SMALL BUSINESS
All parties agree that promoting SMEs is a good strategy that could help eliminate poverty in rural areas. But more needs to be done to achieve the desired outcome and enable the businesses to survive amid intense competition.

by SRIWIPA SIRIPUNYAWIT

En route to large-scale success

Trade events showcasing various SME products can help spur sales and increase their exposure to new markets, both at home and abroad.

Injecting huge sums into grass-roots communities to create and promote small and medium-sized enterprises (SMEs) is one of the government's highlighted policies to shore up the economy following its hard crash in 1997.

Believing that SMEs are a key driver of economic recovery, the Thaksin Shinawatra government has come up with several policies to build a solid ground for small and medium-scaled businesses for four years. They include the One Tambon, One Product project scheme and the establishment of an SME Bank and other financial institutions focusing on offering financial assistance to SMEs, as well as several governmental organisations to facilitate SME development and enhance entrepreneurial competence.

This policy has received considerable applause from many parties and the general public. New business opportunities have popped up in line with the trend, which has opened doors for many over the past years. Billions of baht injected into the businesses have generated quite a satisfactory outcome, as evidenced by growing SME gross domestic product (GDP) and the expansion in export volume.

According to statistics released by the Office of SMEs Promotion, SMEs' share of GDP during the first half of 2004 totalled 1.22 trillion baht, up by 6.7% from 2003. Their exports over the same period also surged by 25% to 27% from the previous year. The figures are being used by supporters to show the government has been on the right track.

But the policy has also been criticised by academics, who view it as yet another populist campaign or public relations tool that the government uses to boost its own reputation for political benefit. They claim the scheme not only does not really benefit the people but also adds more debts to households since most beneficiaries lack the necessary knowledge and skills to run a business, much less turn a profit.

According to management consultant Teerachai Chemnasirim, a founder of Grid Teamwork Ltd and the author of 50 HR Issues vs Solutions, although the government has good intentions, the timing of the initiative is wrong. Many rural communities still lack the knowledge and know-how to take advantage of the available resources to develop successful and profitable businesses.

Injecting money alone is therefore insufficient and will eventually create mounting debts and business failures.
"The key reason for the failure is the unreadiness of the SMEs to build businesses from scratch and manage them well. This leads to mismanagement and will ultimately bring about serious management cancer," said Mr Teerachai, who once was a member of the National Research Council and an associate judge of the Central Labour Court.

There have been many cases, he continued, in which the nature of the businesses themselves was the major obstacle hindering their success, such as those that are totally unrelated to fundamental needs. In addition, the lack of access to capital is another challenge.

Although the government has kicked off various projects to financially support SMEs, most still find it difficult to access sources of funds. Among those that do, many still cannot obtain approvals for their loans for lack of collateral, sound business plans and proper accounting, the areas where so many SMES are lacking.
Besides, the government should also consider extending the grace period for SME loans to help ease their debt burdens during the initial stage of their businesses.

Though several of the government's policies and projects seem practical, implementation is still difficult, said Thawesak Ruckying, the president of the Thai Entrepreneur Development Institute, adding this had undermined the satisfactory outcome of the policy.

Most small business operators, in fact, are highly innovative and capable in their own way. As well, they have no lack of entrepreneurial spirit and brand-new concepts for goods and services. However, the frequently found problem is that they cannot market their products or find ways to enter the minds of consumers.

Of equal importance is the lack of ideas about how to protect their own innovations, as the concept of intellectual property has not reached rural communities.
The experts say these are the problems that the government is likely to address by investing more money and efforts in spreading knowledge among SMEs.

Over the next few years, the experts believe the most serious challenge for SMEs will be free trade agreements. Hence, it is necessary for SMEs to keep an eye on the issue in order to react in time with the changes in the market and competition.

"Many SMES have already started to feel the pinch of FTAs and are having a rough time. Unfortunately, some are family businesses inherited for generations so the operators tend to have very limited expertise in other areas. Meanwhile, the government should start thinking how to subsidise the losses and create new opportunities for them," Mr Thawesak added.

Rising oil prices are another concern which has prompted SMEs to start figuring out means to reduce their costs. The appreciation of baht against the US dollar is another factor affecting the country's export volume. Apart from all of these factors, the emergence of China as a major player in the world market is another decisive factor for an SME, as this development can be viewed as either a threat or an opportunity.

Overall, the government's policy to promote SMEs or grassroots ventures stands a good chance of becoming a big success. However, it needs to be pushed forward consistently with practical implementation plans in order to create long-term growth.


The venture capital challenge

ONE ASSET Management, which manages a venture capital fund on behalf of the government, plans to invest an additional 300 million baht in 2005 out of a total budget of one billion baht to be invested by 2010.
Founded in 2000, the one-billion-baht venture capital fund is one of the government's tools to promote small and medium-sized enterprises.

The fund aims to offer financial support to those lacking sufficient capital to commence and run their businesses by providing equity financing to commercially viable and strategically important SMEs.
Among the strategic sectors are knowledge-based, food, automotive accessory, services, fashion, production and machinery businesses.

According to One Asset Management's executive vice president, Mongkol Kasaemsun na Ayudthaya, almost 1,900 SMEs contacted the company about the possibility of venture-capital financing in the past four years. However, only 366 submitted their business plans and formal applications.

As of October 2004, only 54 of the total were qualified, accounting for a total investment of 493 million baht. An additional 80 projects are in the pipeline.

The asset management firm is planning to invest another 300 million baht next year while the remaining 200 million will be set aside for those seeking more capital for future business expansion.
Meanwhile, just 2.8% of the funds have been disbursed to ventures that are being implemented according to the agreed plans.

Mr Mongkol said the major reasons impeding the company's investments in most SMEs, despite the availability of funds, were the lack of business potential and competence of the ventures (25%), the decisions by owners to withdraw from the process (22%), and the reluctance of owners to adjust their accounting systems (10%).

Other causes included the lack of awareness among SMEs of what the venture-capital fund has to offer (8%), the excessively high debt-to-equity ratio of the ventures (5%), the lack of transparency and disclosure and inability to develop proper business plans.
"Addressing the lack of business potential and capability of SMEs seems to be on the national agenda. Thus, entrepreneurs should be offered training and courses to improve their visions and skills," Mr Mongkol explained.

He believes that knowledge and concepts of entrepreneurship should also be added to the formal educational curriculum, probably at the university level, so that most people have an initial understanding of how to start ventures in the future.

The top three sectors in which the venture capital fund has invested are knowledge-based businesses, information technology and software (28%); food and beverages (16%), and professional services businesses (10%).

Mr Mongkol said the government should promote awareness and understanding of venture capital, push forward projects related to entrepreneurial development, and improve the tax structure to allow SMEs more room to grow.

As well, he said, the concept of intellectual property and owners' rights should be promoted, particularly in the provinces, to give SMEs some knowledge and ideas so that they can protect themselves from being taken advantage of by larger, stronger, or foreign firms.


When coffee turns a bitter brew

Lt Tuaytep: officials still have wrong attitude

POL LT Tuaytep David Vibunsin is just an average entrepreneur who has had more than his fair share of hard times. But what makes him stand out is the fact that he is among the few who have never given up their dreams despite misfortunes that would have discouraged even the toughest people.

The 33-year-old officer once appeared on TV commercials as a product presenter. He also had a stint as a model and movie star. But what he has always been, and always will be, is a coffee aficionado who inherited a coffee plantation up North from his family when he was a teenager.
Several years ago, he set up Coffee Cartel Ltd and launched the Kahfae Sawasdee brand. The business had a rough start owing to several factors, in particular the economic slowdown and intense competition in the market.

But the biggest blow came when he decided to open a coffee shop at the Bangkok international airport early in 2003. Soon after launch, the business was hard hit by a huge fall in the number of tourists caused by the Sars outbreak.

With a never-say-die attitude, the young officer was not ready to give up his dream just yet. Like any good entrepreneur, he took it as a lesson, albeit one that cost him a mounting loss that topped 10 million baht. He learned the hard way Murphy's Law of "whatever can go wrong will go wrong".

Attempts to take advantage of the offers being made to small business under the Thaksin Shinawatra government's populist policies taught him another invaluable lesson: never believe in anyone when your own money and business are at stake.

Over the years, he said he had applied common sense and trial and error, which eventually moulded him into a capable operator. His school years hardly prepared him for the risks of doing business, much less gave the faintest idea of how to become a wise entrepreneur.

As a die-hard entrepreneur, he pointed out to the inefficiency and the lack of serious implementation of the government's policies to genuinely support startups and help SMEs survive.

"Most of the Thaksin government's policies are just public relations tools ... They lack sincerity to truly promote SMEs," Pol-Lt Tuaytep said. He recalled that during his hard years, several government organisations were reluctant to lend him a hand while some even had no idea about developing SMEs.
Corruption and the attitude of some government officials are also major obstacles.

"Government officials still have the wrong attitude when dealing with and serving the public. Sometimes they lack sincerity in helping out those in need."

Despite much publicity about state assistance provided to SMEs, those in need of financial support still find it difficult to obtain sources of funding, as it requires certain collateral and plans that most SMEs find difficult to create.

Today, although Coffee Cartel has not yet totally recovered from its losses, it is now able to finance its own monthly cash flow. Since the start of 2004, the company has begun to franchise Kahfae Sawasdee by providing franchisees with kiosks, along with the necessary equipment and intensive training, for a fee of 50,000 to 60,000 baht.

Coffee Cartel now has 30 franchisees and the founder expected to see at least 100 outlets in order to benefit from economies of scale. Currently, the company records monthly revenue ranging from 60,000 to 200,000 baht from selling coffee to its franchisees.


Access and funds for all

THE OFFICE of SMEs Promotion (Osmep) is expanding its services into provinces across the nation to ensure the effectiveness of the government's policy to establish grassroots and small and medium-sized businesses.

Founded in 2000 by the Thaksin Shinawatra government, the office has served the agenda of creating and developing SMEs in provincial communities.

According to Jhitraporn Techacharn, the office's director-general, the policy has generated satisfactory results over the past few years as reflected in the expansion of gross domestic product and export values generated by SMEs.

The statistics gathered by the office show that SMEs' overall GDP has grown by 4.3% yearly on average since 1991.

In the first half of 2004, the GDP of small businesses totalled 1.22 trillion baht, up 6.7% compared with the same period in the previous year. In 2003, the figure rose by 5.5% or 148.26 billion baht to 2.26 trillion compared with 2002.

In 2003, SME exports were valued at 1.517 trillion baht, up 25.4% or 307.7 billion compared with 2002. In the first half of 2004, the figure was estimated to have increased by around 25% to 27%.
Among the major export destinations for Thai products are Japan, China, the United States, Singapore and Hong Kong.

The most exported products by smaller-scale Thai manufacturers are electrical devices, machinery and parts, garments, vehicle parts and plastic products.

Next year, Thai SME exports are expected to reach almost two trillion baht, predicted Mrs Jhitraporn, noting that the figures would continue to rise since the government has been on the right track in promoting small and medium-scale ventures.

To further promote the businesses, she said the office would this year expand its services to the provinces, especially in the form of research and development and information centres.

"We need to make our services accessible to all, including those living in the rural areas who are now unable to reach our information and assistance resources," she said.

As well, the office will concentrate on developing supply chains and clusters and establish centres to distribute products manufactured under the One Tambon, One Product project.