“ Thailand’s support of small business (SMEs) at the international level”

1. “ Thailand’s support of small business (SMEs) at the international level” 1st International Small Business Festival Moscow, Russian Federation December 13, 2007 by Dr. Wimonkan Kosumas Director Department of International Cooperation and Policy Support Office of Small and Medium Enterprises Promotion (OSMEP), Thailand

2. Table of Contents I. Background of the Office of SMEs Promotion II. Overview of Thailand-Russia economic relation and trading volume between the two countries III. Comparative definition of SMEs (based on number of employees) and profile of Thai SMEs IV. Challenges of SMEs moving into oversea markets V. Internationalization of Thai SMEs VI. Government SMEs Supporting Policy VII. OSMEP’s support for SMEs’ Overseas Business Operation VIII. Services and facilities for foreign SMEs IX. Policy measures for upgrading competitiveness of Thai SMEs and SMEs target sector 2007-2008 X. Implication on Business Potential XI. Proposed Framework of Thai-Russian SMEs Cooperation

3. Background of the Office of SMEs Promotion • established under the Small and Medium Enterprises Promotion Act 2000 (publicized in the Royal Gazette on Feb. 17, 2000) as a juristic entity and a government office, not an official agency or state enterprise. • supervised by the Board of Small and Medium Enterprises Promotion chaired by the permanent secretary of industry. • Acts as the country’s central organization in formulating SMEs promotional policies and strategies as well as coordinating governmental and private working systems in achieving strong and sustainable growth of SMEs as the main driving force of the country’s economy. • In regard to translate the government’s SMEs promotion policies and plans into concrete actions, the cabinet has approved on May 6, 2003 the Master Plan of Thailand’s SMEs Promotion (2002-2006). • Due to the expiration of the 1st Master Plan of SMEs Promotion (2002-2006), OSMEP together with related public and private agencies has formulate the 2nd Master Plan (2007-2011) which is still in due process for approval from the cabinet.

4. Strategies of SMEs Promotion Plan 2 (2007-2011) Intellectual Infrastructure Vision: SMEs to Grow withSustainability, Strength and Balance Strategy 1: Create new entrepreneur and develop the capability of existing entrepreneurs Strategy 4: Promote the Capability on Value Creation in Services Sector Strategy 5: Promote SMEs in Regional and Local Areas Network & Alliance Strategy 2: Upgrade Manufacturing SMEs Productivity Strategy 3: Increase the efficiency and reduce impediment in trading sectors Strategy 6 : Create business environment and enabling factors Competitiveness 14

5. Action Plan • Coordination • MOU • SMEs Data • Action Plan • Registration • Service Provision • Service Provider Creation Network to Promote SMEs International Governmental & Private Units • Board of SMEs Promotion • Executive Board of the Office of SMEs Promotion Regional Central Governor Ministry • Sectoral Strategies Local Ministerial Office State Enterprise Other Public Sector Agencies OSMEP • Formulate Master & Action Plan • Create Mechanism in implementing • Allocate Budget • Monitor and Evaluate Academics • Policy / Action Plan Local Admin. Agency Public Org. Academic/ Expertise Institution Provincial Industrial Federation • Projects under SMEs Promotion Action Plan Chamber of Comm./Fed Of Thai Industries/ Bankers’ Assoc. • SMEs University • Community/ Local Product Provincial Chamber of Comm. OSMEP Regional offices - Implement • Report Operational Result • Identify Problem/Demand - Implement • Report Operational Result • Identify Problem/Demand 22

6. II. Overview of Thailand-Russia economic relation • Russia and Thailand enjoy a history of more than 50 years of trade and economic relations • Thailand remains the largest trading partner of Russia in Southeast Asia • First business contacts between Russian trade organizations and Thai companies date back to the end of 40s following the reinstallation of diplomatic relations between the two countries in 1941 • In 2005, bilateral trade reached the volume of 2 billion USD after significant slump in 1997 due to Asian financial crisis • According to the Thai custom statistics, trade surplus remains on Russian side in 2006 with Russian export at 1.38 billion USD and Thai import at 0.42 billion USD

7. Thai Imports from Russia Thai Exports to Russia Source: CIS & Balkan States Center, University of Thai Chamber of Commerce ( period between Jan.-Sept. 2007)

8. III. Comparative Definition of SMEs

9. Profile of Thai SMEs

10. Number of SMEs, 2006 • Number of SMEs by Size, 2006 • 2,287,057 enterprises in total • LEs :4,292 • MEs:9,791 • SEs : 2,264,734 • Unidentified : 8,240 • Total Number of SMEs • 2,274,525 enterprises, 99.5% • Number of SMEs by Sector, 2006 • Most of SMEs are operatingin Trade& Repair Sectorfor908,846enterprises (40.0 %of Total SMEs) • Service Sector was the second largest group for675,622 (29.7%) • Production/Manufacturing Sectorwas the third for 672,351 (29.6%) 10

11. Employment in SMEs, 2006 SME Employment by Size, 2006 In 2006, all enterprises in Thailand created 11,551,272jobs in total. - LEs accounted for 2,687,938 jobs - MEs accounted for 1,338,398 jobs - SEs accounted for 7,524,936 jobs - Totally, SMEs created 8,863,334 jobsor 76.7%. SME Employment by Sector, 2006 Between 2004-2006, employment in SMEs increased continuingly, especially in Service Sector, which the employment grew 10.8% in 2006. 11

12. SMEs Economic Contribution • In 2006, overall GDP accounted for 7.81 million baht of which 10.7% came from Agriculture Sector and 89.3% came from Non-agriculture Sector. • SMEs GDP accounted for 3.04 million baht or 38.9% of overall GDP • Between 2003-2006, SMEs GDP share was in steady line (approx. 39.0% of national GDP), while SME GDP growth rated at a range of 4.1-4.8 % (y-o-y) 12

13. SMEs Economic Contribution (Cont’d) • Structure of SME GDP in 2006 • Service Sector was the highest with 32.2% share • Manufacturing Sector was the second highest with 30.3% • Trade and maintenance Sector was the third highest with 29.2% • Between 2002-2006 • SMEs in Service Sector had been regarded as most important economic engines in creating GDP with 32.2-34.2% share, followed by SMEs in Trade and maintenance Sector with 29.2-31.2%, and SMEs in Manufacturing Sector came third with 26.9-30.3% share

14. Role of SMEs in International Trade In 2006, SME export accounted for 1.45 Mil.THB or 29.1% of total export In 2006, SME import accounted for 1.60 Mil.THB or 32.7% of total import Thus, SME Trade Balance still deficit with amount of 0.15 Mil.THB The ratio of SME Export to SME GDP accounted for 47.3% indicated that SMEs relied on domestic market rather than international market 14

15. Role of SMEs in International Trade (Cont’d) • SME export classified by level of factor intensities shows thatPrimary products was the highest with 32.1% share, followed byLabour Intensive products came second with 19.2%, Third and Fourth wasHigh Skill and Medium Skillproducts with 12.0% • SME import classified by level of factor intensities shows that High Skill productswas the highest, followed by Primary products 15

16. SMEs Promotion Plan (Year 2007 – 2008) • Goals • To increase the contribution of SMEs to GDP to reach • 5% of the national GDP per year. • To increase the number of new entrepreneurs by 50,000 • per year • To increase SMEs Total Factor Productivity of 3% per year • To increase SMEs export value to no less than 6% per annum • To create product brand with a minimum of 100 per year • 6. To commercialize SMEs innovationwith a minimum of 100per year 16

17. IV. Challenges of SMEs moving into oversea markets

18. WEAKNESSES STRENGTHS • High flexibility and adaptability • High utilization of local/ domestic resources&knowledge • Well performed in skill-based sectors: food; fashion products; tourism and related products&services • Easy business access and quick consumer approach • Eligible in producing products which are various in design and quality • Losing competitiveness in labor-intensive & resource-based sector • Weak production structure; Poor management; Incapable in marketing; Lack of product development; Employing low quality workforces; Using out of date technology’ • Limitation in applying good governance: accounting system; consumer&environmental responsibility • Limitation in access appropriate fund • Lack of integrating and networking system OPPORTUNITIES THREATS • Trends of new business approaches favor SMEs • Easy for starting ups and allow workforce and new entrepreneurs to accumulate skills • Allow for business alliance with LEs and MNCs • Potential for the creation of new genre of entrepreneurs • SMEs promotion is national agenda with high level of significant • Pressure from Globalization: • - Economic integration between countries • - FTA on Goods/Services/ Investment • - New form of NTBs • SMEs promotion system is still fragmented both in policy formulation and implementation • High competition results in Nutcracker situation • Obstacles from public administration

19. V. Internationalization of Thai SMEs • Problems • Entrepreneurs fails to reap sufficient benefits from bilateral and multilateral trade agreement with other economies • National income generation policy still focus only on increasing the number of exports and FDI inflows while neglecting the importance of FDI Outflow • In 2007, Institute for Management Development (IMD) has ranked Thailand’s competitiveness at 33 which fall from 29 in 2006 due to low FDI Outflow • Business restructuring from a manufacturing base country to an investor country is necessary in order for Thailand to still maintain its comparative advantagein the global market

20. Internationalization Project • initiated by Department of Export Promotion • Objectives: • To encourage oversea business expansion as mechanism for value addition • To meet the challenge of liberalization and the disintegration of preferential treatment such as quota and GSP (Generalized System of Preferences) • To maintain comparative advantage by relocating to other countries which has lower cost of labor, technology, and raw material • To increase the competitiveness of export in the long run

21. Internationalization Project (con’t) • Offers 2 types of oversea business supports which include: A) Manufacturing dimension: - sourcing - subcontracting - Green Field Investment B) Non-Manufacturing dimension - Sales Representatives - Franchising - Licensing

22. VI. Government SMEs Supporting Policy Government has proposed SMEs supporting policy to the national legislative assembly on Nov. 3, 2006 as follows: Development of intellectual infrastructure for SMEs Collaboration between public and private sector

23. Budget: 800 million baht

24. VII. OSMEP’s Support for SMEs Overseas Business Operation • International SMEs cooperation • Overseas Thai SMEs Agency cooperation • Internationalization Program

25. Samples of InternationalCooperation on SMEs Promotion • Thai – Malaysia • Thai – France • Thai – Italy • Thai – Japan

26. Framework of Thai-Malaysia Cooperation on SMEs Promotion • Information exchange of SMEs development policies • Establishment of Malaysia-Thailand SME Business Portal • Establishment of Joint investment and trade mission • Establishment of training program for entrepreneurs in food processing and automotive sectors • Organizing exhibition and business matching activities

27. Framework of Thai-Italy Cooperation on SMEs Promotion • Establish SMEs help desk at OSMEP to assist Italian SMEs doing business in Thailand • Information exchange of cluster development in Italy • Promote the export of Thai organic products to Italy • Collaborate on fashion design, jewelry (possibility of establishing co-brand), and export of furniture • Organize workshop on alternative energy and environment protection • Sponsorship from Fierra Milano for ISBC 2007

28. Framework of Thai-France Cooperation on SMEs Promotion • Development of Joint Cluster • Entrepreneurial registration • Advisory Support for Design • Advisory Support for Branding • Experience sharing on Technical Institution for SMEs • SME Networking • SME Working Group Meeting (at least once a year)

29. Framework of Thai-Japan Cooperation on SMEs Promotion • Knowledge and experience sharing on the establishment of SMEs University • Collaboration on the establishment of Business Development Service Center • Development of business diagnosis or Shindan • Exchange of SMEs expertise • Development of financial institution’s risk evaluation of SMEs

30. B) Overseas Thai agency SMEs cooperation • Inform the National SMEs Promotional and Operational Plan to be as a guideline for allocate budgeting for SMEs promotion through strategic fund • Exchange of Business Data & Information Knowledge & Know-how Linkage • Provision of in-depth information of trading partners (economic, social and political) for facilitating the investment decision of Thai SMEs entrepreneur • Coordination on MOU andAction Plan on SMEs Promotion • Support both in-bound and out-bound SME promotional activities

31. C)InternationalizationProgram • subsidies to SMEs entrepreneurs (not exceeding 50% of expense and the maximum amount not exceeding $7,000) for international expansion through international exhibition, business matching, market survey or other export promotion activities

32. VIII. Services and facilities for foreign SMEs

33. BUSINESS MATCHING Increase trade opportunity, match world’s demand with Thai’s supply FTI members Target market • SMEs • Product scope • Community Products • Quality Assuring • By “Q-mark” • Market Intelligence • Demand • Standard / Specification • Taste • Trade regulation • Etc. • Channel • Matching Activities • SMEs Shop Channel • SMEs Trade Promotion • Thai confectionary • Business Trip • Exhibition • Product catalog • E-commerce Objectives % Sales Growth / Minimize Defects Develop to be regular customers Market Exploration 33

34. Product Cluster in Thailand 34

35. Venture Capital Fund (VCF) • Provide equity financing to targeted SMEs • In charge of shareholders • Support for enhancing • SMEs strengthen

36. Venture Capital Fund in Thailand A) Venture Capital Fund for Enhancing Competitivenessof Thai Business B) SMEs Venture Capital Fund C) Innovation Development Venture Capital Fund

37. Media to access recent SMEs movement • SMEs Today magazine • SMEs Shop Channel(UBC Channel) • SMEs Chee Chong Rouy TV Program(Channel 11)

38. IX. Policy measures for upgrading competitiveness of Thai SMEs A) Promotion of SMEs network through the development of cluster B) Employment of standards (especially on agricultural products) C) Capacity building through training, mentoring, provision of consultancy service, e-projects and SME university D) Creation of business opportunity through domestic and international business matching activities

39. SMEs Target Sector 2007-2008 1.Manufacturing 3. Service 2. Trading 2.1 Retail 2.2 Wholesale 2.3 Trading firm 1.1 Indigenous - Light industry: textile, Leather, gems/jewelry, Printing matter, packaging - Engineering and electronics: metallurgy, machinery, mould, electrical appliances, automotive parts - Naturalresources:food, medicine, herbs, wooden furniture, rubber products, ceramics, gifts, souvenirs, household decoratives 1.2 New wave - Animation, multimedia, computer games - Alternative Energy and energy saving 3.1 Tourism industry: hotel, restaurant, souvenir shop tourism, spa, conference holding related-business (MICE) 3.2 Other services:information Technology, software (digital content), business consulting, health and beauty, construction design, logistics, education, entertainment 4. Regional and local 4.1 Manufacturing, Trading and service 4.2 Community products Link 51 10

40. X. Implications on Business Potential • Geographic complementarities - Russia: as gateway to the Commonwealth Independent States -Thailand: as a gateway to Southeast Asia and southern China ■ Russia’s abundant source of raw material - Thailand can import from Russia or penetrate the Russian market by direct investment in Russia (in forestry, jewelry, furniture and paper industry) and export to third countries ■ Rapid infrastructure development and expansion of service sector in Russia: - vast potential for Thai business which include spa and beauty , interior design, restaurant, and hotel

41. XI. Proposed Framework of Thai-Russian SMEs Cooperation • Expansion of business matching to increase joint investment • Joint cooperation between private sectors, particularly chambers of commerce, in the following sectors: ● energy sector ● metal industry ● natural rubber manufacture ● jewelry industry ● tourism ■ Exchange of SMEs development policy through seminar/s conferences, study-visit, and training ■ Establishment of Russian-Thai Business Council (under ongoing process) ■ Establishment of SMEs exhibition or pavilion to expand business partnership

42. THANK YOU FOR YOUR KIND ATTENTION SAWASDEE KA! www.sme.go.th

43. Appendices: Other OSMEP’s project for SMEs development

44. SMEs University • SME University is consisting of: • E-SMEs University • Practical Curriculums through the University and College in Thailand 7

45. E-SMEs University OSMEP Assumption U. • Various Subject- E SME University • Entrepreneurships concept for strat-up SMEs • Introduction for Marketing • Introduction forSMEs Financial • SMEs Management for sustainable • Business Creativity & Innovationfor SMEs • ICT & E-commerce for SMEs • Production Management & Service Businesses for SMEs • Business Strategy & Trend / Opportunity for SMEs • Advance Marketing for SMEs • Accounting and Financial Management for SMEs • Corporate Governance • Business Plan 8

46. SME UNIVERSITY SMEs University Curriculum Model Major 70: Practice 30 Financial Management General Management Sale & Marketing Management Practice Courses Elective Course Core Course Manufacturing Management Innovation Management New Technology Venture - According to local smart businesses - Practical & OJT - Considering a start up company - Real case study - Time & Situation - Law & Regulation 9

47. C) OSMEP E-Projects / SME@Click Business Startup Business Improvement Business Expansion Business Maturity SME Portal (www.sme.go.th) 11

48. OSMEP e-Projects / SME@Click Digital University SME@Click Main Page Virtual Coach 12 E InnoMarket E BizNet Virtual Coach

49. Warning System for Investment and SMEs Corners • Type of SMEs • Characteristics of Sector • Assets per Sector • Liabilities per Sector • Revenues per Sector • Total Sales per Sector • ROI per Sector • Economic Value Added per Sector • Financial Ratio per Sector • Export and Import per Sector • Employment Rates per Sector • No. of SMEs per Sector 13

50. Warning System for Investment and SMEs Corners SMEs Supply and Value Chain SMEs Export and Import Positioning 14 SMEs Financial Situation Positioning SMEs Financial Health Positioning