MGT604 Case Study Analysis: SMEs and Economic Development in SE Asia

This case study analyzes the pivotal role of Small and Medium-sized Enterprises (SMEs) in the economic development of Southeast Asian countries. It explores the significant contributions of SMEs to job creation, income generation, and inclusive economic growth, highlighting their importance in a region characterized by rapid economic expansion driven by foreign investment and international trade. The study examines the impact of trade liberalization, deregulation, and the ASEAN Community on SME growth, emphasizing how these policies have enhanced competitiveness and productivity. It identifies key factors driving SME growth, including strategic goals set by ASEAN, such as promoting productivity, increasing access to finance and markets, and fostering human capital development. The case study also discusses challenges faced by SMEs, such as competition, access to technology and finance, and offers recommendations for developing SMEs in Fiji, drawing parallels with successful strategies in Southeast Asia. It stresses the importance of government support, financial access, technological innovation, and human resource development for the overall growth and development of SMEs in emerging economies.

Running head: ENTREPRENEUR AND SMALL BUSINESS MANAGEMENT
Role of SMEs in the development of South East Asian Economies
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Introduction
Small and medium-sized enterprises (SMEs) are integral part of the Southeast Asian
economies. As highlighted by ASEAN (2018), the SMEs can be considered as the backbone of
the economies in the Southeast Asia by contributing significantly in job creation, income
generation and creating opportunities for inclusive economic growth and prosperities for the
communities. This paper provides a synopsis of the role of the SMEs in the growth and
development of the Southeast Asian countries, the effect of the trade liberalization, deregulation
and ASEAN community as well as other factors on the growth of the SMEs in that region. It also
provides feasible recommendation for developing the SMEs in Fiji on the basis of the success
factors of the SMEs in the Southeast Asia.
Role of SMEs in the development of South East Asian economies
SMEs are highly significant contributors to inclusive economic growth and development
across the world including in the Southeast Asia. These enterprises help the regional economies
from variety of economic perspectives, such as, business numbers, employment, output,
entrepreneurial activity, growth, exports, economic empowerment, poverty alleviation, and wider
distribution of wealth (Lee, Narjoko and Oum 2017). The economies in the Southeast Asia are
one of the fastest growing emerging economies of the world, and the growth model is based on
foreign investment, international trade and integration into the global and regional value chains.
The SMEs have emerged as one of the key economic institutions that have been able to grab the
opportunities and bring growth and development for the Southeast Asia (ASEAN 2018).

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As reported by Pratama (2019), SMEs constitute a major part of the ASEAN economy.
The total establishments of SMEs stand at around 89% to 99%, total employment created in the
10 ASEAN Member States is around 52% to 97%, and contribution to each of the ASEAN
members is between 30% and 53% with the export contribution lying between 10% and 30%.
Due to the widespread presence in the rural and non-urban areas, the SMEs play a significant
role in job and income generation, youth and gender empowerment by creating opportunities for
participating in diverse businesses in the Southeast Asia (Pratama 2019).
Impact of trade liberalization, deregulation and the ASEAN Community to the growth of
SMEs in South East Asian economies
ASEAN (Association of South East Asian Nations) was formed in 1967 with only five
members, namely, Indonesia, Thailand, Singapore, Malaysia, and the Philippines. Brunei was
included in 1984 and in 1990, Myanmar, Vietnam, Cambodia and Laos joined ASEAN. This
community was established to promote economic growth and development in the less developed
Southeast Asian countries. For this purpose, the ASEAN members have trade liberalizations and
flexible regulations, which have been quite beneficial for the growth of the SMEs in this region.
The creation of the ASEAN economic community (AEC) in 2015 resulted in wider and inclusive
development goals under the 2030 Agenda, the economic region has been focusing on SME
development for fostering equitable economic growth and narrowing the considerable income
gap within the ASEAN Member States (Broinowski 2016).
Trade liberalization policies and deregulation measures have been quite beneficial for the
growth of the SMEs in the Southeast Asia as these policies helped these enterprises to improve
their competitiveness through increased trade within the region. These policies lead to tariff

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reduction and decreased tax rates which improve the firm level productivity and operational
efficiency of the SMEs. The pillars of the policies for SME development in the Southeast Asia
are based on principle of developing the SMEs to improve the market efficiency, to overcome
their structural weaknesses, and to increase the human welfare (OECD 2019). According to
ASEAN (2018), the drivers of increased SME productivity and performance in the ASEAN
region have been identified as the trade liberalization, FDI and clustering, while the major
challenges are the formalizations, regulatory restrictions, access to technology and finance.
However, over the past decade, the SMEs in the Southeast Asian region have developed
significantly, which in turn are contributing in the economic growth in the ASEAN Member
States.
Key factors for growth of SMEs in South East Asian economies
Various factors contribute in the growth of the SMEs in the South East Asian economies.
The Strategic Action Plan for SME Development (2016-2025) created by ASEAN outlined five
strategic goals, namely, promotion of productivity, increase access to finance, enhancement of
the access to market, enhancement of the policy and regulatory environment, and promotion of
human capital development and entrepreneurship (ASEAN 2018). Thus, it can be inferred that
the drivers of growth of the SMEs in the ASEAN region include the measures that promote the
strategic goals framed by OECD and AEC. The member economies have taken appropriate
measures for improving the understanding and strengthening the infrastructure of traditional
financing. Secondly, policy environment, such as, trade liberalization with reduced or removed
tariffs, easy lending rates and conditions etc. are implemented for fostering the non-conventional
and alternative financing process. Thirdly, the availability of diversified sources of the private
financing is increased substantially, which also strengthened the facilities for export financing.

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Fourthly, for promoting inclusive growth, financial inclusion is encouraged through traditional
and non-traditional financing. The extent of these measures are taken as per the economic
condition of each of member states of ASEAN, so that the risks of disruptions can be mitigated
(Iqbal and Rahman 2016).
Focus has been given on developing human capital by creating education and training
opportunities for the people engaged in the SMEs. For example, the OECD Southeast Asia
Regional Programme provides training to SMEs for improved performances in the areas of
investment, innovation, digitalization, productivity, global value chains, and sustainable
activities. Moreover, the Economic Research Institute for ASEAN and East Asia (ERIA) also
takes measures for SME development by programmes in trade, human resource development,
investment, and infrastructure development (McCawley 2019).
However, the SMEs in the South East Asian economies still face challenges in terms of
increasing competition from other Asian countries, like, China, Japan, Korea and India, in the
areas of technology, global value chain, improved production network, product quality and
market size (Wignaraja 2013), and through the strategy of inclusive and broader growth and
increased access to finance, these challenges will be addressed by the SMEs in ASEAN region.
Conclusion and recommendations for developing SMEs in Fiji
The SMEs in Fiji are still in the development stage. According to OECD (2019), the
growth potential in Fiji can be achieved through extensive marketing, and the major challenges
have been identified as the pricing strategy of the goods, fixed cost of the businesses and the
competition from the bigger businesses within the economy. Another common challenge for the
SMEs in both South East Asia and Fiji is the access to finance (Chandra, Paul and Chavan 2020).

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The financial institutions in Fiji are often reluctant to provide loans and funds to the SMEs due to
risks of failure and that has been a major impediment to their growth. Along with that, there is
need for human capital development and trade liberalization measures for addressing the higher
competition faced by the SMEs (Kamal-Chaoui 2018).
The ASEAN Member States have been taking important measures for the growth of
entrepreneurship and small business in South East Asia, which address various aspects and
challenges faced by the SMEs. On one hand, the access to financing is being made stronger by
introducing traditional as well as non-traditional sources of financing, on the other hand,
programmes are run to train the human resources on trading, improving production quality,
digitalization techniques and innovation and marketing techniques to capture a larger market not
only within the Southeast Asia, but also in a larger scale by entering the global value chain and
production network.
In a similar fashion, growth and development can be achieved in the SME sector of Fiji.
The government of Fiji should focus on creating a durable pattern for achieving socio-economic
growth through structural diversification, increased finances, technological advancement
promoting the SME operations, improvement of quality of human resources, modernization and
enhancement of production quality. These measures can lead to higher level of production
flexibility, higher productivity and improved innovation capabilities. These would also lead to
increasing number of the clusters of SMEs. It can be inferred that for growth and development of
SMEs in less developed and emerging economies, supports from the governments and from the
economic regions are highly essential. Access to finance must be secured along with measures
for inclusive growth, such as, technological innovation and development, trade liberalization

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policies, flexible pricing policies, moderate competition and training the human resources are
some other important factors that lead to overall growth and development of SMEs.
References
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