Cluster Formation for Lao SMEs in Three Sectors


This research paper, by Nittana Southiseng, Santisouk Vilaychur and myself is available at the ERIT website here (ERIT is the Economic Research Institute for Industry and Trade and is part of the Ministry of Industry and Commerce of the Lao PDR government).


A cluster is, simply defined, a supply chain in close geographical proximity. A supply chain is a series of activities that cause an upstream resource (i.e. raw materials) to move towards downstream consumers (i.e. retailers). Different parts of the supply chain add different levels of value to the process, usually in an inequitable manner so that some members benefit more than others. States wishing to promote rapid economic development (like Lao PDR) benefit from clusters because all sections of the value chain occur within their borders and so they can influence the distribution of benefits with a view to enacting long-term developmental goals. In Lao PDR, the agricultural sector remains of central importance and is likely to be so for the foreseeable future. When it comes to identifying potential clusters, therefore, then the agricultural sector should be the first one to be considered. Within agriculture, high value products should be sought because most production in the country is of commodity items which are marketed on cost basis alone. Such commodity trade is subject to sometimes rapid and intense price fluctuations in response to changes in demand and supply conditions. Added value can be found in processed goods, in goods for which there is special demand and goods for which a premium can be expected. This study adopts three of these sectors for study as potential clusters. Two of these are organic vegetables and organic rice, which are products already being grown in Lao PDR but which could be marketed more widely and more astutely to try to attract more of a premium price through better quality and consistency, as well as raising awareness among consumers of their benefits. The third potential cluster is white charcoal, which is known as bintochan in Japan, where it is valued for its properties in barbecuing. The purpose of this research project is to investigate these three sectors with a view to identifying whether they can offer genuine developmental opportunities for the country as a whole, as well as the communities, individuals and organizations involved in their production.


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