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How can we escape from this shrinkage ? |
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To
cope with the current situation, we must avoid the traditional way of Mass
Production. Contrary, the vendor must be able to reduce or increase, minimize
or maximize the production line according to the market demand without having
too much impact on the initial investment. |
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Avoid a large amount short-term loans. |
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A
large amount of cash flow in and out of the system will not secure the
stability of the economic system. |
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Create a product diversification. |
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There
must be a different product line, which include merchandises and services
that derive from skills. This way the risk will be reduced when the economy
shrinkage occurs. |
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It happened to the West
before! |
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From the historic record of building industrial
nations, there had been a time when the economy shrunk. Those countries
reacted by rebuilt their economy from network of small and medium sizes
businesses. They used SME to be a spear in penetrate the global market with
the skill merchandises and services. These countries include Japan, former
East Germany, Italy, France and United States of America. |
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Encountering the worst economic nightmare
ever. |
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Thai
public and private sectors had borrowed foreign financial institutions in
long term and short term loans totaled over 90,000 million U.S dollar or
about 3,864,000 million Thai baht. During this period, national reserve had
reduced to 26,000 million U.S. dollar. If there is a withdraw at the same
time, this will put the country in the bankrupt status. |
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Unstopping flow out of foreign investment…. |
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As
Thailand have not established a policy to generate an income from foreign
countries, most of the loaners, and investors will no longer have any
confident in the country which they will stop an additional loan or take
their investment elsewhere. The fact that we had been granted a loan from the
IMF for loan will not make any difference to the opinion of the loaners and
investors. |
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Monetary system is paralyze…. |
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The
outflow of large amount of funds and the restriction from the IMF created a
serious economic unsound and shrinkage. As a result, many financial
institutions in Thailand were ordered to close their businesses. For those
that barely stayed in business is confronting with cash flow difficulties. |
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Financial institution ran out of business or bought off by
foreigners…. |
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The
effects from closing down many financial institutions created a ripple effect
to many companies that needed additional capital to operate and will be out
of business when lack of it. In the same token, the financial institutions
needed these companies as a customer and will soon be out of business when
there is no customer. |
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The private companies also gone out of business or took over
by foreigners.. |
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Large enterprises that used to be well known
worldwide must sell their stocks or asset for survival as the economy has
gone bad. |
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Devastating asset devalued, 80 % Stock market dropped…. |
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The
drastic shrinkage of Thai economy along with the unstable companies' assets
liquidation created big gap on their value at present time compare to the
heydays time. Moreover, the Stock Exchange of Thailand's index had drop to
little over 200 comparing to 1,700 two years before. |
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The wealth was a history… |
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The
different of the asset value in the market revoked the buying ability and
stability of the people in the country. |
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3 millions unemployed people with no avail job…. |
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There
should have a plan for the those who got laid off; otherwise, more problems
may arise. |
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Wrong direction in the past… |
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emphasize on the large enterprises with foreign investors and
technologies…. |
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The
import and export business in the past used materials and funding from the
foreigners. Thai only provide the man power. Thus, the business will relocate
to other place where the labor is cheaper which will cause many problems for
Thailand. |
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Very few types of industry that generate income from export… |
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Only
10 products line bought revenue into the country. About 80 percent of these
products are mono-culture meaning that it can be produced anywhere in the
world. |
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Satisfy with only providing labors in the production line…. |
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Those
that were the money making products for exporting also created an increasing
amount of importing raw material. We were proud of the numbers that were
misrepresented. These businesses are high risk in operating due to the
dependency of the importing materials. |
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Low profit margin for these products…. |
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These
exporting products had about 10-15 percent of the profit margin which was
declining due to high labor and interest costs. Skills and knowhow were
disregarded because the products only need to assemble rather than create. |
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Overlook the support on various small and medium businesses to
reduce risk continually…. |
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The misinterpretation
of the exporting numbers and supporting only certain type of businesses
yields no policy on the diversification of exporting products. The policy
will reduce risk and create more income to the nation. |
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Small and medium size businesses often provide only raw
materials… |
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Nevertheless,
the government created policies to assist only those SME's to operate as
suppliers for the large manufacturers who run the business domestically. |
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The characteristic of a potential SME |
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The
business should generate an income in foreign currency such as in US dollar,
yen or German marc. Not only this will help the country economy, it also
automatically controls the quality of the exported products base on global
standard. |
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Independent |
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The
business must be self-sufficient in producing diversified products. Providing
a raw material to a large factory creates much dependency on the product distribution. |
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Flexibility |
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The
business should consist of a small employee which will be more flexible to
change product lines and production process depending on market demand. |
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Low investment |
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The business should require a minimal initial
investment. |
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Uses local material |
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The merchandise should be produced and use the
material locally or it should be from a local or nearby resident. The usage
of the imported material should be minimal and it must be an important part
that enhances the value of the product tremendously. The profit margin should
be quite high. |
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Local know-how |
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The product may be using the imported machinery
but it should be the technology that is inexpensive. The machinery should not
be the main factor in production. The skill and know-how, on the other hand,
should be the heart of it. This way, the company can release itself from
requiring the dependency from foreign for the new product development in the
long run. |
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Uniqueness |
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The product must be unique and should not be
produced in a mass volume. |
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Global standard |
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The product should be in high quality standard
and accept globally in its design and material used. |
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Understand the nature of
running the business |
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The owner or the management of the business must
understood and knew the factor of failure and success of business. |
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Part of the community |
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The business should be active part in the
community where it locates. It should use the local staffs as a part of
giving back to the local society |
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Obstacle |
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Because
the small size business including hand made products do not comprise of many
fixed asset and do not use the standard accounting, many of the financial
institution tends to disregard and do not grant any loans. |
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Lack of knowledge…. |
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Thai
SME mainly lack of designer whose expertise is to respond to world market
demand. Therefore, these company must rely heavily on the foreign designers.
In addition, the bookkeeping, accounting and global marketing are among the
problems most Thai SME encountered. |
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Lack of government support… |
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In
the past, Thai government realized that SME are the industry that helps the
nation economy but have not seriously created a policy to support it. |
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Example of supporting policies for SME |
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1. In states level, there is a Tax Credit for investment in the venture
capital or Local |
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UK |
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1. Encourage an investment in Venture Capital and Unlisted Stocks SME. |
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Singapore |
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1. Encourage an investment in Venture Capital for the potential SME but do
not |
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Taiwan |
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1. No Capital Gain Tax |
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Malaysia |
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1. No Capital Gain Tax |
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Summary of the policies
that support SME |
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1. Allow Income Tax Credit or Income
Relief Against Tax Reliability on the |