Doctor of Philosophy
School of Economics
technical efficiency; stochastic frontier analysis (SFA); data envelopment analysis (DEA); manufactoring small and medium sized enterprises (SMEs); Thailand
Charoenrat, Teerawat, The technical efficiency of Thai manufacturing small and medium sized enterprises: a comparison between the pre- and post- financial crisis of 1997, Doctor of Philosophy thesis, School of Economics, University of Wollongong, 2012. https://ro.uow.edu.au/theses/3764
Thailand’s manufacturing small- and medium-sized enterprises (SMEs) are recognised as making a significant contribution to the nation’s business numbers, national employment, exports and output. Despite their obvious importance to the economy, Thai manufacturing SMEs face a number of important disadvantages that act as a barrier to their further development and competitiveness. They also confront intense competition in domestic and foreign markets. It is important to have a clear understanding of their readiness to face the rigours of international competition, including the barriers and specific problems that they face. This thesis is the first empirical study to apply a stochastic frontier production function and technical inefficiency effects model (using the SFA approach) and two-stage DEA approach (utilising a two-limit Tobit model) to estimate and compare the technical efficiency performance of Thai manufacturing SMEs in the pre-(before 19971) and post-(after 20072) Asian financial crisis periods, utilising the most substantive and the most recently available cross-sectional firm-level data from the 1997 and 2007 industrial censuses.
The thesis is the first study to identify important firm-specific factors and explanatory variables contributing to the technical inefficiency (or efficiency) of Thai manufacturing SMEs in the periods 1997 and 2007, covering six categories: by aggregate manufacturing SMEs; by small-sized firms; by medium-sized firms; by domestic market intensity; by export intensity; and by sub-manufacturing sectors classified by the Standard International Trade Classification (SITC) Revision 4. This thesis also identifies key policy priorities for Thai policy makers concerned with enhancing the technical efficiency performance of Thailand’s manufacturing SMEs.
The empirical results from the SFA and DEA approaches produced similar results, in that the overall weighted technical efficiency scores in all categories of Thai manufacturing SMEs decreased in the post-crisis (2007) period as compared to the pre-crisis (1997) period. According to the overall weighted technical efficiency scores predicted by SFA and DEA, Thai manufacturing SMEs in both 1997 and 2007 operated at a low level of technical efficiency, specifying a high degree of technical inefficiency in their operation. The empirical results from the SFA approach reveal that SME production is heavily labour intensive in both periods with no apparent improvement in firm productivity and innovation. The empirical results from the technical inefficiency effects and a Tobit model indicate that firm size (economies of scale and scope), age (learning by doing), proportion of workforce which is skilled, location in towns and cities and particularly location in Bangkok, type of ownership, whether limited and public limited companies or juristic partnerships, foreign ownership or investment and export activity, are the important firm-specific factors contributing to the technical efficiency of Thai manufacturing SMEs in both 1997 and 2007.
Finally, this thesis concludes that government policy in the post-crisis period have been largely ineffective and should place more attention on creating an enabling environment to foster SME growth, enhance technology and innovation capability, and encourage the development of an environment, infrastructure and facilities conducive to enhancing the business operation of SMEs to enhance their technical efficiency. In addition, key measures to improve the technical efficiency of Thai manufacturing SMEs are: an adequate supply of inputs, easier access to financial services and credit facilities to facilitate firm growth, extensive infrastructural development and training programs for employees, expanded access to skilled labour and improvement in the skills of both the workforce and entrepreneurs, addressing locational and regional capacity inequities, enhancing the effectiveness of SME development programs, encouraging foreign investment for operational synergies and greater export activity to penetrate the world market.