Towards full employment

Regardless of the stage of economic development among the Asia-Pacific countries, small and medium enterprises (SMEs) are generally considered as major sources of employment generation. They dominate the non-agricultural sector not only in number of enterprises but also in numbers employed. Promotion of such enterprises, therefore, is generally regarded as part of an employment-intensive industrialization strategy.

SMEs account for between 40 and 80 per cent of non-agricultural employment in the Asia-Pacific region. While 40 to 50 per cent of the non-agricultural workforce are working in SMEs in such countries as Australia, Indonesia, Malaysia, the Philippines and Singapore, the figure is as high as 74 per cent in Japan (Appendix table 3.7). However, the contribution of SMEs to non-agricultural employment is typically greater than their contribution to non-agricultural GDP (according to available statistics, SMEs contribute only 30 to 60 per cent of the non-agricultural GDP). This suggests that there is great potential for further improvements in productivity and incomes in these enterprises.

The scope and scale of SMEs and their relative intensity varies considerably among countries and regions (Appendix table 3.8). Japan has the highest number of SMEs per 1,000 people, whereas Indonesia and Thailand have the lowest. It is abundantly clear that the industrialized economies have higher concentrations of SMEs, enabling them to take advantage of the productivity and flexibility in manufacturing associated with small enterprises.

Besides generating direct employment, SMEs provide important services to medium and large enterprises by providing repair and maintenance services, supplying parts and components, processing semi-finished products and selling manufactured products to consumers, thus contributing to overall employment. Hence, SMEs have played a key role in economic progress in many countries by filling a niche, otherwise uneconomical to large-scale enterprises, and thereby generating employment. Yet, concerns have been raised as to what extent working conditions in SMEs are comparable to those prevailing in larger enterprises. Linkages of SMEs to medium and large enterprises therefore remains an area of interest from the broader perspective of generating quality employment.

In some countries, SMEs have played a dynamic role in economic growth and employment generation , and in other countries they have acted more as a source of employment for those unable to secure employment in public sector or large enterprises. During the past decade, growth in employment generated by SMEs has also varied across countries (Appendix table 3.9).

In Australia, small business categories registered net job increases in 1995-96, while the largest category of firms (100 or more employees) experienced job losses. Hong Kong (China) has witnessed job losses in its overall economy, including small enterprises: the number of SME establishments declined by 6.4 per cent between 1996 and 1998, with net job losses of 0.9 per cent. Thus, although both Australia and Hong Kong (China) can be regarded as developed economies, they have had different experiences.

Among developing economies too, the experience of generating employment in SMEs has been uneven. In the countries affected by the economic downturn, such as Indonesia and Thailand, SMEs are also facing a crisis. On the other hand, India, a country not directly affected by the crisis, has seen an increase of 4.5 per cent in employment in small-scale units during the period 1996-98.

In the Pacific island countries, such as Fiji and Papua New Guinea, activities relating to institutional capacity building were carried out even in the absence of an SME policy. Although a large number of potential entrepreneurs have been trained, employment growth in SMEs has remained modest since the policy and regulatory environment has remained unchanged, remaining favourable to large enterprises.

SMEs, and particularly microenterprises in the informal sector, are considered to be the last resort for job creation in many Pacific island countries and other Asian countries. Advanced industrialized economies (e.g. Japan), on the other hand, have promoted SMEs to achieve competitiveness and productivity. The Japanese Government has regularly prepared White Papers on small and medium enterprises in Japan, outlining its plans for creating an environment conducive to reforming SME management. Government policy includes promoting deregulation, supporting the start-up of new businesses, reviewing corporate laws and the relevant rules, and strengthening the financial/capital market to facilitate new businesses.

Among the transition economies, China has had remarkable success with its village and township enterprise development programme under which many economic activities falling within the public sector at the local level were transferred to viable SMEs. A programme to provide financial and non-financial assistance to small and micro enterprises was initiated in Cambodia after the signing of the United Nations sponsored peace agreement. Local Development Agencies (LEDAs), in cooperation with the national NGOs assisted some 18,000 small and micro business clients. However, the Vietnamese experience with the Bank for the Poor (established in 1995 as a part of its follow-up to the World Summit for Social Development) was not very successful. Although the Bank became operational in 1996, the prospects for a vibrant enterprise sector remain distant and there continues to be much concern about the overly bureaucratic government machinery responsible for promoting industrial development in Viet Nam.

Globalization and liberalization of economies around the world have brought about competitive pressures on enterprises of all sizes. The survival and success of SMEs have come to depend on improving innovativeness and productivity in the face of intense competition. The requirements of information and resources for such improvements have become greater and far more complicated. In addition, the Asian crisis has adversely affected SMEs. Some crisis-affected countries (such as Indonesia and the Philippines) were facing problems of obsolete technology and skills, and inadequate credit, besides lack of access to market and raw materials even in the pre-crisis period. It is anticipated that more and more enterprises too small to compete with larger domestic and multinational corporations will be marginalized, and in many cases may have to become informal sector enterprises.

In Indonesia, and to a lesser extent in Thailand, many small enterprises have become economically unviable while the growing ranks of unemployed are in search of a means of survival in the absence of social protection. Not only are the unemployed expected to join the informal sector, but small enterprises are also expected to have to move into the informal sector.

Removal of import quotas on several items as a result of trade liberalization has adversely affected marginal producers and traders in some countries. It is expected that the sugar-refining industry and garment manufacturing in Fiji will face increased competition, and their survival seems to be uncertain. While long-term employment prospects are generally expected to increase with increased manufacturing and trade, short-term business failures and unemployment are expected to rise in the absence of any policy measures to protect SMEs.