Cluster Formation for Lao SMEs in Three Sectors

erit

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).

Abstract:

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.

Promoting Cluster and Value Chain Development in Three Agricultural Sectors in Lao PDR

top-icls-5

I attended the 5th International Conference on Lao Studies held at the Tha Prachan campus of Thammasat University here in Bangkok. The conference went quite well – I was only able to attend the second day, although of course everybody was being careful about what they were saying. More information on the conference is available here.

I could not present my paper on special economic zones but I was able to present (with co-author Nittana Southiseng, who was not able to attend):

Promoting Cluster and Value Chain Development in Three Agricultural Sectors in Lao PDR

Abstract:

Research was conducted into three agricultural sectors in Lao PDR to determine the extent to which clusters of complementary activities had been forming and how value chains were performing. The sectors were organic rice, organic vegetables and white charcoal (bintochan). Organic agriculture is a potentially important area for Lao PDR, a low income country, since many farmers operate on a de facto organic basis anyway, although certification is not available domestically. In common with white charcoal, organic produce will mainly be intended for export, primarily to or through partners in Thailand since Lao PDR is a landlocked country and one at a disadvantage, therefore, concerning export prices. The three sectors studied are at a comparatively early stage of development and each has some significant production issues yet to overcome. Respondents within production groups continue to focus on personal relationships and group management issues, while also acknowledging lack of access to markets, skills and capital that are common to small businesses around the world. Government agencies lack resources and technical capacity necessary to help link production groups to markets on an advantageous basis and the limited nature of the domestic market means that few well-equipped entrepreneurs have been attracted to take a role. However, some small private networks have been created in the white charcoal sector to move the products to Japan and Korea, where they are greatly valued as fuel for barbecues in the restaurant industry. For vegetables and rice, it will be necessary to establish cross-border relationships with operators in neighbouring Thailand, Vietnam and China, where there are large domestic markets, preferably on an equitable basis. It is not clear how this should best be approached from the perspective of public sector agencies, which tend to feature people who are suspicious of private sector organizations and of the potential for market relations to exert a form of neo-colonialism over what are considered to be national interests. Recommendations are made at various levels as to how networks can be established and existing ones strengthened. Adding new and more profitable stages to value chains, through issues such as packaging and branding, is also discussed.

Keywords: agriculture, clusters, Lao PDR, organic agriculture, value chains

Nittana Southiseng, SME Development Advisor, GIZ-RELATED project, Vientiane Lao PDR

John Walsh, Director, SIU Research Centre, Shinawatra University, Thailand

This research project was supported by a grant from the Economic Research Institute of Trade of the government of the Lao PDR.

Cluster Formation for Lao PDR SMEs in Three Sectors

This is the version of our report for ERIT that will appear in the Lao Trade Research Digest:

Cluster Formation for Lao PDR SMEs in Three Sectors

Abstract

Research was conducted into the current presence of and potential future benefit of clusters in three agricultural sectors in Lao PDR: organic rice; organic vegetables and white charcoal. Producers, business leaders, government officials and other relevant stakeholders were interviewed. It was found that these sectors offer potential for growth both domestically and internationally but that producers faced difficulties common to many small and medium-sized enterprises, including access to knowledge, markets, technology and capital. Most producers were more focused on the supply side of production and emphasized the need for harmonious group management and maintaining good relationships, while having less awareness of the needs of the demand side. There is a role for public and civil sector organizations to promote the distribution, marketing and market access elements of these sectors, in addition to enhancing technical competences and skills of local producers. There is also a need to develop market conditions within Lao PDR so that consumers have more opportunity to make purchasing decisions based on a range of product attributes in addition to price. Recommendations and implications are drawn from the research.

Nittana Southiseng, John Walsh and Santisouk Vilaychur

Some more details about the project are here.

Cluster Development in the Organic Rice Sector of Lao PDR

top-icls-5_0_0

The second paper I have at the 5th Lao Studies Conference is presented together with Dr. Nittana Southiseng.

Abstract:

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. This paper reports on research conducted in cluster development of organic rice in Sangthong district, Vientiane capital of Lao PDR. The status of the development of Santhong organic rice is analysed, as well as its prospects for contributing to export growth. Problems identified include low levels of capital and technology, lack of capacity in technical issues and limited market development. Some recommendations are made to hope to improve the overall quality of cluster development and to derive lessons for other parts of the economy.

Keywords: clusters, Lao PDR, organic agriculture, organic rice.

The conference programme is now available online here.

Household Production and Market Engagement among Resettled Hmong and Lao Loum Communities

2.cover

Announcing: Phoutkanya Dalasavong, Nittana Southiseng and John Walsh, “Household Production and Market Engagement among Resettled Hmong and Lao Loum Communities,” Agrarian South: Journal of Political Economy, Vol.4, No.2 (2015), pp.197-215.

Abstract:

The building of the Nam Mang 3 hydroelectricity power project between 2001–03 caused the resettlement of some 140 local households. Although compensation was promised to those being resettled, no long-term survey of the change in living circumstances of the resettled has been conducted. To address this gap in knowledge, exploratory research was conducted through questionnaire survey and in-depth personal interviews. A total of 69 of the resettled people were interviewed, from January-April, 2013. Data was gathered about land compensation, access to health-care, education services, and clean water, as well as income opportunities and community and social relations in the new environment. Results indicated a number of problems relating to resettlement compensation and the ability of those affected to re-establish a way of life in their new environment similar to what they had left behind. However, some had prospered because of new income generating opportunities while, new neighbours were characterized as friendly and welcoming. There is need for better basic services for those resettled, for resources, transportation infrastructure, and land allocated for a graveyard.

Key words: Laos, resettlement, compensation, livelihood, hydroelectric project

More details here.

Agroindustry in Lao PDR after Regional Economic Integration: Promoting Cluster Growth in Export Sectors

icird_logo

This is the abstract for the paper that I am going to present at ICIRD 2015 at Mahidol University, Salaya Campus in July (http://www.icird.org).

Agroindustry in Lao PDR after Regional Economic Integration: Promoting Cluster Growth in Export Sectors

Abstract

Since agriculture remains an extremely important industry in the Greater Mekong Subregion, the impacts on it of the changes being brought about by regional economic integration under the ASEAN Economic Community will be of critical importance to the region. In particular, Lao PDR lacks a large scale manufacturing industry to counteract the reliance for the majority of the population on agriculture and it also lacks much of the necessary infrastructure to create a successful processing and export industry. However, change is coming in the country as the construction of the Asian Highway Network promotes cross-border connectivity and encourages higher levels of investment to take advantage of the special economic zones and low labour cost competitiveness within the economy. Certain sectors within the industry have shown potential for rapid growth and the state of productivity and change within the industry overall is examined through the case studies of various vegetables and other products. In particular, attention is placed on the possibility of forming clusters of complementary firms in actual or potential agricultural export sectors and the difficulties and opportunities associated with this approach. It is found that cluster formation is difficult but manageable in cases where certain pre-existing conditions are met and can be promoted in such cases. However, in other cases, the approach seems unlikely to be successful. Implications are drawn from this and recommendations made for policy at the national level.

Keywords: agroindustry, clusters, Laos, organic rice, vegetables

Malaykham Philaphone, Nittana Southiseng and John Walsh

Malaykham Philaphone is an official at the Economic Research Institution for Trade (ERIT), Ministry of Industry and Commerce, Government of Lao PDR.

Dr. Nittana Southiseng is SME Development Adviser, Regional Economic Integration of Laos into ASEAN, Trade and Entrepreneurship Development (RELATED Project), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Vientiane, Lao PDR.

Dr. John Walsh is Director, SIU Research Centre, School of Management, Shinawatra University, Thailand.

SME Development Plans in the Light of the ASEAN Economic Community and Their Implementation in Lao PDR

logo

Southiseng, Nittana and John Walsh, “SME Development Plans in the Light of the ASEAN Economic Community and Their Implementation in Lao PDR,” paper to be presented at the International Conference on Commerce, Financial Markets and Corporate Governance/2nd International Conference on Research Methods in Management and Social Sciences (Shinawatra University, Thailand: February 7th, 2015).

Abstract:

Small and medium-sized enterprises (SMEs) are integral to the regional economic development and growth of the ASEAN because they account for more than 96% of all enterprises and some 50-85% of domestic employment in ASEAN member states is provided by SMEs. SMEs contribute some 30-53% of regional GDP and 19-31% of exports. For this reason, SME development of ASEAN is embedded in the third pillar of the ASEAN Economic Community (AEC) Blueprint, namely, equitable economic development, and its development would directly contribute towards achieving the implementation of the third pillar. SMEs not only contribute to income and employment generation of the region, therefore, but also reinforce gender and youth empowerment through business participation, as well as their widespread presence in non-urban and poorer domestic regions. In the Lao context, the 7th National Social-Economic Development Plan recognized that growth in SMEs is also essential for poverty reduction and the graduation of Laos from least developed country (LDC) status as SMEs contribute to raising standards of living for people and are the foundations of industrialization and modernization of the Lao economy. This is shown in the fact that, in 126,913 enterprises nationwide which had 345,138 employees in the private sector of the country, 99.8% of them were SMEs and employed 83% of the workforce. Most, 64.5%, belonged to the trade sector, followed by the processing industry sector at 19%. They were mainly located in the capital Vientiane (22.7%), Savannakhet province (11.4%) and Vientiane province (10%). For this reason, the integration of SMEs in Laos into the international market economy and increasing their competitiveness and resilience are priorities for the long-term SME development policy, which should create favourable conditions for the establishment of the AEC in 2015. This study is based on recent secondary policy frameworks and reports available at the institutions with mandates to promote the development of SMEs and facilitate their access to finance, information, technology and markets. The development plan of SMEs from 2011-2015 aimed to address the obstacles faced by SMEs and to enhance their competitiveness in six prioritized areas: improve regulatory conditions; access to finance; formation of new entrepreneurs; increase provision of business development services (BDS); enhance business linkages and increase productivity and access to markets. To achieve these goals requires constant efforts to improve human resources, provision of access to finance, technology, innovation and markets as well as internationalization through policy support measures, supplementary activities and appropriate communication.