Rising costs, shrinking returns hit SMEs

Corporate June 14, 2014 00:00

By Petchanet Pratruangkrai
The N

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Business closures jump 8% in first five months, govt agency reports

Small and medium-sized enterprises have become less competitive amid rising costs of production and lack of marketing strategies and funds, and more are at risk of closing down, according to a survey by the University of the Thai Chamber of Commerce (UTCC).
The survey pegged the SME competitiveness index at 56 points out of 100 in the first quarter, down from 59.6 points for the previous quarter, due to higher operating costs but lower returns.
Meanwhile, at a press conference, the Business Development Department reported that about 4,000 SMEs had shut down in the first half of the year because of a lack of financial liquidity and missed business goals, along with tough competition. Chainarong Chochai, deputy director-general of the department, said about 93 per cent of total business closures in the first five months of the year were SMEs. 
The total number of business shutdowns of all sizes increased 8 per cent to 4,564 in the January-to-May period. Last month alone, the number of closures rose 1 per cent to 833 firms.
The department said most SMEs that had to close down had initial capital of less than Bt5 million. With higher costs of operations and production, and tougher competition, they went bankrupt.
However, Chainarong said that despite the rising number of business closures, the number of newly set-up companies was expected to increase on improved confidence for future economic growth after the National Council for Peace and Order (NCPO) seized control of the country. He said the number of new firms was likely to increase in the second half of the year on this optimism for an economic recovery.
That has not been the case so far, however. The department reported that the number of newly set-up companies dropped 21 per cent year on year to 24,267 firms in the first five months of the year on the impact from the political mess.
Last month alone, the number of new companies dropped 26 per cent year on year, though it increased 7 per cent from April, to 4,583 companies.
Initial capital investment in May was valued at Bt20.28 billion, up by 17 per cent from the previous month, and up 2 per cent from May 2013.
New businesses in May were dominated by those in construction, property development, restaurants, machinery retail and wholesale, and advisories.
Saowanee Thairungroj, president of the UTCC, said SMEs had to close down as they faced higher costs of production, lower sales amid a slower economy during the political turmoil since late last year, and lower financial liquidity and profit.
Businesses that have faced financial problems include those in food and beverages, retail and wholesale, small restaurants and food vendors, and fashion goods.
Thanavath Phonvichai, director of the UTCC’s Economic and Business Forecasting Centre, said about 20 per cent of SMEs or about 400,000-500,000 firms were at high risk of failure because of low financial support. To help them, the military government should provide liquidity and low-interest funding.
Bhumindr Harinsut, vice chairman of the Thai Chamber of Commerce, said a joint collaboration of seven business organisations would propose an SME support plan to the NCPO next week.
They will propose that the Thai Credit Guarantee Corporation expand the debt ceiling for SMEs from 18 per cent to 50 per cent so that commercial banks will have more confidence to provide loans.
He said many SMEs had been affected by the political problem, and the junta needed to draw up urgent plans to help them and develop their competitiveness in the long run in preparation for the Asean Economic Community, which kicks off next year.