Academic journal article Journal of International Business Research

The Challenges of SME Innovation and Technology Upgrading in Developing Economies: Insights from Malaysia, Thailand, and the Philippines

Academic journal article Journal of International Business Research

The Challenges of SME Innovation and Technology Upgrading in Developing Economies: Insights from Malaysia, Thailand, and the Philippines

Article excerpt


Over the years, governments have given increased attention and resources to SME development for a variety of reasons. In developing Asian economies, poverty alleviation and employment generation have typically been cited as goals in supporting SMEs, especially during the 1970s and the 1980s. However, when the Asian financial crisis of the late 1990s exposed the vulnerability of affected economies, support directed at SMEs shifted to programs that encouraged technological upgrading so as to broaden and deepen the industrial structure. This is especially critical for the second-tier newly-industrializing economies (NIEs) of Southeast Asia (i.e. Indonesia, Malaysia, Thailand, the Philippines, and Vietnam), which cannot anymore rely on resource-based and low-cost labor advantages to sustain their economic growth (Habaradas, 2008).

Support for the technological upgrading of SMEs has taken many forms, including skills training, productivity improvement programs, and even the setting up of business incubators and technology parks.

To illustrate, the Office of Small and Medium Enterprises Promotion (OSMEP) of Thailand has come up with a creative mix of programs aimed at supporting SMEs. These include the following: (a) SMEs Mentorship Project, (b) SMEs Incubation Project, (c) Network for Promoting Innovation Commercialization Project, (d) SMEs Sector Analysis and Early Warning Project, (e) iSME Development Project, (f) Knowledge Enhancement and Development Project, (g) Corporate Social Responsibility for SMEs Project, and (h) Venture Capital Service and Regional SMEs Mentorship Center.

Another example is the Small Enterprises Technology Upgrading Program (SET-UP), which is handled by the Department of Science and Technology (DOST) of the Philippines. This is a nationwide program designed to improve the productivity of SMEs through technology upgrading. Under SET-UP, various types of services / interventions are made available to identified clusters or sectors. These services include technology selection, technology acquisition, technology training, process and equipment design, packaging, productivity improvement, quality assurance, standardization, materials identification / selection, waste management, product improvement, and IPR protection (Alabastro, 2004).

Some governments also offer a long list of grants, loans, and other forms of financial assistance meant to address various SME requirements. Consider this partial list of grants and soft loans being made available by Malaysia's Ministry of International Trade and Industry (MITI) and its agencies through the Small and Medium Industries Development Corporation (SMIDEC): (a) Matching Grant for Business Start-ups, (b) Matching Grant for Product and Process Improvement, (c) Matching Grant for Certification and Quality Management Systems, (d) Grant for Enhancing Marketing Skills of SMEs, (e) Matching Grant for Enhancing Product Packaging, (f) Matching Grant for Development and promotion of Halal Products, (g) Grant for Skills Upgrading, (h) Grant for RosettaNet Standard Implementation, (i) Soft Loan for Small and Medium Enterprises, (j) Soft Loan for Factory Relocation, and (k) Soft Loan for Scheme for ICT Adoption.

In spite of all these support mechanisms, however, overall results have fallen short of expectations. Proof: (1) many loans and grants meant for SMEs are underutilized; (2) few SMEs are able to upgrade their capabilities to qualify as suppliers of large enterprises, especially of multinational corporations (MNCs); (3) many SMEs fold up due to competition posed by imported goods and large foreign investors; and (4) a limited number of SMEs, especially in far-flung areas, has availed of government support programs (Habaradas, 2008b).

A study by Virasa and Tangjitpiboon (2000), for example, found that very few private companies take advantage of the Thai government's support for technology development such as the tax scheme, loans, technical information, and consulting services, among others. …

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