Small and Medium Enterprises (SMEs) development in Cambodia: Human resource is key

The Cambodian business environment needs to be improved and SMEs have to be developed both in quality and quantity. The number of SMEs in Cambodia has increased from 25,000 in 1999 to 66,000 in 2009, including informal industrial SMEs and registered SMEs. The growth was about 44 percent in a decade, meaning that there was an increase in industry employment and enhancement in labour productivity. However, the manufacturing sector e.g., food processing, garments, and furniture remains weak since wholesale and retail trade represent more than 50 percent of all establishments, yet only 20 percent falls into the manufacturing sector. SME Subcommittee of Cambodia argues that the main barriers to SMEs development in Cambodia are caused by three factors: (1) the weak legal and regulatory framework, (2) limited access to finance, and (3) a lack of support of SMEs’ activities. These need to be addressed if Cambodia wants to face regional competitiveness and to support ASEAN Policy Blueprint on SMEs Development (APBSD).

In ASEAN, SMEs account for more than 96 percent of all enterprises and 50 to 85 percent of domestic employment. In addition, SMEs’ share to total GDP hold between 30 to 35 percent, while its contribution to exports accounts for 19 to 31 percent. Therefore, ASEAN considers SMEs development as a means to achieve sustainable economic growth and integration in the region. ASEAN Economic Community (AEC) Blueprint includes the Strategic Action Plan for ASEAN SME Development 2010-2015 which envisions that ASEAN SMEs will be integrated into regional and global supply chain while will be advanced as world-class. To improve the competitiveness and innovation of SMEs toward a Single Market and production base, ASEAN established ASEAN Policy Blueprint on SMEs Development (APBSD) under five frameworks: (1) to create a common curriculum for entrepreneurship in ASEAN, (2) to establish a comprehensive SME service center that assists and addresses the needs of start-ups, (3) to build SME financial facility in each member state, (4) to initiate regional program of internship scheme for staff exchange and skill training, and (5) to establish a regional SMEs development fund.

In response to AEC, APBSD, and these obstacles, the Cambodian government also established SME Sub-Committee and the SMEs Development Framework in 2004. SME Subcommittee set out SMEs Development Framework with two phases and strategy. However, the overall objectives propose to establish a business-preferable environment, to reform legal framework, and to improve access to finance. Implementing these mechanisms would reduce poverty by promoting economic development and producing sustainable employment and income. In terms of the legal and regulatory framework, four main approaches needed to be achieved by recommending for streamlining regulatory requirements, reducing the cost of company registration, and proposing legal and regulatory reform designed to decrease risks and uncertainties to SMEs. In regard to access to finance, the strategy had to respond to four problems: i) a lack of collateral and land titling, ii) poor financial report skills of SMEs, iii) inadequate credit information sharing and poor contract enforcement, and iv) a limited financial products offered. Last but not least, developing SMEs-supported activities was the main focus of this paper. Activities included developing curriculum for entrepreneurship education, enhancing linkages with industry, and increasing Business Development Services (BDS) to SMEs. The Royal Government of Cambodia devised 13 strategies for developing SMEs in the Rectangular Strategy and included three mechanisms of SMEs Development Framework.

Cambodia ranks 95th on the global competitiveness index and scores the lowest among the Southeast Asian countries in terms of the promotion of entrepreneurship education. As the ASEAN Economic Community 2015 is approaching, Cambodian entrepreneurs are not ready to effectively compete in a regional market. Moreover, Cambodia’s SMEs face three main constraints, which are weak regulatory framework, a lack of access to finance, and poor SMEs-supported activities. These three obstacles limit Cambodian SMEs’ capacity to improve its competitiveness. Focusing on the third constraint of SMEs in Cambodia, the improvement of entrepreneurship education will help the promotion of Cambodian SMEs by developing an entrepreneurship education template for Cambodia’s higher education institutions, which will generate measurable impact on human resource and business start-up activities.

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