13
20 40
60 80
100 120
2000 2001
2002 2003
2004 2005
2006 Manufacturing
Mining Agriculture
Source: Menegkop UKM
However, the share of SMEs in total export of manufacturing industry is much smaller than that of their larger counterparts. Within the group, MEs performed much better than their smaller counterparts. As can be seen
in Figure 5, the share of SEs never reached 10 percent. In 2000 it was only 3.15 percent and slightly decreased to 3 percent in 2006. While during the same period, the export share of MEs was 12.53 percent and improved to
14.72 percent. Previously, such as Hill 1997, 2001, Tambunan 2006b, and Thee 1993 argue that, although on average per year the export contribution of SMEs in Indonesia’s total manufacturing export is relatively small as
compared to that of their larger counterparts, they seem to have shared nicely in the manufactured export boom in the 1980s and 1990s. Thee 1993 concludes that from the point of view of technology and adaptability, export
growth of SMEs in manufacturing industry has been achieved substantially by finding niche markets and adapting costs and quality to market demand.
Figure 5: Share of SMEs in Total Export Value in Manufacturing Industry, 2000-2006
20 40
60 80
100
2000 2001
2002 2003
2004 2005
2006 SE
ME LE
Source: Menegkop UKM
4.2 Constraints
The development of viable and efficient SMEs, particularly non-farm enterprises, is hampered by several constraints. The constraints may differ from region to region, between rural and urban, between sectors, or
between individual enterprises within a sector. However, there are a number of constraints common to all SMEs. These common constraints faced by SMEs are the lack of capital, difficulties in procuring raw materials, lack of
access to relevant business information, difficulties in marketing and distribution; low technological capabilities,
14 high transportation costs; communication problems; problems caused by cumbersome and costly bureaucratic
procedures, especially in getting the required licenses; and policies and regulations that generate market distortions.
RAM Consultancy Services’ 2005 report states that various impediments prevent SME in ASEAN from developing to their full potential. One of constraints faced by these enterprises is the lack of access to formal
credit to finance their needed working capitals.
11
With limited working capital, it is hard for them to expand their production and hence to increase their share in total output. However, main constraints and the degree of
importance of each constraints faced by ASEAN SMEs vary by member country, depending on differences in many aspects including level of SMEs development, nature and degree of economic development, public policies
and facilities, and of course also nature and intensity of government interventions towards SMEs. In Indonesia, for instance, in 2003 BPS published the results of its survey on SMEs in manufacturing industry
with some questions dealing with the main constraints facing the enterprises. As presented in Table 10, it reveals that not all of the producers surveyed see lack of capital as their serious business constraints. For those who face
capital constraint are mainly MIEs located in ruralbackward areas and they never received any credit from banks or from various existing government sponsored SME credit schemes. They depend fully on their own savings,
money from relatives and credit from informal lenders for financing their daily business operations.
Table 10: Main Problems faced by SEs and MIEs in Manufacturing Industry, 2003
Note: = Source: BPS
11
The RAM Consultancy Services’ report 2005 shows that around 75-90 of ASEAN SMEs rely on internal savings, retained earnings and borrowing from family, friends and money lenders collectively known as ‘informal sector’ as opposed to the 3-18
which have access to formal sector finance banks, capital markets, venture capitalists etc. For start-up companies, the rate of funding from the formal bank sector is even lower. For example, only 12 of SMEs in Indonesia had access to bank financing while in
Singapore, it is estimated between 20-25 from one source and 49 from another survey source. In Malaysia, 47.3 of SME had access to bank funds compared to 32.4 that relied on internal funds and 11 from family and friends. Wattanapruttipaisan 2004
provides a more complete read on these patterns and characteristics of SMEs financing in ASEAN. Like their counterparts in other developing countries, SMEs in ASEAN generally have not been successful in tapping funds from the formal financial sector. If they did,
it is usually at relatively high cost.
15 Another main constraint is difficulty in marketing. SMEs facing this problem are those which usually do not
have the resources to explore their own markets. Instead, they depend heavily on their trading partners for marketing of their products, either within the framework of local production networks and subcontracting
relationships or orders from customers. ‘Others’ include cumbersome and onerous business regulations and restrictions. Basically, these problems
which hamper business activities in Indonesia reflect the poor governance in Indonesia. One of the most egregious restrictive regulations which hampered bona fide business in Indonesia, including SMEs, was the
policy-generated barriers to domestic competition and trade. These policy-generated barriers included the barriers to inter-regional and inter-island trade and proliferation of several state and private monopolies which proliferated
during the late New Order era. The policy-generated barriers to domestic competition and trade included barriers to entry in certain economic activities, officially sanctioned cartels and monopolies, price controls, dominance of
state-owned enterprises in certain sectors and preferential treatment for selected favoured LEs.
5. Vietnam 5.1 Economic Contribution
SMEs have played an important role in the national economy. First of all, the sector has long been a major source of employment generation, for instance, accounting for about 85 of total corporate workforce in 2004 Ba et al,
2006. In conjunction with their very important role in employment generation, SMEs are a main vehicle for poverty alleviation, particularly in rural areas and for narrowing development gaps among provinces, urban and
rural areas of the country. In addition, SMEs help to maintaining the high flexibility of the labor market. Lastly, SMEs have also contributed significantly to absorb the “shocks” associating with the transitional period from a
centrally planned economy to a market one and especially the collapse of the socialist bloc in Eastern Europe Sang, 1997.
The contribution of the SMEs to economic growth is also important. They contributed to 39 of GDP in 2006 Hung, 2007. The precise trend of their contribution to GDP over recent years, however, is hardly defined due to
the lack of systematic and reliable data. While SMEs accounts for an overwhelming proportion in total number of non-state owned enterprises SOE, the share of the latter in overall GDP tended to decrease steadily over the last
six years i.e. from 48 in 2001 to 46 of GDP in 2006 unless the increasing tendency of GDP growth rate from 6.4 in 2001 to 8.7 in 2006 CIEM, 2007. Vietnam’s SMEs have likely played a minor role in
comparison with SOE as the former account for only 32 of total investment outlays, much less than that of the later more than 50. In addition, the SMEs have very limited export capability will be discussed later on.
Vietnam’s SMEs account for overwhelming proportion in total corporate sector by both criteria regular workforce and registered capital. This group of enterprises represents for 95, 97 by regular workforce
