Identifying technical inefficiency factors of Thai manufacturing SMEs: a comparison between the pre and post financial crisis of 1997
Thai manufacturing SMEs are recognized as making a significant contribution to business numbers, national employment, exports and output of Thailand. Despite their obvious importance to the Thai economy, manufacturing SMEs face a number of important disadvantage that act as a barrier to their further development. This study attempts to identify why manufacturing SMEs are under-performing in terms of their output contribution. This study applies a stochastic frontier production function and technical inefficiency effects model to measure and compare the technical efficiency of Thai manufacturing SMEs in the pre (1997) and post (2007) financial crisis periods, using cross-sectional firm-level data from industrial censuses in the period 1997 and 2007. The empirical results signify that the average technical efficiency level in all categories of manufacturing SMEs in the pre (1997) and post (2007) crisis periods are 58 percent and 50 percent, respectively, indicating that such a high degree of technical inefficiency in the production process. It also indicates that manufacturing SMEs experience no technical efficiency improvement in the post crisis (2007) period. Manufacturing SMEs are labour intensive in both periods. The technical inefficiency effects model reveals that firm size, firm age, skilled labour, location, type of ownership, cooperatives, foreign investment and exports are key factors contributing to a firm's technical efficiency in both pre (1997) and post (2007) crisis periods. It is recommended that policy implications should place more attention on create an enabling environment for fostering SME growth, enhance technology and innovation capability, develop the environment, infrastructure and facilities conducive to enhancing business operation of SMEs in order to enhance their technical efficiency.