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Besieged SMEs told to take offensive moves

Nov 22. 2012
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By Sucheera Pinijparakarn
The Na

2,127 Viewed

SMEs should shift to an offensive strategy to counter unfavourable factors, such as the minimum wage hike, manpower shortage and deepening of free trade under the Asean Economic Community, according to Siam Commercial Bank.

Sutapa Amornvivat, chief economist at the bank’s Economic Intelligence Centre, said yesterday that the research house in collaboration with the Federation of Thai Industries (FTI) surveyed a focus group drawn from 308 SMEs in the first seven provinces where the daily minimum wage was hiked to Bt300 in April and all the other provinces that will implement the wage hike next year.

The study found that 72 per cent thought they could cope with the situation while 28 per cent were afraid that they could not adjust for the impact of rising labour costs on their business.

The SMEs that could take the wage hike could do so because they can improve productivity by acquiring new technology, expanding markets and passing the costs onto customers, she said.

Building materials is one industry that can pass costs to customers, she said.

SMEs could pass through 25-35 per cent of the increase in costs, which makes their costs rise by only 2.6 per cent because operators at each stage of the supply chain have to shoulder the increasing costs on their own and take a cut in profit margins. However, profits also decreased by 4.2% of revenues. Construction is the industry with the deepest plunge in profit.

The new minimum wage was not such a serious problem for SMEs as the tight labour market. About 63 per cent of the respondents said they could not recruit enough workers. This will hurt their production in the near future especially when they have to deal with the Asean Economic Community.

Automakers and their suppliers are expected to be affected because the industry plans to expand production capacity to cash in on increasing demand both locally and overseas.

For the upcoming AEC, which even SMEs see as a positive move, most businesses still use a defensive rather than an offensive strategy.

Going on the offensive is important for SMEs because a defensive strategy could not help offset the cut in profit margins from higher operating costs following the nationwide implementation of the new minimum wage.

Forming industrial clusters can help them because that will improve their economies of scale and their bargaining power. Industrial clusters are part of the offensive strategy that SMEs must think about because they cannot always pass costs to customers.

SMEs should also consider how to develop innovative products to escape the middle-income trap, she added.

FTI vice chairman Manapol Poosomboon said clusters will reinforce bargaining power.

Collective clout will help SMEs reduce the cost of raw materials, logistics and transportation as well as give them leverage in negotiating with the government.

SMEs have formed 11 industrial clusters in the past three to four months.

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