«Published Annually Vol. 6, No. 1 ISBN 978-0-979-7593-3-8 CONFERENCE PROCEEDINGS Sawyer School of Business, Suffolk University, Boston, Massachusetts ...»
Strategic considerations for policy formulation must be:
The promotion of a culture of entrepreneurship, networking and innovation; and ensure that SMEs become and remain a learning organization where productivity and innovation are constantly improved.
There is a need to speed up SME participation in borderless e-commerce, and to overcome bottlenecks in bank and supplementary financing for SMEs.
Creation of SME friendly governance by the public sector which has a major role to play in policy liberalization, administrative deregulation, and asset privatization. Good governance must be conducive to promotion of entrepreneurial initiatives.
Establish a strong public-private sector partnership in favor of SMEs.
In this age of globalization and with an increase in regional trade and transactions, SMEs must be capable of competing in the global marketplace. Exports provide the economy with valuable foreign exchange as well as provide higher returns and new markets. They also serve in increasing employment which is a priority for Laos. The major tool to help develop local capacity is by sub-contracting. SME policies to help compete were outlined in a discussion in a project by the Economic Research Institute for ASEAN and East Asia (ERIA). The study “Asian SMEs and Globalization” reports the current status and challenges of Asian
SMEs (Lin, 2007) as follows:
SME policies have tended to have contradicting objectives – protecting and promoting SMEs at the same time SME policies must also consider private sector initiatives and not only targets defined by government - few local SMEs are able to qualify as sub-contractors and need help In Laos, SMEs face challenges of high taxes, high inflation, an unstable exchange rate and a lack of funding
The following recommendations are relevant for the development of SME policy:
SME policies must be long-term based and need effective coordination and implementation – this is not always the case and inconsistencies often are the case Best practices must be developed for the business environment, subcontracting and networking and a monitoring mechanism put in place Local governments must create a SME database and use it to coordinate between owners and supporting organizations.
SME database needs to be streamlined and quality improved A quality certification system is needed to improve quality and competitiveness Anti-monopoly regulations need to be enacted and implemented SME incubators can help in enhancing new entry in a competitive environment Joint technology centers with FDI providers can help disseminate information and provide training for local SMEs – an example of this is the Japan-Singapore Technology Center. Table 6 illustrates the potential of FDI in the Lao economy which showed a very low percentage of GDP and gradually increasing until the market downturn in 2008.
Conference papers © Knowledge Globalization Institute, Pune, India, 2012 In a 2005 study of the factors that affect Lao SMEs as they attempt to integrate with the regional economies (Nouansavanh, 2005), it was noted that the overall effects of joining AFTA were positive in that exports would increase but measures need to be taken to increase competitiveness. The following problems were highlighted that must be taken into account in formulating
The problems of red tape and bureaucratic obstacles persist and need to be addressed on an urgent basis. They erode entrepreneurial energies. Rules and regulations need to change to meet standards set in the neighboring countries There is low entrepreneurial spirit and lack a serious of managerial skills and knowledge. Management education has to be improved.
There is a strong need to improve technology transfer so as to increase productivity of the manufacturing sector.
There is limited access to information and information technology in Laos. This issue needs to be addressed by disseminating business information from different agencies to interested parties. Lack of knowledge of English is a serious concern.
Access to financing for SME is a major problem.
Recommendations for policy formulation and implementation include the need to create a conducive and enabling business environment starting at the micro-level. The government and the private sector need to work closely as genuine partners in this regard. The existing regulations need to be reviewed and made more business-friendly and attractive to both local and foreign investors. Especially with regards Laos, regulations must be “simplified in terms of content, procedures and coherence.” (Nouansavanh, 2005) Coordination between different levels of public administration and the various stakeholders needs to me improved. Good managerial and technical support services require attention. New instruments of financing need to be developed and the overall infrastructure of the country needs to be developed at a faster rate.
The legal system in Laos is based on French legal norms and procedures, socialist practice, and traditional customs. The judiciary is poorly trained and rather inefficient, even corrupt. Judges are all LPRP members and appointed. Laws have been enacted to protect citizens against arbitrary arrest and detention. In rural Laos, disputes are handled by village committees.
Inter-village disputes in turn are handled by the district administration in line with local customs and socialist practices.
(Bhasin, 2010) The legal environment lacks transparency and is “saddled with red tape, inefficiencies and ambiguous practices that allow abuse.” (RAM Consultancy, 2005) Areas that need reform are: weak secured transaction law and other commercial laws, lack of titles to property, absence of transaction registry and the existence of large number of unregistered small businesses in the country as the criteria for registration are ambiguous, cumbersome and costs are too high.
In a presentation to the Regional Forum on Trade Facilitation and SMEs in Times of Crisis, organized by the World Bank’s Development Research Group in Beijing on May 20-22, 2009, the President of the Young Entrepreneurs Association of Laos (LYEA) Ousavanh Thiengthepvongsa noted that being a landlocked developing country (LLDC), Laos had special challenges in development. Landlocked countries are dependent on trade and transport in neighboring and coastal countries. Imports and exports have to travel long distances which increases transaction costs and reduces competitiveness. The country must find more creative ways to make domestic enterprises more competitive in a globalized world. Recommendations include adopting an integrated, holistic approach. Strategy should encompass reforms in the areas of: a targeted agenda that is comprehensive and realistic; facilitation of transport and transit including physical infrastructure; legal and regulatory reform including implementation and enforcement; regional cooperation to be a priority to overcome problems related to LLDC issues. Finally, in order to achieve any or all of these, a strong political will is a prerequisite without which nothing of consequence can be accomplished. (Thiengthepvongsa, 2009)
Conclusion and Recommendations
Laos is one of the few one party communist states, but the drive to open markets and develop private enterprise has taken off rather well. The Government of Laos (GoL) recognizes the important role entrepreneurs and SMEs play in the development of the economy and country. It needs to put much more effort in creating the infrastructure and institution that are so vital to economic development. The immediate priority is to ensure macroeconomic and financial stability and continue developing closer commercial links with neighboring countries that provide greater access to outside markets, capital and technology.
There is shortage of power supply, many parts of the country do not have proper roads and transport access, poverty and literacy are still a challenge, and there continues to be dependence on small sectors of the economy mainly agriculture, mining, forestry, hydropower and some tourism. The country is still transitioning from government controlled to a privately held open system. Processes and procedures, control mechanisms and legal structure are yet to be fully in place. The country has applied Conference papers © Knowledge Globalization Institute, Pune, India, 2012 for membership to the WTO (expected in 2010 and overdue) and this will pave the way for the opening of new markets and increase in trade.
For SMEs in Laos to take advantage of opportunities arising from globalization, they must develop capacities that will allow them to compete in global markets. Harvie (2004) proposes that a clear and well defined SME development policy must
Access to markets Access to financing Access to information and Access to technology The country is well poised to benefit from regional markets through its membership to the ASEAN Free Trade Area (AFTA) and to global markets when it becomes a fully fledged member of the World Trade Organization (WTO). It needs to structure and implement a more sound financing mechanism to help new startups gain access to capital as well as in providing avenues for existing SMEs grow and prosper. This includes positive tax regime that encourages local and foreign investment. There is a dire need to provide information for SME development and this needs a systematic approach and proper implementation. Finally, in order to benefit from the advantages new technology brings, proper training and transfer of skill is essential. Laos needs to bolster its education system with a total onslaught in preparing the people to be more entrepreneurial and to create a risk taking culture. It is recommended that Laos can learn much from the neighboring countries like India, Singapore, Thailand and Vietnam. These countries have succeeded in dealing with similar challenges.
REFERENCES Asasen C., Asasen K., and Chuangcham N. (2003) “A Proposed ASEAN Policy Blueprint for SME Development 2004-2014”, Regional Economic Policy Support Facility (REPSF) of the ASEAN-Australia Development Cooperation Program, REPSF Project 02/2005 Bhasin, B. (2010) Doing Business in the ASEAN Countries, Business Expert Press, New York Bhasin B. and Venkataramany S. (2010) “Globalization of Entrepreneurship: Policy Considerations for SME Development in Indonesia”, International Business and Economics Research Journal, Vol 9 No. 4, 2010 CIA World Factbook (2010) Downloaded on April 15, 2011 from: www.cia.gov/library/publications/the-worldfactbook/geos/la.html Harvie, C. (2004) “East Asian SME Capacity Building, Competitiveness and Market Opportunities in a Global Economy” Department of Economics, University of Wollongong, Working Paper 04-16, 2004 Inmyxai, Somdy (2003) “Small and Medium Enterprise (SME) Development Framework in Lao PDR”, Regional Workshop on Trade Capacity Building and Private Sector Development in Asia, sponsored by the OECD Development Co-operation Directorate and the Development Center, Phnom Penh, Cambodia, 2-3 December, 2003 Kongmanila, Xayphone and Kimbara, Tatsuo (2007) “Corporate Financing and Performance of SMEs: The Moderating Effects of Ownership Types and Management Styles”, The Journal of the Malaysian Institute of Management, July-December, 2007 Kongmanila, Xayphone and Kimbara, Tatsuo (2008), “Financial Performance of Founder-Managed and Professionally-Managed SMEs: An Empirical Investigation of Lao Trading Firms”, Journal of International Development and Cooperation, Vol. 14, No. 1, 2008, pp 13-25 Kyophilavong, Phouphet (2007) “SME Development in Lao PDR”, Economic Research Institute for ASEAN and East Asia (ERIA), ERIA Research Project No. 7, 2007, Jakarta, Indonesia Kyophilavong, Phouphet (2009) “Integrating Lao SMEs into a More Integrated East Asia Region”, Economic Research Institute for ASEAN and East Asia (ERIA), ERIA Research Project No. 8, 2009, Jakarta, Indonesia Conference papers © Knowledge Globalization Institute, Pune, India, 2012 Lin, Hank ed. (2007) “SMEs in Asia and Globalization”, Economic Research Institute for ASEAN and East Asia (ERIA), ERIA Research Project No. 5, 2007, Jakarta, Indonesia Nouansavanh, Khamlusa (2005) “ Laotian Small and Medium Size Enterprises and the regional economic integration” Asian Community Research Center, Osaka, Japan Phoumilay, P. and Douangsavanh B. (2008) Country Paper - Lao PDR: “Best Practices on SME Development and Management” presented at the Joint Workshop on SME Development and Regional Economic Development, 22-26 September 2008, Tokyo, Japan RAM Consultancy (2005) “SME Access to Financing: Addressing the Supply Side of SME Financing” Final Main Report, REPFS Project 04/2003, Asean Secretariat, Indonesia. Accessed on 12 May 2010 at www.aseansec.org/aadcp/repsf/docs/04-003-FinalMainReport.pdf Southiseng, Ty, Walsh and Anurit (2007) “Development of Excellent Entrepreneurs in Small and Medium Enterprises in Laos and Cambodia”, GMSARN International Conference on Sustainable Development: Challenges and Opportunities for GMS, 12-14 December, 2007 Southiseng S. and Walsh, J. (2010) “Competition and Management Issues of SME Entrepreneurs in Laos: Evidence from Empirical Studies in Vientiane Municipality, Savannakhet and Luang Prabang”, Asian Journal of Business Management, 2(3): 57Thiengthepvongsa, Ousavanh (2009) “Facilitating landlocked and least developed country SMEs participation in trade”, Regional Forum on Trade Facilitation and SMEs in Times of Crisis, organized by the World Bank’s Development Research Group in Beijing, China on May 20-22, 2009
US Department of State. (2010). Background Notes of Countries. Retrieved February 1, 2010 from: