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SME Policy Index: ASEAN 2018

Boosting Competitiveness and Inclusive Growth

image of SME Policy Index: ASEAN 2018

The SME Policy Index is a benchmarking tool for emerging economies to monitor and evaluate progress in policies that support small and medium-sized enterprises. The ASEAN SME Policy Index 2018 is a joint effort between the Economic Research Institute for ASEAN and East-Asia (ERIA), the Organisation for Economic Co-operation and Development (OECD) and the ASEAN Coordinating Committee on Micro, Small and Medium Enterprises (ACCMSME). The report is the outcome of work conducted by the ten ASEAN Member States (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam).

Divided into eight policy dimensions, it builds on the previous edition of the ASEAN SME Policy Index 2014. The current edition presents an updated methodology which makes this document a powerful tool to assess the strengths and weaknesses that exist in policy design, implementation, and monitoring and evaluation for SMEs, and allows for a benchmarking of the level to which the ASEAN Strategic Action Plan for SME Development (SAP SMED) 2016-2025 has been implemented. Its objective is to enhance the capacity of policy makers to identify policy areas for future reform, as well as implement reforms in accordance with international good practices.

The report provides a regional perspective on recent developments in SME-related policies in Southeast Asia as well as in individual ASEAN Member States.  Based on this analysis the report provides a menu of concrete policy options for the region and for the individual countries.

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Access to market and internationalisation

For most of human history, production and consumption have been tightly bundled together, as the prohibitive cost of moving goods resulted in a geographic clustering of production and people (Baldwin, 2006[1]). Baldwin and others argue that this situation was disrupted by two great production “unbundlings” that precipitated a significant expansion in global trade. The first of these unbundlings was highly aggregative, and had the effect of substantially increasing income disparities between countries – disparities that became persistent as firms in higher-productivity countries continued to innovate, scale and increase their productivity, and thus the price and quality competitiveness of their goods, via agglomeration. The theory posits that the “first unbundling” took place in two waves between 1850 and the 1980s, with a hiatus from 1914 to the 1960s, while the “second unbundling” began in the 1980s and continues to the present day. The first was triggered by a decrease in transportation costs, which allowed for a spatial separation of factories and consumers as productive firms increased the price competitiveness of their products and thus reached new customers. The phenomenon led to an agglomeration of production as competitiveness began to hinge on specialisation and achieving the critical mass required to realise economies of scale as well to develop and diffuse innovations. The second unbundling, dated to the 1980s, was initiated by huge strides in ICT adoption and sophistication that significantly reduced communication and co‑ordination costs. The net result was the ability to spatially unbundle factories and offices (Baldwin, 2006[1]) and outsource labour-intensive activities to lower-wage countries, thereby increasing price competitiveness. The second, brought about by a reduction in communication and co‑ordination costs, allowed firms in industrialised countries to take advantage of productivity-adjusted wage gaps in lower-income countries (Baldwin, 2006[1]) by unpacking their operations and beginning to “trade in tasks” (Grossman and Rossi-Hansberg, 2008[2]). This second unbundling affords firms in lower-income countries the opportunity to trade competitively Mainly on labour cost in labour-intensive activities. on global markets, with trade in turn acting as a competitive pressure to incentivise the firm to boost its productivity over time.

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