SMALL AND MEDIUM ENTERPRISES (SMEs): CAMBODIA PERSPECTIVE

Chapter 1Introduction to SMEs and Definition

Prepared Prof. (Dr.) Kao Kveng HongPh.D., D.Litt., D.Sc.

Date: 06th July, 2015

Palm Wine and Drink Bamboo Caned

Diamond -Gem Grape Wine

Dry Fish and Naem Grape Wine

Summary Topics Introduction to SMEs background In Cambodia

Definition of SMEs in Cambodia and Oversea

Problems and Solving of the SMEs in Cambodia

Factors Effect to Sales of SMEs in Cambodia

Introduction SMEs contribute to economic growth, develop social infrastructure, create employment, opportunities and local development of an economy .

But, most SMEs lack technical expertise, and adequate capital for making technological improvements.

At the same time, many SMEs suffer from inadequate organizational planning and sales strategies.

SMEs differ from large enterprises in terms of the scope of the products or service varieties available to the customers.

Introduction (Cont’)The strategies of SMEs are different from large enterprises.

Due to lack of control over market place and their external environment, SMEs mostly set and run short term policies and strategies, including sales strategies, which enable them to change the strategies whenever necessary by looking to the market situation.

The strategies of SMEs are the important key to boost and survive the sales of an organization. These come from marketing activities to drive the sales volume.

It is very difficult to use the strategies successfully without the support of marketing activities, and the companies cannot do business without the customers or sales.

Definitions: what mean by SMEs?

Small and Medium Enterprise: Small Firm: Employees between 11 to 50 employees, and has fixed asset from $ 50,000 up to $ 250,000. Medium firm: Employees 51 to 200 and fixed asset from $250,000 to $500,000 (Phuthikar, 2007).

SMEs in Various Countries : Difference countries have different definitions of SME. India are based on investment, while in South Africa SME eligibility depend on Employees and turn over.

Status of Small and Medium Enterprises (SMEs) European country:

Micro: less than 10 employees, turnover 2Millions Euro

Small: 10-49 employees, turnover 10 millions Euro

Medium : 50-249 employees, and turnover 50 million Euro

Japan : Manufacturing industrial ( capital less than 300M, and Less than 300 employees), wholesale trade ( Capital less than 100M, and Less than 100 employees), service and retails ( Capital less than 50M, and Less than 50 employees)

Lichelle ( 2005): Great Mekong, SME’s distribution take share 99% in average of the whole industry sector.

Criteria used to define SME’s in South East Asian Countries

Criteria Used to define SME's in South East Asian Countries Countries Size Employees

( Number) Capital

(US $ ' 000) Turnover

( US $ ' 000)

Brunei Darussalam Small 1 - 10 Medium 11 - 100 10 - 29

Indonesia Small SME's < 100 SME's < 84 (Total assets)

SME's < 1,000 (Sales) Medium

Lao PDR Small < 10 Depends on the

number of establishments in

sector

Medium 10 - 29

Malaysia Small

SME's < 76 < 198

Medium 198 - 939

Myanmar Small < 50 < 167 < 17

( Production) Medium 50 - 100 167 - 835 17 - 1670

( Production )

Philippines Small 10 - 99 <570 Medium 100 - 199 570 - 2,282

Singapore Small Services sector SME's < 100

Manufacturing sector SME's <

8570

Medium

Thailand Small Labor-intensive industries: < 50

Capital intensive industries-fixed assets: < 781

Medium 50 - 200 781 - 3,905

Viet Nam Small < 50 < 4 Medium 50 - 100 4 - 18

Source: United Nation, Small Industry Bulletin for Asia and Pacific, Year 1998, (No. 30, Page 44).

Status of SMEs in Cambodia SMEs in Cambodia: Cambodia’s private sector is

made up of small and medium enterprises (including micro) consisting of about 90 per cent of the firms and consuming 45 per cent of employment of the labor force market (MIME, 2005).

The survey data resulted in large number of missing establishments due to lack of coverage and updated information. One more thing is that it is difficult to estimate the exact number of small and medium enterprises, because there are so many unlicensed industrial establishments (MIME, 2006).

During 1996-2001, the highest growth rate of production value for the domestic market in Cambodia was in micro and small firms. This shows that micro and small enterprises had been playing an important role in the domestic market of the country (Watho, 2005). it grow the economy and employment income generation.

Profile of Small and Medium Enterprises In Phnom Penh

Location of Small and Medium Enterprises

AreaSmall Enterprises Medium Enterprises Total

Number % Number % Number Percentage

Dangkoa District 1 3.13 0 0.00 1 1.56Reuseykeo District 4 12.50 2 6.25 6 9.38Daun Penh District 0 0.00 3 9.38 3 4.69Meanchey District 9 28.13 2 6.25 11 17.19Toulkok District 5 15.63 8 25.00 13 20.31Chamkarmon District 7 21.88 10 31.25 17 26.56

Brampi Makara District 1 3.13 5 15.63 6 9.38

Around Phnom Penh Area 5 15.63 2 6.25 7 10.94

Total 32 100.00 32 100.00 64 100.00

Duration of Operation of Small and Medium Enterprises

2 years3%

5 years25%6 years

3%

7 years47%

3 years13%

4 years9%

Medium EnterprisesSmall Enterprises Total Enterprises

2 years19%

5 years6%

6 years9%

7 years28%

3 years13%

4 years25%

2 years11%

5 years16%

6 years6%

7 years37%

3 years13%

4 years17%

Small and Medium Enterprises Producing Different Types of

Products

31.25 39.06

15.63 28.13 21.88

39.0640.6337.5

46.88

0%

20%

40%

60%

80%

100%

Small Enterprises Medium Enterprises Total Enterprises

Drink/Beverage Food Other consumer product

SMEs as per the Levels of Profits, 2008

12.5

18.7515.637.8112.5 6.25

65.6387.5

43.75

25

1.563.13

0%

20%

40%

60%

80%

100%

Small Enterprises Medium Enterprises Total Enterprises

More than 500000 USD250000-500000USD20000-250000USD5000-20000 USDLess than 5000USD

Small and Medium Enterprises as per the

Use of Machines

12.56.256.25 6.25 6.25

53.13

28.13

6.25

81.25

9.3817.19

67.19

0102030405060708090

100

SecondhandMachine

New Machine butOld Model

Both Old and NewMachines

New Machine w ithLatest Technology

Perc

enta

ge

Small EnterprisesMedium EntprisesTotal Enterprises

Challenge for develop of SMEs

Building Human Resource capabilities, Building on link with public sector to

establish internal business capability, Gaining access financial resource, Gaining access to information about

market and business opportunity, Establishing network to consolidate SMEs

in key Niches along value chain added industry and enhancing technology capability.

Problem & Solving of

SMEs

Background of The SMEsThe country bounced back to normalcy and rebuilt

the destroyed institutions and capacities in various fields in 1993.

The government has strong effort through various reforms in the economy from 1980s and extended to a dramatic turning point in 1989, when the country was at the state economy and turned to free market economy.

The enterprises owned by the state were privatized.

The government increased motivation to local and foreign private investment.

The price control was blocked and private property rights were restored.

Large number of foreign direct ventures, mainly from Asian countries followed by Europe and USA, grew in the country after the free election in 1993 .

Background of The SMEs (Cont’)

The Royal Government has achieved tangible results by implementing the “Triangle Strategy”. A few SMEs has been started.

Government forum on privates sector in August 20, 2004 had been prepared to reduce the bureaucracy and corruption to get more investor and more SMEs.

In October 2004, Cambodia successfully became a member of World Trade Organization (WTO) , More Competition have been happened in the market.

Economics Background of CambodiaIn 2003, industrial sector had increased from 12.5 per cent to 17.1 per cent in 2006 while service sector had increased slightly from 8.6 per cent to 10.4 per cent for the same period. SMEs starting growth...

In 2006, Cambodia enjoyed double digit economic growth at an expected rate 10.4 per cent, which was achieved after 13.4 per cent growth in 2005 and 10 per cent in 2004.

The growth was mainly boosted by the continuous expansion of garment exports, which were strongly supported by US and EU. In spite of the sharp increases

In the prices of oil and other imported inputs, There has been considerable improvement in the construction

activities, and also the arrivals of the tourists in the country have

considerably increased.

Micro, small and medium enterprises accounted for 99 per cent of firms by consuming 45 per cent of employment from labor force market .

Background of the Problem of SMEs

In August 2004, with rectangular strategy of the government notably in the area of private sector development, developing competitive advantage for SMEs and proposing incentive policies, and developing activity plan to promote and develop SMEs.

In 2006, four main barriers such as SME development framework, business registration, business license system and assessment of finance to limit the growth.

in 2006, ADB used to solve this problem by working cooperatively with the government such as strengthening banking supervision, supporting money and inter bank market development, creating a legal framework in support of cooperate borrowing, including a body of civil commercial law and system secure transaction and account standard, and supporting investment in long term development of human capacity.

Background of the Problem of SMEs ( Cont’)In 2002, the SMEs in faced aggressive competition with imported products, and sales with dumping prices because of the smuggled products from Thailand and Vietnam.

Intermediaries Dominance in Price, they bought the products from the SMEs at less prices, and sold the products at higher prices, the SMEs were losers.

The fluctuation of exchange rates of Thai Bath and Vietnamese Dong in terms of Cambodian Riel, very often, there were increases in the prices of consumer products in the country (CDRI, 2002).

Lack of skill and no updated technology, the local SMEs were facing problems to produce the outputs to meet the quality standard of the market.

Background of the Problem (Cont.)The SMEs, which were situated outside Phnom Penh could not compete in the market because of their high cost of production and long distance to bring the products to sell in the market. The cost of marketing of the SMEs, i.e., advertising cost, was very expensive (ibid). The government has give significant of sales strategy as the key to boost the SMEs up.

SMEs play very important role for the economic development of an economy. But the SMEs in Cambodia were facing a lot of sales problems because of

the factors like corruption, fluctuation of exchange rates, dominance of the wholesalers, smuggled products, outdated technology, etc. It is in this context, the present study has made an attempt to make a comparative analysis of the sales strategies of SMEs including their sales problems in the study area.

• The major problems faced by the small and medium enterprises were strong competition with imported products, high cost of advertisement, fluctuation of exchange rate, high production cost due to high cost of water, electricity and gasoline, high cost of marketing operation, sale of smuggled products, low quality products and price competition.

• Except the problems like fluctuation of exchange rate, high production cost, and sales of smuggled products, in all other major cases, the problems of small enterprises were found to be more compared to medium enterprises.

The problem of SMEs in 2014

6.2 Strategies Undertaken by the SMEs to Solve the Sales Problems

The tactics to solve the problem are : • Minimizing the factors creating the sales

problems, • Providing training to the employees to

improve working skills, • Using the new technology, • Joining with or creating an association, • Solving the problems through government

help and • taking the assistances of NGOs to minimize

their sales problems.

• In this regard, the percentage of medium enterprises was found to be more compared to small enterprises in solving the problems.

How the SMEs have solve the problems?

How SMEs solve the problems?The overall discussion shows that both small and medium enterprises faced the problems like strong competition with imported products, high cost of advertisement, fluctuation of exchange rate, high production cost due to high cost of water, electricity and gasoline, high cost of marketing operation, sale of smuggled products, low quality products of the SMEs and price competition. In most of the cases of the above sales problems, the percentage of small enterprises facing the problems was more than that of medium enterprises.

But medium enterprises were found to be more advanced in solving the problems compared to small enterprises through the tactics such as: • Minimizing the factors creating the sales problems, • Providing training to the employees to improve their

working skills, • Using the new technology, and • Taking the help of association, government and NGOs.

Factor Effecting SMEs in Cambodia

Management Factors Affecting Sales Performance

Frederic Winslow Taylor (1856-1915): Taylor also used money to motivate workers to produce more. According to him, improving productivity would lead to improving sales performance because the primary objective(s) of employees was earning more money (Hersey and Kenneth, 1969).

 Moorhead and Griffin (1986) stated that on the basis of the

factors of providing economic incentives, payment based on activity etc., the workers can be motivated to achieve higher level of output. It is also equally applicable to sales performance. Employees tend to contribute more to the organization if they are treated as valuable and responsible employees. This helps in the improvement of the sales performance of the organization.

Role of Leadership in Enhancing Efficiency of the

Organization The success of leaders can be linked to the success of organization and influence to the success of sales as well.Rana (2004) stated about scientific management, human relation movement, leadership theories [situation, path goal, contingency, etc.] and their corresponding effect on the organizational effectiveness, productivity and sales performance.

Being a sales manager provides more direct involvement with people than in most other middle-management jobs. The responsibility for the group of sales people involves their selection, training, supervision, motivation, and discipline (Hartley, 1989).

Organizational Change For Improving SalesThe role of change agent is to identify the means of achieving the designated goal, such as improving the bottom line, improving customer service as well as sales strategy, etc.

Robert (1998) showed that the cause of change in the organization is from social, economic, technological, political, competitive and nature of the workforce factor. More and more companies face a changing environment to meet the market condition and strategic goals.

. Problems on market condition and strategic goal make the sales down. Hence, organizational change means improving the organization and sales strategy in order to turn the sales up.

Organizational Behavior Affecting Sales Performance

The modern field of organizational behavior is based upon the analyzing of the behavior, action, attitudes of people at work. There are many books states on organizational behavior effect on sales performance of an organization (ibid).

Rana (2004) addressed that organizational behavior is one of the factors, which affects sales performance of the organization.

Factors Effecting to SMEs

Marketing planning and strategy Technology & Internet Organization Culture Financial assess Education FactorSocial Economics Factors Culture factor Etc.

• That the important factors which had strong or very strong influence on the sales performance of small and medium enterprises were name, image and logo, quality production, competitors, employee training, customer satisfaction, maintenance of good relationship of sales persons with customers, and leadership skill of managers.

• The factors having mostly moderate influence on the sales performance of small and medium enterprises in the study area were location, exterior and interior building, attractive price, advertisement, technology version, transport and communication facility, growth of population, income of the people, arrival of tourists, political stability, social factor, management style of the organization and organizational behavior.

What factor Effect the most of SMEs?

What factors effect the most to SMEs?

• The comparative analysis between small and medium enterprises with regard to the effects of factors influencing sales performance indicates that there were significant differences between small and medium enterprises on the factors such as: name, image and logo of the company and packaging of the product, location exterior and interior building, attractive price, quality product, social factor, advertisement in the magazine, and advertisement in the radio, television, outdoor, calendar, carry bag, pen or hat.

• The factor influencing performance of SMEs with no significant difference between small and medium enterprises were technology version, transport and communication facility, growth of population, competitors, income of the people, arrival of tourists, political stability, employee training, customer satisfaction, maintenance of good relationship of sales persons with customers, management style of the organization, leadership skill of manager, and organizational behavior.

Recommendations

Recommendationsthe following recommendations are suggested to solve the problems of the SMEs:

The small enterprises should develop and implement a professional sales system for their sales by picking up the strategies, which have been successfully implemented by the medium enterprises. The professional sales system should be transparent and open, and motivation as well as training to develop the selling skill of the small enterprises should be provided.

Both small and medium enterprises should select the special periods of sales such as Chinese News Year, Khmer New Year, Pchum Ben Day and Water Festival Day to create sales promotion or any activities for enhancing sales. Because these special periods were perceived by the enterprises as making the sales to increase.

Recommendations (Con’t) The small enterprises should apply discount

tactics at the special sales period to boost up the sales expectation or sales volume as well as to narrow the gaps of sales between the small and medium enterprises.

The small and medium enterprises should provide intensive training course to their employees in relation to selling skill and other knowledge in order to meet customers’ satisfaction and also sales performance of the company. The employees will be clear on the process of work, and this will help to improve the quality of the product too.

Recommendations ( Cont’)

The small enterprises, which provided the incentives their employees were less compared to the medium enterprises. So, the small enterprises should upgrade the provision of incentives to their employees in order to increase their sales performances.

The spending on media advertising and event marketing was very expensive for the small enterprises, and the sales expectation resulted low. Hence, the small enterprises did not have the interest of using the media for their advertising. Regarding this, the small enterprises should find out niche media or marketing event. In the same way, the medium enterprises should also compete with the large enterprises.

Recommendations ( Cont’) To compete with the large enterprises, both small and

medium enterprises should increase their advertising on media by using a little differentiated tactic. The medium enterprises should maintain or increase advertising weight during the special sales period to compete with the large enterprises.

To be possible to compete with the medium and large enterprises, the small enterprises should get the consultancy services from SMEs association, NGOs, private, and government.

As marketing, advertising, and sales cost a lot of budget, the small and medium enterprises should get the supporting fund from the microfinance institutions or government agencies, which would allow the SMEs possible to do the aggressive sales and marketing campaigns to increase their sales and to facilitate the SMEs’ growth.

Recommendations As the problems faced by the small enterprises were more than the

medium enterprises, therefore, the small enterprises should strengthen or restrain the factors, which created problems on sales, one by one to decrease their sales problems. In the same way, the medium enterprises should solve their own problems.

Very few small enterprises created the marketing event for enhancing sales, by reason that they had a very limited budget, and the main point was they were lacking skills to set up the marketing events. Hence, the small enterprises should find the agencies having expertises on event management to help them in setting up the marketing event.

Both small and medium enterprises should build up good relations with customers and get the feedbacks and comments from customers whether they are satisfied with the products or not, as well as find the unique selling proposition (UPS) in order to make it easy in preparing marketing plan to stay ahead of competitors. Furthermore, because the small and medium enterprises (SMEs) are lacking of the market to sell their products, they can combine their brands together for two or three brands up in an association and find good distributors to sell their products.

Recommendations The government should stop the import of smuggling products

step by step as well as the under the table money payment or informal police payment by the manufacturers; because these are creating a lot of problems for the SMEs and making negative impact on the economic growth of the whole country. The issue of tax system and tax payment training should be provided by the government to the SMEs, so that, the SMEs will not make the mistake to pay the tax to the government. This will help to increase government revenue and stop illegal payment.

SMEs’ association should provide consultancy to the SMEs’ owners or managers and solve the problems on sales as well as control the dominance of wholesalers in influencing the prices of the products produced by the SMEs.

Last but not the least, as the SMEs were facing difficulty to find the market for selling their products, the government should take proper action by finding the market to sell their products or help them to facilitate in selling their products rather than putting the pressure to get under the table money.

Thanks