Identifying technical inefficiency factors for Thai manufacturing small enterprises
Thai manufacturing small enterprises 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 small enterprises face a number of important disadvantage that act as a barrier to their further development. This study estimates the technical efficiency of Thai manufacturing small enterprises by using a stochastic frontier model and technical inefficiency effects model. Cross-sectional firm-level data from the industrial census conducted in 2007 is utilised. A simple average technical efficiency levels in all categories of manufacturing small enterprises analysed are found to be low, indicating a high degree of technical inefficiency in the production process. Small enterprise production is heavily labour intensive. The technical inefficiency effects model reveals that firm age, skilled labour, firm location, ownership type, foreign investment and exporting are key factors contributing to manufacturing small enterprises technical efficiency. The paper concludes that government policy should place more attention on creating an enabling environment to foster manufacturing small enterprise growth, enhance technology, and encourage the development of an environment, infrastructure and facilities conducive to enhancing the business operation of manufacturing small enterprises in order to enhance their technical efficiency.