Factors Influencing the Success of Local Product (SMEs) in Northeast, Thailand

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1 Factors Influencing the Success of Local Product (SMEs) in Northeast, Thailand Introduction Phetphrairin Upping* and Thanit Kasorn** The objective of this research is to study the factors influencing the success of local product development at Tambol HaiYong, Phangkhon Sakon Nakhon in Northeast of Thailand. The result of this study showed key success factors are both internal and external factors. The main external factors are government policy and network. Secondly, internal factors indicate that family group management, strong leadership, professional skill of member and corroboration and networking of local product development groups are key success factors. Coupled with this was the push for local product development success. Prior research recorded that small and medium enterprises (SMEs) play a significant role in the Thai economy (Chittithaworn et al., 2011). Consequently, the efficiency of the small and medium enterprises are closely associated with the efficiency of the country. In Thailand, small and medium enterprises account for the great majority of the total businesses in the various areas. Chittithaworn et al. (2011) revealed that Thai SMEs comprise 93.8 percent of all establishments. Moreover, of the total number of SMEs that are increasingly seen as creation of new jobs (Swierczek & Ha, 2003) and Vietnamese SMEs employ 64% of the industrial work force. SMEs in Thailand play an important role in the country s economic development. According to statistics provided by NSO (2012), SMEs accounted for 76.1% of all establishments in the manufacturing sector in the year The largest numbers of SMEs concentrated in Thailand are the food and beverage sector, textiles, wearing apparel and wood products (NSO, 2012). The intention of this paper is to study factors influencing the success of local product (SMEs) development at Tambol HaiYong, Phangkhon district Sakon Nakhon province in Northeast of Thailand. This paper focused only on the textile sector. *Phetphrairin Upping, Faculty of Industry and Technology, Department of Business Administration, Rajamangala University of Technology Isan, Sakon Nakhon Campus **Thanit Kasorn, Faculty of Industry and Technology, Department of Business Administration,Rajamangala University of Technology Isan, Sakon Nakhon Campus,

2 Literature Reviews The Definition of SMEs in Thailand The definition of small and medium sized enterprise (SMEs) varies. Thai SMEs have been defined to 3 board sectors: 1. Production Sector: Agriculture Processing, Manufacturing and Mining 2. Trading Sector: Wholesale and Retail 3. Service Sector However, type of SMEs in Thailand has been defined according to value of assets of each type of enterprise and number of full-time employees of each type of enterprise. 1. Value of assets of each type of enterprise 1.1 Production Sector: medium size not exceeding 200 million baht and small size not exceeding 50 million baht. 1.2 Trading Sector: medium size not exceeding 100 million baht and small size not exceeding 50 million baht. 1.3 Service Sector: medium size not exceeding 200 million baht and small size not exceeding 50 million baht. 2. Number of full-time employees of each type of enterprise 2.1 Production Sector: medium size not exceeding 200 employees and small size not exceeding 50 employees Trading Sector: wholesale medium size not exceeding 50 employees, retail medium size not exceeding 30 employees and small size not exceeding 15 employees. 2.3 Service Sector: medium size not exceeding 200 employees and small size not exceeding 50 employees (Norlaphoompipat, 2008). SMEs Financial and Non-Financial Success Measures Walker & Brown (2004) defined that SMEs can be measured by financial and nonfinancial criteria. Traditional measures of business success have been based on either financial performance such as profit, turnover or return on investment. However, it is known that not all business owners may want to grow their business and there are some SMEs that deliberately refrain from taking on employees. Therefore using employee numbers as a measure of business success is neither accurate nor applicable to all businesses. Factors Influencing Business Success of Smes There are many survey studies which examine SMEs success (Chittithaworn et al.,2011; Qureshi M.H. et al.,2012; Storey, 1994; Salaheldin, 2009; Walker & Brown, 2004). Storey (1994) has been studied on the birth, growth and death of small firms. Qureshi M.H. et al. (2012) investigated the factors that influence the performance of SMEs using gender based analysis. A total of five variables were identified as factors affecting SMEs performance: motivation, social networking, family support, personal

3 characteristics and cultural influence. The result revealed that both genders assume the same level of motivation and receive equal family support. However, the study shows that males and females differ on the social networking, cultural influence and personal characteristics. Chittithaworn et al. (2011) identified factors that affecting the success of SMEs in Thailand. Total of eight variables were tested to see the relationship to the success of Thai SMEs: SMEs characteristics, management & know-how, products & services, customer & market, the way of doing business & Cooperation, resources & finance, strategy and external environment. The findings of Chittithaworn et al. (2011) revealed that SMEs characteristic, customer and markets, the way of doing business & cooperation, resources and finance and external environment have had a significant positive effect on the business success of SMEs in Thailand. However, management know-how, product and services, and strategy were found to have no significant effect on the business success of SMEs in Thailand. However, some of the studies have focused on empirical case studies about the success of SMEs in Asia (Yeb, C. & Lin, Y. 1998). The result of the Yeb & Lin study revealed that five factors effected the success of SMEs in Taiwan. First of all, in progressing toward success, activities related to structure, technology, and people should be inter related. Secondly, successful SMEs in Taiwan place a greater emphasis on soft rather than hard issues. Soft people events were reported much more frequently than hard structure and technology events. Third, the management skill and management concepts of business founders are deemed much more important than their technical skills and their concern about production, which has resulted in an overall positive organizational performance. Fourth, employee skills are of crucial concern and can be most effectively developed in a nurturing working environment. Although the impact of business foundering on organizational success remains the leading factor, employee skills come in as shy as fifth in determining organizational success. Fifth, the relatively successful entrepreneurs in Taiwan are sensitive to market trends and aggressive in resource creation and utilization. According to Ghosh, B.C. et al. (200) who have studied the factors contributing to the success of local enterprises in Singapore, This survey revealed that Challenge, personal need for growth, greater personal freedom and an opportunity to use their own knowledge ranked high in citing reasons as to why they started their businesses. General management, marketing, engineering and human resource management was among the chief areas from which leading entrepreneurs originated. The main sources of finance seemed to be personal savings and family support. Shortage of finance, strong competition and marketing were cited among the chief problem areas faced by entrepreneurs. Ability to satisfy customers, finding a market niche, good service, a good management team and good networking are among the chief success factors quoted. High cost of operation, shortage of labor and a too-competitive environment was cited as the main constraints to success. This paper adds to the literature by focusing qualitative method and Participatory Learning Appraisal (PLA) research method to fill the gap in the literature. SMEs in

4 Thailand were seen as an interesting research focus on the textile sector, as the textile sector also have been supported by the Queen Sirikit. The Queen Sirikit promoted local textile production to international trade. As part of this process, it is necessary for the textile sector to improve their business to assist in achieving better financial performance. Methodology The objective of this research is to study the factors influencing the success of local product development. The case study was carried out at Tambol HaiYong, Phangkhon district, Sakon Nakhon province in the Northeast of Thailand. Data collection was gathered by observation, in-depth interviews and discussion groups. This data was then analyzed and conclusions derived by qualitative research methodology. Data was also derived at participatory meetings and discussions. SWOT analysis has been analyzed by group interview participation. Finally, the research was analyzed and conclusions drawn from forums within those meetings. The Findings The analysis of this paper was divided into two parts. The first part has been reported by SWOT analysis. SWOT analysis was categorized into two analyses of internal and external factors. Internal analysis is strength and weaknesses. External analysis is opportunities and threats. SWOT analysis is one of the most respected and prevalent tools of strategic planning. Secondly, this paper discussed the factors that effect and influenced the success of textile SMEs in the Northeast of Thailand. SWOT Analysis for Textile Local Product Development of Smes in Thailand Internal Analysis: Strengths The government of Thailand has encouraged privatization and policy reform of SMEs in Thailand since the economic crisis in1997. Government policy has supported one tambol one product (OTOP) as a new venture creation. Thailand is a small country with many natural resources that make it unique in local production to the world such as textile local product. The local product is presented by a green and healthy local production concept. This also is good for Family support. Internal Analysis: Weakness In Northeast of Thailand, textile sector SMEs tend to have lower use of information technology. Technological investment and training are also needed to support the continued growth of textile sector for SMEs in Thailand. A lack of professional and workforce skill lead to a lack of new product development for the textile sector in the Northeast of Thailand. A lack of consultant and lower level of research and development are the key weaknesses for the textile sector. The need for

5 research grant and other means of support can lead to improvements in key sectors that are unproductive now. This also can lead local product to the export market. An improvement in public financial transparency is a key success factor of SMEs in Thailand. This is because the members of the textile SMEs process the business, not only leader of groups. Therefore, role models and entrepreneurial leaders are needed to change the culture. The improvement of entrepreneurial teams is needed for textile SMEs in Northeast of Thailand. Another frequently mentioned weakness in business networking is the need for collecting data production, management and local product networking is the main improvements. IT system can help for the process of business creation of textile sector SMEs in Thailand. External Analysis: Opportunities SMEs and entrepreneurship education programs in Thai universities are growing and this represents an opportunity for new ventures. Entrepreneurship and Innovation programs are an example at Thummasart and Chulalonggorn Universities. Low cost business and new product development tend to have more interest in local production of textiles in the Northeast of Thailand. Tourists have more benefit from the varied geography and topography of Thailand. Local Textile production has become a more traditional business practice. Every part of Thailand has individual styles of traditional textile production. Therefore, it allows new venture start-ups to capitalize on opportunities in tourism and new traditional business services which are the most important opportunities. External Analysis: Threats Thai economic crisis 1997 caused the country s industrial base to experience a drastic restructuring, layoffs, and changes in many corporate practices. Therefore, improvement in personal income and changes in consumer-spending patterns are needed in Thailand. Government policy, regulation and rules to promote new ventures of SMEs are needed for change.

6 Strengths Table 1 SWOT Analysis for Textile Sector Weaknesses - Strong leadership of SMEs group - Family supporting - Government policy supporting - Resources and product (green of local and healthy product) - Lower level of research an development - Lower use of information technology - Lack of professional and component workforce skill - lack of new product development - lack of product networking - lack of textile technology - lack of financial transparency - Lack of entrepreneurial teams - Lack of consultant - lack of production data management - Lack of IT Opportunities - SMEs education and program - Lowcost and new product development - Tourism Threats - High level of competitions - Regulations and rules of production standard The key Management Practices of Successful SMEs in Thailand Based on previous studies, Chittithaworn et al. (2011) have made a conclusion that factors influencing SMEs business success were: (1) an entrepreneur characteristics (Kristiansen, Furuholt, & Wahid, 2003; Rutherford & Oswald, 2000) (2) characteristic of SMEs (Kristiansen, Furuholt, & Wahid, 2003) (3) management and know-how (Swierczek & Ha, 2003) (4) products and services (Wiklund, 1998,; Hitt & Ireland 2000) (5) customers and markets (William, Janes & Susan, 2005) (6) the way of doing business and cooperation (Hitt & Ireland, 2000; Jarillo, 1988) (7)resources and finance (Swiercaek & Ha, 2003) Kristiansen, Furuholt & Wahid, 2003) (8) strategy (McMahon, 2001) (9) external enviornment (Huggins, 2000; Nurul Indarti & Marja Langenberg, 2005) and (10) internet (Henriette Hesselmann, Comcare, and Peter Bangs, 2002). As previously discussed SWOT analysis, the SWOT analysis is a shot picture in this time. This is because the environment is constantly changing and new strategies also change internal strengths and weaknesses environmental. However, this paper is also recommended to extend the SWOT analysis methodology by in cooperating ten findings of previous research to promote SMEs management practices as follows.

7 Table 2 Key Success Factors of SMEs in Textile Sector, Thailand Internal factors: Key SMEs success factors (From previous research) Strengths - Strong leadership of SMEs group - management and know-how - Family supporting - entrepreneur characteristic - Government policy supporting - government supporting - Resources and product - resource and finance (green of local and healthy product) Weaknesses - Lower level of research and development - resources and finance - Lower use of information technology - resource and finance - Lack of professional - management and know-how and component workforce skill - lack of new product development - customer and markets - lack of product networking - the way of doing business and cooperation - lack of textile technology - management and know-how - lack of financial transparency - resource and finance - Lack of entrepreneurial teams - entrepreneur characteristic - Lack of consultant - management and know-how - lack of production data management - products and services - Lack of IT - internet External environment factors SMEs success factors Opportunities - SMEs education and program - external environment - Low cost and new product development - product and service - Tourism - external environment Threats - High level of competitions - external environment - Regulations and rules of production standard - external environment Conclusions The purpose of this study was to identify the factors influencing the success of local product SMEs in textile sector in Northeast of Thailand. The result of this study showed key success factors are both internal and external factors. The main external factors are government policy and network. Secondly, internal factors indicate that family group management, strong leadership, professional skill of member and corroboration and networking of local product development group are key success factors. Coupled with this was the push for local product development success. This paper has provided factors influencing the success of SMEs textile sector in the Northeast of Thailand. The contributions of this study are threefold. First, it has expressed quantitative research methodology that had described the complexity of the

8 SMEs study. Secondly, this paper has integrated internal and external factors that can be barriers to and facilitators of the success of SMEs. Thirdly, it has revealed key success factors of SMEs in the textile sector. These results may provide helpful frames of reference by means of which both large and small companies will be able to examine and strengthen their competitive position in the global economic environment. Limitations of the Study This study provides only one case study of evidence that those factors are influencing the success of SMEs in Thailand. However, the result of this study may not be representing all textile SMEs in Thailand since the study was for only one case in the textile sector in Northeast of Thailand. The SWOT analysis is also a short picture. This is due to the environment is constantly changing and new strategies, also constant on going changes in internal strengths and weaknesses to the environment. The analysis could be expanded with the inclusion of a broader scope of viewpoints including interviews with key SMEs stakeholders, governmental leaders and other policy makers. References Chittithaworn et al. (2011), Factors affecting business succes of small & medium Enterprises (SMEs) in Thailand, Asian Social Science, vol. 7 no. 5. Doom, C. et al. (2010), Critical success factors for ERP implementations in Belgian SMEs, Journal of enterprise information management, vol. 23 no. 3, pp Helms, M.M. et al. (2011), Entrepreneurial potential in Argentina: a Swot analysis, Competitiveness review: An international business journal, vol. 21 no. 3, pp Mu, J. et al. (2007), New product development inchinese SMEs: Key success factors from a managerial perspective, International journal of emerging markets, vol. 2 no. 2, pp Qureshi, M.H. et al (2012), Factors affecting small-business performance in Punjab- Pakistan: A genger based analysis, Interdisciplinary journal of contemporary research in business, vol. 4 no. 2. Rajirawanich, P. et al. (2011), The effects of cultural factors on innovation in a Thai SMEs, Management research review, vol. 34 no. 12, pp Salaheldin, S. I. (2009), Critical success factors for TQM implementation and their impact on performance of SMEs, International journal of productivity and performance management, vol. 58 no. 3, pp Tannock, J. et al. (2002), The development of total quality management in Thai manufacturing SMEs: A case study approach, International journal of quality & reliability management, vol. 19 no. 4, pp Thassanabanjong, K. et al. (2009), Training in Thai SMEs, Journal of small business and enterprise development, vol. 16 no. 4, pp Theingi (2004), The importance of resource-based view in export performance of SMEs in Thailand, Department of Marketing, ABAC School of Management Assumption University, pp

9 Walker, E. & Brown, A. (2004), What success factors are important to small business woners?, International small business journal, vol. 22 no. 6, pp Yeb, C. & Lin, Y.Y. (1998), Success factors of small- and medium- sized enterprises in Taiwan: An analysis of cases, Journal of small business management, pp

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