SMEs The Bridge for Creating Equity in ASEAN

Dyah Purnamasari Violen Amelia Silkana

ECONOMIX 9TH COMPETITION

Association of Southeast Asian Nations or known as ASEAN is an organization of ten countries in Southeast Asia (exclude Papua New Guinea and Timor-Leste) which was established 44 years ago on 8 August 1967. ASEAN formed by Indonesia, Singapore, Malaysia, Thailand and Philippines. Since then, the other countries in Southeast Asia were joined ASEAN, Brunei on 7 January 1984, Vietnam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999. As an organization, ASEAN has vision and mission that want to achieve by the members. One of the ASEAN vision is to accelerate the economic growth, social progress and cultural development in the region through joint endeavor in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations. Moreover, ASEAN leaders also aim to make ASEAN as a concert of Southeast Asian Nations, outward looking, and living in peace, stability and prosperity, bonded together in partnership in dynamic development and in a community of caring societies. In order to achieve those visions, ASEAN has a mission into one single community that can compete and calculated globally. ASEAN has also made three important pillars that will be used as a tool to achieve the visions and mission, namely ASEAN Political-Security Community, ASEAN Economic Community and ASEAN Socio-Cultural Community . Of the three important pillars above, the main concern of the ASEAN countries today is the ASEAN Economic Community (AEC). Since ASEAN formed as a regional organization in 1967, the ASEAN member countries have put economic cooperation as a main concern that needs to be developed because they believe that the best thing to achieve regional integration is by doing openedeconomy. Thus, the ASEAN is expected to achieve the objectives of the AEC which are: a. Towards single market and production base (flow of free trade for the goods sector, services, investment, skilled labor, and capital);

b. Towards the creation of regional economic competitive (regional competition policy, IPRs action plan, infrastructure development, ICT, energy cooperation, taxation, and SMEs development); c. Towards a region of equitable economic development through SMEs development and Initiative for ASEAN Integration (IAI) programs; and d. Towards full integration in the global economy (coherent approach in the external economic relations and encourage participation in the global supply network). In order to achieve the AEC objectives, the ASEAN Economic Ministers and the ASEAN Secretariat then made a guideline in carrying out activities called AEC blueprint. AEC blueprint itself contains strategic work plans that will be done in the short term, medium term and long-term. In addition, the ASEAN Ministers also made the ASEAN Policy Blueprint for SME Development (APBSD). By establishing this APBSD, a question arises. Why do ASEAN members focus in developing SMEs in ASEAN? Being part of an organization that has established for about 44 years did not provide a big impact enough for the member countries of ASEAN. There were still many problems occurred in ASEAN, including problems in the economic and social development which can be seen in the presence of a sizeable gap among ASEAN member countries. To see how the gaps are, in this paper, we will explain in three aspects which are income gap, human development gap, and digital gap. 1. Income Gap Income gap includes differences in state income, calculated with a GDP per capita. Here, the biggest income gap occurs between ASEAN-6 countries (Indonesia, Singapore, Thailand, Philippines, Brunei Darussalam, and Malaysia) and CLMV countries (Cambodia, Lao PDR, Myanmar, dan Vietnam). Based on the tables and graph illustrated below, the gap is getting bigger each year.

Figure 1: Average GDP Per Capita for ASEAN-6 and CLMV

Beside GDP per capita, there is another indicator to see income gap, which is poverty incidence. Based on data from Asian Development Bank in 2002, more than 30% of the population in Cambodia and Myanmar live on less than US$ 1 per day. It is so contrast if we compare with other ASEAN member countries like Singapura, Brunei Darussalam, Malaysia dan Thailand which live on more than US$ 2 per day.

Based on datas above, we can see that there is wide in income gap between ASEAN member countries.

2. Human Development gap Human development gap is evaluated by HDI (Human Development Index). HDI is an index that used to measure poverty, literacy, education, life expectancy, standard of living and other factors. It is used to distinguish whether the country is a developed, a developing or an under-developed country, and also to measure the impact of economic policies on quality of life. The categories of HDI are low human development if HDI<0,6 ; lower Medium human development if HDI 0,6 0.7; upper medium human development if HDI 0,77-0,8; and high human development if HDI > 0,8. HDI for ASEAN countries will be illustrated below.

From the graph above, there is a wide gap in human development among ASEAN member countries. Brunei Darussalam and Singapore include high human development countries. Malaysia, Thailand and Phillipines include upper-medium human development countries. Vietnam dan Indonesia include lower-medium, and Lao PDR, Myanmar and Cambodia include low human development countries. Beside HDI, we can also look at life expectancy level. Based on the illustration below, we can see that there is also a big gap among ASEAN member countries.

From the tables above, Singapore, Brunei Darussalam and Malaysia have high life expectancy level, while Lao PDR and Cambodia had a low life expectancy level. Moreover, education also includes one of important factors used to see how the qualifications of existing people in a country. High levels of education can stimulate economic growth with productivity of society. To see how the condition of education among the ASEAN countries, we use data of the level of illiteracy shown in the table below.

From the table, literacy rate in ASEAN increase each year, but there is still a wide gap among ASEAN countries. Brunei is the highest literacy rate country, while Lao PDR and Cambodia have a very low literacy rate. 3. Digital Gap Digital gap is gap come from the differences in usage level of Information and Communication Technology (ICT) among ASEAN countries. Digital gap can be seen from how the level of development of ICT in ASEAN countries. To see how much digital gap among ASEAN countries, we will see from the ICT Penetration Level of Technology and Information, average growth of ICT Penetration in ASEAN, and the number of telephone lines in ASEAN countries.

The tables above show that the usage level of ICT in ASEAN countries is still low. Only few countries such as Singapore and Malaysia use fairly high ICT. With the considerable gap among ASEAN member countries, the ASEAN members then agreed to develop SMEs in order to reduce the gap, so ASEAN can achieve the objectives of AEC to be a region with equitable economic development. Developing SMEs is selected because SMEs are the majority enterprises in ASEAN, both in terms of quantity and employment. In terms of quantity, SMEs have more than 96% of the total enterprises in ASEAN. In terms of employment, SMEs are the largest absorber of labor about 50% to 85% of the total workforce in ASEAN countries. As majority enterprises, SMEs have contributed significantly in the GDP of ASEAN countries by 30% to 53% and also to exports by 19% to 31%. With fewer workers, less capital, and easy establishing, the SMEs become an enterprise which can accommodate all the people in the community both in developed and underdeveloped areas and also as a medium for women and children so they can participate in the economy. In other words, it can be concluded that SMEs are the backbone for the economy of ASEAN countries. The percentage of SMEs number and its workforce are illustrated below.
Table 9 : Number of SMEs and SMEs workforce in ASEAN

Year 2000

SMEs as % of all firms

SME workforce as % of total employment

Brunei Indonesia Malaysia Philippines Singapore Thailand

98 98 84 99 91 96

92 88 39/m 66 52 76/m

Cambodia Myanmar Vietnam

99 96 96

45 78 85

Source : Asasen, et al. (2003) Note /m : Percentages refer to shares in national totals. : manufacturing only.

Unfortunately, as a backbone of the economy in ASEAN, SMEs in ASEAN still face several obstacles to develop further. The obstacles can come from the SMEs itself such as financial or human resources problem, and also from outside the SMEs such as a lack of government support or the lack of information. Not only facing some obstacles, SMEs in ASEAN also face some challenges. One of them is how SMEs becoming innovative SMEs so they can meet the standards and desires of the global market. Because of that, to maximize the potentiality and participation of SMEs so they can be used as the tools for overcoming gaps in ASEAN, there are two approaches that have to be done. They are inside approaches and outside approaches. Inside approaches is ways that done to increase the quality of the SMEs so they can struggle in the global market. Besides, outside approaches is how outside environment can be used as tools to support further development of SMEs potentiality and also the participation of SMEs themselves. The first thing that we will discuss further is about inside approaches. They include in fixing from financial side, human resources, managerial, and also technological development. Financial problem is a classical problem faced by almost all SMEs in ASEAN. Limitation of funds make SMEs becoming underdevelopment, hard making innovations, limitation of products quantity, decreasing in quality because the raw material used are cheap and also low quality, which caused hard to get them into the global market because the goods produced do not fulfill the qualification and standards to entrance the global market. Because of that, this financial problem has to be overcome. In ASEAN

Strategic Action Plan for SME Development (SPOA) which is made by ASEAN Economic Minister (AEM), there are some steps taken to overcome financial problems that faced by SMEs in ASEAN. Those steps include build financial institution in ASEAN countries, build ASEAN credit biro, ASEAN money market for SMEs, determine credit policy for SMEs that will be valid in ASEAN countries, facilitate SMEs to get loan from bank and cooperate with ADB or World Bank to make it easy. Next steps in the inside approaches is about how to increase the ability of human resources and the managerial ability. SMEs are majority works in ASEAN countries, but most SMEs are handled simply and personally. The limitation of good human resources becomes one of big problems in developing the SMEs themselves. With inability in the managerial things, they become worst. These things cause SMEs becoming not innovative, stagnant in the same place, less coordination in managing the SMEs, and not separate individual wealth and SMEs wealth. In order to overcome this problem, the ministries have planned to hold regional training for SMEs in ASEAN as written in SMEs Blueprint. This plan is good since it can help the SMEs entrepreneurs to get deeper knowledge in managing the SMEs themselves. The knowledge include in quality control, supply chain, how to develop ideas and creativity, how to create and look at market chances, good bookkeeping, and also recruit employees. Before holding this regional training, it would be better if ASEAN holds sharing experiences about SMEs in ASEAN in order to find the best way to develop the human resources in SMEs. After that, every ASEAN members formulate their own ways that relate with the condition of SMEs in their countries so the training can work well. This regional cooperation ASEAN can also facilitate SMEs entrepreneurs in each ASEAN members to do exchange to other ASEAN countries to share their experience and knowledge. Besides, control from each government in ASEAN countries and delegations from ASEAN are also needed to make sure that all SMEs entrepreneurs have the same chance to get into this training. Then, inside approaches also concern about how to develop friendly technology that will be used by the entrepreneurs and also give benefits to them.

These include the availability of information, effective and also efficient information. Nowadays, technology is tools created and used by human to make their work easier. SMEs also use this. Unfortunately, only Singapore and Malaysia have used high technology. The rest of ASEAN members still less in using technology since their access of technology are still low. In SMEs, technology is highly needed in order to increase the efficient and effective work. With technology, SMEs entrepreneurs can increase the productivity not only in qualities, but also in quantities. The process of buying raw materials, producing, saving, packaging, promoting, and distributing will also be easier if SMEs use technology. Because of that, technology transfer is needed between ASEAN members or from outside ASEAN to ASEAN member to get the best way in technology that can be used by ASEAN countries and to upgrade the ability of technology in ASEAN countries. Besides, the governments also have to cooperate in providing technological facility that can be used by SMEs entrepreneurs in all ASEAN countries. This cooperation can also be done with others outside ASEAN like investment in technology. Providing technology also has to be related with the availability of human resources that can use the technology. So, training about SMEs technology has to be done in order reach the benefits of doing this. Last in the inside approaches is how to increase marketing ways for SMEs in ASEAN. As we know, marketing holds important roles for companies include SMEs. Good products will not develop if it is not supported with good marketing. As the vision of ASEAN is to make SMEs in ASEAN can enter the global market, marketing is really needed for them. But, mostly SMEs in ASEAN still market their products in regional only whereas abroad products enter ASEAN markets. This must not be good for ASEANs SMEs. Because of that, as the technology developed, Entrepreneurs of SMEs can use internet in order to help in marketing process and promoting since E-commerce develop faster. Strategic Action Plan made by AEM also stated that government of ASEAN member can hold routines SMEs exhibition and facilitate the best SMEs from each regional to participate in that exhibition. They also can choose one thousands best SMEs in ASEAN that will be promoted through virtual SMEs exhibition portal. This portal can promote SMEs to international market. ASEAN also can participate in SMEs international

exhibition that will help them in develop their wings wider and to learn more from international SMEs. Second approaches that will be explained further is outside approaches. Outside approaches are specifically talk about how outside environment can be used so it can help in supporting potency and participation of SMEs in order to narrowing development gaps. Outside environment that explained here are government policies from each ASEAN countries that protect and support SMEs in the country and also policies from ASEAN delegation to increase the performance of ASEAN SMEs. From the side of government policies in each country, governments have to determine policies that can protect the availability of SMEs in their countries. Since the rivals of the SMEs not only from outside the countries, but also from inside the countries like bigger companies, the chances of SMEs to struggle is low if they cannot provide efficient products and unable to promote their products well. The policies form can be used like determining regulations or laws that manage work competition happening in their countries. Besides, it will be better if in each country, there is a special institution that responsible in coordinate all activities related with the growth of SMEs in that country and also help in solving internal and also external problems of SMEs in ASEAN like UKM Center (SMEs Center). This SMEs Center will also act as supervisor and teacher helping in developing SMEs in ASEAN From the side of policies from ASEAN delegation to increase the performance of SMEs in ASEAN, ASEAN member have to erase the non-tariff obstacles for products that come from other ASEAN members like obstacles in licensing for the products to enter the country and obstacles in regulations and specification. Besides, erase this obstacles, SMEs entrepreneurs also can decrease their tax expense because they do not have to pay tax for import license and transaction of foreign currency. This ease will motivate them to still develop their SMEs so SMEs in ASEAN will develop faster and can help in narrowing development gaps.

Other things that can be done is integrating SMEs Center that provide place for ASEAN SMEs. By doing this integration, SMEs Center can help and work together in solving internal and external problems that faced by ASEAN SMEs. Besides, ASEAN countries also have to integrate in order to give award to one hundred top SMEs in ASEAN. These activities that written in ASEAN Strategic Action Plan for SME is a good tool in developing and motivating SMEs in ASEAN to go further. This award also can motivate the SMEs entrepreneurs in developing their work to be better and better and can help ASEAN in narrowing those gaps. As explained before, SMEs have big contribution for ASEAN economics since SMEs have majority percentage of companies (about 90%) in ASEAN. If SMEs can develop well, it will have impact to other sectors to develop too. These, of course, can help a country becoming better, underdevelopment country will try to chase their fact of having fallen behind, and gaps between ASEAN countries will be decreasing. If SMEs can be more productive, innovative, effective, efficient, and entrance the global market, SMEs will earn much benefits to ASEAN and can contribute higher GDP to the country. The increase of Gross Domestic Product makes country with low GDP can chase country with high GDP. Besides, the development of SMEs will create more job for society that make them earning more income and increase their standard of living. This high GDP will also give direct impacts to government and also society. Impacts felt by the government is increasing in income tax caused by increasing in GDP. Higher income tax can be used to build education tools, healthy, and good environment for society, and also programs that can create the society more health and clever. Meanwhile, the society will be ease in accessing education and health facility. By doing that, poverty, literacy, education, life expectancy, and standard of living of the society can be increased and human development gaps happened in ASEAN can be decreased.

The development of SMEs which needed technology like internet and telephone will increase the use of ICT in a country. Higher in the societys awareness of education, higher in needed of information that cause the needed of ICT will increase too. By increasing GDP along with desire with SMEs that basis technology and awareness of greater education, therefore, government have to provide more access to ICT. Moreover, increasing in income of society causes an ease in accessing the needed of ICT and then, digital gaps in ASEAN will be narrow. Based on the explanation on previous points, here we come to the conclusion. SMEs as the majority sectors in ASEAN have high contribution to reach the vision of ASEAN and also to develop ASEAN to go further to international. Because of that, as the policy maker and as the supervisor, ASEAN governments and delegates have to give focus in developing SMEs in ASEAN especially in their own country in order to reach ASEAN vision to narrowing development gaps between ASEAN members. Besides, they also have to provide some tools for SMEs like in regulations sector, financing, technology, and human resources sectors. By providing tools in those sectors that related and needed by the SMEs, SMEs in ASEAN can be grown well. Therefore, gaps between ASEAN countries can be narrowed and vision of ASEAN can be reached.

REFERENCES

Alavi, Rokiah. (2008). Narrowing Development Gaps in ASEAN. Retrieved August, 7, 2011, from http://www.sesric.org/jecd/jecd_articles/ART07100102-2.pdf ASEAN Secretariat. (2005, May). ASEAN : Narrowing the Development Gap. Retrieved August, 6, 2011, from http://www.aseansec.org/asean%20knowledge%20kit.pdf ASEAN Secretariat. (2009). Bridging the Development Gap among Members of ASEAN. Retrieved August, 6, 2011, from http://www.asean.org/14683.htm ASEAN Secretariat. (2009). ASEAN Strategic Action Plan for SME Development (2010 2015). Retrieved August, 6, 2011, from http://www.asean.org/SME/SPOA-SME.pdf

ASEAN Secretariat. (2009). ASEAN Policy Blueprint for SME Development (APBSD) 2004 -2014. Retrieved August, 11, 2011, from http://www.aseansec.org/pdf/sme_blueprint.pdf

Atmanto, Irwan Andri, et al. (2011, May 26). Masyarakat Ekonomi ASEAN, Berkah atau Musibah?. Indonesia Media. Retrieved August, 28, 2011, from http://www.indonesiamedia.com/2011/05/26/masyarakat-ekonomiasean-berkah-atau-musibah/ Djani, Dian Triansyah. (2008). ASEAN Selayang Pandang. Retrieved August, 11, 2011, from http://www.deplu.go.id/Documents/ASEAN%20Selayang%20Pandang.d oc Gayatri. (2011, May 6). UMKM Harus Bisa Manfaatkan Pasar Tunggal ASEAN 2015. Retrieved August, 10, 2011, from

http://www.mediaindonesia.com/read/2011/05/05/224049/4/2/-UMKMHarus-Bisa-Manfaatkan-Pasar-Tunggal-ASEAN-2015 Khalik, Abdul. (2011, Februari 27). ASEAN Still Struggling to Close Development Gap. The Jakarta Post. Retrived August, 8, 2011, from http://www.thejakartapost.com/news/2011/02/27/asean-still-strugglingclose-development-gap.html Narjoko, Dionisius. (2011, May 22-25). Turning Drean Into Reality? Achieving the Goal of SME Development in ASEAN Economic Community. Retrieved August, 6, 2011, from http://www.aseancenter.org.tw/upload/files/S2-1-Narjoko.pdf Purnajaya, Tri. (2010, September 15). ASEAN Berkomitmen Memajukan UKM. Tabloid Diplomasi. Retrieved August, 28, 2011, from http://www.tabloiddiplomasi.org/previous-isuue/105-september2010/919-asean-berkomitmen-memajukan-ukm.html Siahaan, Ferdinand. (2011). Hadapi Persaingan, Pemerintah Minta Anggota Asean Perkuat UMKM. Retrieved August, 11, 2011, from http://sentanaonline.com/detail_news/main/2655/1/05/05/2011/HadapiPersaingan-Pemerintah-Minta-Anggota-Asean-Perkuat--UMKM-