Download Development Methods for Small and Medium-sized Businesses in Regional Economic Integration

Development Methods for Small and Medium-sized Businesses in
Regional Economic Integration
Wu Ping Sun Jian
The Department of Business Administration and Economics of Kunming University of Science and
Technology, Kunming, Yunnan 650093, PRC
Abstract: This paper is a study of the various advantages of sub-regional economic development. By
taking Michael E. Porter’s theory on business clusters as the theoretical framework, the author is trying
to probe ways of development for small and medium sized-businesses serving as the main body of
economic activities in a changing environment, and make suggestions for the role of governments.
Key Words: regional economic integration, small and medium sized-businesses, business cluster,
government supporting system
1 Introduction
The Greater Mekong sub-region economic cooperation initiative has been researched and carried out for
twelve years so far. Now a number of carefully selected infrastructure projects, especially transport
facilities, in which some two billion USD have been invested, have been completed or in progress, as a
result of the joint efforts of the six countries in the basin, China, Laos, Thailand, Myanmar, Cambodia
and Vietnam, with the support of international organizations such as the Asian Development Bank.
Cooperation among these countries in some other fields such as traffic, energy, communication, tourism,
trade and investment, human resource development, and environmental protection is also underway,
with the cooperation mechanisms increasingly improved. However, at present cooperation is conducted
largely by governments with poor nongovernmental business participation. Therefore, in my opinion, as
the first step, we must point out the opportunities and challenges brought about by regional economic
integration for the survival and development of small and medium sized-businesses.
2. Opportunities and Challenges for the Development of Small and Medium
sized-businesses in the Sub-region
2.1 Opportunities
From a macroscopic viewpoint, opportunities arise from various forms of trans-national efforts,
including the removal of trade barriers, improvement of transport and communication facilities, policy
support (such as China’s policy of developing the West, the support of international economic
organizations such as World Bank, Asian Development Bank, and policies for facilitating cooperation
among countries in Mekong River basin), serial and extra large-scale projects such as building of power
1
stations along River banks, the dredging of trans-national channels, and building of roads and airways.
From a microscopic viewpoint, businesses can take advantage of both domestic and international
markets and resources to improve their competitiveness in the world market, and supplement each other
to the maximum degree in their respective industrial sectors. The hastening of trans-national cooperation
among businesses will help to build a bigger trade platform for them in various forms. The reduction of
tariff and non-tariff barriers and the “early harvest plans” will help them to establish big market shares
in overseas markets, making it possible to establish trans-national and trans-regional business clusters.
In the forming of the clusters involved countries will establish and improve respective mainstay
industries, make full use of preferential tariff policies provided by the ASEAN Free Trade Zone, expand
their overseas market shares, and adjust their industrial structure.
2.2 Challenges
From a macroscopic viewpoint, some hard-to-solve problems in the sub-region give rise to challenges,
including quite slow capital accumulation speed, generally low education level of the population, drug
trafficking, ethnic and territorial disputes, and other sensitive non-economic problems. The sub-region is
faced with some other problems, such as the similarity of the countries in geographical location,
commodity structure, and resource composition. Furthermore, they have all suffered from declining
market potential for traditional products, defective investment security system, and backward support
and service systems for trans-national business operations.
From a microscopic viewpoint, lots of small and medium sized-businesses in the sub-region are
unsuccessful in financing, marketing, trademark building, business administration, and strategic
decision-making. They are not active in seeking development. This is mainly because their commodities
for export are mostly primary products, which are very limited in variety. Therefore, changing prices in
the world market considerably restrict the potential for growth. Moreover, their ability to develop world
markets is still weak; government efforts to support their role are insufficient. We believe the key lies in
promotion of competitiveness, which should mostly result from the readjustment of their commodity
structure in the economic integration in the sub-region. The formulation of their development strategy
should be based on this readjustment so as to meet the requirement of the times.
3. Industrial Restructuring in Regional Economic Integration
In regional economic integration, industrial restructuring by more developed countries is often aimed at
transferring some of their comparatively backward industries or production technologies to less
developed countries in the form of direct investment or technology transfer. In contrast, less developed
countries often realize their industrial restructuring by making low-cost products with their own natural
resources, and capital and technologies from more developed countries, and exporting them to more
developed countries through foreign trade. Some less developed countries do that in different ways.
They have managed to timely complete their industrial restructuring and raised their position in the
international division of labour system, and are thus among the new rising developed countries by
seizing various domestic and international opportunities, including opportunities arising from industrial
2
restructuring and technology transfer by more developed countries. China is a country at a high level of
national economy development compared with other countries in the sub-region. Through more than
five decades of efforts, China has managed to establish a well-structured, self-contained industrial
system. With its further progress in economic, scientific and technological development, some of its
traditional and new rising industrial sectors have entered or are entering a mature stage.
These sectors are beset by upgrading of domestic demands, and domestic market saturation and decline,
and are at the same time under pressure from a changing national income structure, and increasing
labour costs. The step-by-step upgrading of China’s industrial structure will certainly cause traditional
sectors to shrink gradually to make best use of existing resources. In the meantime, these sectors’ mature
products and technologies still have remarkable market potential in other countries in the sub-region.
Under circumstance where commodities made in China are faced with various trade barriers, it is
advantageous for China to make direct investment in and trade with other countries in the sub-region so
as to promote the restructuring and transfer of their mature sectors. The outward transfer of some of
these sectors will promote better use of the nation’s surplus productivity, and provide a new source of
foreign exchange for the upgrading of the nation’s other sectors. These products have little domestic
market potential, but much better potential in many of China’s neighbouring countries. Vietnam,
Myanmar, Laos and Cambodia in the sub-region have always had a large demand for medium and
low-end industrial products made in Yunnan and other parts of China. Such demand is increasing in both
quantity and variety, with the development these economies. On the other hand, agricultural and sideline
products and resource products made in Thailand, Vietnam, Myanmar, Laos and Cambodia can provide
great development potential for many small and medium sized-businesses in China. In addition, Chinese
small and medium sized-businesses in the sub-region will meet the great development potential by
building channels for cooperation among countries in the sub-region, especially in transport, information
channels, logistic services, energy, social security, exhibition facilities and financial services.
4. Methods of Development for Small and Medium sized-businesses in Industrial
Restructuring
4.1 Merging into framework of International Collaboration and Division of Labour
Generally speaking, it is not difficult for small and medium sized-businesses to join in the international
collaboration and division of labour network depending on their core competitive edges at a lowest
possible price by means of trans-national trade and investment. They can make use of the resource
potentials in such an international network to upgrade their international competitive power-----make
use of the mechanism of the network to gain and use more resources; take advantage of their
accessibility to resources to make use of their own resources; seize opportunities to improve their
learning capability; make use of technology transfers to obtain more advanced technologies; make use
of the network’s market reactivity to enhance their sense of market and marketing skills; make use of
localized businesses to cultivate their own technical and managerial personnel; make use of advanced
patterns of organization and management to improve their management mechanisms.
3
As important and indispensable elements of the international collaboration and division of labour
network, countries in the sub-region have increasingly opened their doors to the outside world. Many of
the small and medium sized-businesses in these countries are quite strong in technology intensive
collaborative projects. Some of them have fairly developed production management systems, which
have paved the way for them to conduct mass production in collaboration with the network. Some of
them, especially those in China and Thailand, have a long history and a strong production capacity in
some industries, laying good foundations for their long-tem development. Therefore, small and medium
sized-businesses in the sub-region should join in the international collaboration and division of labour
network by making full use of their own advantages. Capital, technologies and other resources that the
network provides can be used to adjust, upgrade and optimise the industrial structure of joining
countries, promote collaborative production among matching businesses, drive development of relevant
industries, and improve the production techniques of small and medium sized-businesses so as to make
their products soon meet international requirements and become more marketable around the world. By
participating in international competition, small and medium sized-businesses will accumulate
experience for trans-national operations, and cultivate their own technical team grasping advanced
technologies and managerial team with expertise in business administration.
4.2 Constructing form of Organization of Business Clusters in the Sub-region
In researching business clusters, people find that individual independent businesses not belonging to any
business cluster have very limited competitiveness; but when they constitute a business cluster, they
gain a remarkable competitive edge, either as a whole or as individuals. That is because the geographical
gathering of businesses belonging to one and the same industry promotes division of labour among
businesses in one region. That enables businesses to steadily and effectively be supplied with raw
materials and other relevant goods so as to reduce their trade costs and enhance their production
efficiency. By comparing with each other, businesses in a cluster have to take their rivals’ products as
their product standards reference, and thus come under pressure of competition in gaining more market
share. That is of great advantage to the formation of a benign competition mechanism, and to the
innovation of products and technologies. After the business chain formed by the business cluster has
achieved a certain competitive edge in the word market, the business expansion arising from it will drive
the development of relevant industries and advance the region’s industrial structure.
Thus we believe the development of small and medium sized-businesses in the sub-regional economic
integration should mainly rely on the development of business clusters with a competitive edge, making
use of resources and markets in the sub-region, and capital and technologies from East China and other
parts of the world. The following patterns are for reference in developing such business clusters:
4.2.1 Business Clusters Depending on Resources
The sub-region abounds in elements of production, mineral resource, water energy, forest, soil and
cheap labour. In addition, the sub-region’s subtropical climate is suitable for the growth of a great
variety of agricultural crops. Some small and medium sized-businesses in the sub-region have made or
are making efforts in the development and downstream processing of these resources.
4
Furthermore, the different natural conditions and resource distribution in different parts of the
sub-region determines that the production of some products in the sub-region, such as local specialties,
have distinct local features. They are all made by small and medium sized-businesses, which very much
resemble each other in terms of capital composition, production process, raw material supply and
product marketing. Developing business cluster among them can avoid malign competition, and bring
about scale merit by making full use of the positive role of business clusters. It is completely possible
for small and medium sized-businesses in the sub-region to develop their own business clusters with
competitive edge in the production, processing, marketing and export of agricultural and sideline
products and local products making use of the sub-region’s resources.
4.2.2 Business Clusters Led by Large Companies
With the progress of division of labour and the development of specialized production cooperation,
many large-sized private businesses have become more and more specialized in their major businesses,
leaving many of their minor businesses to small and medium sized-businesses. This is not only helpful
for large companies to enhance their core competitiveness, but also for medium and small companies to
survive and develop. For example, in Yunnan, a few large private businesses are specialized in mineral
mining and smelting, while some smaller businesses focus on the downstream processing of mineral
products. Under such circumstances, some business clusters led by large companies can be developed to
achieve mutual benefits and side-by-side development between large businesses and medium and small
businesses. After that, efforts should be made to expand such business clusters so as to make full use of
the potential resources in the sub-region and contribute to the economic development of the countries in
the sub-region.
4.2.3 Business Clusters for the “Channel Economy”
The three-dimensional transport network linking countries in Greater Mekong sub-region has now taken
shape. This network, known as “great international Mekong sub-region channel”, brings about great
commercial potential and makes room for the development of business clusters in transport, storage,
finance and insurance, post and communication, food and beverage, foreign trade, exhibition, and export
processing. Therefore, it’s possible to develop business clusters designed for the “channel economy”.
To upgrade the competitiveness of small and medium sized-businesses, it depends on development of
high-techs and the application of them in production. With the arrival of knowledge economy, the size of
a business is no longer a restrictive factor in technical innovation. However, conditions for developing
small and medium sized-business business clusters in the sub-region with hi-tech development and
application as their sustainable drive are not yet satisfied. But it is a bounden duty for governments at all
levels in the sub-region to continue providing support for the development of such business clusters.
5
Building A Multilateral Government and Policy Supporting System for the
Development for Small and Medium sized-businesses
5.1 Improving the Information Transparency of Relevant Policies, Laws and Regulations
Predictability and stability of policies, laws and regulations is a basic requirement and an indispensable
5
precondition for market activities and free competition. Small and medium sized-businesses are often
restricted to human resources, financial resources and material resources. It is hard for a country to
formulate policies for reducing and transferring losses caused by international trade risks if it lacks
proper understanding of the policies, laws and regulations of the target countries on finance, foreign
exchange control, tax, labour and capital management, or is insensitive to the changes of relevant
economic policies. It is also hard for such a country to hold its ground in the world market if it is not
competent in dealing with international trade risks. Therefore, efforts should be made to increase
cooperation among countries in the Lancang-Mekong sub-region, establish an information platform to
be shared by these countries, and work out treaties, policies, laws and regulations on multilateral trade
and investment among these countries as soon as possible. Business information should be released
through this information platform on a regular basis, so as to help small and medium sized-businesses to
study the political, social, economic, cultural and law backgrounds and other information about the
macroscopic investment climate of the target countries, as well as the comparative production cost,
companies particular factor earnings, extra cost of export, extra cost of production management and
coordination aboard and other information about microscopic conditions of target countries before they
make decisions concerning trans-national operations. Such an information platform will also help them
to make decisions according to proven decision-making patterns of trans-national operations.
5.2 Formulating Preferential Policies for the Development for Small and Medium sized-businesses
Policies should be made to guide small and medium sized-business to engage in downstream processing
of natural resources and agricultural and sideline products, labour-intensive businesses providing large
scale employment opportunities, export-oriented businesses mainly aimed at earning foreign exchanges,
and technology- intensive businesses heavily relying on new technological achievements. For this
purpose, it is urgent to establish or improve the service system for small and medium sized-businesses,
including the credit system, credit guarantee system, and other socialised service systems. Government
services should be improved to provide a sound management environment for small and medium
sized-businesses. Policies should be made to make it easier to establish small and medium
sized-businesses. It should be energetically encouraged to make investment of various origins and forms
in establishing small and medium sized-businesses, so as to form a loose market access mechanism and
reduce initial difficulties for business establishment. Small and medium sized-businesses should be
allowed to register their capital by stages. Human resources, financial resources, and material resources
for business establishment should be encouraged to enter the domestic market. All social forces should
be encouraged to establish various technical innovation institutions to facilitate technical innovations by
small and medium sized-businesses. Particularly, support in the form of subsidised loans, financial aids,
and capital contributions should be granted to projects of small and medium sized-businesses, which are
characterized by intellectual property, hi-tech, high added value, large numbers of employment
opportunities, low energy consumption, environmental protection and foreign exchange earnings.
5.3 Hastening the Establishment and Improvement of Guilds
Guilds serve as the bridges and ligaments between governments and businesses. Their roles include
6
designing business development, coordinating business operations, advising business policy, protecting
the lawful rights and interests of businessmen, and servants of enterprises. Now there are over 2,000
guilds and chambers of commerce for various businesses in China. However, due to some historical
reasons, they are to some degree controlled by governments and are characteristic of a planned economy.
The members of most of these guilds are no more than 40% of all the businesses within the jurisdiction
of the guilds. It is urgent to speed up the establishment and improvement of guilds for small and medium
sized-businesses in Yunnan participating in the great Mekong sub-regional economic cooperation.
5.4 Reducing Trade and Investment Barriers
Coordination among countries in the sub-region should be strengthened. It is a key problem to solve to
strengthen coordination among countries in the sub-region and push forward bilateral and multilateral
commercial intercourse, especially border trade. For this purpose, mechanisms for multilateral
precaution and coordination, dispute settlement, and execution monitoring should be established as soon
as possible so as to reduce barriers against commercial intercourse between countries.
As a major power, China should take lead and urge other powers in the sub-region to enter into Treaty
on Trans-national Goods and Passenger Transportation Facilitation in Great Mekong Sub-region, and
adopt relevant measures, including regulating entry and exit administration procedures, simplifying
formalities for visa examination and approval, granting class-A port visa rights to each other, opening
relevant ports to the third county in the sub-region, enriching functions of their ports, setting up unified
customs examination establishments, and carrying out “one-station” customs examination, etc. bonded
trade zones should be established in border areas of the appropriate areas within their territories, which
are expected to serve as models for facilitating exchange of human resources, financial resources and
material resources among the countries. These zones will back up development of business clusters in
the sub-region. Tariffs should be further lowered. As a result of the implementation of the “early harvest
plans” between China and ASEAN, the countries’ mutual tariffs restrictions have been much lowered.
Tariff restrictions on import trade have been declining in the sub-region. It is suggested that all countries
in the sub-region should increase their roles in further lowering tariffs and value added taxes for import
trade with each other so as to reduce transaction costs for small and medium sized-businesses.
6 Conclusions
Basing on multilateral government and Policy Supporting System, Small and Medium sized-businesses
can make correct choices in Regional Economic Integration through the above methods.
Reference
1.
Michael E. Porter, The Competitive Advantage of Nations, Huaxia Press, Beijing;
2.
Wang Bin, Introduction to International Regional Industrial Structure Analysis, Shanghai People’s
Press, Shanghai, 2001;
3.
Luo Jing and Nie Ming, Comparative Analysis and Enlightenment of Business Cluster in
Developing Countries, Foreign Economy and Business Administration, Mar. 2002.
7