1. SME Cluster Development Initiatives in CLMV countries
Madhurjya Kumar Dutta
Program Manager,
Mekong Institute, Thailand
29th October 2012
YGMS Program

2. AEC 2015 Goal :Regional economic integration by 2015. AEC envisages :
a single market and production base,
a highly competitive economic region,
a region of equitable economic
development, and
a region fully integrated into the
global economy.

3. AEC 2015
To transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital.
Areas of cooperation include :
human resources development and capacity building;
recognition of professional qualifications;
closer consultation on macroeconomic and financial policies;
trade facilitation measures
enhanced infrastructure and communications connectivity;
development of electronic transactions through e-ASEAN;
integrating industries across the region to promote regional sourcing;
enhancing private sector involvement for the building of the AEC.

4. “One Vision, One Identity, One Community”
Slide 4. “One Vision, One Identity, One Community”
The AEC is only 2 years away and GMS countries are preparing for that date. While they are working to meet their obligations under AEC, GMS countries are also caught up with the rapid transformation of the Chinese economy. GMS countries cannot expect either ASEAN or China to wait for their development to catch up. While tangible inter-regional economic-cooperation is taking place e.g. exchange of commercial traffic, border area development, high-speed train connections, joint seaport development etc., there is more that needs to be done.
GMS countries can leverage on the rise of China and the commitment and determination of ASEAN to become an economic community. Within the GMS, Yunnan and Guangxi province are already integral parts of China’s progress, and Thailand is well advanced within the AEC, having participated in the production supply chain and served as a logistics hub. Therefore the real challenges are on the CLMV, particularly in remaining competitive in attracting trade, investment, capital and skilled labor.
ASEAN GMS Countries
Land area: 1.94 M sq Km
Population: 232 M
ASEAN Countries
Land area: 4.48 M sq Km
Population: 614 M

5. Per Capita GDP – US$ Source:–AEC Chartbook 2010
Slide 5. The Prosperity Gap
Although there has been impressive economic growth in the region, at the same time there is a gap growing between the increasing prosperity of the other ASEAN member states compared to the GMS countries of Cambodia, Lao PDR, Myanmar and Vietnam – collectively known as the CLMV countries
For example, while Thailand’s nominal per capita income was close to US$4,613 in 2010, Laos registered only $1004. Neighboring both states is Cambodia, with a per capita income of only $901, while the most developed ASEAN state, Singapore, had a per capita income of approximately $37, statistics indicate a further widening of this gap.
In addition, development in CLMV is imbalanced, both within and between countries, between coastal and upland areas and between rural communities and urban centers. Land conversion and massive infrastructure development have displaced people and communities, and women and ethnic minorities in remote upland areas constitute a growing number of the poor in rural and new urban centers.
ASEAN itself has recognized this Gap and in 2000 launched the Initiative for ASEAN Integration – IAI by which the more advanced members of ASEAN are supporting HRD and capacity building of the CLMV countries.
However, as the statistics show, much more needs to be done – ASEAN itself recognizes that further widening of the Prosperity Gap could threaten to undermine regional solidarity.
Source:–AEC Chartbook 2010

6. CLMV -SME situation SMEs are the backbone of every economy in the GMS.
SMEs- 95% of all private enterprises in the GMS countries
Employ 75-90% of the domestic workforce.
Small Share of SMEs’ production in total domestic output - average 20-40% with direct contribution of SMEs to merchandise export earning is only %.
Challenge - how to link more effectively with regional and global markets as SMEs in the CLMV countries belong to domestic market-oriented industries.

7. Major issues faced by CLMV countries that hinder narrowing development gaps and economic integration into AEC include:
Underdeveloped public human resource capacities and institutional support systems to develop and implement trade and investment policy and regulatory framework
Lack of industry clusters and facilities that can provide SMEs access to regional and global value chains
Slide 6. HR Development issues
Last year, the Mekong Institute has worked with ASEAN and other regional and national partners in the GMS to identify the top priority issues faced by the CLMV countries in achieving the AEC and trade liberalization.
Major issues faced by CLMV countries that hinder narrowing development gaps and economic integration into AEC include:
Underdeveloped public human resource capacities and institutional support systems to develop and implement trade and investment policy and regulatory framework
Lack of industry clusters and facilities that can provide SMEs access to regional and global value chains

8. Small and Medium Enterprises
Limited ability to integrate into ASEAN and global value chains
Slide 10. Small and Medium Enterprises
The need to develop Small and Medium Sized Enterprises in Cambodia, Lao PDR, Myanmar, and Vietnam has been long recognized. SMEs are the backbone of every economy in the GMS. They typically account for more than 95% of all private enterprises in the GMS countries and employ 75-90% of the domestic workforce.
However the relative share of SMEs’ production in total domestic output is disproportionately smaller, on average 20-40% and the direct contribution of SMEs to merchandise export earning is also small, at %.
Moreover, SMEs typically produce a narrow range of low value-added products. They also face challenges arising from rapid technological progress and intensified global competition
The biggest challenge facing SMEs in CLMV is how to link more effectively with regional and global markets. Most of the SMEs in the CLMV countries belong to domestic market-oriented industries and cottage industries.
ASEAN recognizes that SME development is integral to achieve long-run and sustainable economic growth throughout the region. With the strong forces of globalization, it is therefore essential to build the capacities of SMEs in the region in order to ensure that they are highly competitive, innovative and are able to capitalize on the regional economic initiatives and incentives provided under ASEAN

9. Capacity Development for Integrating CLMV Economies into AEC 2015
Outcomes:
Increased Understanding of Value of SME Clusters and Export Network
Increased understanding and utilization of FTAs by SME exporters
Let me share some experiences of capacity development initiative taken up by Mekong Institute. Currently, MI is implementing a three year project on Capacity Development for Integrating CLMV Economies into AEC 2015 funded under New Zealand Aid Programe. The ooutcomes of the project are :
Increased Understanding of Value of SME Clusters and Export Network
Increased understanding and utilization of FTAs by SME exporters
Target group includes Capacity development of business development services (BDS) providers and SME exporters.
Duration: 3 years ( ) Partners: Ministry of Industry, Commerce, Industry and Trade associations, SME associations in Cambodia, Lao, Myanmar and Vietnam.

10. Modular Capacity Development
Approach:
Modular Capacity Development
Learn to Do
Do to Learn
Slide 13. Modular Capacity Development approach
The capacity development intervention could be designed and delivered using a modular training approach with three progressive stages : i) “ Learn to Do” – training on concepts, techniques and tools to promote SME clusters and export consortia; ii) “Do to Learn” –to implement the action plans to promote SME clusters and export consortia with technical assistance from MI; and iii) “Share to Learn” –an opportunity for the participants to present the results of their action plan implementation, learning experiences and lessons learned.
Share to Learn

11. SME Cluster Development and Export Network
Implementation Strategy
SME Cluster Development and Export Network
a. Modular Training Programs
Training on SME cluster and Export consortia
Action Research
Training
Action Plan
Coaching for Export Consortia
Synthesis Workshop
b. Action Plan
Implementation of action plan to form cluster and export consortia
c. Action Research
Slide 15. SME Cluster and Export Network
It follows a modular approach starting with a training programme on SME cluster development and export consortia formation. As post training activity, the participants implement action plan to coach and promote SME clusters on specific products with an aim to establish export consortia’s of SMEs in the cluster. Technical assistance is provided to SMEs to form Consortia and prepare for export market entry. For linking with foreign market, Investor Forums are organized to enable the SME consortia’s for business to business linkages with potential large buyers. Finally, Synthesis and evaluation workshop to share learning process, lesson learnt and demonstrate best practices.
Action Research is part of the process to document cluster development and export consortia formation to demonstrate lessons learnt and capture best practices with an aim to contribute to learning process along with policy briefs for decision makers.
Process documentation of action research
Policy Briefs on SME cluster development
Investor Forum
d. Investor Forum
Market access to SME consortia

12. Capacity Building Group
SME Cluster and Export Consortia
Capacity Building Group
Identify Sector/Product
Action Plan Preparation for Capacity Building
Coaching for Export Consortia Formation
Implement Action Plan on SME cluster development Consortia
SME Consortia Group
Value Chain Actors Identification
Action Plan Preparation for Export consortia
Implement Action Plan Coaching Value Chain
Export Consortium Formed
Export Consortium
Formed
Market Linkage
Investor Forum

13. Action Plan 1
Cambodia Capacity Building (CB) - Milled Organic Rice Cluster Group: Lun Yeng, Lay Navinn, Yun Sovanna, Ek Shopheara 2
Cambodia Consortia Group (CG)- Instant Noodle Export Consortia Group:Linh Thorn&Pok Mony 3
Laos CB- Silk Cluster Group:Malaykham Philaphone, Phetanong Insarn & Somthong Philavanh,Philayhack Phothisane 4
Laos-CG-Furniture Export Consortia Group:Vannitha Phommavong, Phithikone Vilaithong 5
Myanmar CB Dehydrated Vegetable Cluster Group:Aung Win, Tin Htay, MuMu, Phyu Sin Thant 6
Myanmar CG Plastic Export Consortia Group:Aung Myint, Aung Myo 7
Vietnam CB Silk and Handicraft Group:MaiDieuHuyen, NguyenMinhHien,NguyenMinhHai 8
Vietnam CG Organic Tea Export Consortia Group:HoangCongMinh, ThanVanSuu

14. Task of YGMS in Action Research
To document the process of SME cluster formation and the integration of the selected product into regional/global value chain.
Action research in CLMV countries and Korat Pork SME Cluster in Thailand
Attend one week training programme at Mekong Institute on “Action Research Methodology” during November at Mekong Institute, Khon Kaen Thailand.
Assist National Researcher to develop action research plan defining objectives, work plan and deliverables.
Conduct and assist field action research and document process of the identified SME clusters and Export Consortia as per research plan.
Analyze data on SME cluster and export consortia formation on identified SME clusters.
As part of YGMS output, write report on SME product cluster Mekong Institute
Present the final results in MI as part completion of YGMS program.