4 - Lao SME Participation in Regional Economic Integration

Summary

Introduction

Laos has maintained relatively high economic growth rates for about two decades. However, the country's future long-term economic growth faces risks arising from the country's dependence on resource sectors such as mining and hydropower sectors. Empirical studies have showed that resource-rich countries tend to experience slower growth compared to resource-poor countries. Laos might face the “Dutch disease” or “resources curse” problem (Kyophilavong 2016; Kyophilavong and Toyoda 2008; Corden 1981; Corden 1984; and Corden and Neary 1982). Even though the Lao economy has been growing at about 7 per cent per year in recent years, several challenges remain. Lao firms have low productivity and lack competitiveness. Lao firms also face various obstacles such as high tax rate, access to finance, increasing costs of doing business, and regulatory changes (Kyophilavong 2008; GIZ 2014; World Bank 2013). To overcome these problems, the Lao government has established several enterprises development plans and strategies such as SMEs Development Strategy and Industrial Development Plan. However, due to the lack of qualified human capital and funds, it appears that these plans and strategies have not achieved their targets.

Therefore, it is difficult for Lao enterprises to rival other enterprises in the region due to a lack of competitiveness. As such, in order to promote economic development in the long run, it is important to increase competitiveness of the enterprises. There are many ways to do this. One of the most important ways is to promote enterprise participation in production networks by improving access to external business resources and knowledge, technology, and finance sources. Getting SMEs to participate in production networks and regional economic integration could provide a short cut to enhancing firm competitiveness. However, participation in regional economic integration is affected by various factors, such as government policies, firm-specific advantages, and other barriers. According to our knowledge, there are very few studies on Lao SMEs’ participation in regional economic integration.

This chapter aims to investigate the current situation of Lao SMEs with regards to their participation in the regional economy.