Small and Medium Sized Enterprises in East Asia: Sectoral and Regional Dimensions

Small and Medium Sized Enterprises in East Asia

Author(s): Charles Harvie, Boon Chye-lee (eds.)

ISBN:          978-1840648096

Publisher: Edward Elgar Ltd Publishing, Cheltenham, UK

Year:          2008

Price:       £114.00

Reviewed by Ren-Jie Hong, Doctoral student, Department of Sociology, Binghamton University, State University of New York, U.S.A.

This book is the last volume series on the role of small and medium sized enterprises (SMEs) in the economic development in East Asia. While earlier volumes emphasize the contribution of SMEs to national economies, this present book provides a comprehensive understanding of characteristics of SMEs from international, regional and industry perspectives. Not focusing on the functions of SMEs, and instead, emphasizing SMEs per se, allow the authors to illuminate the difficulties as well as strategies of SMEs within global economy. Far from supporting the widely held view that SMEs are in peril in the era of globalization, this book convincingly demonstrates the strength of SMEs in promoting economic growth and in creating employment in developed and developing countries.

The book organizes sixteen chapters into four parts. The first part discusses general issues of SMEs in cross-national context. In chapter 1, as an overview and critical literature review, Harvie and Lee argue that networks and clusters of SMEs provide necessary conditions for innovation and marketing. However, collective efficiency of industrial groupings depend on various public policies and regional circumstance.

Given the diversity of national economies in East Asia, in chapter 2, Hall seeks to benchmark SME policy approaches adapted in members of Association of South East Asian Nations (ASEAN) and Asia Pacific Economic Cooperation (APEC). Hall scrutinizes survey data and concludes that appropriate policies should be treated as means to attain competitive advantage. Though the positive relation between policy comprehensiveness and SME outcomes is weak, SME policies do improve performance.

Part II focuses on international perspectives and global linkages of SMEs. To enhance competitiveness, SMEs endeavor to participate in global linkages through production chains. Régnier argues in chapter 3 that transnational corporations (TNCs) provide business linkages to strengthen the export capacity of SMEs in ways of outsourcing and foreign direct investment (FDI). Thus in the context of globalization, the paradigm which acclaims the autonomy of SMEs in production and capital has shifted to the new SME models, driven financially and technically by TNCs. However, the distribution of benefits and costs of business linkages is highly unequal. Régnier proposes policy recommendations to the private sector, governments, and international community for reducing risk and uncertainty specifically by financial support to SMEs.

SMEs have been seen as the locomotive for promoting growth and creating employment. In chapter 4, Pollard argues that in Central and Eastern Europe (CEE) and the former Soviet Union (FSU), among the difficulties facing SMEs are numerous risks and uncertainties in the process of internationalization. States are vital in institutional reform and macroeconomic stability for building a business environment in favor of SMEs. Following the three schools of internationalization studies – FDI model, stage model, and networking model – Pollard compares the process of internationalization of SMEs in CEE with that in East Asia. He concludes that China (as an example of East Asia) could utilize European experiences by encouraging SMEs internationalization and by changing balance between the private sector and the Township and Village Enterprises (TVEs).

In China, relational marketing has been the key to SME business model. As Freeman and Lim argue in chapter 5, guanxi, conceptualized as trust, dependence, and reciprocity, is prior to business transaction for Chinese businesspersons. This business precedence is decisive to western firms to thriving in China. However it is in contrast to western practice where personal relationship follows successful transaction. The authors conclude that for western firms to build guanxi relationship with their Chinese partner implies outcomes in terms of business performance and commitment.

Part III focuses on regional perspectives in that contributors study SMEs in specific geographical regions. In chapter 6, Hodgkinson and McPhee survey 146 value-adding exporters from New South Wales, Australia. Focusing on structural characteristics of firms such as size, age, and export experiences, the authors emphasize the sector-specific rather than generalized strategies for SMEs. They conclude that by intermediate collaborating with experienced partner networks, SMEs servicing niche global markets are capable to develop the competitiveness.

The access to global markets trough internationalization of firms is crucial for SME survival. Crase, Lamb, and Patullock, in chapter 7, propose a government approach for SMEs to adopt e-commerce in regional and rural Australia. They point out the cautious predominance of infrastructure-centric policy and argue a human dimension investment. While improvement of infrastructure allows rural firms to have favorable access to global market, it allows vehement competition. Therefore, the authors conclude, a human resource policy targeted to youth and managers may be particularly helpful with regard to enhance SMEs in regional and rural organizations.

Rural development is the most critical issue of China, the biggest developing economy. In chapter 8, Clegg historically delineates the transformation of cooperatives in China. The transition to market economy has set forth for Farmers’ Specialized Cooperatives (FSCs) as a way to grant farmers sharing the benefits of industrialization of agriculture and horticulture. However, as Clegg argues, the success of FSCs is limited. Apart from state bureaucratism which decelerated reforms in cooperative economy, the domination of private entrepreneurs as first comers in the liberalized specialized markets undermined efforts of small-scale cooperatives. Prospectively, Clegg concludes that the reforms have been gradual but progressively. China’s entrance to World Trade Organization (WTO) may path the way for more farmers meeting the challenges ahead.

As a socialist economy in transition, the role of SMEs of Vietnam is as crucial as the counterpart of China in economic development. Harvie, in chapter 9, historically analyzes the role of private sector and SMEs in development of Vietnam. He argues that to strengthen Vietnamese SMEs competitiveness, more commitment from the government to enhance legal and financial environment is required.

SMEs are vulnerable to fierce competition in the global market. One way of improving business performance of SMEs is via innovation. In chapter 10, Olsen, Lee, and Hodgkinson conduct a survey from 105 firms in New South Wales, Australia and denote the ‘ripple-effect model’. The model aims to show the relationships of firm profile, firms’ knowledge, innovation inputs and outputs, and firm performance. The model is tested with fourteen hypotheses and suggests that SMEs tend to innovate through introduction of new product and export, while large firms prefer to innovate through research and development (R&D).

In chapter 11, Saleh and Ndubisi focus on SME development in Malaysia. Though the government implemented the New Economic Policy in 1971, the share of Malaysian SMEs in export is much lower than in neighboring countries. The authors highlight the contributions of SMEs to the economic development of Malaysia. They argue that government should simplify bureaucratic procedure and offer more consultant and expert services. In addition to government agencies, they conclude, SMEs should invest in R&D and technological know-how to get access to global market.

Part IV focuses on SME activities in industry perspective. In chapter 12, Hayashi emphasizes the subcontracting network as a support mechanism in metalworking and machinery industry in Indonesia. The author indicates that while inter-firm linkage is conducive to technology acquisition and marketing learning, the association of network with financial support is not significant. Therefore, the author concludes, the formal financial institutions are in need of reform which includes improvement of banks’ capability of monitoring and establishment of a credit guarantee system.

In the 1990s, Textile, Clothing and Footwear (TCF) industries have been favored by Australian government in trade reforms. In chapter 13, Jayanthakumaran argues that trade liberalization is associated with rising labor productivity in TCF industries. However, the gain of productivity has not been rendered into gain of export. The author concludes that TCF industries need further reform and that governmental assistance needs to focus on enhancing export capacity of SMEs.

Chapter 14 is the only one in this book focusing on market entry barriers which have been the key issue for SMEs in capital and technique intensive industries. Based upon semi-structured interviews, Kenny and Tobin demonstrate the barriers SMEs will meet in Asia-Pacific oil and gas industry. They argue that leadership in domestic market and a differentiation strategy are critical characteristics for effective entry. Significant barriers include existing brand loyalty, switching costs, and retaliation by the incumbents, while the timing and order of entry have little impact on success.

In chapter 15, Hassan seeks to investigate the relationships between strategic competiveness, human resource strategy, and organizational performance of Malaysian SMEs. Since the number of employees of SMEs is much smaller than that of large firms, human resource strategy is less relevant to SMEs performance. The strategic competitiveness of Malaysian SMEs is confirmed in this study, nevertheless, the author argues, the government should be more aggressive in promoting local-manufactured brands as well as export brands of SMEs in global markets.

This book ends with the study focusing again on the role of government in encouraging SME development. In chapter 16, Schaper, Carlsen, and Taylor scrutinize the tourism development in Australia, Hong Kong, and Singapore. All three jurisdictions have public support programs to tourism and have distinctive policy responses to fluctuation of tourism development. Pointing out the difficulties of a general benchmark to measure the governmental performance, the authors call for more inter-government information sharing in East Asia.

In sum, this book is highly informative and a welcome contribution to the study of SMEs in East Asia. Having read this book, readers will have benefited from a rich account of the network of SMEs and the role of government in improving SME performance. For this reason, the book meets with great expectations and deserves a close reading for scholars and students of business management, international economics and developmental economics in East Asian context.