Thai manufacturing small and medium sized enterprise technical efficiency: evidence from firm-level industrial census data

Thai manufacturing small and medium sized enterprises (SMEs) face intense competition in domestic and foreign markets. Given their importance to the economic development of the country it is important to have a clear understanding of their readiness to face the rigors of international competition, including the barriers and specific problems that they face. This study uses a stochastic frontier analysis (SFA) and technical inefficiency effects model to analyze the technical efficiency of Thai manufacturing SMEs and key factors impacting upon it. Analysis of cross-sectional data from a 2007 census of Thai manufacturing SMEs indicates that their weighted average technical efficiency is approximately 50 percent, signifying a high level of technical inefficiency which is reducing potential output. The inefficiency effects model reveals that firm size, firm age, skilled labor, ownership characteristics and location are firm-specific factors that significantly affect the technical inefficiency of production. Key measures to improve the technical efficiency of Thai manufacturing SMEs are an adequate supply of inputs, access to credit facilities, extensive infrastructural development and training programs for employees.