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25 February 2014
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SMEs must change

Nop Tephaval
Darana Chudasri

Thai small and medium-sized enterprises (SMEs) must find ways to integrate both academic and practical knowledge through partnerships with educational institutes to survive growing competition when the Asean Economic Community (AEC) is established late next year, says one think tank.

Kosit Panpitmras, chairman of the Thailand Development Research Institute’s council of trustees, said SMEs in developed economies typically have a connection between academic and practical knowledge.

“No other SMEs in the world lack that integration, just Thailand,” said Mr Kosit, who is also the executive chairman of Bangkok Bank.

Partnerships between academics and the business sector must form, as technology, research and development, and innovation are ways to strengthen SMEs as a whole, but Thailand is severely lacking in this area, he told a seminar yesterday.

This year, Thai SMEs are likely to face both weaker domestic demand and lower exports, he said.

SMEs can no longer rely on demand-side factors to support their business.

This is mainly due to tapering of US quantitative easing (QE) and the end of domestic stimulus programmes through populist policies that have artificially inflated demand, said Mr Kosit.

“Even though economies in the US and Europe are expected to see improvement this year, Thai exports have become less reliant on those markets,” he said.

“Instead, they are now more reliant on developing economies such as China and Asean, but those markets may be slowing down.”

While QE tapering will weaken the baht, it will allow Thai products to be more competitive in the international market and other currencies also will be depreciated.
Mr Kosit said Thai SMEs should instead look inwards through supply-side adjustment to stay competitive.

Sales revenue would play less of a role in companies’ finances and profitability would become more dominant.

“Increasing capacity and sales will not matter if a company cannot remain solvent,” Mr Kosit said.

SMEs should improve the quality of products and enhance product differentiation with others in the market to ensure that customers will likely to pick their products even though overall demand has decreased.

SMEs can achieved this through cost control and improving human resources, logistics and IT if they want to compete in the long run, but Thai SMEs tend to ignore these recommendations, said Mr Kosit.

Boonchai Chockwatana, president of Saha Pathanapibul Plc, said SMEs must change how they do business if they want to succeed, although it will difficult in the first stage.

“Thai SMEs will benefit if they identify their weaknesses and prioritise what they want to overcome first,” he said.

Sanan Angubolkul, president of Srithai Superware Plc, said Thai SMEs should look at 600 million potential customers in the region once the AEC comes into effect. At the same time, they will also need to figure out how to compete with others.

“Good governance through good management, transparency, trust and respect as well as creating good value for the company through human capital development are vital as price will play a less dominant role when people start to base their purchasing decisions on what the company represents,” said Mr Sanan.

These are also the ways to ensure sustainable growth of Thai SMEs, he added.


First published: Bangkok Post,  February 22, 2014