Preliminary Study on SME
Department of Trade and Investment Facilitation
By SAING Sokh Sophal, YGMS Professional
1. Importance of SMEs and situation of SMEs in GMS
Small and Medium Enterprises (SMEs) are integral to the economic development and growth of
the ASEAN Member States. SME plays important role to promote national economy through
employment generation and incomes. In most cases, SMEs account for more than 90% of all
enterprises, accounting 50%-85% of domestic employment in ASEAN states, accounting for GDP
contribution of 30% -53%, and contribution of SMEs to exports ranges 19%-31%. SMEs are thus
regarded as backbone of ASEAN and SME development is integral to achieve long-run and
sustainable economic growth of the region.
Although there has been impressive economic growth in ASEAN community, at the same time
there is a gap growing between the increasing prosperity of the other ASEAN member states
compared to Cambodia, Lao PDR, Myanmar and Vietnam – collectively known as the CLMV
countries. Major issues faced by CLMV countries that hinder narrowing development gaps and
economic integration into AEC are (i) underdeveloped public human resource capacities and
institutional support systems to develop and implement trade and investment policy and
regulatory framework, and (ii) lack of industry clusters and facilities that can provide SMEs
access to regional and global value chains.
It is, therefore, essential to build the capacities of SMEs in the region in order to ensure that they
are highly competitive, innovative and be able to utilize the regional economic initiatives and
incentives for their long-term survival and growth. At country level, increasing exports by SMEs
is an important mean to drive the national economic performance and growth.
SME clusters and export consortia development are a noteworthy form to enable the SMEs to link
and integrate to regional and global value chains. They critically functions as a mean to improve
the competitiveness of SMEs productivity and competitiveness within the regional and global
economy. SME clusters of firms offer important advantages to SME development since they help
stimulate SMEs to achieve dynamic competitiveness collectively, rather than as individual
enterprises. SME cluster development is an effective method to support SMEs growth and
increase export markets. Cluster development approach enables to build up synergies between
institutions of business development services and SMEs in the clusters and facilitate the industry
in improving its competitiveness, by way of cluster-based development program.
Therefore, it is pertinent for the GMS countries to facilitate the SME cluster development and
support SMEs jointly to bid, produce and expand market, through promoting clusters and export
networks to improve SME participation in RVCs and GVCs through fostering and strengthening
linkages. This training program aims to introduce the participants from GMS countries to tools
and strategies to form SME clusters and their integration into regional and global market through
SME export consortia.
2. SME situation in Cambodia
2.1. Prospective
The SME sector (which includes micro-enterprises in rural areas) dominates Cambodia’s real
sector economy in number of firms (99%) and employment (45%). SMEs operate almost entirely
in the informal sector and are typically not registered at Ministry of Commerce (MOC). While
often licensed to operate by relevant ministries at the provincial-municipal level, SMEs are
normally regulated informally by local-level authorities. Small-scale enterprises dominate
economic activity and account for a substantial part of employment.
According to National Institute of Statistic‘s census in year 2009 was found that there are 376,761
enterprises established in Cambodia which classified as below:
Less than 5 persons engaged
:
316,607 enterprises
5 persons engaged and over
:
46,233 enterprises
10 persons engaged and over
:
13,123 enterprises
100 persons engaged and over
:
692 enterprises
1000 persons engaged and over : 106 enterprises
The establishment’s census was not included the establishments of the agriculture, fishery and
forestry and the use of activities of household as employee and mobile establishments.
The female representative of the enterprise is 50.1 % which mean the women are play important
rule in the private sector development especially in the Small and Medium size of enterprises.
There are 1,469,712 persons engage which males absorb 626,783 and female are 842,929. The
enterprises were based up 68.8% at rural area and the urban area is 31.2 %.
There are two type of SMEs classification in Cambodia which base on statistic of employee and
capital (the capital is excluded the land). (See Table 1)
Table 1: A Definition for SMEs in Cambodia
Despite the size and significance of the SME sector, Cambodia’s small scale entrepreneurs
continue to face many problems. These problems have already been well documented in many
reports, including both the World Bank’s Investment Climate Assessment and Asian
Development Bank’s (ADB) Private Sector Assessment. The ADB and World Bank reports
identified a similar set of constraints facing the private sector and SMEs, including poor
governance, rule of law and regulation. Other constraints identified include poorly developed
markets, low productivity and limited access to finance.
2.2. Challenges/Barriers of SMEs in Cambodia
A number of surveys conducted by different organizations have identified a similar set of barriers
impeding development of Cambodian SMEs. A 2004 WB survey identified the main issues
hampering the development of Cambodian business in general. The ADB and the Cambodian
SME Sub-Committee have identified many of the same issues as specific to the development of
Cambodian SMEs. Below are the three most important issues, and associated problems, as
identified by the SME Sub-Committee (see Table 2).
Table 2: Challenges/Barriers of SMEs in Cambodia
The same three issues have been acknowledged as important by both the WB and the ADB
for the country’s commerce and SME development.
2.3. Policies for SME development and promotion
Up until 2004 there was no single department controlling SME promotion policies. As many as 25
different ministries and organizations have developed their own SME promotion strategies,
regulations and policies focusing on achieving varying outcomes. This increases not only
uncertainty regarding requirements and government assistance, but also the compliance cost to
SMEs. An SME garment manufacturer headed by a female entrepreneur will be subject to
regulations and policies from at least the Ministry of Commerce (MOC), the Ministry of
Women’s Affairs, and the Ministry of Environment.
None of the ministries officially coordinate SME promotion activities or share information.
This results in considerable duplication of data collection and often redundant strategies. At the
worst policies designed to promote SME development can contradict each other. 28
In 2004 the SME Sub-committee was formed to coordinate and promote policies to develop
SMEs. By coordinating the SME policies of different government departments and associations it
is hoped duplicating and contradicting policies can be avoided.
In July 2004 the Royal Government of Cambodia produced the Rectangular Strategy, with
thirteen approaches to encouraging Cambodian commercial development, (see Table 3). The
Rectangular Strategy was intended to promote economic growth, generate employment, and
encourage efficiency through competition. One of the main focuses of the Rectangular strategy
was to promote the development of Cambodian SMEs. None of these thirteen approaches were
implemented at the time, but the Rectangular Strategy has provided a foundation for the SME
Development Framework.
Table 3 Rectangular Strategy: 13 strategies for developing SMEs
2.4. Organizations Working on SME Development and Promotion and Their Main Roles
They are 1) Ministry of Commerce; 2) Ministry of Industry, Mines and Energy; 3) Ministry of
Land Management, Urban Planning and Construction; 4) Ministry of Tourism; 5) Ministry of
Environment; 6) Ministry of Public Works and Transport; 7) Ministry of Agriculture, Forestry
and Fisheries; 8) Ministry of Education, Youth and Sports; and 9) Council for the Development of
Cambodia (CDC); etc.
Among those organizations, the main roles of Ministry of Industry, Mines and Energy (MIME)
should be raised as a good example. MIME grants approval and issues:
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

Prakas on the Establishment of Factory and Handicraft
Certificate on Operating of Factory and Handicraft
Objectives and criteria for certification of Target and Standard for Chemical Use
Investments in power transmission and distribution, permission for Investing in generating, Transmitting and/or distributing electricity
Minerals registration certificate (Certificate of Mineral Resources Registration)
Mineral extraction, quarry permits (License for Open Mining Hole and Quarry, and
others)
3. What is SME cluster?
One of the most used definitions of a cluster is the one of Michael Porter:
“Clusters are geographically close groups of interconnected companies and associated institutions
in a particular field, linked by common technologies and skills. They normally exist within a
geographic area where ease of communication, logistics and personal interaction is possible.
Clusters are normally concentrated in regions and sometimes in a single town”.
Porter’s definition was used as a starting tool for the Expert group when they added some
elements to the definition:
“Clusters are groups of independent companies and associated institutions that are:





Collaborating and competing;
Geographically concentrated in one or several regions, even though the cluster may have
global extensions;
Specialized in a particular field, linked by common technologies and skills;
Either science-based or traditional;
Clusters can be either institutionalized (they have a proper cluster manager) or noninstitutionalized.”
4. What is export consortium?
An export consortium is a voluntary alliance of firms with the objective of promoting the export
of goods and services of its members through joint actions.
An export consortium is a formal organization to promote medium- to long-term strategic
cooperation among firms, and it organizes joint activities to facilitate access to foreign markets.
Most consortia are non-profit entities, and members retain their financial, legal, managerial, and
commercial autonomy. So, despite their participation in the export consortia, member firms do not
give up any control over their business to others. This is the main difference between consortia
and other types of strategic alliances.
Benefits of Export Consortia: By cooperating with other firms within an export consortium,
SMEs can effectively penetrate and increase their share of foreign markets, at reduced cost and
risk. At the same time, members can improve their profitability, achieve productivity gains and
accumulate knowledge through various types of joint action that are not directly related to export
marketing, such as joint management training programs, joint certifications, improve shop floor
procedures, and the like.
5. Identifying SME clusters in Cambodia what and where the products are
In Cambodia I can identify some potential products from similar businesses that can be grouped
into SME clusters and exported to foreign countries. Those products are as follows:
a.
b.
c.
d.
e.
f.
g.
h.
Milled Rice are available throughout the country especially in Battambang province;
Palm Sugar in Kampong Speu province (Registered as a Geographical Identification);
Pepper in Kampot province ((Registered as a Geographical Identification);
Rubber in Kampong Cham and Kampong Thom provinces;
Garments and Footwear in Phnom Penh capital city;
Silk in Kandal, Takeo and Kampong Cham provinces;
Seafood in coastal provinces (Koh Kong, Sihanoukville, Kep, and Kampot); and
Fruits, Vegetables, and Livestock throughout the country.
6. Details of prospective SME cluster in Cambodia
Among those above-mentioned products, I would like to give details about milled rice because
Cambodia has a big potential in paddy rice production to increase its milled rice export in the
future. To guide its vision for the preparation of economic development policy, the Royal
Government of Cambodia (RGC) has an ambition to turn Cambodia into a key «rice - white gold»
exporting country in the international market. Paddy rice production could reach 7.3 million tons
in 2010-2011, after a remarkable rebound over the past decade. With the estimated domestic
consumption of approximately 3.14 million tons of paddy rice, the provision for seeds and taking
into account the harvest loss, the statistics shows a surplus of 3.32 million tons which can be
processed into milled rice for export. But, so far, the official statistics in 2009 recorded only
13,000 tons of milled rice or 20,000 tons of paddy rice export, although Cambodia has actually
exported much more milled rice. This truly reflects Cambodia’s potential to increase the official
export of milled rice, instead of informal export of unprocessed paddy rice, which results in the
loss of considerable value added for the national economy. Moreover, as a result of increasing
investments in the construction of irrigation systems, paddy rice farming, expansion of cultivated
land and intensification, as well as the increasing paddy rice yield (caused by improved water,
seeds and fertilizers supply and growing techniques), the RGC expects that rice production will
rebound further, allowing Cambodia to a increase the surplus of paddy rice, which will be
processed into milled rice for export. In this regard, Cambodia must build a robust, high quality
and reliable rice milling industry.
At the same time, Cambodia has a unique opportunity to expand its milled rice market niche
in the global markets. The global milled rice trade has been estimated to reach 31 million tons in
2010, in which Thailand and Vietnam will remain the biggest source of milled rice export, and
Cambodia and Myanmar are expected to become new leading milled rice-exporting countries in
the near future. Since the world is now facing the challenges of population growth, climate
change, and changing economic structure together with the improved living standard of people in
many developing countries, the consumption of rice is expected to rise, driving higher demand for
milled rice in the global markets. Moreover, there are not many milled rice-exporting countries,
and most of them are in Asia, especially Southeast Asia, and there are more and more countries
such as the Philippines, Malaysia and Indonesia having become rice-importing countries.
Therefore, this potential in global milled rice market will provide such good opportunity for
Cambodian farmers.
6.1. Challenges and Prospect
A. Issues affecting paddy rice production
The surplus of paddy rice for export remains limited. If Cambodia wishes to export milled rice
from 3 to 4 million tons per year, we have to produce paddy rice at least 10 to 11 million tons.
This requires us to address a number of challenges constraining productivity such as land
management, irrigation system, research and extension services, intensification, and organization
of farmers etc.
B. Issues affecting rice processing and trade
The paddy rice prices that Cambodian farmers receive is 35%-40% lower than the prices that Thai
and Vietnamese farmers have enjoyed, which is the main competitiveness of export but it is lost
as soon as soon as milled rice reach the ports due to informal fees, high transport and processing
costs. In fact, exporting unprocessed rice is a significant loss of value added for the economy. If
the processing could be retained in the country, Cambodia can make a lot of gains in terms of
broken rice, husk and brain that could help other economic activities such as cooking oil
production, aquaculture and animal husbandry in addition to the benefits arising from job creation
and income generation that are related to this economic activity. If there is more investment in
modern rice milling facilities, Cambodia can produce more high-quality milled rice for the
growing international markets and gain international recognition about Cambodian milled rice
standard. In this context, the Royal Government is facing a number of critical impediments to be
addressed in order to improve the value added in Cambodia’s rice value chain such as high cost of
energy and transport and high cost of and difficult access to credits.
C. Issues affecting milled rice export facilitation
Export facilitation, both hard and soft, has not been smooth and consistent, that is the major
obstacle to the promotion of Cambodian milled rice export, in which the hard system includes
transport infrastructure, seaports, warehouses and the soft system includes trade facilitation,
supporting institutions, quality standards, Sanitation and Phyto-sanitation Standard (SPS) etc.
The crucial issues that need to be solved include: the institutional support which remains weak
and rice quality is not recognized internationally, and the seaport infrastructure is limited.
D. Issues related to market opportunity
Milled rice is a protected market with complicated mechanisms according to different terms and
requirements by each importing country. At the same time, milled rice export is new for
Cambodia and the experience and knowledge is still limited, that requires us to strengthen
Cambodia’s ability to access those markets.
6.2. Mapping the SME Cluster of Milled Rice
The SME cluster of milled rice in Cambodia is under development. The Federation of Association
for Small and Medium Enterprises of Cambodia (FASMEC) has already held “Cambodia Rice
Forum” for two times, the 1st on October 17, 2011 and the 2nd on October 1-2, 2012 to establish
this cluster.
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