduce the level of subsidies? These questions will be dealt with indepth in a later part of this report. At this stage, international best practices indicate that financial sustainability is a desirable objective because it would ensure that the provision of services is truly demanddriven, that services are appreciated and could have a significant positive impact on the enterprise, and that they are provided in a costeffective manner; financial sustainability could be reached under specific conditions, in relation to some of the services and for certain groups of enterprises; and a level of subsidy could also be justified for some of the other services and groups of enterprises.
Table 1 provides information on the fees charged by the MOI organizations and on their potential to achieve financial sustainability. In the case of the DIP, information at hand shows that none of the bureaux involved in the provision of BDS has reached financial sustainability. Indeed, all of them are far from achieving this objective, although fees are applied for some of the services provided. Information was not available on the Thailand Textile Institute or IEAT. ISMED has just been established, and it is too early to say if it would reach financial sustainability. However, information on its future sources of funding indicates that it will heavily depend on subsidies from various ministries, and grants from donors and the private sector. In the case of FTPI, current plans are for this Institute to achieve financial sustainability by year 2002. Although it is too early to conclude that this objective will be actually reached, the existence of such plans does indicate that the managers of FTPI have this objective in mind. The National Food Institute also plans to achieve financial sustainability in the future. The TGI does charge fees for its training and consulting services, but it was not possible to obtain information on whether this organization has achieved some level of financial sustainability, or whether it plans to achieve this objective in the near future.
2.9.9 The future of the DIP following the establishment of ISMED and the SME Promotion Office
The establishment of ISMED and the SME Promotion Office will directly affect the future of the DIP. As indicated earlier, many of the current functions of some DIP bureaux will be performed by these new organizations. With time, the apparent duplication of functions will become more obvious. This issue will be discussed in a later part of the report. However, it is clear that the main focus of the DIP on enterprises in the production sector puts it at a disadvantage visavis ISMED and the SME Promotion Office which cover enterprises in all sectors.
3. The provision of BDS by other government agencies
This section reviews the BDS activities of other government agencies. This review will not be as extensive as that of the Ministry of Industry because most of the other government agencies have little involvement in the provision of BDS to MSEs. Indeed, most of them are mainly involved in the delivery of financial services in the form of small loans (these services are dealt with in Working Paper 4 prepared under this ILO/UNDP project). It would also seem that the clientele of organizations, such as MOLSW, is mostly made up of groups of people involved in income generating activities, rather than in businesses with growth potential. Therefore, it is not clear whether these organizations' activities may be considered as "enterprise development" activities or "social welfare" activities. [In any event, their support is being provided to promote and assist enterprise activities Editor's note]
3.1 Ministry of Labour and Social Welfare (MOLSW)
The three ministry departments involved in BDS activities are the Department of Skill Development (DSD), the Department of Public Welfare (DPW) and the Department of Employment Services (DoE). The DSD plays a major national role in skill development through the training of people entering the labour force and upgrading the skills of those already in the labour force or seeking new employment. The DPW is marginally involved in the provision of BDS through the implementation of income generating and microenterprise support programmes for poor and other disadvantaged and marginalised people. The DoE provides information and guidance on selfemployment as a career option for unemployed persons.
3.1.1 The Department of Skill Development (DSD)
The DSD's main mandate is to develop the skills required for the sustained development of private and public enterprises in all sectors of the economy which will help the country face the challenges of globalization and increasing international competition. The result should be the creation of a large pool of semiskilled and skilled labour force which will help enhance the productivity and competitiveness of enterprises and the quality of their output, in line with local and international demand. Training programmes and curricula should also be carefully planned to meet the demand for skills by enterprises.
The DSD does not intend to achieve the above objectives on its own. It has established close collaboration with the Ministry of Education with a view to ensuring that future DSD trainees have the basic education needed to allow them to develop advanced skills. It has also adopted policies to induce the private sector to play an active and complementary role in skill training. Tripartite national and provincial committees have been established for this purpose. Their main functions include the elaboration of comprehensive skill training plans, sharing information on training needs, and pooling training resources. Fiscal incentives are also provided to employers who initiate comprehensive training programmes within their enterprises. The main training centres of DSD include a central institute for skill development, regional institutes for skill development and provincial centres for skill development.
In 1997, DSD initiated a large modernization programme with funds from the Government and a loan from the ADB. The objectives of this fiveyear programme are to improve the quality and relevance of the skills development system, to selectively expand and improve the training capacity, and to enhance the institutional capacity of the DSD. The ADB loan is being used to acquire modern training equipment related to training in a range of the sectors, including machining, welding and sheet metal fabrication skills, automotive skills, electrical and electronics skills, computer and software skills, and textile and upholstery skills.
It is not known if some of the DSD trainees establish their own businesses after completing their training. Similarly, it is not certain whether micro and small enterprises are important beneficiaries of DSD skill development programmes. It is clear, however, that DSD plays a very important role in the growth and competitiveness of Thai enterprises by helping develop the required technical skills. For more information on DSD's role in MSE development, it would require a sample survey of DSD trainees in order to find what proportion of the trainees established their own businesses, and the proportion that was hired by small enterprises. Another issue is whether the DSD should adopt separate policies for adapting skill training to the needs of the MSE sector, and skill training adapted to medium and large enterprises. It is clear, however, that the DSD plays a very important role in the overall growth and competitiveness of Thai enterprises by helping develop the required technical skills.
[The DSD has also provided BDS in the form of entrepreneurship development training programmes (EPDs) over the past 10 years or so, although recent reports indicate that the success rate for getting trainees into business has been declining in the past two years. It has also produced a very interesting video showing the range of activities that can be taken up by micro and smallscale enterprises. This video is used for training and promotional purposes Editor's note]
Finally, the review of DSD skill training activities raises the issue of possible duplication with some of the training carried out by a number of MOI organizations, including in particular the TGI, the DIP Bureau of Cottage and Handicraft Industries Development, the Thailand Textile Institute, and the National Food Institute.
3.1.2 The Department of Public Welfare (DPW)
The DPW is a BDS provider as it has recently started microenterprise development activities which include the delivery of both financial and business services. Some of these activities have been carried out with assistance from the ILO. However, it should be emphasized that DPW is mostly involved in the delivery of a wide range of social welfare services, and the DPW microenterprise development activities are limited in scope, and focus mostly on the delivery of small loans. The provision of business development services may be considered as a marginal yet growing activity of DPW [and undertaken mainly in response to the impact of the Asian financial crisis on its target groups Editor's note] This Department currently implements five microenterprise development schemes for the benefit of the following groups:
The main project which could be likened to a microenterprise development project is the ThaiHelpThai project. This project is managed by DPW Community Service Division. Prior to this project, DPW used to provide grants of 2,000 Baht to families in need of assistance. Following the economic crisis, it was decided to make more effective use of the available funds by encouraging people to form groups, composed of five to 10 individuals, which will then establish a microenterprise managed by the group. The basic concept is to build up a grassroots economy. Each member of the group receives a 4,000 Baht loan without the need of a guarantee. Very poor group members receive grants instead of loans. Some of the main businesses established with project support include craft production, animal husbandry, integrated farming and food processing.
At present some twothirds of the project activities take place in Bangkok (where the scheme was first launched), with the remaining activities taking place in the regions with the assistance of DPW social welfare officers. In 1998, 50 million Baht was disbursed as loans to 2,469 groups, benefiting a total of 27,000 persons. There is a large proportion of women in these groups, with 60 per cent of group leaders being women. An evaluation of the projects indicates that the beneficiaries' income was in the range of 112 to 200 Baht per day. However, the proportion of failures is high, estimated at twothirds of the beneficiaries in the Bangkok area. DPW signed a cooperation agreement with BMA for an extension of the ThaiHelpThai project. BMA provides its Bangkok vocational training centres for laidoff workers and helps establish the groups, while DPW provides the loans or grants. Advice and services to the groups is provided by both BMA and DPW. In the provinces, the project will be implemented in collaboration with the DIP's regional industrial promotion centres.
The main problem faced by the DPW is the lack of staff trained in microenterprise development who are capable of providing business training and services to the groups. Some of the welfare officers did get limited training, but this is still insufficient. One of the main problems faced by the groups is their lack of business management skills. Funds are needed for business training programmes for the group leaders. [Twenty officials from DPW were trained by the ILO in "Managing Micro and Small Enterprise Support Schemes", including training for the delivery of basic business services. This oneweek training workshop will be repeated with twenty more DPW officials in August 1999, after which the ILO and DPW will publish a Thai/English manual to support the activities of DPW and its staff in implementing these schemes. It is anticipated that the DPW trainees will train more officials in the use of this manual, the ultimate objective being to develop the capacities of sufficient staff members to cover the needs at the local level Editor's note]
The characteristics of the clientele of the DPW clearly show that the majority of its clients are from the weakest groups of society. Most of the businesses established with the financial assistance of DPW should be considered more as income generating activities, rather than fully commercial microenterprises with the potential to grow into more sustainable businesses. The only group which may be able to establish this type of enterprise with DPW assistance is that made up of laidoff workers who may have acquired technical skills in their previous jobs. For its target groups DPW is playing a very important and useful role. The development of incomegenerating activities targets people who are willing to work as salaried workers but cannot find a job, or do not have the required skills. Thus, the DPW loans and technical assistance enable these people to cover their basic needs and, therefore, contributes directly to poverty alleviation.
3.1.3 Department of Employment Services
The Department of Employment Services provides guidance and information for unemployed persons who are interested in selfemployment. It has produced a very practical handbook (now in its third edition) of useful information for people entering into selfemployment. The Department is also participating in the ILO's Task Force to adapt the ILO's SIYB training materials for use in Thailand. [Information provided by Editor.]
3.2 The Board of Investment (BOI)
The BOI's main objective is the promotion of private investments, with a special focus on foreign investments. For this purpose, it operates a onestop shop for local and foreign investors and provides various tax incentives and nontax privileges for various types of investment projects. These incentives and privileges depend on the intended sectors for investments, the location of the investments, the proportion of the output intended for exports and other conditions. In principle, the BOI's clientele includes small enterprises as well as medium and large enterprises, since the minimum level of investment capital (excluding the cost of land and working capital) has been established at one million Baht. In practice BOI's investment services are mostly provided to foreign investors and Thai investors interested in investing in foreign countries. Therefore, it would seem that few small enterprises benefit from these services.
However, the BOI Unit for Industrial Linkage Development (BUILD) is of potential interest to small enterprises. The main objectives of BUILD are:
In order to achieve the above objectives, BOI provides a wide range of marketoriented services, including comprehensive computerized information services on subcontracting in Thailand; support to foreign firms seeking sourcing networks in Thailand; investment matchmaking services to both Thai and foreign investors seeking cooperation in the areas of technology transfer, management and marketing; extensive technical and managerial assistance to local suppliers interested in establishing subcontracting relationships; detailed technical and market information on establishing supporting industries' production facilities in high potential areas; and the organization and coordination of training courses to upgrade the marketing and technological capacity of local small and medium suppliers.
In view of the stated objectives of BUILD, and the services provided under this BOI programme, it is clear that small enterprises could benefit a great deal. They may use the computerized information services to identify investment opportunities; they could benefit from BOI technical and managerial assistance in establishing subcontracting relationships with local and foreign firms; the owners of small enterprises could also enlist in BOI training courses to upgrade their marketing skills, etc. It is not clear, however, whether the clientele of BUILD includes a proportion of small enterprises, or whether the programme's contents and design are suitable to the characteristics of small enterprises. If this is not the case, BOI should seriously consider the feasibility of increasing the number of small enterprises among its clientele, and adjusting some of the BUILD programme features to the characteristics of these enterprises.
Another important issue is the possible duplication of functions performed by the BOI and a number of organizations within the Ministry of Industry. One of the main objectives of the BOI namely the development of supporting industries in Thailand under BUILD is also that of the DIP Bureau of Supporting Industries Development. Another BUILD objective the improvement of the efficiency, productivity and quality of the output of small and medium enterprises in supporting industries is also partly that of FTPI and TGI. If an extensive duplication of functions does indeed exist, the organizations concerned should reach an agreement on how this could be reduced.
3.3 The Ministry of Commerce (MOC)
In addition to being the main Ministry in charge of promoting and regulating internal and foreign trade, the MOC is responsible for business registration, all matters related to intellectual property, and for promoting and regulating the insurance sector. Two MOC Departments are of direct interest to small enterprises. These are the Department of Commercial Registration (DCR) and the Department of Export Promotion (DEP). The DCR is responsible for business registration as well as for the regulation of various businessrelated activities. The DEP is the main MOC Department offering business services to enterprises involved in foreign trade, including Thai manufacturers and exporters as well as foreign buyers. These services include:
The DEP's clientele includes mostly medium and large enterprises involved in exporting. However, its business services are available to enterprises of all sizes and could benefit associations or groups of small enterprises capable of producing sufficient volumes of goods (e.g. handicrafts) for the foreign market. Small enterprises may also benefit from consulting services on product design, and the possibility of displaying their products in the DEP exhibition halls, as well as obtaining information on market trends related to their business. However, it would seem that few small enterprises actually do attempt to take advantage of these DEP services. The main indirect beneficiaries are those small enterprises which are subcontracted by medium and large enterprises involved in the production of export goods.
3.4 Organizations partly mandated to support micro and small enterprise (MSE) development
A number of government agencies implement enterprise development programmes as a complementary activity to their other core functions. Most of them are marginally involved in the provision of BDS, the main focus of their enterprise development activities being the implementation of micro credit schemes. However, it has been decided to review some of these organizations' functions and activities because their clientele is exclusively made up of microenterprises, with a high proportion of informal sector enterprises. This is not the case of the other organizations surveyed, the clientele of which is made up mostly of small, medium and large enterprises from the formal sector with a small proportion from microenterprises or the Informal Sector.
The organizations reviewed are: the Bank for Agriculture and Agricultural Cooperatives (BAAC); the Urban Community Development Office (UCDO) of the National Housing Authority of Thailand; the UNDPfunded programme LIFE which is attached to the BMA Council; the Social Fund Office (SOFO), established within the Government Savings Bank, with the responsibility of implementing a World Bankfunded Social Capital Development project. Brief reference is also made to "Bangkok One".
3.4.1 Bank for Agriculture and Agricultural Cooperatives (BAAC)
Until very recently, BAAC was not permitted by law to make loans for nonagricultural purposes. Thus, its clientele was made up mostly of farmers, farmers' groups and agricultural cooperatives. In 1995, BAAC was allowed by the government to start a pilot project for the granting of loans to people wishing to start or expand a business in other sectors of the economy (services, trade or manufacturing). However, the borrowers must still be farmers. The first phase of this project, was implemented with the technical assistance of GTZ. In 1998, BAAC was permitted by law to make nonagricultural loans in view of the success achieved by the pilot project. BAAC management would now like to be allowed to extend loans to people who are not farmers.
The BAACGTZ project (the ThaiGerman MicroFinance Linkage Project) has two main objectives: (a) to facilitate access to loans by microentrepreneurs who are generally considered high risk clients by banks and are not usually able to get bank loans; and (b) encouraging rural people to deposit their savings with BAAC. Small loans are provided for a wide range of nonfarm activities, including retail trading, services and manufacturing. However, the large majority of loans have been used to establish businesses in the service sector. Loans are made to individual clients only, and mostly for existing businesses. Most of the clients are not registered and are, therefore, members of the informal sector.
The interest rate is a flat one per cent per month, corresponding to a 16 per cent effective interest rate. The maximum duration of the loans is 24 months. Repayments are made monthly. Prior to granting a loan, BAAC staff make a reputation check on the prospective borrower. The type of guarantee required depends on the loan amount. Usually, a guarantee may be provided by a group. For loans larger than 50,000 Baht, land must be provided as a guarantee. Over 300 loans were made during the project's pilot phase, with a recovery rate of 98 per cent. Feedback from the customers, which include a large proportion of women, is very positive. The interest rate is much lower than that applied by moneylenders. The borrowers like the monthly payments instead of the daily payments to the moneylenders. Furthermore, they enjoy a positive relationship with the BAAC extension officers, compared to the reported tense relationship with moneylenders.
The large national network of more than 600 BAAC field offices and its 13,000 staff members (including 7,000 field credit officers) should allow BAAC to extend this type of loan to a large number of people wishing to establish a microenterprise in rural areas. It is estimated that each extension officer can handle up to 300 prospective borrowers for nonfarm loans.
Some of the BAAC credit officers benefited from training provided by DIP and the SSIP. BAAC has recently established a training division to train credit officers. However, the training is limited to the assessment of loans and loan monitoring, and BAAC credit officers do not yet have the capacity to provide business training or business services to the borrowers. The capacity of BAAC field staff to handle nonfarm loans is still limited and requires further strengthening. The BAAC nonfarm loans are only available to prospective borrowers in rural areas and small towns. The provision of loans to small enterprises is currently under consideration. It has also been suggested that loans to people in urban areas could be handled by the Government Savings Bank. [The Ministry of Finance is currently exploring the possibility of extending microfinance facilities to microenterprises through the BAAC (in rural areas) and GSB (in urban areas). See also Working Paper 4 on Financial support for MSEs Editor's note]
The BAAC initiative to make loans available for nonagricultural purposes, and the presence of BAAC offices all over the country clearly shows that BAAC could become a sustainable financial services provider for a large number of microenterprises outside the major urban areas. However, BAAC should review its current policy to extend loans to existing businesses only with a view to contributing to both business creation and expansion. It is also clear that BAAC should not be directly involved in the provision of BDS, since it is not desirable for a bank to engage in this type of activity. However, it should be possible for BAAC to establish collaborative arrangements with established BDS providers, as well as to promote the establishment of new BDS providers. This issue will be further elaborated in the last part of this report.
3.4.2 The Urban Community Development Office (UCDO)
UCDO was established in 1992 under the National Housing Authority. It seeks to improve the living conditions and increase the organizational capacity of urban poor communities. Its main objectives are to support the urban poor in establishing and strengthening their community saving and cooperative groups and networks for greater financial sustainability and selfmanagement of community development projects; to provide access to loans by the urban poor at favourable interest rates and under flexible conditions, with a view to helping them to increase their income, secure appropriate housing and improve their living conditions; and to strengthen the capacity of intermediary organizations (NGOs, academics, community federations) to effectively participate in the urban development process.
Following its earlier success in urban development, UCDO decided recently to expand its activities in the area of community enterprise development. For this purpose, it has established a Subcommittee for Community Enterprise Promotion and Support to help urban communities to establish community business enterprises. The anticipated benefits of this new programme may be summarized as follows:
Unlike the BAAC microcredit programme for nonfarm activities which is limited to the provision of loans, the UCDO provides both loans and various business development services to the communities. These services include strengthening networks with a view to increasing linkages between community enterprises (e.g. between rural and urban community enterprises, and between provincial urban communities and Bangkok); strengthening entrepreneurship through the training of community enterprise managers within the enterprise management committee; training in the legal issues and procedures for running a community enterprise; and strengthening linkages with the private sector, such as major suppliers of materials and consumer goods, with a view to reducing reliance on distributors who apply higher prices for the same commodities.
While the ownership of community enterprises may vary from one community to another, currently most enterprises are 100 per cent owned and managed by community members. In general, the members purchase shares in the business and shareholders elect a committee for managing and running the enterprise. Another option currently under consideration is that members of the community enterprise could hire professional managers and allow CSOs, NGOs, private investors and community members to participate as equity holders. This option would widen the range of business activities, such as food processing, the production of construction materials, or the export of handicrafts.
At present, the number of community enterprises is still relatively small although there is an increasing interest expressed by many urban and rural communities. Examples of successful community enterprises include community retail shops (e.g. a retail shop in Romkrao Zone 8 has been so successful that it was able to repay half of the five year UCDO loan 8 months after it has been established), and a Community Handicraft Promotion Centre in Bangkok. The UCDO is also helping community enterprises to establish subcontracting arrangements with large firms. The UCDO has approximately 130 staff members who cover the whole country. This limited number of staff could constitute a constraint to the further expansion of the UCDO community enterprise programme. It is also not clear whether UCDO staff members are sufficiently qualified to provide BDS. In the short and medium term, The UCDO may test pilot the option of recruiting professionals to manage the community enterprises in cases where the qualifications of the members are not sufficient for an efficient management of the enterprise. The UCDO may also establish collaborative arrangements with other BDS providers or organizations capable of offering quality business training to the managers of the community enterprises. These and other options will be further assessed in the last part of this report.
3.4.3 The Social Fund Office (SOFO)
The SOFO is responsible for the implementation of the World Bank funded project, the Social Investment Project. SOFO manages the Social Investment Fund (SIF) established under this project. The overall objective of this project is to "transform the economic crisis into an opportunity for social reform at the urban and rural grassroots levels". More specifically, the
project will "support highly desirable reforms toward decentralization, better governance, community empowerment and the forging of broad development partnerships involving civil society" (both quotes taken from a brief description of the project). SOFO operates within the Government Saving Bank (GSB).
The SOFO component for microenterprise development relates to the community economic development objective. SOFO provides grants, rather than loans, to vulnerable groups in society with a view to increasing the group members' income and helping them cover their basic needs. Grants are provided rather than loans because the Social Investment Fund (SIF) is intended for community development, and the income generating projects funded through SOFO are intended to benefit the community as a whole, rather than selected individuals within the community. The average per group is estimated at 400,000 Baht. Groups must be made up of at least 15 members, and should have been established for at least one year. Groups can be both formal or informal. SOFO also provides funding to village level groups of 30 to over 100 members, covering four to five villages.
SOFO staff do not provide technical assistance or business development services to the groups. The technical work of the staff is limited to appraising the projects submitted by the groups. The appraisal of particularly difficult projects is subcontracted to external experts. Within the Social Capital Development criteria established by SOFO, there are few limitations on the types of projects to be funded. The groups select the projects themselves and decide whether they need training or technical assistance for implementing the projects, and select their support institutions. SOFO may provide grants for technical assistance, such as the purchase of equipment for training purposes.
Although it was originally anticipated to provide grants to 2,000 groups, it is now expected that the total number of groups will be close to 10,000 by the end of the threeyear project. [To date approximately 50 per cent of the proposals for "subprojects" are in the area of community economy. Following training provided to SOFO by ILO in 1998 in the fields of social capital development, gender issues and local economic development, SOFO has once again approached ILO for assistance in developing the capacities of provincial committee members, as well as local communitybased entrepreneurs, in community economic development Editor's note]
SOFO also collaborates with a number of what it terms as "strategic partner" organizations, such as DIP and UCDO. Comparing the SOFO and UCDO approaches, it would seem that the UCDO approach is more business oriented, because loans rather than grants are provided and the UCDO groups seem to be more structured than the SOFO groups. However, both approaches share the common goals of group formation and community development and empowerment. Considering that there are very few associations of microenterprises in Thailand, the SOFO and UCDO approaches could succeed in increasing the number of such associations in the field of community enterprises. These approaches could also be replicated by other organizations and groups if they prove to be successful.
3.4.4 Local Initiative for Urban Environment (LIFE)
LIFE is a UNDPfunded programme focussing on peoplecentred development. It is implemented in a large number of countries. The main programme activities relate to the protection of the environment, ecology and the preservation of the cultural heritage. It uses an integrated community development approach, with the members of the communities taking an active part in the formulation of community development plans, and in the monitoring and evaluation of these plans by a community assembly. LIFE is attached to the Bangkok Metropolitan Administrative (BMA) Council.
LIFE works through three types of groups, such as small activity groups (with 50 to 100 members), involved in running community shops or revolving funds for group members; community level groups, made up of 300 families; and network level groups covering half of a district. Some of the groups are officially registered, while others are informal groups. There are currently 300 groups in BMA region. The target of the programme is to reach over 1,200 communities and groups nationwide, corresponding to approximately 1.2 million people.
It was decided recently to start economic development activities for the benefit of the communities, in collaboration with the municipalities, NGOs and other organizations such as UCDO. Various groups have already benefited from these activities, including small traders, street vendors, taxi and motor cycle drivers, craft workers, groups involved in food processing, etc. UNDP's overall funding of the LIFE programme is limited (US$ 65,000 in 1998). However, the approach used by LIFE is that of a promoter of the programme concept and also that of a facilitator. Thus, the programme depends heavily on the financial and technical assistance of partner organizations.
3.4.5 Bangkok One
"Bangkok One" was established in the second half of 1998 with the support of the Bangkok Metropolican Administration (BMA). Although its main focus is on attracting and assisting largescale investors (both foreign and nationals) in Thailand, with a particular emphasis on Bangkok, "Bangkok One" is also eager to make its assistance available to new small and mediumsized enterprises being established in the capital city. It projects itself as "the logical starting point for investment in Thailand", it offers investors "a full service, starttofinish focal point for any form of business in Thailand", and it acts as "a matchmaker between the Government, the private sector and independent investors".(3) [Information supplied by Editor]
4. The provision of BDS by private sector organizations, NGOs and private consultants
In the large majority of industrialized countries, micro and small enterprises access business development services through the private sector, including private sector organizations, consultants and consulting firms. It is often forgotten that a large proportion of services are also accessed in the context of commercial transactions with their suppliers and clients. Entrepreneurs also access all types of information from specialized magazines, workshops and special events, such as fairs and exhibitions. In many countries, the media (mostly the radio) also plays an important role in helping people to find business partners in the areas of production and marketing. The BDS activities of governments in these countries relate mostly to skills and business training provided by various types of vocational training schools and specialized institutions. In recent years, governments also started to subsidize a number of organizations established for the purpose of helping unemployed people to establish microenterprises, or people looking for assistance in manufacturing and marketing a new product. Very few governments, if any, have established agencies mandated to provide business development services to micro and small enterprises.
This section reviews the provision of BDS by the private sector, including private sector organizations and consultants, as well as by NGOS in Thailand. Findings from this review will help to determine the extent to which the private sector and NGOs in Thailand are involved in the provision of BDS to micro and small enterprises, and whether they should and could play a more important role in this area, similar to that played by their counterparts in industrialized countries.
4.1 Private sector organizations
The four private sector organizations reviewed in this report are the Thai Chamber of Commerce (TCC), the Employers' Confederation of Thai Trade Industries, the Federation of Thai Industries, and the Employers' Confederation of Thailand. From the bylaws of these organizations, it does not seem that formal small enterprises are excluded from membership in these organizations, although they can only become associated members in some of them. However, a review of the information available in various publications and Web sites, as well as information obtained from interviews with representatives of these organizations, clearly shows that few small enterprises are actually represented in these organizations. Their membership is mostly made up of medium and large enterprises and/or associations of the latter, although it is possible that some nonmember small enterprises have benefited from services provided by these organizations.
4.1.1 The Thai Chamber of Commerce (TCC)
Membership of the TCC is open to all types of enterprises, including enterprises in the industry, agriculture, finance and other sectors. Its key role is the promotion of both local and foreign trade through assistance and services to members. It also acts as a lobbying body on behalf of its members. From the list of the business development services provided by TCC to its members, as well as other functions performed by TCC, the following are of particular interest to micro and small enterprises:
While it is clear that TCC does not include microenterprises as members, the extent to which small enterprises are represented in TCC or the Provincial Chambers of Commerce is not clear. TCC tends to cover the BMA region only. Thus, members must have their head office or a branch office located in BMA. "Ordinary" TCC members include Thai owners of enterprises; foreign juristic persons with Thai nationals as partners holding over 50 per cent of the shares; a trade association with over 50 per cent of the members being Thai nationals; a Provincial Chamber of Commerce; a State Enterprise, and a cooperative. To become a member, the registered capital of the enterprise must be at least 200,000 Baht. This amount is not prohibitive and should allow the large majority of registered enterprises to join TCC if they agree to pay a 2,000 Baht entrance fee and an annual fee ranging from 1,600 Baht to 3,600 Baht, depending on the level of registered capital. However, available information seems to indicate that the total TCC membership does not exceed 8,000 members, a number much lower than that of the estimated 200,000 enterprises with a registered capital of over 200,000 Baht in the BMA region. If we deduct the number of medium and large enterprises from the total number of TCC members, the proportion of small enterprises in the membership would probably be lower than 1 per cent of the total number of small enterprises in Bangkok. Information on the proportion of small enterprises in Provincial Chambers of Commerce is not available.
The main business services provided by the TCC which could be of interest to small enterprises, are the information services and some of the training courses. The other services, mostly related to export promotion, are of lesser interest to small enterprises which are not usually directly involved in exports. However, small enterprises working as subcontractors to exporters, could benefit indirectly from these services.
TCC is member of the Board of Trade of Thailand, which has similar objectives and functions but a broader membership.
4.1.2 The Employers' Confederation of Thai Trade and Industry (ECONTHAI)
ECONTHAI is a relatively small organization with approximately 300 individual members and 45 member associations. Members represent all types of enterprises in the manufacturing, trade and services sectors. Those in the manufacturing sector may be defined as medium enterprises with 100 workers and over, with a higher proportion of small enterprises in the trade and services sectors.
ECONTHAI has a small fulltime staff of three professionals, and consequently it depends on a large number of volunteers from its membership in order to implement its various activities. It also collaborates with a number of government agencies, such as BAAC, the Ministry of Labour and Social Welfare, and the Government Savings Bank to help enterprises to enroll in training courses or access financial services.
The services provided by ECONTHAI include technical advice; legal services in the event of disputes; technical and business training provided through other organizations or by hired trainers, and lobbying on behalf of the members.
The ECONTHAI official interviewed for this ILO/UNDP project felt that future MSE development programmes in Thailand should focus on the rural unemployed and the rural poor because they represent 60 to 70 per cent of the population. Training should be made available for improving agricultural practices, and assistance should be provided for projects which can yield outputs within 45 days to six months (e.g. chicken or pig raising). Skills required by the agricultural sector, such as equipment repair, should also be developed.
4.1.3 The Federation of Thai Industries (FTI)
FTI is the largest organization representing the industrial sector in Thailand. Its membership includes close to 5,000 individual firms, 27 Industrial Clubs and 45 Provincial Chapters. FTI membership is open to companies of all sizes, through two types of membership: (a) ordinary member being a "Corporate body engaged in any type of industry and registered according to Thai law (usually with the Ministry of Industry). Ordinary membership is also extended to all types of industrial trade associations", and (b) associated member being "Small enterprises, companies and persons involved in industrial enterprises or in the trade of industrial products which are ineligible for ordinary membership".
It would seem from another information source that associated members are enterprises outside the industrial sector, and that a large proportion of ordinary members is made up of medium and large enterprises. FTI has 135 fulltime staff and its main sources of funds include members' fees, fees from training courses, and the organization of trade fairs. The main FTI objectives and functions which relate to MSEs may be summarized as playing the role of an intermediary between the members and the government, and working with the government in formulating national policies for the development of the industrial sector; initiating developmental and promotional activities for the benefit of industrial enterprises; offering various business services to members, including training, dissemination of information on new technologies, laboratory testing services, etc; facilitating trade relations through the issuance of certificates of origin and of product quality certificates; advising the government on ways to maximize the industrial sectors contributions to economic development; and encouraging members to comply with the laws related to industrial practices.
In order to fulfil its role as a link between the private and public sectors, FTI is member of two important committees: the JSCCIB, and the Joint Public and Private Sectors Consultative Committee (JPPCC). FTI also collaborates with a number of government agencies, such as BOI and IEAT. With its 27 Industrial Clubs and 45 provincial Chapters, FTI could play a very important role in the provision of BDS to micro and small enterprises. It would seem that it has sufficient resources, or could harness additional financial and other means which would help it play this role. However, information at hand indicates that the proportion of small enterprises in the FTI membership is relatively small. Thus, it would seem that the three private sector organizations reviewed so far (TCC, ECTTI and FTI) have not been able to attract small enterprises to join as members.
4.1.4 The Employers' Confederation of Thailand (ECOT)
The membership in this organization is made up of employers' associations and federations, as well as individual enterprises. Although the current number of enterprises is higher than that of associations (1,200 enterprises against 50 to 60 employers' associations), ECOT's policies, objectives and functions are particularly those of a confederation, rather than of an association of individual members.
Information provided by a representative of ECOT confirms that most small enterprises are underrepresented in private sector organizations because they feel that they are looked down on by the larger enterprises; some cannot afford the fees; and many feel that they have little power to influence decisionmaking within the organizations or ensure that their interests are taken into consideration.
ECOT attempts to provide services to its members similar to those provided by the other private sector organizations. However, it is doubtful that it could provide comprehensive services to a large number of members in view of it having only seven staff members responsible for a wide range of functions. It would seem that one of the main services provided by ECOT is the promotion of subcontracting arrangements for the benefit of its members.
It may be noted that there are nine other employers' confederations in Thailand and it is relatively easy to establish a confederation. It suffices for five associations to register as a confederation.
4.2 Private consultants and consultancy firms.
In most countries, including developing and industrialized countries, owners of micro and small enterprises rarely use the services of private consultants or of consultancy firms. A recent ILO study of MSEs in the Geneva region in Switzerland confirms this fact. There is, however, one important exception in the case of MSEs in industrialized countries; as most MSEs use the services of a professional accountant to enable them to take full advantage of fiscal allowances and reduce their business taxes.
In Thailand, information collected from a sample survey of MSEs carried out in the context of this ILO/UNDP project and from interviews with a number of officials from MSE development agencies, suggests that MSEs in Thailand rarely use consultants or even accountants. The only occurrence of MSEs using consultants relates to the DIP Consultancy Fund whereby consultancy fees are highly subsidized by DIP.
Is it important for Thai MSEs to make full use private consultants or consulting firms, considering that their counterparts in industrialized countries only use accountants? To answer this question, it is important to recall that MSEs in industrialized countries benefit from three effective sources of BDS: business services accessed in the context of commercial transactions; BDS provided by private sector organizations to their members; and easily accessible and very effective information services. These sources are still weak in Thailand. It will take some time for them to become effective sources of BDS for MSEs. Meanwhile, it would be useful to investigate the possibility of promoting the provision of BDS by private consultants, using an approach similar to that of the Consultancy Fund.
4.3 Nongovernmental organizations (NGOs) and civil society organizations (CSOs)
There is a large number of NGOs and CSOs in Thailand and the activities of many of them are described in numerous brochures and Web sites. A quick review of a sample of these NGOs carried out in the context of this project shows that few NGOs engage in any substantive microenterprise development activity, other than micro credit for income generating activities. Their clientele also includes some of the most vulnerable groups of society.
4.3.1 ThaiCraft
ThaiCraft is a very active NGO which provides marketing and sales support for a large number of rural handicraft producers. Apart from its work in improving the design and quality of individual handicraft producers, it also holds a very popular monthly sale of handicrafts in Bangkok where provincial producers have the opportunity to display and sell their products, as well as interact with individuals and trade buyers. ThaiCraft support has enabled several handicraft producers to attract large orders from local and foreign buyers, and some of the producers have graduated to the stage where they now have their own fulltime sales outlets within Bangkok. [Contributed by Editor]
4.3.2 Experience elsewhere
In many other Asian countries, there are examples of NGOs actively involved in microenterprise development. For example, there are successful NGOs in the Philippines which have acquired a great deal of expertise in the provision of microcredit, as well as business services and training to microenterprise. It is not clear why NGOs have not played such a significant role in Thailand. It is very likely that, in the near future, a large number of NGOs and CSOs will be in a position to launch projects providing a wider range of business development services.
4.4 A note on financial services for MSEs
In addition to loans, MSEs may avail of other types of financial instruments which play a similar role in satisfying their needs for both fixed and working capital. Subcontracting has been used for this purpose over a relatively long period, while other instruments are of more recent origin.
4.4.1 Subcontracting
There various types of subcontracting arrangements. The only one which does not involve any financial services concerns subcontractors who produce the orders with their own equipment and materials they buy with their own funds before being paid by the contractor (also called the principal in subcontracting arrangements). This type is generally less prevalent than subcontracting arrangements which involve financial services. Subcontractors are generally financially weak and cannot afford to wait until they have finished processing the orders before they can be paid. Many principals take advantage of the situation by imposing very low prices for the goods.
Financial services may take various forms, depending on the subcontracting arrangement. The contractor may provide the materials needed for producing the goods. He/she may also provide some advance payments to cover labour costs, or provide both the materials and the advance payments. In "labour subcontracts", the contractor is in full control of the production, providing the technology, the designs, the tools and equipment as well as the materials. Subcontractors are used in these cases mostly because the cost of labour is lower than if the contractor were to use his/her own workers at his/her own production facilities.
In many countries, subcontracting has given rise to various abuses by the contractors: squeezing the price down by playing the large number of subcontractors one against another; middlemen often pocket a very high proportion of the contract amount; and subcontractors are usually not able to use legal means in the event the contractor refuses to pay part of the contract amount for one reason or another. Subcontractors can strengthen their bargaining power visavis the contractor if they decide to form subcontractors associations on a sectoral basis. The ILO provided assistance to subcontractors in the Philippines involved in garment making and in the production of footwear and leather goods by helping them establish associations in these two sectors and train the managers of these associations on various aspects of subcontracting. Similar assistance could be provided by the Government of Thailand to subcontractors, with possibly ILO technical assistance. The assistance may take various forms:
4.4.2 Suppliers' credit
Many MSEs are able to establish a credit line with suppliers of materials. However, the price of the materials is in this case relatively higher than if they were able to pay on delivery.
4.4.3 Franchising
Franchising is a relatively new phenomenon when related to MSEs. For example, Coca Cola has funded the cost of the cart for food street vendors in the Manila (the Philippines) who agree to only sell Coca Cola along with their own snacks, and to put a Coca Cola sign on the cart. There are many other types of franchising involving government agencies and associations.
Firstly, the government may promote what is called "Association franchising" and public sector services franchising. In the case of association franchising, informal sector associations provide goods or services of a given quality standard, possibly under a logo. In the case of public services franchising, local or national authorities negotiate franchises with individual enterprises/informal sector operators. Some examples of franchising of public sector services include an element of financial services. In Tunisia, phone booths are franchised. The franchisee pays a monthly fee for the rent of the booth. He/she may also sell some consumer goods in the same locale where the booths are installed. This is a very successful example of franchising public sector services: it creates large numbers of new jobs and client satisfaction is very high because the telephone booths are always in good working condition.
4.4.4 Leasing
The leasing of equipment to MSEs is being increasingly used in many countries. This approach offers a number of benefits for the MSEs, including: avoiding loans in order to acquire a piece of equipment and having to deal with banks, which usually require collateral; normally, the leasing firm should provide repair and maintenance services, something often neglected by the entrepreneur; the leasing contract may include terms which will induce the entrepreneur not to misuse the equipment; the equipment can be given back to the leasing firm in the event the business must close down, without the need for the entrepreneur to continue paying back the loan; and the regular payment of a lease fee will ensure that the entrepreneur takes due account of the cost involved in the use of the equipment when pricing various outputs a cost otherwise often neglected by the entrepreneur.
4.4.5 Technical services
The production process in some MSEs may require the use of very expensive equipment which cannot be afforded by the MSE, or the acquisition of which may not be justified if it must be used at a relatively low rate. Under these circumstances, MSEs may establish a contract with medium or large firms to use their equipment in the event of excess capacity in these larger enterprises. For example, an MSE producing furniture may rent equipment by the hour from a large enterprise in the same business, transport the wood to this enterprise, use the equipment and then complete production in his/her own workshop.
5. Overall findings, strategies and recommendations for improved access to BDS
The previous sections have reviewed and assessed the business development services provided by a number of institutional BDS providers in both the public and private sectors, including private consultants and NGOs. This section gives a brief summary of the findings, and discusses various strategies and guiding principles for promoting effective and sustainable access to quality BDS by MSEs, taking into consideration international best practice in this area. Finally, recommendations will be made on how to improve access to BDS, taking into consideration the current network of institutional BDS providers, as well as the proposed strategies and guiding principles.
A further report (Working Paper 2) describes in more detail a range of approaches for improving access to BDS by MSEs based on international best practice. This Working Paper 2 also assesses the extent to which some of these approaches could be replicated in Thailand after adaptation to the local context. In this section, occasional references will be made to Working Paper 2 to illustrate some of the proposed guiding principles and recommendations.
5.1 Overall findings
In summary, the review and assessment of the major institutional BDS providers in Thailand yielded the following major findings.
5.1.1 Findings on the MOI (and DIP in particular) and related organizations (ISMED and the SME Promotion Office)
iv) ISMED and the MSE Promotion Office are the main organizations related to the MOI which apparently have a potential clientele covering enterprises in all economic sectors, including trade, services and other sectors. However, ISMED will only be able to provide business services once it is fully established.
5.1.2 Findings on BDS providers within other government agencies.
5.1.3 Findings on private sector BDS providers
Taken together, the findings from the review of BDS providers in the public and private sectors, shows that a small proportion of MSEs, mainly those from the industrial sector, benefit from business services provided by both public and private sector organizations. A proportion of microenterprises, including those in the informal sector, benefit mostly from financial services in the form of micro credit or grants. This proportion may increase in the future as a result of increased funding from the government and donors. Many policy statements tend to indicate that the government wishes to reduce the direct provision of BDS by government agencies and transfer this responsibility to the private sector and notforprofit organizations. However, these policies have not yet been translated into concrete measures. The establishment of ISMED would appear to run counter this stated policy. Altogether, it does not seem that a realistic, effective and sustainable strategy for facilitating access to quality BDS by MSEs in particular is currently under consideration by the concerned authorities.
5.2 Strategies and guiding principles for facilitating MSEs' access to quality BDS
5.2.1 Dual policy of job creation and modernization of the industrial sector.
Thailand faces today the two major problems of high unemployment aggravated by increasing poverty, and competition from technologically more advanced Asian neighbours. Competition from lower labour cost countries may further erode the country's competitiveness in the production of labourintensive goods. In other words, Thailand is currently "squeezed" from below by lowcost competitors, as well as from above by technologically more advanced countries. The only solution for Thailand is to modernize its industrial sector with a view to achieving a level of competitiveness at par with these more advanced economies. The promotion of growthoriented and competitive micro and small enterprises may partly solve these two problems. It has been shown in Working Paper 6 dealing with the MSE sector in Thailand, that micro and small enterprises generate a large proportion of all existing and new jobs. Therefore, policies which will further consolidate these jobs and help MSEs unlock their job creation potential would go a long way in reducing the high unemployment rate. [See also, ILO's Recommendation 189 (1998) for a comprehensive approach to this issue Editor]
It is important to help small enterprises, especially those involved in production, to modernize and make greater use of more advanced technologies with a view to increasing their productivity and the quality of their output. Furthermore, the small enterprise owners should become active partners in the modernization process, as modernization should not be considered as an important goal only for large enterprises. It must permeate the whole industrial sector, from the smallest enterprises to the largest ones. This is the case in advanced industrialized countries where an increasing proportion of all innovations originate from small enterprises. This dual policy of job creation and modernization, if properly applied, should help Thailand improve the employment situation while, at the same time, transforming the country's industrial sector into a dynamic and technologically advanced one.
5.2.2Modernizing the industrial sector and improving access by MSEs to BDS
The elements of the proposed strategy for modernizing and improving the provision of BDS is elaborated on as follows. Firstly, the most important role of the government should be to further develop and apply this dual policy of unlocking the job creation potential of MSEs, while at the same time modernizing the industrial sector. This requires close collaboration between various government organizations and the private sector. The main government organizations which should be assigned this important task are the Ministry of Industry, the Ministry of Education and various universities, the Ministry of Labour and Social Welfare, the
Board of Investment, ISMED, the SME Promotion Office, FTPI, the National Economic and Social Development Board, the Thailand National Science and Technology Development Agency and other relevant organizations. The priorities of these organizations should be to their use of available human and financial resources for achieving the objectives of this dual policy. The SME Promotion Office could be designated as the Lead Agency for coordinating and integrating contributions from the government organizations, and for supervising the application of policy at all levels. This would also require a critical review of various new MSE and SME policies currently under consideration.
Secondly, it has been well established that MSEs require quality business services, including training and information, in order to be able to grow and achieve a greater level of competitiveness. Findings from the review of the BDS provided by government agencies shows that their outreach is limited, their overall impact is not known, their costeffectiveness is limited, and most agencies have not been able to achieve a sufficient level of financial sustainability. An improvement in this situation would require substantially larger financial and human resources from the government. This may seem to be at odds with the government's stated policies of shifting to the private sector the responsibility for supplying MSEs with the services they require. Furthermore, an increase in the government's financial contributions in the area of BDS may also reduce its capacity to modernize the industrial sector. Therefore, it is recommended that government agencies gradually transfer their direct BDS activities to the private sector and/or notforprofit organizations, keeping only those which cannot be taken over by other BDS providers. These government agencies should strengthen the capacity of existing BDS providers and promote the establishment of new providers in locations where few exist.
Thirdly, experience from industrialized countries shows that most MSEs are able to access business services provided by the private sector or as part of normal commercial transactions. However, the current socioeconomic conditions in Thailand do not seem to allow this reliance on the private sector. Private sector linkages are still weak, and the educational level of many MSE owners constitutes an additional constraint. Thus, in the short and mediumterm, other approaches are required in order to facilitate access by a critical mess of MSEs to quality BDS, without having to rely on extensive subsidies from the government. These approaches should be based on a number of guiding principles. They should ensure a maximum outreach, be demanddriven, have a real impact on the enterprises, be costeffective, and be provided on a financially sustainable basis. A number of these approaches have been developed in various countries and have proved to be particularly effective. They will be described in detail in Working Paper 2 dealing with international best practice in the provision of business development services.
5.2.3 Guiding principles for facilitating access to quality BDS
These principles are based on international best practice in the delivery of quality business services to MSEs. They have been elaborated over the past few years by many practitioners who shared their experiences and ideas at a number of workshops. The driving force has been the Committee of Donor Agencies for Small and Medium Enterprise Development which is made up of a large number of donors, UN agencies (including the ILO) and international NGOs. While some issues have not yet been completely resolved, these guiding principles are now considered to be sufficiently well elaborated for application under most socioeconomic environments, and the main points are summarized below.
The main objective of facilitating access to quality BDS by MSEs is to help them grow and become more competitive and profitable. This objective implies that BDS should be provided to those who exhibit entrepreneurial characteristics and can make a good use of the services. Whether full fees are charged for the services or not, the provision of business services should be considered as a commercial transaction between the entrepreneur and the BDS provider. Both the client and the provider of services should be satisfied with the transaction. Therefore, a clear distinction should be made between this type of business transaction and one based on purely social welfare considerations involving individuals with no real capacity to establish and run a business. This may be the case for severe income generating activities intended for people who, otherwise, would have been forced to depend on charity for their livelihood. The issue of access to quality BDS applies marginally to these people, although they may still be in need of advice and assistance. BDS will normally apply mostly to those people who have opted for a career in business and have sufficient qualifications for the requirements of the chosen career option.
ii) Ensuring that business services are demanddriven.
Experience shows that institutional BDS providers often neglect to assess the type of services needed by their clients. In such cases, services (especially information services and training) are mostly supplydriven and do not reflect the real needs of the clients. Under normal commercial conditions, the BDS providers would quickly get bankrupt, as clients would not be interested in paying for services which do not correspond to their needs. In cases where services are free of charge or highly subsidized, as is the case of services provided by many institutional BDS providers, clients may accept the provision of services although they may have little practical relevance for their business. This can be the case for training, when trainees are provided financial or other incentives for participating in training courses. Thus, ensuring that services are demanddriven presents two advantages: first, they should have a greater impact on the business; and, second, in the longterm they could induce clients to start paying for those services which they value.
iii) Ensuring that the business provider is committed and has a strong sense of ownership
International experience shows that the best business providers are people working in environments which encourage commitment and a strong sense of ownership. This is often the case of notforprofit organizations or commercial firms where the managers and staff members have a clear idea about the objectives and strategies of the organization. However, conditions do not generally apply to large bureaucracies. Interviews with a number of DIP officials seem to indicate that the large number of restructuring exercises over the past two to three years has not been conducive to building a sense of commitment and ownership among the staff. (The introduction of ISMED to this context is likely to further amplify these sentiments Editor)
iv) The objective of maximum outreach does not imply geographical expansion
MSEs have always been able to access some basic business services without the assistance of institutional BDS providers. Most studies show that between 90 to 95 per cent of MSEs get services as part of commercial transactions with their clients, suppliers or contractors. They also get useful information from friends, relatives or people in the same business, and the owners and workers in these enterprises are often trained onthejob. This does not always mean that the services they access are of the best quality, but they are sufficient for their immediate needs. Therefore, the objective of outreach in terms of helping MSEs all over the country to access quality services which could have a significant positive impact on their business could be achieved through the strengthening of existing private sector business service providers, through networking of business providers, and by promoting informal systems of learning. The objective of maximum outreach should be achieved through a businesslike approach, rather than a bureaucratic approach, which simply offers to extend existing facilities.
There are still differences in opinion as to whether the same organization should provision both business and financial services. Some are for clearly separating these two functions so as to avoid conflicts of interest. The financial services may end up subsidizing the business services, resulting in an overall reduction in loanable funds, and clients may be forced to pay for business services in order to avail of a loan. Others favour the provision of both business and financial services by the same organization, arguing that this would help to achieve financial sustainability and create greater awareness by the client of the importance of business services. Furthermore, this could help improve the recovery rate because the business services would help in ensuring the success of the business. Although there is no consensus yet on this issue, one approach could be to have both services provided by the same organization, but ensuring that the unit in charge of financial services operates independently from the one dealing with business services (e.g. use of separate accounting). Also clients should not be forced to pay for business services in order to get a loan.
vi) Achieving costeffectiveness
Any private enterprise strives to cut and control costs order to remain competitive or increase profits. This should also be the case for BDS providers, whatever their legal status. Achieving the maximum costeffectiveness will yield many positive effects. More clients could be serviced with the same available resources. The cost of services could be reduced and this may encourage clients to pay the full cost of services or at least a larger proportion of these costs. Cost reductions can be achieved through changes in the working procedures, office automation, etc. In addition, the productivity of the staff can be enhanced through granting performancebased bonuses. Some of the services can be subcontracted out as this could also reduce costs. Finally, preference may be given to the provision of services to groups or associations of MSEs, with a view to simultaneously reducing costs and reaching a larger number of clients.
vii) Ensuring that business services achieve the greatest impact.
The growth of an enterprise can depend on the entrepreneurial spirit and qualifications of its owner, as well as on the quality and range of business services he/she can access. Therefore, the service provider should be concerned about the impact of its business services on the enterprise. Unfortunately, few institutional service providers pay sufficient attention to this issue. The survey of institutional BDS providers in Thailand shows that this is frequently the case. This could be explained by the fact that a reliable measure of impact can be difficult to develop and it might require additional financial and other resources. Nevertheless, it is important that BDS providers assess the impact of their services with a view to deciding whether they should review important aspects, such as the content of their services, or the modalities through which they are provided.
Such assessments can best be made through a sample survey of MSEs which benefited from the services, and that of a control group (i.e. MSEs which did not receive any services). It will also be necessary to develop performance indicators for the expected impact.
viii) Achieving financial sustainability
Most practitioners agree that the achievement of financial sustainability by BDS providers is an issue which cannot be overlooked. There are many reasons which support the need to achieve full, or at least some measure of, financial sustainability. Firstly, to a large extent this would ensure that the services are demanddriven clients pay for services they feel they need. Secondly, government's limited resources would not be used to promote or subsidize private businesses. Rather they will be used for financing public investments such as education and health. Thirdly, the payment for services by the MSEs should promote the spirit of entrepreneurship the entrepreneur establishes a business relationship with the service providers, rather than one of dependency. Finally, the achievement of financial sustainability should increase the supply of service providers as this becomes an increasingly profitable business, and therefore improves the outreach of business development services. However, a number of practitioners feel that the achievement of financial sustainability should not be a necessary condition for the provision of BDS. They argue that many clients cannot afford the full fees and will be excluded if they are forced to do so. Governments subsidize many activities which benefit individuals directly, such as vocational training, and this could also apply to the provision of BDS. The provision of subsidies could be considered as one of many incentives provided by Government for achieving a number of socioeconomic objectives, such as increasing exports or transferring production to rural areas. It would now seem that out of these conflicting views, a consensus is emerging. In short, financial sustainability does not have to be an objective to be achieved in all cases. It depends on the type of services provided (e.g. it could be justified to partly subsidize training), on the characteristics of the clientele, and on the location where the services are provided. However, there are two guiding principles which should always be kept in mind. Firstly, there should always be an explicit statement on sustainability clearly integrated into any MSE development programme, whether sustainability is to be fully or partly achieved. Secondly, maximum effort should be made to avoid market distortions in the business services sector, where governmentassisted and privatesector business providers compete for the same clientele.
6. Recommendations to facilitate access to business development services
Over the past year, the Royal Thai Government has launched a large number of initiatives in favour of small and medium enterprise (SME) promotion and development. These initiatives include the elaboration of an SME Promotion Policy; a range of strategies related to various aspects of enterprise growth and competitiveness; the establishment of the SME Promotion Office and of ISMED; and the allocation of substantial government and donor funds for credit schemes to help promote SMEs and microenterprises. The following recommendations are, therefore, being submitted at a time when the integration of some of them into the abovementioned initiatives might not be completely feasible. However, it is hoped that the more important recommendations can still be accommodated if they meet the approval of the government.
The following recommendations are based on the consultant's proposals for an MSE development strategy, and on the guiding principles for facilitating access to quality BDS by MSEs.
6.1 Elaboration and application of a dual MSE development policy to unlock the job creation potential of MSEs and modernize the sector.
Elements of the policies relating to job creation by MSEs are already contained in Working Paper 3 on the policy and regulatory framework already prepared under the ILO/UNDP project, and they are not repeated in this report. This section will focus on the modernization of the small enterprise sector in the context of an overall strategy to help the country compete as an equal partner with the more technologically advanced countries in the Asian region. The modernization of the small enterprise sector requires medium and longterm action at various levels.
Mediumterm action should help achieve the following objectives.
Most of these proposals are already included in the fiveyear Industrial Restructuring Plan approved by the Cabinet on June 16, 1998. It was not possible to obtain information on the extent to which this Plan has now been translated into concrete actions, or on the specific agencies responsible for its implementation. Therefore, the following recommendation is a tentative one which depends on what has already been accomplished.
Recommendation 1:
To establish, under the overall coordination of the SME Promotion Office, a committee to elaborate a policy document on the modernization of the small enterprise sector, incorporating the above and other relevant proposals, as well as a concrete plan of action for its implementation. The committee should also be responsible for supervising the implementation of the small enterprise modernization plan by the relevant public and private sector organizations.
It is suggested that the committee be made up of representatives from the relevant units of the following organizations: the Ministry of Industry, the Ministry of Commerce, the Board of Investment, ISMED, the National Science and Technology Development Agency, the Ministry of Labour and Social Welfare, a financial institution, the Association of Thai Equipment Manufacturers, and an employers' organization such as ECOT. The committee may establish technical working groups, made up of staff members from the member organizations and external consultants, which will be assigned the responsibility for specific aspects of the modernization programme.
The committee will coordinate and supervise the following major activities:
Longerterm action should focus on the promotion of a new breed of young entrepreneurs with higher education levels and specialized training in new technologies and modern management techniques. It should also focus on the promotion of high technology industries where small enterprises could have an important role to play.
The small enterprises of the future in Thailand should be a breeding ground for innovators, following the example of many industrialized countries. These innovators should be provided with financial or other assistance to help them market their innovations, possibly as joint ventures with larger enterprises.
Universities and specialized educational institutions would have a very important role to play in relation to the above objective. The committee could establish a working group to deal specifically with aspects of this longterm modernization programme. This group should be made up of representatives of academic institutions and specialists from specific technical sectors, among others.
6.2 Recommendations on new SME support structures
6.2.1 The SME Promotion Office
The recent Government decision to establish an SME Promotion Committee is an excellent and much needed initiative. Major countries have established similar bodies. In Thailand, the secretariat of the Committee is a fully autonomous body, the SME Promotion Office, whereas in many other countries the secretariat for such a body is organizationally part of a ministry This is possible whenever the trade and industries sectors are represented under the one roof. In Thailand this is not the case, and each sector is under the responsibility of a separate ministry (MOI and MOC). Under these circumstances, the establishment of a fully autonomous Office is justified. However, it is suggested that the functions of this Office be limited to coordinating and integrating the contributions of the various members of the SME Promotion Committee, in line with the Committee's requirements. Thus, each Committee member will be responsible for developing SME development plans related to the area or sector under its responsibility, such as the industrial sector in the case of MOI, and the trade sector in the case of MOC. They will also have responsibility for implementing plans once they have been approved by the SME Promotion Committee. Other functions of the SME Promotion office would include the management of the SME Promotion Fund and the organization of Committee meetings to present the integrated contributions of Committee members. The SME Promotion Office should only be responsible for those functions which may not be handled separately by each Committee member. This proposal would reduce the need for additional staff and should improve the effectiveness of the work of the Office.
Recommendation 2:
The functions of the SME Promotion Office Should be limited to the following:
The Office should not have to perform specific technical functions, as these should remain under the responsibility of the organizations represented in the Committee. It is also proposed to review the need for an Office's Executive Committee. In view of the proposed functions of the Office, it should be able to operate with a relatively small number of staff.
6.2.2 Membership of the SME Promotion Committee
The proposed membership of the SME Promotion Committee is adequate because the public and private sectors are equally represented. However, the composition of the clientele of the government organizations reviewed in this report highlights the near complete absence of microenterprises and the poor representation of small enterprises. Yet, these smaller enterprises represent a very important proportion of all enterprises and play a very important socioeconomic role. Therefore, special efforts should be made to include representatives of these enterprises among the 12 members from the private sector, including ideally representatives of the informal sector. It would also be useful to include private sector representatives from all sectors, including the trade, services, construction and transport sectors.
Recommendation 3:
Membership in the SME Promotion Committee should include representatives of micro and small enterprises.
6.2.3 Use of the SME Promotion Fund
These comments on the use of the SME Promotion Fund are based on an early draft of the SME Promotion Bill, and it may be possible that they are no longer relevant. The available draft, which is an informal translation from the text in the Thai language, suggests that the Fund may be used for investments, the acquisition of shares, and the provision of financial assistance to SMEs. It is also stated that the sources of funds may include, among others, earnings from service fees. This suggests that the Office may engage in the direct provision of financial and other services. It is suggested that the Fund be used for the sole purpose of funding, as is stated in the text, "projects of government departments, other government agencies, state enterprises and private sector organizations". Other uses of the fund are likely to conflict with functions already performed by other organizations. Furthermore, it is recommended that the SME Promotion Office does not engage in any technical activity.
Recommendation 4:
The SME Promotion Fund should be used exclusively for funding projects of government departments, other government agencies, state enterprises and private sector organizations. Furthermore, the SME Promotion Office should not engage in any direct operational or technical activities
6.3 The definition of SMEs and the informal sector
6.3.1 The definition of SMEs
The SME Promotion has been assigned the task of elaborating a new definition of SMEs. Under this ILO/UNDP project, the ILO has prepared a Working Paper on the SME sector in Thailand where a section is devoted to the definition of SMEs. This section provides a methodology for classifying enterprises, using NSO statistics as a basis and adopts a number of classification criteria. It is suggested that this Working Paper 6 be used as a technical input by the working group in charge of defining SMEs. It should also be noted that, in preparing Working Paper 6, no mention was found in available documents of microenterprises. Yet, these enterprises represent the large majority of all enterprises. It would be useful to indicate in a possible new revision of the SME Promotion Bill that the term "small enterprise" also incorporates "microenterprise".
Recommendation 5:
The working group in charge of elaborating a new definition for SMEs should consult the ILO/UNDP Working Paper 6 which provides a methodology and proposes a new definition of SMEs.
6.3.2 The informal sector
The size of the informal sector in Thailand represents approximately 75 per cent of the total number of enterprises in all sectors. Yet it would seem that this sector has been neglected by some of the major government organizations in charge of promoting SMEs. Assistance to this sector is provided mostly by NGOs and welfare organizations. Furthermore, little is known about the characteristics of this sector, or the reasons which influence informal sector operators to remain informal. Yet, the modernization of the Thai economy would benefit from a reduction in the size of the informal sector through the provision of the right inducements for formalization. The ILO Working Paper 6 on the MSE sector in Thailand covers the informal sector and summarizes the information which has been collected on this sector. Furthermore, it suggests a legal definition for informal sector enterprises, namely "any enterprise which is not registered with any authority, whatever its size".
It is suggested that the SME Promotion Committee establishes a working group which will be responsible for undertaking an indepth study of the informal sector in Thailand with a view to better assessing its socioeconomic contributions and constraints, and acquiring a better understanding of the reasons which encourage informality. Such a study will be useful for the elaboration of informal sector policies aimed at improving the contributions of the sector and, hopefully, induce large numbers of informal sector operators to join the formal economy. The ILO has developed a survey methodology for the informal sector, as well as training materials which could be made available to the Committee.
Recommendation 6:
Government should arrange to carry out an indepth study of the informal sector with a view to better understanding its characteristics, constraints and potential, and to formulating policies which will induce informal sector operators to join the formal economy. ILO survey methodology and associated training materials could be made available for this purpose.
6.4 Improving access to quality BDS by MSEs
6.4.1 The role of government
The Royal Thai Government has issued a number of policy statements clearly indicating that it is not the role of government to provide direct business development services to enterprises. The same statements assign other roles to Government, such as promoting the establishment of new BDS providers and strengthening the capacity of existing ones; promoting networking of BDS providers; and promoting linkages between small and large enterprises with a view to increasing the exchange of services between enterprises. The overall policy may be summarized as "less government intervention" and "greater private sector empowerment". Yet, it does not seem that these policy statements have been translated into concrete measures for divesting government agencies from their direct BDS activities. Indeed, the recent establishment of ISMED, which has a somewhat autonomous status but will not function differently from a government agency, is not an obvious manifestation of this change of policy. Therefore, it is important that the SME Promotion Committee initiates urgently measures for the transfer of direct BDS services from government agencies to private sector and notforprofit organizations. It is also desirable that such a transfer be completed at a set date, such as by the end of year 2000. Some exceptions to this transfer may be allowed in areas where the only BDS provider is a government agency and there is no scope for promoting the establishment of local BDS providers.
Recommendation 7:
The SME Promotion Committee should urgently initiate measures for the transfer of direct BDS services from government agencies to private sector and notforprofit organizations. Such a transfer should preferably be completed by a set date.
6.4.2 Promoting BDS providers and networks of providers.
The Government policy statements stipulate that the discontinuation of the direct provision of BDS by government organizations will require that the services be provided by private sector and notforprofit organizations. The role of the government should, therefore, be to promote the establishment of new BDS providers and to strengthen the capacity of existing providers. The promotion of networks of BDS providers should also improve access to quality BDS.
Achievement of these objectives would require concerted efforts by various government agencies involved in the direct provision of BDS. To achieve greater impact and effectiveness, and considering that most MSEs are interested in accessing services which would help them improve their production and/or the marketing of their output, the Ministry of Industry (MOI), the Ministry of Labour and Social Welfare (especially the Department of Skill Development) and the Ministry of Commerce (MOC) would be the most appropriate government organizations for promoting the establishment and strengthening of private sector BDS providers. Furthermore, some of these organizations have already started promoting this type of provider, and have established close collaboration with a large number of private sector organizations which could help them in their work. It is, therefore, suggested that these three organizations establish, under the overall aegis of the SME Promotion Committee, a task force which will be assigned the responsibility of promoting BDS providers and networks of BDS providers.
The establishment of new BDS providers or the strengthening of existing ones should take into consideration the guiding principles spelled out earlier. These principles should be further developed into concrete guidelines and used as training material by the members of the Task Force in its work. ILO assistance could be made available if requested for the preparation of these guidelines. The task force should provide training and assistance to BDS providers over an initial period. The SME Promotion Fund could also be used to fund the initial establishment costs. In the beginning, the Task Force will be directly involved in promoting BDS providers,. Subsequently, once it has acquired sufficient expertise, it may devote most of its time to training officials in Bangkok and the regions in the promotion of BDS providers.
Recommendation 8:
The Ministry of Industry, the Ministry of Commerce and the Ministry of Labour and Social Welfare should consider establishing a Task Force which will be assigned the responsibility of promoting the establishment of private sector BDS providers and the strengthening of existing ones. These BDS providers should be established according to the guiding principles discussed earlier. The task force should develop guidelines based on these principles to be used for training the staff of the existing and future BDS providers.
6.4.3 Promoting the dissemination of information
Access to information is by far one of the most important business services, ranking before consulting services and probably on a par with training . It is the basis for most decisions taken by the entrepreneur. It can also be the least difficult to access if basic information is needed. Therefore, promoting access to useful and accurate information on various aspects of business should be one of the priorities of organizations involved in MSE development.
Information may be accessed through a wide range of media, such as trade and sectoral magazines; special mass media programmes (television, radio); verbal exchanges, and more recently the Internet. Information collected on institutional BDS providers in Thailand shows that most of them operate various types of information centres, publish magazines, or maintain a Web page. Sources of information seem to be plentiful, but it is not known whether MSEs make extensive use of these sources. Therefore, one first approach to help MSEs access this type of information would be to advertize their existence widely on radio, television and newspapers. Government agencies may also collaborate with private organizations with a view to complementing the information they produce, and disseminate information on SMEs prepared by the agencies. For example, the same Web site may be used to disseminate information for both large and small enterprises, with the information on small enterprises provided by a government agency. Associations of micro and small enterprises may also maintain an Internet site where they can exchange information or even conduct business. For example, national associations of microenterprises in seven Central American countries which have established a regional organization of microenterprises (PROMICRO), have established a Web site through which they exchange various types of information, access other sources of information, or conduct business with entrepreneurs from the other countries. This Web site was so successful that it received the 1997 Latin American Award for the best businessrelated site in Latin America.
Recommendation 9:
The SME Promotion Committee should subcontract a study on the main sources of information used by MSEs and investigate which information dissemination option(s) would have the largest outreach and impact.
6.4.4 A longterm goal for facilitating access to BDS by MSEs
In industrialized countries, the large majority of MSEs access business services in four main ways: as part of commercial transactions with clients and suppliers; through subscriptions to specialised magazines; through participation in fairs and exhibits; and from their own sectoral, employers' or trade associations. The use of the Internet is also currently gaining ground. The exchange of information is considered highly by both the supplier and the receiver of information. For example, a small manufacturer would not have to wait long before he/she is advised about an improved technology or piece of equipment. He/she will receive the same information from a number of sources, such as a trade magazine, at an exhibition or from an advert from the equipment manufacturer. The same can apply for other types of information. In other words, the small entrepreneur should receive as much information on various aspects of business as a consumer would receive for various consumer goods. This relatively easy access to information and other BDS activities made possible by the existence of strong linkages within the private sector, the relatively high educational level of the entrepreneur, and the existence of trade and employers' organizations where small enterprises are well represented.
Many of the above conditions do not apply in Thailand. Private sector linkages are relatively weak; there are few specialized magazines, and small enterprises are poorly represented in the associations or federations of Thai enterprises. This explains why, in the short and medium terms, wider access to BDS would partly require the establishment of institutional BDS providers to enable private sector linkages to become sufficiently strong for a direct access to BDS by MSEs.
Recommendation 10 :
The SME Promotion Committee should initiate a national dialogue among all sizes of enterprises with a view to defining the conditions which will help strengthen private sector linkages and promote, by the same token, the direct access to BDS by MSEs without having to rely on a BDS provider. The limited representation of small enterprises in Chambers of Commerce, employers' organizations, sectoral organizations, etc. should also be investigated and remedial action initiated. Membership of these organizations could achieve a double purpose: strengthening private sector linkages, and helping the MSEs access useful business services provided by the organizations.
6.4.5 International best practice in the provision of BDS
A large number of effective approaches for facilitating access by MSEs to quality BDS, based on the guiding principles described earlier, have been developed in many countries. The most successful approaches have been well documented and presented at various workshops dealing with the provision of BDS. The ILO is one of the key organizations which has contributed to the collection and assessment of examples of these approaches, and it took the lead in preparing guidelines on access to BDS by MSEs. Working Paper 3 on best international practice in the provision of BDS has been prepared as part of this ILO/UNDP project, in which the feasibility of adapting and applying some of the approaches to the Thai MSE environment is assessed. Therefore, no attempt will be made in this report to describe these approaches. However, both reports should be reviewed together.
6.5 Promoting associations of micro and small enterprises
One surprising finding yielded by the review of institutional BDS providers in Thailand is the absence of formal associations of micro and/or small enterprises, as such associations are widely (i) in evidence in most countries. The reason could be that during the fast growth years, micro and small enterprises did not feel the need to establish associations because they felt they did not have much to gain. The absence of associations, especially of microenterprises from the informal sector, complicates the delivery of assistance and BDS, and considerably increases the cost of BDS provision, as it is not costeffective to provide business services to microenterprises on an individual basis. Furthermore, associations can themselves provide a wide range of services to their members, including loans, some social security coverage, training, etc.
Currently, mostly informal groups can be found in Thailand. In many cases, these groups were formed for the only purpose of benefiting from soft loans available to groups only. Recommendation 11:
It is important to undertake a study on the reasons and factors contributing to the lack of associations of MSEs in Thailand. Without such associations, it is extremely difficult to reach the majority of MSEs, and the unit cost of delivering business services can be prohibitive.
6.6 Institute for Small and Medium Enterprise Development (ISMED)
It is not clear why it has been decided to establish ISMED. The DIP Bureau of Industrial Enterprise Development (BIED), with its Entrepreneurship Development Programme (EDP) and the GTZ/CEFE SmallScale Industry Promotion Project (SSP), offers similar services. Indeed, the approach used by the GTZ/CEFE, based on the promotion of BDS providers and networking, is very similar to that adopted by ISMED. The only difference between ISMED and BIEDadmittedly an important one is that ISMED provides its services to enterprises in all sectors, while the BIED is officially limited to provide training and services to industrial enterprises only.
It is clear, however, that there is likely to be some level of duplication of functions between ISMED and BIED. A review of ISMED's functions indicates that they include research and studies, the promotion of BDS providers (including the certification of the providers), and the provision of direct business services to SMEs. It is suggested that following two options be considered so as to eliminate the risk of duplication of functions between ISMED and BIED. The first option would be a transfer of BIED to ISMED, since the two organizations perform fairly similar functions. The second option would be for ISMED to discontinue its direct services to SMEs and focus exclusively on the promotion of BDS providers and carrying out studies. This second option would also require that BIED accepts as part of its clientele enterprises in the services and trade sectors, in addition to its traditional clientele.
Recommendation 12:
The SME Promotion Committee should consider the desirability of merging BIED and ISMED with a view to reducing any duplication of functions and helping to establish an effective SME promotion organization.
6.7 Minimizing any duplication of functions and restructuring government organizations accordingly
The review of government and private sector organizations involved in the provision of services to small enterprises indicates that there is some duplication of the functions performed by these organizations. In some cases, four to six organizations perform very similar functions. Therefore, it is important and legitimate to investigate the feasibility of reducing any duplication, although it is not expected that all duplication of functions can be or should be eliminated. Based on the limited information at hand, a number of recommendations have been formulated for various mergers of organizations. Therefore, the suggested mergers should be further investigated based on more precise information on the functions, activities, clientele, etc. of the organizations concerned, as well as on the criteria that should be used for such an investigation.
6.7.1 The DIP Bureau of Supporting Industries Development and BOI/BUILD
These two organizations seem to perform fairly similar functions, and consequently there may be some possibility for them to be merged, with the Bureau being transferred to BOI. If this is not a feasible solution, it is important that close collaborative arrangements be established between the two organizations, and that the functions of these organizations be streamlined to minimize unnecessary duplication.
6.7.2 The Foundation of Thailand Productivity Institute (FTPI) and the ThaiGerman Institute (TGI)
These two organizations have close, complementary functions. They deal with a similar clientele and seem to have adopted a similar businessoriented approach in their work. A merger of these two organizations may be likely to create a much more powerful entity, capable of providing a much wider range of services.
Recommendation 13:
The SME Promotion Committee should establish a working group to investigate the feasibility and desirability of merging the functions of various private sector and government organizations with a view to reducing any duplication of functions and creating more effective organizations.
Annex I*
Institute for SME Development (ISMED)
The Cabinet approved in principle on April 5, 1999, the establishment of the Institute for SME Development (ISMED), for which the Department of Industrial Promotion is a core collaborating agency, jointly with Thammasart University, with support from a number of foreign organizations such as JETRO, JICA, JSBC, etc.
Well over 90 per cent of enterprises in Thailand are classified as either small or mediumsized (SME). Apart from their needs for financial assistance, owners as well as employees of these enterprises are in need of technical and advisory support with respect to investment advice and upgrading of management capabilities. Thailand, however, still lacks an adequate supply, both quantitatively and qualitatively, of experts, consultants and analysts, who can play an important role in providing services to SMEs. Scarcity of support services is most serious for those grassroot SMEs operating in the regional and rural areas. The Ministry of Industry, specifically the Department of Industrial Promotion, has long experience in SME promotion, and extensive cooperation with both state and private organizations and educational establishments. Thammasat University, wellequipped with physical facilities from the Asian Games Sports Complex which can accommodate large numbers of residential trainees, has experience and expertise in the fields of interest to SMEs. The two parties have joined hands to establish an institute that will cater for the aforementioned needs of SMEs. The Institute for SME Development (ISMED) will establish operations and network with major universities in all regional areas.
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*Reproduced with acknowledgement to SASIN, Chulalongkorn University, Bangkok
Key roles
The Institue for SME Development will serve as a centre/network for :
The Japanese government has already provided assistance by providing experts in auditing and enterprise diagnosis to relevant agencies in Thailand.
ISMED is to be established as an autonomous body under one of MOI's registered foundations. ISMED will operate under the supervision and guidance of a policy board chaired by the Permanent Secretary of Ministry of Industry. The board members will include representatives of collaborating universities, privatesector organizations and expert individuals. The managing director of ISMED is to be recruited from the widest circle to ensure the selection of an individual of knowledge, highcalibre and vision.
7. Location
ISMED headquarters will be located at the Asian Games Sports Complex on Thammasat's Rangsit Campus. Regional offices, which comprise a service network for nationwide coverage, will be located, for example, at : Chiangmai and Phitsanuloke Universities in the northern region; Khonkaen and Suranaree Universities in the northeastern region, and Songkhla University in the southern region. ISMED will also cooperate with other educational establishments and specialized institutes, such as Thailand Productivity Institute, ThaiGerman Institute and Technology Promotion Institute.
The government has allocated a 1999 budget of 864 million Baht for ISMED, as part of the March 30 Economic Stimulus Package. The budget will not be used for new construction projects but, instead, will be spent on the improvement of existing facilities and finetuning of the existing expertise of educational establishments and technical institutes to make them appropriate and beneficial to SMEs. Additional funding is expected to come from annual budgetary allocations from the government, from the SME Promotion Fund to be established under the new SME Promotion Act, privatesector and general public contributions, foreign grant support, and training and service fees.
The preparation and improvement of existing facilities will take place during the second half of 1999. Training programmes, syllabuses and materials are now being revised, and a number of short training courses and awareness seminars are expected to be provided during this same period. The official grand opening of ISMED is expected to take place around the beginning of the year 2000.
Annex II
Draft SME Promotion Bill*
On December 22,1998, the Cabinet approved in principle the draft SME Promotion Bill, proposed by the Ministry of Industry. The Bill is expected to be submitted to the Parliament before the current session closes. The draft Bill features the following key instruments :
This Committee is chaired by the Prime Minister, with the Minister of Industry as vicechairman, Ministers of Commerce, Agriculture and Finance as committee members, and the Director of a new "SME Promotion Office" as Secretary to the Committee. It consists of 25 members, of whom at least 12 must be appointed from the private sector, including at least 3 regional SME entrepreneurs. Key responsibilities include: recommending an "SME Promotion Plan" to the ministerial cabinet ; submitting "SME Status Report" to the cabinet and the public; recommending incentives, new laws, or legislative amendments to the authorized agencies; and supervising concerned agencies on the implementation of the SME Promotion Action Plan.
With regard to incentives and legislative amendments, if the authorized agencies decline to carry out the committee's recommendations, the Committee chairman is empowered to make a final decision and issue orders accordingly. SME Promotion Office has a status of a "special executive agency" (a semigovernment, autonomous agency). It recommends a definition of SMEs to the SME Promotion Committee; recommends target groups for promotion to the Committee; coordinates the formulation of the "SME Promotion Action Plan"; prepares the "SME Status Report"; and manages the "SME Promotion Fund" in accordance with rules and regulations set by the Committee and the Office's Executive Committee. It is empowered to carry out lending, investing, holding shares, and assisting SMEs financially. The Department of Industrial Promotion (DIP) will act on behalf of the Office during the interim period. The SME Promotion Office's Executive Committee will be chaired by the Permanent Secretary, Ministry of Industry, with the Director of the SME Promotion Office as Secretary to the executive committee. It consists of 15 members, of whom at least 5 must be appointed from the private sector. It oversees the Office's work plan, budget plan and administrative regulations. It sets the policy, terms, conditions, regulations, and allocations of the SME Promotion Fund. The
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*This information has been taken from unofficial translations from the original Thai text, kindly made available by DIP officials
SME Promotion Fund's sources of finance may include seed money and the annual budget contribution from the government; earnings from service fees; funds and other assets from domestic and foreign private sector, as well as contributions from foreign governments and international organizations. The fund can be used to assist SMEs or groups of SMEs (consultant's questionsfinancially? directly?), and to finance projects of government departments, other government agencies, state enterprises, and private sector organizations, as approved under the SME Promotion Action Plan. There is also provision for the Fund to be used for other assistance related to the promotion of SMEs, as approved by the SME Promotion Committee.
(1) Financial support and assistance to SMEs;
(2) Establishment/development of a capital market for SMEs;
(3) Development of entrepreneurs and SMEs' personnel;
(4) Research, development and dissemination of modern technologies appropriate for SMEs, including adaptation to local/traditional knowhow;
(5) Upgrading product development and product quality standard;
(6) Market promotion and marketing support; domestic and global market expansion; promotion of product image; product design development; packaging;
(7) Development of modern management practices, with the emphasis on efficiency and transparency;
(8) Informational support; promotion of the use of information technology;
(9) Promotion of linkages between SMEs and LEs;
(10) Promotion of associations among SMEs for mutual assistance and joint business undertakings;
(11) Development of regional/rural/communitybased SMEs;
(12) Promotion and strengthening of private sector organizations whose functions relate to the promotion and support of SMEs;
(13) Infrastructure for investment of SMEs;
(14) Incentives for promotion and redressing inherent disadvantages of SMEs;
(15) Promotion and technical support for energy and environmental conservation, as well as hygiene;
(16) Amendment of legislation and regulations which are obstacles or costburdens to SMEs;
(17) Promotion and support regarding intellectual property rights;
(18) Other promotional measures to encourage new SME establishments, to assist in the survival of existing SMEs and promote their growth and competitiveness. Agencies involved must submit progress reports at least once a year. Agencies responsible for information needed to facilitate planning will be required to publish the necessary information.
SMEs and privatesector organizations may be required to report certain information, which will be stipulated under ministerial decree(s). Incentives for SMEs or groups of SMEs may be applied directly from the SME Promotion Fund. The SME Promotion Committee will make recommendations to the authorized agencies regarding the appropriate form of incentives, the eligible target groups, the terms and conditions, and the applicable duration.
SMEs which misrepresent their status in order to gain eligibility for the incentives and promotions, may have their privileges revoked (up to 5 years), as well as be punishable under the applicable laws. SMEs which fail to provide the information required by law, may be ineligible for any promotional programmes. Agencies which do not want to implement measures recommended by the SME Promotion Committee, must report their reasons to the Committee within 15 days, but the Committee Chairman has the authority to make a final decision and issue orders to the agencies accordingly.
Annex III
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Annex V: Recommendation No. 189
Endnotes:
1. ILO/UNDP Support Services for Policy and Programme Development project on Micro and Small Enterprise Development and Poverty Alleviation in Thailand (THA/99/003).
2. Paetkau, M. : Working paper 4: Financial support for micro and small enterprises in Thailand.
3. Quotes taken from Bangkok One's promotional materials