Simply providing SMEs with massive financial assistance these days is no guarantee they will survive, so the government's focus has shifted towards strengthening their competitiveness by SOONRUTH BUNYAMANEE

Over the past four years of the Thai Rak Thai partyled administration, small and mediumsized enterprises (SMEs) have received the full support of the government, particularly on the financial side. Stateowned banks have injected a massive amount of money into the SME sector.

However, it seems the government has focused on providing financial support without paying enough attention to strengthening SMEs' competitiveness, along with management and production competence.

Many newlyset up SMEs have ended up going bust as a result, especially since the economy is undergoing key challenges, including surging oil prices, higher interest rates, a slowdown in domestic consumption and large trade and current account deficits.

Chotisak Asapaviriya, president of the Small and Medium Enterprises Development Bank of Thailand, admitted the survival rate of new SMEs is currently only around 3040%.

Accordingly, the SME Bank has shifted the focus of its support from injecting large amounts of money during the government's first term to promoting competitiveness, management, marketing, quality and innovation under the "Smart SMEs" concept.

The focus is now on competitiveness, management, marketing, quality and innovation.

"We have an aim to increase the survival rate of new SMEs to at least 6070% from 3040%," Mr Chotisak said. He insisted that "injecting money in the past four years was justified because the country had just weathered an economic storm and access by businesses to capital sources was vital to economic rehabilitation at that time".

Total funding to small businesses, mainly from the SME Bank and other state financial institutions, rose from 200 billion baht in 2002 to 400 billion baht in 2003. It surged again in 2004 to 700 billion baht when lending to small businesses by commercial banks began to tail off. It is expected to reach 800900 billion baht this year, Mr Chotisak said.

The SME Bank aims to provide 38 billion baht in financial assistance to SMEs this year, up from 33 billion baht last year and 27 billion baht in 2003.

Other state agencies have also turned to focusing greater attention to enhancing competence in the management and business quality of SMEs.

The Board of Investment, for example, has been instructed by the government to develop Thai SMEs into "smart ones". Under its programme, the agency will also work with CEO provincial governors to develop clustered and community enterprises.

The North will target IT and software industries from North America, India and Japan, while the Northeast will focus on research and development (R&D) of governmentpromoted One Tambon One Product (Otop) products as well as providing industry support.

Chotisak Survival rate must be 60-70%

The central and eastern regions will target the biotech industries, as well as R&D for agriculturalrelated industries, tourism, automotive and electronics, along with logistics centres. The South aims to lure investments in tourism, transport, rubber products and Halal foods However, Otop appears to have lost momentum. A few years ago, the Otop City fair at the Impact Center drew huge crowds. After that, Otop fairs then started popping up almost everywhere with many products available for sale.

However, the similarity of Otop products and the fairs led to them becoming less popular among consumers who were also spending less due to concerns about the economy.

SME Bank executive vicepresident Surachai Kampalanonwat said it is not easy for Otop products to stand on their own two feet unless they were unique, really popular and of good quality.

While Otop fairs have become less popular, distribution centres for Otop sales have not even been able to survive. However, Otop products sold at major shopping complexes are still selling well.

Mr Surachai's view on the viability of Otop products was shared by many marketing experts who expressed concern about the huge investment made by the government to establish the Thailand Plaza at Fifth Avenue, New York, as a venue for Otop sales overseas.

They doubted whether the project was worth the investment and how indepth the government's study and research on marketing and customer behaviour was before it made the decision to proceed.

According to a survey by the SME Promotion Office, there were 2,006 enterprises nationwide in 2004. Of these, 1,995 or 99.5% were SMEs, up from 1,639 in 2002. Most are retail business SMEs (36.2%), followed by those in the service sector (35.9%), production (21.6%), and the wholesale sector (6.3%).

In terms of location, 30.6% of SMEs are in Greater Bangkok, 15% in the Northeast, 26% in the North, 12.4% in the South, 10.2% in the central region and 5.5% in the East.

SMEs employed 5.57 million people in 2004, or 60.7% of the country's total workforce, an increase of 11.6% from the level in 2002. They accounted for 38.1% of gross domestic product compared with 38.8% in 2002.

SME exports represented 45.5% of the country's total shipments of industrial products in 2004, up from 38.2% the previous year.

The SME Promotion Office plans to adopt the following key five strategies to prepare for the country's economic and social revamp from 2005-2008


TRENDSETTING DOESN'T COME EASY

 

Examples of the creativity of Thai designers were highlighted at a recent fashion show in Bangkok.

The government's ambition to position Thailand as a worldclass fashion hub like London, Paris or Milan still looks to be a long way off as progress has been slow despite the launch of its ambitious Bangkok Fashion City project in 2003.

After the government decided that fashion should become a key strategic industry, the Bangkok Fashion City project was set up to support growth in the fashion sector and to develop the competitive edge of Thai firms in the international fashion market.
However, progress of the project, which consists of 11 key programmes, has been delayed for over a year now due to complaints over an opaque project bidding process.

One area of difficulty has been the budget reductions affecting the revenues of the privatesector firms awarded contracts. Despite earning less money as a result, they have been asked to maintain both the quantity and quality of their work.

The government decided to cut its contribution to the project budget to 1.8 billion baht from 2.3 billion baht after the bidding process was completed. Consequently, the winning bid prices have been revised down to correspond with this new, smaller budget.

Meanwhile, many local small and mediumsized enterprises (SMEs) in the fashion sector have been unable to achieve the project's objectives, particularly in terms of creating strong and viable brands. Only a few local entrepreneurs have succeeded in making their brands well known on the international stage.

In addition, Thailand's competitive advantage as a manufacturing base for the fashion industry has been eroded with the rapid emergence of rival material and labourintensive countries such as China, Vietnam and India.

In terms of firstquarter financial performance among the 25 listed companies in the fashion sector, only eight enjoyed improved net profits while 15 were actually worse off compared with last year. Two companies, Thanulux Plc (TNL) and Thai Wacoal, saw profits unchanged.

Parnpree Goal can be achieved in two years

The three firms that posted the best performances on a yearonyear basis were Thai Rayon Plc (TR), Hua Thai Industry Plc (HT) and Boutique New City Plc (BTNC). Their net profits per share rose a respective 134%, 119% and 115%.

Most of the companies said the key reason why their profitability fell was due to a decline in their selling prices per unit and a simultaneous rise in production costs.

To make firms in the fashion sector profitable on a longterm basis, the key objectives for the Bangkok Fashion City project and in the development of the fashion industry in Thailand don't seem to be simply organising fashion contests or shows.

Local manufacturers also need to create unique brands that can compete globally no matter whether they are producers of textiles and fabric, or fashion designers and clothing manufacturers.

However, Parnpree Bahiddhanukara, viceminister for the Industry Ministry, is confident that Thai fashion will be able to come up with worldclass designs within two years in a concerted drive under the Bangkok Fashion City banner.

Although the government budget has been cut to 1.8 billion baht from the initial plan of 2.3 billion, Mr Parnpree said the privatesector contribution was still in place at 490 million baht.

"Although the [total] budget of 2.3 billion baht cannot be counted as a huge amount for such a great project, it can generate a great deal of further support if the budget is efficiently administered," said Mr Parnpree.

He said that although Thailand started much later than Paris, Milan and London in terms of positioning to become an international fashion centre, it would be possible to achieve the objective over the next two years given strong support from the government and the expertise designers, manufacturers and marketers.

So far, only seven of the 11 projects under the Bangkok Fashion City campaign have got under way. Whether the remaining four projects will go ahead depends on the flexibility of the government to accommodate the proposals of those firms that will run the projects, said Mr Parnpree.

To this end, Mr Parnpree said the Industry Ministry was planning a workshop with the companies involved at Khao Yai National Park.

Meanwhile, to enhance the image of the Thai fashion industry in the areas of textiles and garments, gems and jewellery, and shoes and leatherwear, the Industry Ministry has held Bangkok Fashion Week 2005, Thailand's first major international event.

The showcase will take place in two phases according to the international fashion calendars. The first event will be held from Aug 1721 and the second from March 1519, 2006, with venues at both the Queen Sirikit National Convention Center and Benjakitti Park.

Ponlawat Sookcharus, executive producer of AV Project Ltd which won the bid to organise Bangkok Fashion Week 2005, said his company had signed a 321millionbaht contract with Industry Ministry to coordinate the events that will bring together catwalk as well as trade shows.

The catwalk shows will consist of two segments _ main shows highlighting leading designers of established brands, and independent ones for younger, upandcoming designers, including fashion institute students whose work is considered outstanding. Thai designers have come out in force to join the shows and they include Nagara, Metta, Issue, Grey, Senada, Kloset, Anurak and Zenith, Tube Gallery, Fly Now, Mae Fah Luang, S318 (Korkanok), ABNormal and Tango.