Business Advisors’ Training Program, NIESBUD

India

Country Paperon

Business Sector in Cambodia Focuses on SMEs

©-SereiRatha Chan-MR.

Content- The Report Overview - The Report Objective- Cambodian Economic Overview - Small and Medium Enterprises (SMEs)

- Opportunity and Constraints- Business Development Services (BDS)

- Opportunity and Constraints- How Can it helps SMEs more competitive?

- InVCapital Consulting- Relationship between SMEs and BDS- Relationship between SMEs and Economic Growth- Conclusion & Recommendation

The Report Overview- The study is coming from my business plan on InVCapital Consulting which was finished on April, 2009. - But in the study we will look at much deeper into how SMEs structures, constraints and its general environment and SMEs in the other countries. And also at the same time the study will discuss in detail on BDS general Environment in Cambodia and also compared with BDS in the Mekong region such as BDS in Vietnam. - The link between BDS, SMEs and Economic Growth- And making some recommendation for both sectors

The Report Objective

The objectives of the project study are:- (a)- To extend of my Business Plan to a deeper

understanding of consulting services or BDS can help SMEs more competitive and finding market access

- (b)- To study constraints and opportunities for BDS provider and SMEs

- (c)- To link between BDS, SMEs and Economic growth

Overview of Cambodian Economy

Cambodian GDP Growth Rate

Source MEF

Overview of Cambodian Economy (Con’t)

The performance driven by several main sectors: 1- Agriculture: Employs 57.4% of thepopulation; provides 28.1% of GDP

(CDRI, 2006)

2- Garment:80% of the country’s exports (71% to US and 22% to EU) (ILO 2006), share of GDP: about 15%,around 350, 000 employees (CIDS, 2008).

3- Tourism Sector: Tourist arrivals have increased from 170,000 in 1993 to more than 2 millions in 2008. Share of GDP: about 16% in 2007-up from 6.3% in 2000(IFC, 2008).8.3% of

total employment (566 000 indirect and direct jobs in 2004).

4- Construction: In 2006, construction increased by 15.7%.Because of residential dwellings, hotels, condominium, office space, sky-scraper and factories. But in the year of 2008 the construction sector has dropped down 12.5% compared to last year. The sector pulled in $3.2 billions dollars in 2007 but only 2.8 billion in 2008.(www.AsiaEcon.org/ twoproblemfacingcambodiain2009-05 Jan-2009)

Small Medium Enterprises (SMEs)

The growth which made in the last several year and also in the future growth of the Cambodian economy, it is inevitable from the major driver- private sector that account for the most employment sector in the economy. And this sector is dominated by Micro-Small and Medium Enterprises (MSMEs).MSMEs dominate Cambodia’s economy in terms of the number of firms (99%) and employment ( around 45-50%).

SMEs- According to MIME, SMEs are defined based on number of employees and value of fixed asset, so that any firms that employ between 11-50 employees and have fixed asset from 50,000USD up to 250,000USD would be categorized as “Small Firm”. Medium Firms would have employees range from 51-200 and fixed asset from 250,000USD up to 500,000USD.

The Needs of SMEs Access to Markets Access to Technologies Access to Business Services Access to FinanceOn Laws and Regulations for a better knowledge of their business environment Clear and Transparency of the law Effective Law enforcement Predictable and clear policy from government Dialogue between government and private sector to see the

real problems Reducing corruption and eliminating a bureaucratic or red

tape Good governance

Opportunities and Constraints of SMEsConstraints

Limited infrastructure Weak public services delivery Under-developed banking system (Limited access to finance) Difficulty to access information Lack of business development services Limited size of domestic market Lack of oriented technology development Lack of human resources High operational cost (high transportation costs, high energy costs….) Low productivity Pressuring a competition from neighboring SMEs (Vietnam and

Thailand) Regulatory policy uncertainty Lack of transparency in laws and regulations Weak enforcement of laws and existing regulations Lack of an effective dispute settlement system,

Opportunities

The effort to reform from the government including G-PSF, SMEs Framework , NiDA

A sound in financial management (Public Financial Reform) introduced by MEF and support by Asian Development Bank and Other DPs.

Trade Reform, from Integrate Framework (IF) project lead to achieve Trade Integration Strategy known as DTIS (2002) and updated in 2007 which identified the 19 products for potential to export. And later in order to push the trade regime much better, several programs are introducing such as Cambodia Trade Facilitation and Competitiveness project and Trade Sector Wide Approach (Trade SWAp). The main objective is to facilitate and to improve business environment for the private sector and to attract FDI to country. The ultimate goal is poverty reduction.

Integration of Cambodia into the regional and global economy (ASEAN, WTO…)

Land management reform by giving a land title- it is good sign for access to finance through collateral.

Investment Law and procedures, lead by CDC to facilitate investment in any project in Cambodia such as (BOT, BOO….)

Other factors which give a opportunity to growth of SMEs (Cheap labor, Fertile Soil….)

Business Development Services (BDS)Business Development Services (BDS) refer to any non-financial services to business, offered in the form of either formal or informal basis. The kind of services including: Training and skills development Product Development &Packaging design Networking and brokering Business advice & counseling Courier and delivery IT services and advices Market information and research Marketing & advertising advices International Trade Facilitation Event management or Trade fairs General/Strategic management advices

What are the constraints and opportunity for the field?

1- Common Challenges of BDS fields in Cambodia are: Limited market size (not developed market) Access to critical and reliable information The matches between supply and demand (Low) and high

fees Tough competition in the market from international firms Updated and Competitive technology and high skill human

resources Lack of incentive from government in the field Business regulation barriers Other factors

2-Common opportunities for the BDS fields are: A recent growth and reform of Cambodian economy

and integration of Cambodia to regional and international economy (ASEAN, WTO)

Limited capacity of SMEs in market information, new technology, strategic management, accounting and finance and law and regulation

Supporting from international institution in improving BDS in Cambodia has increasing recently through such program like EMAF

A tough competition in the market, so that SMEs need a capacity to compete in the current climate of competition in order to survive

Lack of linkages between large businesses and SMEs and networking among business to business

Other factors

How can BDS help SMEs more competitive?

- BDS can help SMEs through their creative andinnovative services from experts, advisers and specialists of the BDS who have an in-depth knowledge and strategic concept in their own fields. - BDS build capacities of SMEs through training or consulting services in order to identify theweakness or to fulfill their needs to improve theoperation more effectively and efficiency. Ex. Most of SMEs are lack of understanding about Country’s

law and regulations. The problem can solved by law firm or individual legal consultant.

InVCapital Consulting

InVCapital Consulting is a start up firm which will focus on providing a wide range of services to SMEs inPhnom Penh area in the early stage of its operation, and we will expand soon to some main provinces and cities around Cambodia which have a strong potential growth of SMEs over there. It has three main partners and two consultants who join together to form the company.

InVCapital Consulting will provide a wide range of services to SME’s owners, depending on their particular needs. Our start-up services including: Investment consultancy (esp. SMEs) Taxes and finance services Market Study (Feasibility and pilot study) Strategic Marketing Plan Recruitment and Human Resource Consultancy Corporate training Outsourcing International Trade Facilitation Services Legal advices (registration, contracts, labor law ...) E-commerce and ICT consultancyInVCapital Consultingn is very flexible in term of schedule or length of the project or services which it provides.

Relationship between SMEs and BDSBusiness Development Services (BDS) refer to any nonfinancial services to business, offered in the form of either formal or informal basis. The kind of services including: Training and skills development Product Development &Packaging design Networking and brokering Business advice & counseling Courier and delivery IT services and advices Market information and research Marketing & advertising advices International Trade Facilitation Event management or Trade fairs General/Strategic management advices

Relationship between SMEs and Economic Growth

- SMEs tend to employ more labor-intensive production processes than large enterprises. Accordingly, they contribute significantly to the provision of productive employment opportunities, the generation of income

and ultimately, the reduction of poverty.- SMEs are the key to the transition of agriculture-led to industrial economies as they provide simple opportunities for

processing activities which can generate sustainable livelihoods.- SMEs can help to balance in development between rural and urban and also the incomes distribution in a smaller gap.

- SMEs support the building up of systemic productive capacities. They help to absorb productive resources at all levels of the economy and contribute to the creation of resilient economic systems in which small and large firms are interlinked.- Strong SMEs can attract FDI, because of Multinational corporations need a local suppliers for theirs supply chain. - SMEs can support an innovative and entrepreneurship which can supply any nice market with high margin and also flexible

with a special design or origin (geographical)

Conclusion and Recommendation

1- In conclusion, SMEs are crucial to generate an employment for both skill and unskilled workers and also the entrepreneurs which will contribute to smaller gap in income distribution among poor and rich and rural and urban. This will lead to sustainable economic growth and finally poverty reduction for the country.

2-Recommendation: - BDS providers should seek an assistant from Government, Bank and International Organizations to help in developing the field through capacity building and market access and information.- SMEs should link up between local and global SMEs, innovative and creative needed, link up between SMEs with Large enterprises are crucial to develop the field, asking for help in term of access to finance, law and regulation from the government and other stakeholders (IOs, Bank, and NGOs…).

THANK YOU FOR

YOUR ATTENTION !