Southeast Asian SMEs and Regional Economic Integration

The economic importance of small and medium-sized enterprises (SMEs) is widely recognized and acknowledged by researchers and policymakers in Southeast Asia. This is not surprising as SMEs typically account for about 97–99 per cent of total enterprises and 60–80 per cent of total employment in Southeast Asian countries (Lee and Zhang 2016). Such statistics notwithstanding, SMEs are often viewed as suffering from many disadvantages compared to large firms in the form of the lack of scale economies and resource constraints (Harvie 2015). In the theoretical and empirical trade literature on heterogeneous firms, these disadvantages translate into the problem of low productivity which affects SMEs’ exporting behaviour. For countries in Southeast Asia, this is a serious problem given the fact that many, if not all, countries in the region are committed to achieving greater intra- and inter-regional economic integration. This is to be achieved via the formation of the ASEAN Economic Community (AEC) as well as participation in bilateral and regional free trade agreements (FTAs). The question that follows is then this: Can manufacturing SMEs participate effectively in economic integration given the disadvantages they experience? It was with this question in mind that the Economic Research Institute for ASEAN and East Asia (ERIA) and ISEAS – Yusof Ishak Institute (ISEAS) collaborated to undertake a research project to better understand the current state of manufacturing SMEs’ participation in economic integration.¹

The two-year project, henceforth the ERIA-ISEAS project, involved the collection of primary micro-data in a few selected Southeast Asian countries. This special issue of the Journal of Southeast Asian Economies presents key empirical country papers from the project. These countries include Cambodia, Indonesia, Laos,² Myanmar, Philippines, Thailand and Vietnam.Several methodological challenges were encountered from the inception of the project. These affected the sampling approach to be adopted for the surveys. First, due to financial constraints, the project could only cover 200–300 firms per country. Due to

Table 1.

Sample Distribution by Industries and Country

this relatively small sample size, it made sense to focus on a few key industries. The main criteria for the choice of these industries was that they be important for the country (see Table 1).

A second methodological problem relates to the lack of a single definition of SMEs amongst Southeast Asian countries. To overcome this problem, a single definition (based on OECD discussion notes) was used to guide the sampling of firms by firm size.³ A third methodological decision was to include large-sized firms in the surveys. This was important in order to compare between SMEs and large firms and identify factors that uniquely affect the former group’s participation in economic integration. The guide for sample size distribution given to country researchers was as follows:

• • 30–40 per cent of sample: firms with 11–49 workers;

• • 40–50 per cent of sample: firms with 50–249 workers;

• • 20 per cent of sample: firms with 250 or more workers

Finally, the questionnaire used for the survey comprised forty questions organized into ten key sections: (1) general information; (2) sales and exports; (3) production and inputs; (4) employment and human resources; (5) technology and innovation; (6) the AEC; (7) the utilization of free trade agreements; (8) government support to SMEs; (9) other comments; and (10) risk preferences. The questionnaire was designed to generate data that could be used to econometrically test the determinants of participation in regional integration. From the onset of the project, the project coordinators made no effort to impose standardized econometric specifications. This encouraged the country paper writers to experiment with a variety of specifications which include determinants of: (i) export participation; (ii) import participation; (iii) FTA utilization; and (iv) participation in production networks.

What are the general findings of the country papers? Overall, there is still a low level of awareness about the AEC amongst SMEs, especially in some of the less developed ASEAN member countries. In these countries, there is significant uncertainty amongst SMEs about how the AEC will impact their...