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					MICRO AND SMALL ENTERPRISE DEVELOPMENT & POVERTY ALLEVIATION IN THAILAND

Project ILO/UNDP: THA/99/003

WORKING PAPER 6
MICRO AND SMALL ENTERPRISES (MSEs) IN THAILAND - DEFINITIONS AND
CONTRIBUTIONS

Maurice Allal


SERIES EDITOR: Gerry Finnegan


Foreword

Preface
Executive summary
1.     Introduction
2.     Classifying enterprise by size
2.1    Need for a definition
2.2    Classification methodology: General considerations
2.3    Classification of Thai enterprises
3.      The informal sector
3.1    Defining the informal sector
3.2    Size of the informal sector
3.3    Characteristics of the informal sector
3.4    Recommendations for improving the potential socio-economic
       contributions of the informal sector
4.     Socio-economic contributions of micro and small enterprises
4.1    Business establishment
4.2    Industrial establishments
4.3    Overall assessment of the contributions of MSEs
Annexes

I:     Enterprise classification criteria used in Thailand
II:    Business registration in Thailand
III:   Manufacturing establishments: no. of workers versus registered capital
IV:    Bibliography
V:     ILO Recommendation on Job Creation in Small and             Medium-sized Enterprises




Foreword

         I am pleased to see this series of reports as outputs from the recent collaboration between
ILO and UNDP in Thailand in the form of the Micro and Small Enterprise Development and Poverty
Alleviation Project in Thailand in the form of the Micro and Small Enterprise Development in
Thailand Project and Poverty Allevia. As the UN agency with special responsibility for employment
matters, the ILO is concerned about employment in all sizes of enterprises, in both the formal and
informal sectors. The ILO is equally concerned about the quality, as well as the quantity, of jobs
created. This point is well amplified in the recent report, Decent Work by the ILO Director-General,
Mr Juan Somavia.

        From related studies carried out by the ILO following the financial crisis in East Asia, it is
apparent that both the level of employment and the quality of employment conditions in Thailand
have been adversely affected by the crisis. Consequently, the work being undertaken by this
project is most timely, assessing as it does the role of micro and small enterprise (MSE)
development in poverty alleviation and employment creation.

        Perceptions of the role of governmentshave changed; they are no longer expected to be
the principal providers of jobs B jobs are created by successful, well-managed private sector
enterprises. However, governments do have a vital role to play in ensuring that the policy
environment is >enterprise friendly=. The path into enterprise should be smooth, and
entrepreneurs should be able to receive relevant advice and support (both financial and non-
financial) in a highly effective manner from both government and private sector agencies. The
needs of the MSE sector should be clearly identified, and linked with a better understanding of the
scale and scope of the enterprise sector and its role in national development.

        All of these important aspects are addressed in this set of six working papers. Together
they provide a substantial body of knowledge and significant inputs for policy-makers and
decision-makers in government, the private sector, international organizations and the donor
community, as well as for entrepreneurs themselves.

         Given the prominence of the small and medium enterprises (SME) sector in government
policy, this information is being made available at an appropriate time. It is also highly relevant,
coming as it does at a time when the ILO is carrying out a Country Employment Policy Review in
Thailand, as well as providing support to make its Start and Improve Your Business (SIYB) training
materials available for extensive use in Thailand.

W R Simpson
Director, ILO/EASMAT
Bangkok, Thailand
July 1999


Preface

        This working paper, Micro and small enterprises in Thailand - Definitions and
contributions, prepared by Maurice Allal, has been produced as part of the ILO/UNDP project on
Micro and Small Enterprise Development and Poverty Alleviation in Thailand (THA/99/003). A full
description of this project can be found in the project document, which is available on request.

        This series of six working papers is the combined output from the team of national and
international consultants engaged by the ILO in Thailand between March and June 1999.
Preliminary findings for each of the reports were shared with a group of key informants at a
workshop/consultation, held at the Royal Princess Hotel, Bangkok, in May 1999. We are indeed
grateful for all comments and feedback received at that workshop. While every effort has been
made to ensure the accuracy of the information in these reports, we regret any omission or error
contained herein. These working papers are intended as a means of advancing the public debate
on the small enterprise sector in Thailand, and the ILO is eager to share this information with the
widest possible audience.

         The term "micro and small enterprise" (or MSE) is not commonly used in Thailand, as more
frequent reference is made to the designation, "small and medium enterprise", or SME. Each of
the ILO consultants has made some reference to the issue of definitions of micro, small and
medium enterprises, and Paper six in the series is dedicated to this topic. Therefore, to facilitate a
clear and unambiguous understanding of these working papers, we have been at pains to make
distinctions between different categories of small enterprises. We believe that the issue of
definitions is not simply one of semantics.
         One basic premise of this project is that there is a significant number of smaller enterprises
which do not fit into the conventional enterprise support programmes of the Royal Thai
Government. With targeted forms of support, these enterprises could improve their productivity
and competitiveness, make a greater contribution to generating wealth and alleviating poverty
among the families of owners and workers alike, and create more jobs.

         The ILO has been supporting micro and small enterprise development for more than three
decades. In 1998, in a significant landmark event for the Organization, the ILO's Conference B at
which Thailand was represented B unanimously adopted a new Recommendation concerning
General Conditions to Stimulate Job Creation in Small and Medium-sized Enterprises, 1998 (No.
189). Because of its extreme relevance to the subject of our enquiry, we have reproduced this
Recommendation as an Annex. Particular attention is drawn to sections 1, 2 and 6, dealing with
definitions, the role of small enterprises, and various policy options, respectively. In addition, to
coincide with this new Recommendation, the ILO launched a global International Small Enterprise
Programme (ISEP) to provide technical assistance for member countries, including Thailand. The
work carried out under this ILO/UNDP project is also part of the ILO's ISEP programme.

Gerry Finnegan
Senior Specialist & Series Editor
ILO/EASMAT, Bangkok
July 1999

Executive Summary

This report is part of a series of six working papers prepared under the ILO/UNDP Support
Services for Programme and Policy Development (SPPD) project on Micro and Small Enterprise
(MSE) Development and Poverty Alleviation in Thailand. It provides an overview of the MSE sector
based on an analysis of available statistics, as well as a review of a number of studies on this
sector. It also provides a valuable framework within which the other reports in the series can be
considered.

       Section 1 of the report reviews the current classification of enterprises in Thailand and
describes a methodology for improving such classification. A revised classification, based on this
methodology, is suggested for the relevant authorities who are currently charged with elaborating a
new classification of Thai enterprises. Recommendations are also made for improving the reliability
and usefulness of enterprise classification in the future.
        Section 2 provides a brief description of the informal sector in Thailand. It highlights the
sector=s importance for job creation and the achievement of other socio-economic objectives.
Recommendations are made for helping the sector achieve its full job creation potential and join
the formal sector of the economy.

        Section 3 describes the contributions of the MSE sector to various socio-economic
objectives, in addition to employment creation. It shows that these contributions compare
favourably with those of the medium and large enterprises, and justify further and more
comprehensive support to the sector.

Classification of Thai enterprises

         The Government recognizes the need to review and adjust the current classification of
enterprises. It has, for this purpose, established a working group within the Department of Industrial
Promotion (DIP), Ministry of Industry, which has been assigned the task of elaborating a new
classification of enterprises for consideration by the Government.

         A reliable classification of enterprises is needed for various reasons. First, those in charge
of carrying out national statistical surveys of industrial and business establishments (e.g. the
Thailand National Statistical Office) may need guidance on how to group establishments in such
surveys (e.g. in terms of the number of employees and/or other criteria). Without such guidance,
the groupings they use may yield a faulty classification of enterprises and would not, therefore, be
useful to policy-makers and those in charge of enterprise development. Second, the translation of
policies into laws requires that the intended beneficiaries be clearly defined. If this is not the case,
they may be excluded from the intended benefits, or others may be included although some of the
laws were not intended to benefit them. Finally, government agencies and financial institutions
responsible for providing financial and business development services and assistance to MSEs,
are generally supposed to limit such assistance and services to well-defined groups of enterprises,
in line with the organizations= respective mandates.

         The methodology used for classifying enterprises consists of identifying separate clusters
of enterprises presenting similar characteristics in terms of the selected classification criteria
(usually, the number of employees and, depending on the sector, the value of fixed assets or the
turnover). The larger the gap between clusters, the more dissimilar would be the characteristics of
enterprises from different clusters (e.g. in terms of the capital intensity and organization of
production, or the technical and/or management skills of the owner and employees), and the more
different would be the type of support and services they may require. In the large majority of
countries, enterprises are classified into four sizes: micro, small, medium and large. The
classification of enterprises into four sizes is not an arbitrary decision: this classification usually
reflects the way enterprises are clustered according to the selected criteria, and therefore ensures
the grouping of enterprises with similar characteristics.

        Although a single classification criterion can be used, this may result in including, within a
same size, enterprises with widely different characteristics. This would defeat the Araison d=etre@
of enterprise classification. Therefore, many countries use two classification criteria jointly.
Although, the use of two criteria would not completely eliminate the presence, within a single size,
of enterprises with different characteristics, it should considerably reduce occurrences of this type.
The criteria suggested for classifying enterprises in Thailand are:
        For the manufacturing sector: number of employees and registered capital.

        For the trade and services sectors: number of employees and turnover (yearly value of
gross receipts or sales for enterprises in the trading sector, and yearly value of fees for services
rendered by enterprises in the service sector).

Manufacturing sector classification

      The following classification of enterprises in the manufacturing sector is based on the
suggested classification methodology, and it uses the selected pair of criteria for this sector:

Microenterprises: 1-4 persons engaged, and registered capital of less than 500,000 Baht.
Small enterprises: 5-49 persons engaged, and registered capital of 500,000 Baht to less than 8
million Baht.
Medium enterprises: 50-199 persons engaged, and registered capital of 8 million Baht to less than
50 million Baht.
Large enterprises: over 200 persons engaged, and registered capital of 50 million Baht and above.

Business sector classification

       The following classification of enterprises in the business sector, including trade and
services, and is also based on the same methodology but uses the pair of criteria relating to
the business sector:

        Microenterprises: 1-4 persons engaged, and value of receipts of less than 1 million
Baht.
       Small enterprises: 5-19 persons engaged, and value of receipts of 1 million Baht to
less than 20 million Baht.
       Medium enterprises: 20-99 persons engaged, and value of receipts of 20 million
Baht to less than 140 million Baht.
       Large enterprises: 100 persons engaged and above, and 140 million Baht of receipts
and above.

       The above classifications of enterprises should be considered as tentative ones in
view of various limitations with regard to the available statistics. It is, therefore,
recommended that the proposed classifications be reviewed and, if necessary, revised
through two sets of measures: collecting additional statistics and/or further processing
those available at NSO; and carrying out sample surveys of enterprises in major production
sectors with a view to validating or adjusting the proposed classifications. It is further
recommended to assign the responsibility for the classification of enterprises to an
appropriate body which will work closely with NSO. The DIP seems to be the most
appropriate body for this task since it is the main government agency responsible for the
development of enterprises, mainly in the manufacturing sector. [The ILO is also available
to provide further support with these tasks - Editor.]

The informal sector
       A 1994 NSO survey of the informal sector indicates that it plays a major role as a
source of employment for millions of people, and contributes to the achievement of a
number of socio-economic objectives. The findings from this survey are corroborated by
various studies, notably two studies carried out by the ILO1.

        The informal sector is not clearly defined in Thailand. The definitions used by NSO
and others are based on qualitative characteristics of the sector and on the number of
employees (1 to 9 workers according to the NSO definition). These definitions could equally
apply to formal microenterprises. Therefore, it is recommended to use the following legal
definition of the informal sector: Aany enterprise which is not registered with one authority or
another, should be defined as an informal sector enterprise, whatever its size@. Thus, it is
plausible that a proportion of small enterprises are part of the informal sector. It is also
recommended that future surveys carried out by NSO include questions on the registration
of enterprises with a view to obtaining a precise estimate of the number of informal sector
enterprises.

       Altogether, over three quarters of the employed labour force is in the informal sector.
This percentage reaches 97 per cent for the agricultural sector. The informal sector
accounts for 51 per cent of enterprises in the manufacturing, trade and service sectors. It
also accounts for 22.7 per cent of the total employed labour in the non-agricultural sector
against 20.7 per cent for the formal sector. Using the 1997 NSO statistics on industrial and
business establishments, it can be shown that employment generated by the informal
sector in the manufacturing, trade and service sectors is approximately 3.5 times that
generated by the formal sector. The contributions of informal sector enterprises involved in
trading are much more important than those of enterprises in the manufacturing and service
sectors. Women are also more represented in the informal than the formal sector.

        Taken together, the NSO statistics clearly show that the informal sector is important
both in terms of the number of enterprises and of its contribution to employment, with a 51
per cent contribution to employment by enterprises in the manufacturing, trade and services
sectors. These contributions provide ample justification for greater support to be provided to
the informal sector with a view to further increasing its contribution to employment, as well
as to improving its overall competitiveness.

        The earlier ILO studies on the informal sector in Thailand yield interesting findings
on its characteristics and potential. The findings from one of the studies, which compares
microenterprises in the informal sector to small enterprises in the formal sector, have many
policy implications.

        Contrary to expectations, competition among the surveyed enterprises is of little
intensity in most sectors where a large variety of products and services are offered.

1        Among others, AEnabling policy framework for urban informal sector, Thailand@ (1995), and ADynamism in
the informal sector in a fast growing economy: the case of Bangkok@, (1993) - see Bibliography for details.
Competition is more intense in the garment, jewellery and artificial flowers groups which are
dominated by sub-contracting activities.

        The survey also shows that the clientele is not made up, as might be expected, of
mostly low-income groups. A significant proportion of the goods are sold to medium income
groups or tourists, or are exported. However, the sources of demand for the goods of the
larger enterprises are somewhat more diversified than those of the microenterprises. Direct
sales to consumers account for 58 per cent of the goods produced by these enterprises
against 31 per cent for the larger ones.

        The entrepreneurs in the survey (including the owners of microenterprises) are very
quality conscious: quality, rather than price, is considered the most important factor for 48
per cent of the small enterprises, and for 39 per cent of the informal sector enterprises.

        The survey also yielded interesting information on the use of capital by micro and
small firms. In most cases, those wishing to establish an informal microenterprise in the
manufacturing sector require a substantial amount of capital. Thus, contrary to common
wisdom, the argument of easy entry into the informal sector is not supported by the facts for
a number of production sectors. Furthermore, the graduation from an informal
microenterprise to a small formal enterprise does require substantial additional investment:
2 to 14 times the investment required to establish a microenterprise, depending on the
sector under consideration.

          The sample survey shed some light on the growth dynamics of informal sector
microenterprises and small formal enterprises respectively. First, in terms of employment, it
can be seen that small enterprises have created most new jobs during the year preceding
the survey. This is indicative of the well-known high Abirth@ and Amortality@ rates of
microenterprises in the informal sector. Second, the data shows that, in most cases, the
formal small enterprises in the sample started as formal enterprises rather than graduated
from the informal sector. It is mainly the relatively larger informal sector enterprises which
graduated into formal small enterprises. This finding is in line with those of other studies
which show that the graduation rate is fairly low (usually less than 5 per cent). However, this
is still significant in terms of its impact on employment and growth, since small enterprises
create many times more jobs and wealth than micro, informal sector enterprises. Finally, in
addition to employment, the findings show that the small formal enterprises also performed
better than the informal microenterprises, particularly with respect to marketing strategies,
product development and technological change.
          These and other findings from the earlier ILO studies in Thailand lead to the
following recommendations.

       The informal sector plays an important role for millions of persons outside the formal
labour force. It will probably continue to play this role for many years to come. Although, it
may not be considered as the main engine of growth, it should benefit from special support
which would help decrease the mortality rate of enterprises in this sector, improve the
revenues of informal sector operators, and increase the number of persons employed per
enterprise. Even a modest increase in the number of persons engaged per enterprise (e.g.
from 2 to 3 persons) could create hundreds of thousands of new jobs.

There is an urgent need to adopt a clear definition of the informal sector. It is recommended
to use a legal definition rather than one based on the characteristics of informal sector
enterprises, such as the number of workers.

        It is recommended to undertake a new survey of the informal sector, based on the
above definition. This survey will help identify the main characteristics and constraints of
the informal sector and will, therefore, provide decision-makers with the information they
need for designing effective policies and support programmes in favour of the informal
sector.

        Very few enterprises will graduate into small formal enterprises. However, support
policies which will increase the graduation rate (even by 1 to 2 per cent) will have a
significant impact in view of the large initial numbers of informal sector enterprises.

        Informal sector enterprises will remain informal as long as the benefits of
formalization do not outweigh the costs (in financial and other terms). As Thailand strives to
join the industrialized economies, it is important to gradually increase the size of the formal
sector - defined as being made up of registered enterprises which apply basic labour
standards and contribute to the government budget through the payment of taxes. A
number of steps, described in this report, can be initiated to gradually achieve this objective.
Contributions of the MSE sector

       In addition to job creation, the micro and small enterprise (MSE) sector contributes
to other important socio-economic objectives, such as the gross national product, value
added and foreign exchange savings. For the purposes of this Working Paper, these
contributions have been estimated on the basis of available NSO statistics.

         While the contributions to gross output and value added by MSEs in the
manufacturing sector are relatively modest (respectively 6 per cent and 8.2 per cent), they
are substantial for MSEs in the business sector: 58.9 per cent for gross receipts and 47.5
per cent for value added. If the industrial and business sectors are assessed together, it
can be shown that the MSE sector contribution to value added is, at 20 per cent, far from
being negligible. It may also be noted that these estimated contributions may be lower than
their true values since they probably do not take full account of non-registered enterprises,
and a proportion of the MSEs= output related to subcontracting could have been recorded
in the statistics as output by medium and large enterprises.

        Thus, contrary to current thinking, support to the MSE sector in Thailand is not only
justified for its important contributions to employment, but also for its contributions to other
important economic objectives, such as the increase in GNP and value added.

        The estimated contributions of the MSE sector to Avalue added per worker@ also
lead us to make the following observations. Value added is partly a proxy for productivity
(i.e. an increase in value added per worker is the result of a higher productivity brought
about by the use of improved technology, larger investment in equipment and other
production facilities, an improved organization of production, etc.). The statistics at hand
show that value added per worker, in the case of MSEs in the manufacturing sector, is
much lower than that of the medium and large enterprises. Therefore, support aimed at
increasing the productivity of the MSE sector will have a significant impact on GNP, while
helping Thai industries face the challenge of global competition.
1.     Introduction

       This paper provides an overall review of the micro and small enterprise (MSE) sector
in Thailand. It contains in-depth information on the characteristics of this sector and
compares its socio-economic contributions to those of the medium and large enterprises. It
is hoped that such information will be useful to policy makers and those involved in MSE
development (in both the public and private sectors), and will help them in their efforts to
improve the growth and competitiveness of this sector in an increasingly globalized
economy.

       This paper is based on information collected from various sources, including in
particular statistical surveys of business and industrial establishments prepared by the
National Statistical Office (NSO) for the years 1994 to 1998, the Department of Industrial
Promotion statistics and a number of studies on the sector. It covers private sector
enterprises in the following economic sectors:

The manufacturing sector, including enterprises involved in processing activities and the
assembly of components. (Quarrying and mining activities are not included.)
The trading sector, including wholesale and retail trade.
The services sector, including hotels and restaurants; real estate and business activities;
recreational and cultural services; and personal and household services.

      It should be noted that in the course of this review, it was not possible to collect
separate information on the following sectors: construction sector; transport, storage and
communications sector; and the banking, financial services and insurance sector. It is,
however, probable that statistical data and studies are available on these sectors.
        It is recommended that information be collected, in the near future, on these other
sectors in view of the large proportion of MSEs in some of them, particularly the construction
and transport sectors.

        The paper is divided into the following main sections.

         Section 1: This section focusses on the classification of enterprises into standard
sizes (micro, small, medium and large), and discusses the usefulness of various
classification criteria. A classification of enterprises according to some such criteria is also
suggested for consideration by the authorities concerned.

         Section 2: This section reviews and assesses available information on the informal
sector, in view of the importance and special characteristics of this sector in Thailand.

        Section 3: This section provides information on the socio-economic contributions of
different sizes and types of enterprises, including contributions to employment, gross output,
value-added, exports and so on.

2.      Classifying enterprises by size
While collecting information on micro and small enterprises (MSEs), the mission discussed
with various organizations the issue of definition: what classification criteria should be used
for micro, small, medium and large enterprises? It was found that the definition changed over
the years, and that the latest definition classifies enterprises only according to the size of
fixed assets.

        Furthermore, it would seem that different agencies have used different definitions
suited to their specific needs. Annex A describes the definitions used by various agencies
over the past years. It is based on a paper prepared by the SASIN Graduate Institute of
Business Administration, Chulalongkorn University (copied here with an acknowledgement to
SASIN).
        Some people interviewed also questioned the need for a definition. The one currently
used1 does not seem appropriate. The maximum size of fixed assets for small enterprises
seems too high, considering the characteristics of the national industrial, trade and services
sectors, as suggested by national statistical surveys. Furthermore, it does not provide a
separate definition for microenterprises, nor a clear definition of medium enterprises.

        The Government recognizes the need to review and adjust the current classification
of enterprises. It has, for this purpose, established a working group within the Department of
Industrial Promotion (DIP), Ministry of Industry, which has been assigned the task of
elaborating a new classification of enterprises for consideration by the Government.

         This section of the paper provides suggestions for the definition of Thai micro, small,
medium-sized and large enterprises, in line with international best practice. It is hoped that it
will be useful to the deliberations of the DIP working group.

2.1     Need for a definition

         Most countries have defined various sizes of enterprises according to one or more
classification criteria. A definition is desirable for the following main reasons:

i)      Statistical purposes
        Those in charge of carrying out national statistical surveys of industrial and business
establishments (e.g. the Thailand National Statistical Office) need guidance on how to group
establishments in such surveys (e.g. in terms of the number of employees and other criteria).
Without such guidance, the groupings they use may yield a faulty classification of enterprises
and would not, therefore, be useful to policy makers and those in charge of enterprise
development.

ii)     Assistance to policy formulation and application

        Most governments have enacted policies in favour of MSEs, including trade policies,
financial and other incentives, and fiscal policies. These policies are not usually applied
equally to all enterprises. They are intended to help specific types or sizes of enterprises in
view of their potential contributions to various socio-economic objectives: job creation,

 1 The latest definition was finalized on January 15, 1999, following consultations between
 representatives of the Ministries of Industry, Finance and Commerce and the Federation of Thai
 Industries, the Board of Trade, the Bank of Thailand and specialized financial institutions. It is not
 yet clear whether it has been officially adopted by the Government. Enterprises are defined on the
 basis of the value of their fixed assets (including land), with the value of assets being a function of
 the sector under consideration. Enterprises are defined as follows:
 Small and medium enterprises (SMEs) considered as a single group: Production and services - up to 200
 million Baht; wholesale trade - up to 100 million Baht; retail trade - up to 60 million Baht.

 Small enterprises (SEs) in the production, services and wholesale trade sectors - up to 50 million Baht;
 SEs in the retail trade sector - up to 30 million Baht.

         It may be noted that the production sector includes manufacturing, agriculture and mining.
decentralization of economic activities, increasing exports, etc. The translation of policies into
laws requires that the intended beneficiaries be clearly defined. If this is not the case, they
may be excluded from the intended benefits, or others may be included although some of the
laws were not intended to benefit them.
iii)   Facilitating the work of those providing services and assistance to MSEs

        Government agencies and financial institutions responsible for providing financial
and business development services and assistance to MSEs are supposed to limit such
assistance and services to well-defined groups of enterprises, in line with the organizations=
respective mandates. For example, a faulty definition may have these agencies use limited
resources to help enterprises which may not be in need of the assistance as much as those
specified under their mandate.

         Some staff members of public and private sector agencies and organizations may feel
that they do not need a definition because they are capable of easily recognizing potential
clients wanting their assistance. While this is to some extent true (especially in the case of
business development services and training), there are many cases where the lack of a clear
definition may lead to abuses. For example, special fiscal or other incentives intended for
micro and small enterprises may be used by medium enterprises if the latter do not have to
prove that they belong to the category of enterprises covered by these incentives.

2.2     Classification methodology: General considerations

         As stated earlier, a precise classification of enterprises will help agencies in the public
and private sectors to better target their policies and support programmes to enterprises
which exhibit specific characteristics. Ideally, the classification should be based on a reliable
sample survey of enterprises covering various quantitative and qualitative classification
criteria. However, it is also possible to use available census surveys for a fairly reliable and
useful classification of enterprises. These surveys may be complemented by smaller sample
surveys by agencies wishing to obtain more precise information on their potential clientele
with a view to fine tuning their assistance and support programmes.

2.2.1   Classification criteria

         The classification of enterprises requires the adoption of selected quantitative and/or
qualitative classification criteria. Qualitative criteria are not often used because they are less
precise and more difficult to collect and apply. Thus, the large majority of countries use only
quantitative criteria. The most commonly used ones are: the number of workers, the value of
fixed assets and the turnover.

        The selected criteria should ensure that all enterprises classified within a given range
of values of the criteria exhibit similar characteristics which will determine whether they
should benefit from specific policies, incentives or programmes. Indeed, this should be the
main justification for classifying enterprises according to specific sizes or groups.

         Although a single classification criterion can be used, this may result in including,
within a same size grouping, enterprises with widely different characteristics. This would
defeat the Araison d=etre@ of enterprise classification. Therefore, many countries use two
classification criteria jointly. Although the use of two criteria would not completely eliminate
the presence within a single size range of enterprises with different characteristics, it should
considerably reduce occurrences of this type. The most commonly used pairs of criteria are:

- for the manufacturing sector, number of employees and value of fixed assets; and

- for the trade and services sectors, number of employees and turnover (yearly value of gross
receipts or sales for enterprises in the trading sector, and yearly value of fees for services
rendered in the services sector).

        These classification criteria are further discussed later.
        It should be stressed, however, that some groups of enterprises may face unique
problems not shared by other groups in the manufacturing, trade or services sector. For
example, small enterprises in the agro-processing sector may face difficulties in getting
sufficient supplies of some agricultural products, and may need special support to overcome
this problem. Identification of this type of problem would require the collection of qualitative
information through sample surveys. Thus, while the general classification criteria would
apply to all enterprises, it may be needed, from time to time, to carry out sample surveys of
specific groups of enterprises with a view to identifying and addressing their specific
problems and constraints.
2.2.2 Use of census surveys

        Like many national statistical offices, the National Statistical Office (NSO) of Thailand
collects information on the number of employees, value of fixed assets and turnover of
different sizes of enterprises in the major sectors of the economy.

         The methodology used for classifying enterprises consists of identifying separate
clusters of enterprises presenting similar characteristics in terms of the selected pair of
classification criteria (number of employees and, depending on the sector, the value of fixed
assets or the turnover). The larger the gap between clusters, the more dissimilar would be
the characteristics of enterprises from different clusters (e.g. in terms of the capital intensity
and organization of production, the technical and/or management skills of the owner and
employees), and the more different would be the type of support and services they may
require.

        In the large majority of countries, enterprises are classified into four sizes: micro,
small, medium and large. The classification of enterprises into four sizes is not an arbitrary
decision: this classification usually reflects the way enterprises are clustered according to the
selected criteria, and therefore ensures the grouping of enterprises with similar
characteristics. In general, microenterprises form the largest group by far, followed by the
small, medium and large enterprise groups.

         The method commonly used for the identification of clusters of enterprises requires
statistical tables which indicate the number and/or percentage of enterprises for various
ranges of values of the pair of selected criteria (e.g. the number of enterprises with 1 to 4
employees and value of fixed assets up to 500,000 Baht and the percentage of the total
number of enterprises that they represent). The larger the number of ranges of values, the
more reliable would be the classification. In Thailand, NSO statistics are available for nine
ranges of the number of employees (from A1-4 employees@ to A1,000 and more
employees@) and eight ranges of the value of fixed assets (from Aless than one million Baht@
to Aover 1,000 million Baht@). While the number of ranges of values for each classification
criterion is appropriate, the statistics are available separately for each criterion. The use of
such statistics for the identification of clusters of enterprises is less reliable than if they were
available in the form of a cross tabulation of the two criteria. However, combined with other
sources of information, these statistics should help yield a reliable classification of
enterprises.

         The Department of Industrial Promotion also has statistics on those enterprises
registered with the Ministry of Industry. These statistics provide the number and percentage
of enterprises for each pair of the selected criteria in the form of a cross tabulation of the two
criteria (value of fixed assets and number of employees). The use of these statistics should
result in a more reliable classification of enterprises. However, these statistics are available
for the manufacturing sector only, and do not include the lowest ranges of values of the two
criteria provided in NSO statistics. The classification of enterprises suggested later in this
paper will be based on statistics from the above two sources, as well as information collected
elsewhere.

         Even if detailed statistics are available in the right format, there would always be a
certain proportion of enterprises which cannot be classified according to the two selected
criteria used together (e.g. some enterprises may be classified as small according to the
number of workers, and as medium according to the value of fixed assets). In order to reduce
this proportion to a minimum, one must make the right choice of dividing line between two
consecutive sizes of enterprises (i.e. to select, for each enterprise size, the minimum and
maximum values of the pair of criteria which will minimize the number of enterprises which do
not fit both criteria). Various statistical tools have been used for this purpose.
2.2.3 Classification of enterprises which do not fit both criteria

         Whatever the accuracy and coverage of available statistics, it may not be possible to
classify all enterprises according to both criteria. This is particularly the case for enterprises
in the manufacturing sector where many enterprises will straddle two consecutive sizes.
There will be many cases of enterprises having the number of workers of one category and
the value of fixed assets of another, smaller or larger category. For example, a
microenterprise may have a registered capital of less than 500,000 Baht (if this is the
maximum value of fixed assets used for this size of enterprises) and 15 workers ( if it uses
very labour-intensive techniques), which would make it a Asmall@ enterprise according to this
criterion. Similarly, a small enterprise of 15 workers may have a registered capital of 5
millions Baht, which will make it a Amedium@ enterprise according to this criterion. What
should be done about these types of enterprises?

         Since all enterprises ought to be classified for statistical, legal and other purposes,
the classification methodology should include provisions to ensure that all enterprises will be
classified in one category or another. In particular, it is important to clearly separate
enterprises using highly labour-intensive techniques (e.g. enterprises characterised by low
investment on equipment, and therefore having a low registered capital), from those using
highly capital-intensive techniques (e.g.enterprises which invested heavily in equipment and
other fixed assets, and having a relatively high registered capital). Therefore, it is
recommended that classification be based on the value of registered capital whenever the
number of workers falls within a range of values pertaining to another enterprise size (e.g. an
enterprise with 100,000 Baht of registered capital and 10 workers should be classified as a
micro rather than a small enterprise even if the 10 workers criterion applies to small
enterprises).
        While this adjustment to the classification methodology may further complicate the
work of those responsible for registering enterprises, it cannot be avoided because the
number of enterprises that straddle two categories is far from being negligible. It is estimated
at 10 per cent in Thailand ( see later).

2.2.4   Quantitative classification criteria

         Three main quantitative criteria are used in many countries for defining the size of an
enterprise. This section will discuss each criterion in terms of its reliability (i.e. ensuring that
all enterprises within a given category exhibit similar characteristics) and the extent to which
the criterion can be easily applied. Examples of the use of this criterion by some countries will
also be provided.

i)      Number of workers/employees

        This is the most used and the easiest classification criterion. It is assumed that
enterprises with a number of workers falling within the same range of values should
exhibit similar characteristics and may be, therefore, targeted for the same incentives
or assistance programmes. In many countries, the following minimum and maximum
numbers are often used for classification purposes:

       Microenterprises: 1-5 or 1-10 workers, including the owner(s), although the
lower range is more often used. Some countries use two different ranges: one for
microenterprises in the trade and services sectors, and one for microenterprises in the
production sector.

      Small enterprises: from five or 10 workers to between 20 and 50 workers. A
maximum of 100 workers is also used in some industrialized countries. Different
ranges may also be used for small enterprises in the trade/services sectors and in the
production sector.

Medium enterprises: the number of workers may range between 20-50 up to 300-500
workers, following the above two options for small enterprises. However, it is unusual
for medium enterprises to be classified as having less than 50 workers.

Large enterprises: 300-500 workers and above, up to a few thousands workers.

        While the number of workers is often used for classifying enterprises, it can be
misleading if used by itself. For example, an enterprise using 20 workers may be
classified as a Asmall@ enterprise, while it may exhibit all the characteristics of a
microenterprise: use of a few hand tools, the value of fixed assets may not exceed a
few hundred dollars, and the yearly turnover may not exceed a few thousand dollars.
These characteristics are typical of, for example, a food processing cooperative,
working part of the year, and using non-mechanized production processes. On the
other hand, an enterprise with five workers may be classified as a Amicroenterprise@,
while it exhibits all the characteristics of a formal small enterprise: use of a highly
capital-intensive technology requiring equipment costing up to a million dollars, high
yearly turnover of millions of dollars, etc. These characteristics may, for example,
apply to an enterprise which applies plastic coating to electrical wires or one involved
in the production of circuit boards. These two examples clearly show that the use of a
single criterion for classifying enterprises could be misleading in a number of cases.
In some countries this number could be fairly high, while in others it could be small
enough to justify the use of a single classification criterion.

        It seems that, currently, Thailand does not use the number of workers as a
criterion for classifying enterprises. An earlier DIP publication (Kuroda and Kasajima,
1987) indicates that a number of definitions were used by various organizations, some
using either the number of employees or fixed assets only, with others using both
classification criteria. This is corroborated by SASIN in a paper reproduced as Annex
I.

       Kuroda and Kajisama suggest using the following two criteria together:

Cottage industries: 1-9 workers and up to 1,000,000 Baht of fixed assets.
Small enterprises: 10-49 workers and 1-10 million Baht of fixed assets.
Medium enterprises: 50-199 workers and 10-50 million Baht of fixed assets.
Large enterprises: 200+ workers and over 50 million Baht of fixed assets.

       It is probable that other formal or informal definitions have been used over the
past years by various organizations for their own purposes.
ii)    Value of fixed assets

        The value of fixed assets is also used as a classification criterion by many
countries. However, it is less easy to use because enterprises do not generally have a
precise estimate of their fixed assets, or may not wish to provide this type of
information. The value of fixed assets depends on the level of development of the
country and on the sector under consideration. Using Thai Baht equivalents, the size
of fixed assets ranges between 5,000 and 100,000 Baht for microenterprises;
100,0000 to 1,200,0000 Baht for small enterprises; 1,200,000 to 25 million Baht for
medium enterprises, and over 25 million Baht for large enterprises.

       However, it should be noted that there are wide variations in the above ranges,
the minimum and maximum value of fixed assets for a given size and type of
enterprise depending mostly on the level of development of the country.

       In Thailand, the NSO statistical surveys of business and industrial
establishments provide two different measures of fixed assets: Aregistered capital@
and Afixed assets@. It would seem that Aregistered capital@ is that listed in the official
documents provided by the enterprise for fiscal purposes, while Afixed assets@ is
information used only for statistical purposes. A comparison between these two
measures shows that Aregistered capital@ is often smaller than Afixed assets@. It is
not clear why the two measures of fixed assets differ. One explanation is that
enterprises wish to reduce the fiscal burden. Another reason could be that
entrepreneurs did not take the time to inform the authorities about changes in their
fixed assets since they first registered their enterprise. For enterprise classification
purposes, it is necessary to use the Aregistered capital@ as a measure of fixed assets
since this is required for the official classification of the enterprise.

iii)  Number of workers and size of fixed assets: examples of definitions of small
and medium enterprises (SMEs) used in some Asian countries

      Table 1 shows how the fixed assets and number of employees criteria have
been used by a number of Asian and Pacific countries for classification purposes.

       It can be seen from Table 1 that Thailand is the only country in the above group
 which does not use the number of employees as a classification criterion (either
separately or jointly with the size of fixed assets) and uses a maximum size of fixed
assets much higher than that used by the other countries for small and medium
enterprises.

Table 1: Classification of SMEs according to the number of employees and the value of fixed
assets by some Asia-Pacific countries

Country                        Maximum number of              Maximum size of fixed assets
                               employees                      (Millions Baht)
Australia                      Manufacturing: 100             Not used
                               Services: 20
Indonesia                      100                            Not used
Japan (use of No of            Manufacturing: 300             3
employees or fixed assets)     Wholesaling: 50
Rep. of Korea                  Manufacturing: 300             Not used
                               Retailing: 50
                               Services: 20
Malaysia (joint use of both    75                             24
criteria)
The Philippines                200                            40
Singapore                      Services: 100                  Manufacturing: 26
Thailand (current definition Not used                  Manufacturing: 200 & 50;
of SMEs and small                                      Services: 200 & 50;
PR China                     100                       Not used
enterprises (SEs))                                     Wholesale: 100 & 50;
                                                       agenda, Chris & 30.
Source: APEC and SME Policy: Suggestions for an action Retail trade: 60Hall,
University of Technology, Sydney, Australia, 1995.

iv)    Turnover per enterprise and value added per worker
The turnover per enterprise can also be used as a classification criterion since it is closely
correlated to both the number of employees and the size of fixed assets. This criterion may
take the form of the yearly value of sales (e.g. in the case of the trading sector), yearly gross
output per establishment (e.g. in the case of the manufacturing sector), or the yearly gross
receipts (e.g. the case of the services sector). This criterion is more often used for the trade
and services sectors, in place of the fixed assets criterion, than for the production sector. This
may be explained by the fact that, while differences in fixed assets in the former sectors may
be large, differences in the values of sales or gross receipts are usually much larger.

Value added per worker is also a possible classification criterion since it can be considered
as a proxy for fixed assets (especially the value of installed equipment). It is also a good
criterion for differentiating enterprises using labour-intensive production techniques (usually
the smaller enterprises) from those using capital-intensive techniques (usually the larger
enterprises). However, the value-added classification criterion is more useful for classifying
enterprises in the manufacturing sector than those in the trade or service sector which use
relatively little equipment. NSO statistics show that this is indeed the case, as the value-
added for the smallest size enterprises in the trade and services sectors happens to be fairly
close to that of larger enterprises.

        Statistics are available in Thailand for both the turnover per enterprise (indicated in
NSO statistics as gross output per establishment) and value-added per worker. Thus, it
should be possible to use one or both of these classification criteria for enterprises in the
manufacturing sector. However, it is suggested at this stage, to further study the reliability of
these two criteria and compare them with the number of employees and the value of fixed
assets criteria before deciding which pair of classification criteria to use. On the other hand,
the turnover criterion (value of sales for the trade sector, or of receipts for the services
sector) would be a good classification criterion for enterprises in the trade and services
sectors, along with the number of employees.

2.2.5   Qualitative classification criteria

        Various qualitative criteria can also be used for classifying enterprises. These
include:

        The separation of the production and managerial responsibilities within an enterprise;

        The type of market supplied (local, regional, national or international); and

The type of technology and equipment used, etc.

         National statistics on these criteria are not available because the collection of such
statistics would be a fairly complex and costly exercise. However, sample surveys could be
carried out in order to collect this type of information, and this could help those involved in
MSE development to improve the design of their assistance programmes and projects.
2.3      Classification of Thai enterprises

        This section of the paper provides tentative definitions of micro, small, medium and
large enterprises based on available statistics and information collected from a number of
studies. Definitions will be provided separately for enterprises in the manufacturing sector,
as well as for those in the trade and services sectors. As noted earlier, the construction and
the transport/storage/communications sectors are not covered by the proposed definitions
since it was not possible to collect statistics on these sectors. The same applies to banks and
enterprises providing financial services.

        It is suggested that those currently involved in elaborating the official classification of
enterprises should recommend that statistics on enterprises in the above sectors be collected
and used for classification purposes.
2.3.1 Proposed classification criteria

       Two different pairs of classification criteria are proposed for the following two major
groups of enterprises:

-        Enterprises in the manufacturing sector: the number of persons engaged and the
size of fixed assets per enterprise.

-      Enterprises in the trade and services sectors: the number of persons engaged and
turnover per enterprise (gross receipts).

The number of persons engaged (terminology used by NSO) includes the owner or owners
in the case of a partnership, hired workers and paid or unpaid family workers.

The size of fixed assets is that reported in NSO statistics as Aregistered capital@ which is
often lower than that reported as Afixed assets@ in the same NSO statistics. The Aregistered
capital@ is used in place of Afixed assets@ because the official registration documents filled
out by enterprises indicate the Aregistered capital@ rather than the Afixed assets@.

The turnover per enterprise, as reported in NSO statistics, refers to the value of sales for
enterprises in the trade sector, and to the value of receipts (fees) from services rendered by
enterprises in the services sector.

         It should be noted that the NSO statistics refer to Aestablishments@ rather than to
Aenterprises@. An establishment is defined as Aan economic activity unit which engages,
under the ownership or control of a single legal entity, in a kind of economic activity at a fixed
location@ (NSO, AReport of the 1996 listing of industrial and business establishments -
Whole Kingdom). A further clarification is provided in the NSO AReport of the 1995 industrial
survey - Whole Kingdom@. In this report, it is indicated that production units established in
the same location, but producing different goods, should be considered as separate
establishments if accounting records are kept separately for each activity. The difference
between an enterprise and an establishment is that an enterprise can be made up of a
number of establishments. This is particularly the case for large enterprises which may
operate a number of production units in different locations. Consequently, the actual number
of medium and large enterprises (i.e. those which could own a number of establishments)
should be smaller than that indicated in the statistics. These statistics show that the
proportion of medium and large enterprises (in terms of number of establishments) is
relatively low (less than 1 per cent to a few percentage points, depending on the adopted
definition).

        Therefore, it has been decided to use Aestablishment@ as a proxy for Aenterprise@
since this will not significantly affect the validity of the adopted definitions (this should only
result in a slightly higher proportion of medium enterprises and a lower number of large
enterprises, but should not affect the number of micro and small enterprises which are made
up of single economic units). This decision is further justified by the fact that the main focus
of this report is micro and small enterprises rather the medium and large ones.
Consequently, the terms Aestablishment@ and Aenterprise@ will be used interchangeably in
the remaining part of the report, unless otherwise indicated.

2.3.2   Statistical sources and their limitations

i)      Use of statistical surveys for classification purposes

         An analysis of statistical surveys of enterprises clearly shows that the
enterprises are not evenly distributed in terms of the number of workers or registered
capital per establishment. There are gaps between groups of enterprises, with a high
percentage of enterprises in each group concentrated within a narrow range of values
of the quantitative criterion under consideration. It is, therefore, possible to select a
minimum and maximum value for that criterion which will differentiate, in terms of size,
one group of enterprises from another (e.g. 1 to 4 workers for microenterprises, or 50
to 200 workers for medium enterprises). Thus, the use of statistical surveys
constitutes the most reliable method for classifying enterprises according to size. The
reliability of this method is further improved when two classification criteria are used
jointly for classification purposes (see reasons provided earlier).
ii)      Formal versus informal sector enterprises

        From information contained in NSO statistical surveys, it would seem that only
registered enterprises are recorded. Thus, the statistics most probably under-state the
importance of microenterprises in the informal sector which represented, in 1994, 42
per cent of the total labour force in the manufacturing sector (NSO survey of the
informal sector, 1994). The informal sector issue is discussed in a latter section of
this report.

iii)    Manufacturing sector

        Two sources of statistics are used for the classification of enterprises in the
manufacturing sector: statistics from the NSO, and statistics available from the
Ministry of Industry. Although the exact coverage of enterprises in the manufacturing
sector and the period during which statistics have been collected differ from one
source to the other, the joint use of these two sets of statistics should yield a reliable
classification of enterprises.


NSO statistics

         As indicated earlier, the most reliable statistics would be those providing, for the
same year, the number or percentage of enterprises for various ranges of values of the
selected pair of classification criteria (number of persons engaged and value of registered
capital). The best results are achieved if statistics are available in the form of a cross
tabulation of the two criteria. Furthermore, the larger the number of ranges of values, the
more reliable would be the classification. Unfortunately, the NSO statistics provide the
number of enterprises separately for each classification criterion and for two different years.
Therefore, statistics on the number and percentage of workers for different enterprise sizes
are based on the AReport of the 1996 listing of industrial and business establishments -
Whole Kingdom@, while statistics on registered capital are based on the AReport of the 1997
Industrial Census@ for the following regions: Bangkok Metropolis, the Vicinity, the Central
region, the Northern region and the Southern region. The 1996 listing does not include
establishments located in industrial estates. The 1997 Industrial Census is still under
preparation: statistics on one of the regions (Northeastern region) and on the whole kingdom
were still incomplete at the time this report was being prepared. However, this should not
present a serious problem for obtaining reliable average estimates of registered capital for
the whole country. Only one region is missing and regional differences should not be too
large.

        A more serious limitation in NSO statistics is the lack of statistics on registered capital
for enterprises with less than 10 workers. This group is not included in the 1997 Industrial
Census, although it is included (1-4 workers and 5-9 workers) in the 1996 listing of industrial
establishments. This should not present a problem for establishing the maximum value of
registered capital for small enterprises (it will be shown later that the definition suggested for
small enterprises is 5 to 49 workers). For establishing a minimum value (i.e. the maximum
value of registered capital for microenterprises), it was necessary to use information from
other sources. These included a sample survey of microenterprises conducted under this
ILO/UNDP SPPD project, a number of available studies, and various reports on credit
schemes for microenterprises managed by government agencies and NGOs.

!       Ministry of Industry statistics

        The statistics of the Ministry of Industry (MOI) do not raise the same problems as
those raised by NSO statistics. The number and percentage of enterprises for each pair of
values of the criteria are provided in a single table. However, the MOI fails to provide
information on microenterprises with 1 to 5 persons engaged. The MOI statistics are
provided for up to one person engaged and then for 1-10 persons engaged. Thus,
microenterprises are not explicitly covered. Despite this limitation, the joint use of NSO and
MOI statistics should yield a reliable classification of enterprises.
iv)     Trade and services sectors

        The statistical sources used in this case are the NSO 1996 listing of industrial and
business establishments mentioned earlier, and the NSO AReport of the 1995 Business
Trade and Services Survey - Whole Kingdom@. The first source is used for statistics on the
number of persons engaged per size of establishment, and the second source for turnover
per size of establishment.

         It was not possible to locate separate statistics on turnover for each of the main
categories of enterprises (trade sector, hotels/restaurants sector and services sector),
although they may be available. Therefore, statistics on turnover are provided for the
business trade and services sector as a whole. It would seem, however, from other available
statistics, that this limitation should not significantly affect the reliability of the adopted
definition.

          As in the case of the manufacturing sector, statistics on both criteria are not provided
in the form of a cross tabulation and for the same year. This problem could affect the
reliability of the suggested classification.

       It would also be useful if statistics on registered capital could be located in order to
compare a classification based on the pair of criteria Aturnover-cum-number of persons
engaged@ to one based on Avalue of registered capital-cum-number of persons engaged@.
Such a comparison will indicate which pair of criteria yields the most reliable classification.


2.3.3   Classification of industrial establishments

i)      Tentative classification according to the number of persons engaged

         This classification is based on NSO statistics only since the MOI statistics allow us to
classify enterprises in relation to both the number of persons engaged and the value of
registered capital. The 1996 NSO listing of industrial and business establishments provides
statistics on the number and percentage of establishments for sizes ranging from one to four
persons engaged, to more than 1,000 persons engaged. These statistics are shown in Table
2 below for various manufacturing sub-sectors.

       The statistics provide guidance for a first attempt to classify enterprises. A number of
observations can be made regarding the distribution of enterprises according to size and
manufacturing sub-sectors .

!       Very small enterprises with 1-4 persons engaged are overwhelmingly represented,
comprising 74.7 per cent of all manufacturing establishments. If we add the remaining
establishments with 19 persons engaged or less, we arrive at a total percentage of 94.2 per
cent. The further addition of enterprises with 20-49 workers will increase this percentage to
97.2 per cent. This clearly shows that very small (Amicro@) to small enterprises dominate the
manufacturing sector in Thailand. This is generally the case in most countries.

!     As would be expected from the Thai industrial structure, the following traditional
manufacturing sub-sectors dominate in all sizes of enterprises (see first column of Table 2):
Textiles, garments, leather and leather goods (41.1 per cent).
Food, beverages and tobacco (15.2 per cent).
Machinery, metal products and equipment (18.1 per cent).
Wood, wood products and furniture (9.5 per cent).

These four sub-sectors make-up a total of 83.9 per cent of all manufacturing establishments.
The other manufacturing sub-sectors are generally less represented (paper, printing and
publishing sub-sector; chemicals, coal, rubber and petroleum sub-sector; non-metallic
mineral products sub-sector; basic metal industries sub-sector; and other manufacturing
industries sub-sector), with the percentage in each group ranging from 5.3 per cent to 0.8
per cent (the total for these minor sub-sectors is equal to 16.1 per cent). However, with the
exception of Aother manufacturing industries@, the smallest size enterprises (1-4 persons
engaged) is relatively less represented than the larger sizes, especially in the chemicals and
basic industries sub-sectors. This is to be expected since these manufacturing sub-sectors
require usually large plants and, therefore, use a large numbers of workers. Small
enterprises can only compete in niches of these sub-sectors which do not require heavy
investment in fixed assets.
!        A comparison of the percentage of enterprises in each manufacturing sub-sector vis-
a-vis all enterprises in a given size shows that each sub-sector is within a narrow range of
percentages for each size. There are few exceptions. The textile sub-sector is over-
represented in the smallest enterprise size (1-4 workers). This may be due to widespread
sub-contracting by large firms to these small enterprises. Enterprises with 50-99 workers are
relatively less-represented in the wood sub-sector for no obvious reason. As would be
expected, enterprises with less than 10 workers are less-represented in the
chemicals/rubber/petroleum/coal sub-sector which usually requires large investments.
Finally, the smallest size of enterprises (1-4 workers) is less represented in the machinery
and equipment sub-sector which also requires heavy investment. However, as stated earlier,
the statistics only record registered enterprises in the formal sector. It is possible that
microenterprises in the informal sector, which are involved in blacksmithing and other labour-
intensive metal-working activities, are not included in these statistics.

        In order to classify enterprises according to size (i.e. assigning a minimum and
maximum number of persons engaged for each size) using the classification method
described earlier, statistics from Table 2 have been summarized and further classified into
additional statistics. These are shown in Table 3.
  Table 2: Number and percentage of enterprises for each enterprise size

                     Total     Size of enterprises (number of persons engaged per establishment)
                     manufactu 36250       36407       36451       20-49       50-99     100-199   200-499   500-999    1,000 +
Manufacturing sub-
                     -
sector               No. (%) No. (%)       No. (%)     No. (%)     No. (%)     No. (%) No. (%)     No. (%)   No. (%)
                     ring
Total per size of              117588        21666       8897           4662    1896       1195       878         367   No. (%)
                                                                                                                            219
enterprise           157,36315
                                18502      3091        1193                       196    118          97     51         25
                     7363
 1. Food, beverages 23,827                                              554
& tobacco            (15.2)                                             (11.9)
 2. Textile,         64,637                                             1,056
garments             (41.1)                                             (22.7)
Leather & leather
goods                  15,002                                      385
 3. Wood, furniture (9.5)                                          (8.3)
& wood products         5,944                                            383
 4. Paper, printing & (3.8)                                            (8.3)
    publishing          4,733                                            578
 5. Chemicals, coal (3.0)                                             (12.4)
       rubber, &         5,205                                     247
petroleum               (3.3)                                      (5.3)
 6. Non-metallic        1,291                                             90
 mineral products     (0.8)                                            (2.0)
 7. Basic metal       28,406                                          1,135
 industries          (18.1)                                          (24.3)
 8. Machinery, Metal 8,318                                         234
    products,         (5.3)
                                                                        (5.1)
equipment
 9. Other industries
An analysis of the statistics in Table 3 shows clearly that groups of enterprises are
concentrated around a number of ranges of sizes based on the number of persons
engaged, with large gaps in percentages between two consecutive ranges. There
are four major gaps, requiring that enterprises be classified according to four
sizes: these are traditionally defined as Amicro@, Asmall@, Amedium@ and Alarge@
enterprises. However, for some sizes there are two or more options for defining the
range of persons engaged. To decide which option seems the most appropriate, it
is necessary to analyse statistics registered capital.

Category One: AMicro@ enterprises

        Enterprises with 1-4 persons engaged: With 74.7 per cent of all
establishments, this range stands on its own. The next largest percentage is 22.5
per cent for enterprises with 5-49 workers (a gap of 52.2 per cent between the two
sizes). Therefore, the range of 1-4 workers should be used for defining
microenterprises.

Category Two: ASmall@ enterprises

        Enterprises with 5-19 and 5-49 workers: These ranges represent
respectively 19.5 per cent and 22.5 per cent of all establishments. The next
highest ranges are respectively: 5.0 per cent for enterprises with 20-199 workers;
5.6 per cent for enterprises with 20 to 499 workers; 2.6 per cent for enterprises
with 50-499 workers; and 2.0 per cent for enterprises with 50-199 workers.
Therefore, the range 5-19 workers or 5-49 workers should be used for defining
small enterprises. A choice between these two ranges requires a further analysis
of statistics based on registered capital (see below).

Category Three: AMedium@ enterprises

       Enterprises with 20 or 50 workers up to 199 or 499 workers: These ranges
represent 5.0 per cent (20 - 199 workers); 5.6 per cent (20 - 499 workers); 2.0
per cent (50 - 199 workers), and 2.6 per cent (50 - 499 workers) of all
establishments respectively. The following ranges are 0.9 per cent (200 - 1,000+
workers), and 0.4 per cent (500 - 1,000+ workers) respectively. Differences
between the first set of four ranges and the second set of two ranges are not large
enough to justify the selection of one range rather than another for classifying
medium enterprises and, by implication, large enterprises. Again, the choice
requires a further analysis of statistics based on registered capital (see below).

Category Four: ALarge@ enterprises

        Enterprises with 200 workers or 500 workers and more: As indicated above,
this represents 0.9 per cent (200 - 1,000+ workers) and 0.4 per cent (500 - 1,000+
workers) respectively of all establishments. Large enterprises should be classified
according to one of these two ranges after a further analysis of registered capital.
Table 3: Percentage of enterprises grouped according to different sizes

                         Total   Size of enterprises (number of persons engaged per establishment) - Percentages
                         manufa 36250        36298       5-49       20-199    20-499       50-199      50-499 200-        500-
Manufacturing sub-       cturing                                                                                 1,000+   1,000+
sector
Total per size of        -100    74.7       19.5        22.5       5          5.6        2            2.6       1         0.4
enterprise

1. Food, beverages & 15.215. 77.777.777 18.018181       20.320.32 3.63.63.62 4.0443.0    1.31.31.31.1 1.71.71.4 0.70.70.7 0.30.30.30
        tobacco      215.2 .784.5       2.1             0.313.7   .7                                            0.5       .2
                     41.1
 2. Textile, garments,                                                        4.4        1.4          1.8
       leather &             80.1       15.3            17.5       4.0                                          0.5       0.1
leather goods        9.5                                                      10.5       3.5          4.1
 3. Wood, furniture &        49.5       39.4            45.8       9.9                                          1.1       0.5
      wood products
                     3.8                                                      26.5       10.9         14.3
 4. Paper, printing &
                             37.6       34.2            46.4       23.1                                         5.1       1.7
       publishing
                     3.0                                                      8.5        3.1          3.8
 5. Chemicals, coal
      rubber, &              59.3       31.5            36.2       7.8                                          1.3       0.6
petroleum            3.3                                                      13.8       5.7          6.8
 6. Non-metallic             58.6       26.6            33.6       12.7                                         2.0       0.9
  mineral products   0.8                                                      7.1        2.4          3.1
 7. Basic metal              66.3       30.1            34.1       6.4                                          1.2       0.5
  industries         18.1                                                     5.5        2.1          2.7
 8. Machinery, Metal         74.5       19.6            22.4       4.9                                          0.9       0.3
                     5.3                                                      4.3        1.3          1.9
products&equipment           78.0       17.4            19.8       3.7                                          0.7       0.3
 9. Other industries 83.9

10. Four major
manufacturing sub-
     sector
To summarize, it is tentatively proposed to use the following classification of
enterprises (based on NSO statistics for the number of workers per enterprise
size):

Category                      Size                          Number of persons
engaged

Category One          Microenterprises          [1 - 4]
Category Two          Small enterprises         [5 - 19] or [5 - 49]
Category Three               Medium enterprises         [20 - 199], [20 - 499], [50 -
199] or [50 - 499]
Category Four                 Large enterprises             [200 and over] or [500 and
over]

       The above classification ranges should be considered tentative ones. There
are many enterprises which may have all the characteristics of an enterprise of a
given size (e.g. micro), while the number of workers may have it classified in
another group (e.g. small or medium). This is why it has been proposed to use a
second classification criterion, namely the registered capital for enterprises in the
manufacturing sector.

ii)     Tentative classification according to registered capital based on NSO
statistics

        As stated earlier, it was necessary to use another set of statistics in order to
get a classification of enterprises on the basis of registered capital. The only
statistics, still incomplete in terms of coverage, can be found in the AReport of the
1997 Industrial Census@ (published by NSO). The Report does not cover the
whole Kingdom, and does not provide tables relating enterprise size (in terms of
the number of engaged persons) to registered capital. However, it does provide
statistics separately for these two classification criteria. Another limitation is that
statistics on enterprise size with 1-4 and 5-9 workers are not provided.

        Despite these limitations, an attempt has been made to relate the size of
enterprise to registered capital with a view to finding out whether a classification
based only on the Anumber of workers@ criterion is reliable by itself. In other
words, it is necessary to find out whether the concentration of groups of
enterprises within specific ranges of values of the Anumber of workers@ criterion
is correlated with the concentration of the same groups of enterprises within similar
ranges of the of Aregistered capital@. The results of this attempt are summarized
in Table 4 which represents the best matching between sizes according to the
Anumber of workers@, and sizes according to Aregistered capital@. The data on
which this table is based may be found in Annex C).
 Table 4: Classification of enterprises according to both the number of persons
 engaged and
 registered capital

Enterprise size        Size according to registered capital (million Baht)
                       < 1-9                 10-49                  50 and more
Size according to
number of workers
 Note: the bold percentage refers to registered capital.
10-49                75.4% - 67.2%
         The above classification is, to some extent, further justified by findings from
50-199 source which provides, for each individual enterprise, the number of
 another                                       14.9% - 21.6%
 workers and that of fixed assets. This source is located in a Web site: the Asian
 Supporting Industry Database (ASID) (www.asidnet.org). A sample of 227 Thai
200+                                                                  9.6% - 11.3%
 enterprises from various manufacturing sub-sectors was analysed. The sample is
 probably biased towards larger enterprises since micro and small enterprises are
 not yet likely to list their business on Web sites. Thus, the sample contains only 4
 per cent of enterprises with 5-19 workers and 15 per cent of enterprises with 20-49
 workers, although these sizes are predominant in the national statistics.
 Nevertheless, the analysis is still useful since it should provide the higher ranges
 of registered capital especially for the medium and large enterprises, and by
 deduction for the smaller enterprises. The analysis of the data shows that
 enterprises are represented predominantly (over 60 per cent) in two main
 categories:

 -      20 to 199 workers associated with a registered capital of 1 to 49 million
 Baht; and
 -      200 workers or more associated with a registered capital of 50 million Baht
 and more.

         Thus, the first tentative classification based on NSO statistics on registered
 capital and the number of workers is fairly close to the one based on the sample of
 227 enterprises listed in ASID.

         The only remaining unknown is the range of registered capital for small and
 microenterprises respectively. It has not been possible to locate statistics of
 registered capital for these sizes. However, a review of some studies (including a
 sample survey of micro and small enterprises carried out under this ILO/UNDP
 SPPD exercise, as well as reports on loan schemes operated by NGOs and
 government agencies) suggest that the maximum registered capital for enterprises
 with 1-4 workers should be generally below 500,000 Baht. By implication, the
 registered capital for small enterprises should range between 500,000 Baht and
 one million Baht or more, taking into consideration NSO statistics on registered
 capital.
iii)  Tentative classification of enterprises according to both the number of
persons engaged and the registered capital

        !       Classification based on NSO statistics

Taking into consideration the NSO statistics on registered capital and on the number of
persons engaged, we may now have a dual classification of enterprises based on these
two criteria considered together:

Microenterprises: 1-4 workers and up to 500,000 Baht of registered capital.

Small enterprises: 5-49 workers and between 500,000 and one million Baht of registered
capital or more. The exact upper limit will be selected after an analysis of statistics from
the Ministry of Industry (see later)

Medium enterprises: 50 to 199 workers and 1 million Baht or more, up to 49 million Baht
of registered capital.

Large enterprises: over 200 workers and more than 50 million Baht of registered capital.

This classification is based on the available NSO statistics. As stated earlier, these are
subject to several limitations which may reduce their reliability for classification purposes.

        !       Classification based on Ministry of Industry (MOI) statistics

                The MOI has a roster of more than 106,000 enterprises in the
manufacturing sector. Statistics are available separately for 17 sub-sectors, as well as for
various ranges of the number of persons engaged and of the value of registered capital.
The MOI coverage is somewhat different from that of NSO, and the number of registered
enterprises is also lower (the total number for NSO is over 157,000 enterprises).
Furthermore, the fraction of MOI enterprises in agro-processing is much higher than that
of NSO, probably because they include basic agricultural processing which is not
included in the NSO statistics for manufacturing establishments.

One limitation of the MOI statistics is that they do not cover ranges of enterprises with 1-4
or 1-5 workers and various ranges of registered capital between 1 and 10 million. These
would have helped differentiate Amicro@ from Asmall@ enterprises and the latter from
Amedium@ enterprises.

Despite this limitation, it was possible to use the statistics for a tentative classification of
enterprises with a view to comparing it to that based on NSO statistics. The methodology
used in this case was to come up with a classification, based on both the number of
people engaged and the value of registered capital, which would minimize the number of
enterprises which do not fit both criteria. The application of this methodology yielded the
following results when applied to all of the enterprises on the MOI roster in the
manufacturing sector, some 106,570.

First classification option:
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




* Micro and small enterprises: 1-49 workers and fixed assets of less than 10 million Baht
* Medium enterprises: 50-199 workers and fixed assets of 10 million to less than 100
        million Baht
* Large enterprises: 200 workers and over and fixed assets of 100 million Baht and over.

This option results in 10 per cent of enterprises which do not fit both criteria (10,650
enterprises).

Second classification option: same as the first option, but the fixed assets for medium
enterprises is reduced from 100 million Baht to 50 million Baht.

This option results in 10.34 per cent of enterprises which do not fit both criteria (11,019
enterprises).

       Since the two options are basically identical, it is proposed to adopt the second
one which is in line with that yielded by NSO statistics.

        The remaining unresolved issue is the exact classification of micro and small
enterprises in terms of both criteria. Since the MOI statistics do not provide information on
a possible range of the number of workers for microenterprises, it is proposed to use the
ranges yielded by the NSO statistics.

Number of workers: 1-4 for microenterprises, and 5-49 for small enterprises.

Registered capital: For the range of registered capital, it is proposed to use the upper limit
of 500,000 Baht for microenterprises. For small enterprises, the upper value of 10 million
Baht suggested by MOI statistics does not seem realistic (a lower value would have been
found to be more appropriate if MOI statistics were provided for ranges between 500,000
Baht and various values between 1 and 10 million Baht). It is, therefore, tentatively
proposed to use the range of 500,000 Baht to less than 8 million Baht for small
enterprises. This will make the range for medium enterprises equal to 8 million Baht to
less than 50 million Baht.

iv)      Proposed classification of enterprises in the manufacturing sector

         Taking into consideration statistics from both the NSO and MOI, as well as
information from the other sources mentioned earlier, it is now possible to propose a
classification of enterprises which best fit the Thai manufacturing sector.

!        Classification of enterprises which fit both criteria



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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



      -       Microenterprises: 1-4 persons engaged and registered capital of less than
500,000 Baht.

-        Small enterprises: 5-49 persons engaged and registered capital of 500,000 Baht
to less than 8 million Baht.

-       Medium enterprises: 50-199 persons engaged and registered capital of 8 million
Baht to less than 50 million Baht.

-       Large enterprises: over 200 persons engaged and registered capital of over 50
million Baht.

       The above classification is in line with general trends regarding the capital
investment per worker: the larger the size of an enterprise, the higher the investment. The
proposed classification confirms these trends:

-      Microenterprises: up to 125,000 Baht per worker (the mean investment is
probably lower).
-      Small enterprises: 125,000 to 160,000 Baht per worker.
-      Medium enterprises: 160,000 to 250,000 Baht per worker.
-      Large enterprises: 250,000 Baht per worker and over.

!        Classification of enterprises which do not fit both criteria

       As discussed earlier, the value of registered capital should be, in this case, the
determining factor:

Enterprises which do not fit both criteria should be classified in a category based on the
value-of-registered-capital criterion.

          The above rule is justified by the fact that differences in the characteristics of
enterprises are best explained by differences in the capital intensity of production and,
therefore, the value of registered capital. It would seem, from available statistics, that
approximately 10 per cent of Thai enterprises in the manufacturing sector do not fit both
criteria.




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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



vi)   Recommendations for improving the classification of enterprises in the
manufacturing sector

       The proposed classification is based on the available statistics. In view of the
many limitations of these statistics, it is clear that this classification can be further
improved through two sets of measures:

         Collecting additional statistics and/or further processing of available statistics by
NSO;

        Carrying out sample surveys of enterprises in major production sectors with a
view to validating or adjusting the proposed classifications.

         It is recommended that the above set of measures be implemented as follows:

       !       To assign responsibility for the classification of enterprises to an
appropriate body which will work closely with NSO. The DIP seems to be the most
appropriate body for this task since it is the main government agency responsible for the
development of enterprises, mainly in the manufacturing sector.

         !       The DIP and NSO should work together in refining the proposed
classification of enterprises. The classification methodology described in this paper could
be used for this purpose.

        !       As a first step, it may be sufficient to use non-processed statistical data
already available at NSO for the year 1997: data on the number of enterprises classified
respectively according to each of the two selected criteria (the number of workers and the
value of registered capital). NSO should then develop statistical tables showing the
number of enterprises under each pair of values of the two criteria (cross tabulation). It is
hoped that statistical data on the number of enterprises is available for the following
ranges of values of the two criteria:

Number of workers per establishment:

1-4 workers;
5-9 workers;
10-19 workers;
                             20-49 workers;
                             50-99 workers;
                             100-199 workers;
                             200-499 workers;
                             500-999 workers;

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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



                             1,000 workers and above.
                                    (Additional ranges of values could be useful.)




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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




Value of registered capital:

Less than 200,000 Baht;
200,000 to less than 500,000;
500,000 to less than 1MB;
1 MB to less than 2MB;
2 MB to less than 5 MB;
5 MB to less than 10 MB;
                      10 MB to less than 20 MB;
                      20 MB to less than 50 MB;
                      50 MB to less than100 MB;
                      100 MB to less than 200 MB;
                      200 MB to less than 500 MB;
                      500 MB to less than 1,000 MB;
                      1,000 MB and above.

If some of these ranges are not available, plans should be made to include them in future
industrial census surveys.

         !       Once the statistical data has been processed into the above tables (one
for all enterprises and one for each major manufacturing sub-sector), they may then be
used for the purpose of classifying enterprises. The objective is to select the range of
values of the two criteria for each enterprise category (micro, small, medium and large)
which will minimize the number of enterprises which do not fit the two criteria when taken
together.

          !      An important issue is the extent of the coverage of enterprises included in
NSO census surveys. It would seem that NSO statistics only cover registered enterprises
(i.e. informal sector enterprises are not included). NSO did conduct a survey of the
informal sector in 1994, but it was not part of the regular NSO census surveys. This
survey suggests that the total number of enterprises in the manufacturing sector is four to
five times larger than the number reported in the 1996 NSO census survey of industrial
establishments (157,000). Section 2 of this report will review and discuss the Thai
informal sector. It is recommended at this stage that future NSO census surveys include
all enterprises, whether registered or not, with a view to better assessing the importance
of microenterprises which are predominantly represented in the informal sector. These
surveys should also be useful in assessing the importance of the informal sector in
Thailand by including questions on whether the enterprise is registered or not.




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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



!       It is also recommended that any future adjustments of the classification of
enterprises take into consideration two other important sectors not covered by the
proposed classification - i.e. enterprises in the construction and transport sectors. These
sectors were not considered because it was not possible for the ILO mission to obtain the
required statistics

        !       Finally, it is recommended that DIP and NSO undertake, from time to time,
sample surveys of enterprises (by size, by sector, etc.) with a view to collecting more
detailed information on the characteristics of these enterprises. Such information will then
be helpful to DIP and other MSE development agencies in refining policies and support
programmes in favour of specific groups of enterprises.




        2.3.4 Classification of business establishments (trade, services and
hotels/restaurants)

         Since statistics on registered capital for business establishments are not
available, the classification criteria for these types of establishments will be the number of
persons engaged, as well as the value of sales (trading establishments), or that of gross
receipts (value of fees received for services rendered). However, this classification should
be reviewed if statistics on fixed assets can be made available from NSO. These statistics
will be especially useful for classifying trading establishments and enterprises in the
hotel/restaurants sector. On the other hand, the statistics may be less useful for
classifying enterprises in the services sector, which often uses a limited number and
value of fixed assets.

i)      Tentative classification based on the number of persons engaged
        Table 5 provides statistics on the number and percentages of establishments for
various enterprise categories (1-4 workers, up to over 1,000 workers), and for four
business sub-sectors: wholesale trade, retail trade, hotels/restaurants and services.
These statistics give rise to the following comments.

         !      The total number of business establishments (510,726) is over three
times that of manufacturing establishments (157,363). This would seem to justify that
these enterprises be accorded the same level of support as enterprises in the production
sector, in view of their high employment creation potential.

        !        The smallest enterprise size (1-4 workers) predominates with 86.5 per
cent of the total number of establishments. Thus, it may be safely stated that the business
sector is made up predominantly of microenterprises.

         !         Within the business sector, the retail trade sub-sector predominates with


32
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



50.8 per cent of all establishments. It is followed by the services sub-sector (27.8 per
cent), the hotels/restaurants sub-sector (16.1 per cent), and the wholesale trade sector
(5.3 per cent).

        Using the same classification methodology as that used for enterprises in the
production sector, it can be seen that enterprises with 1-4 workers should be classified as
microenterprises: there is a large gap, in terms of per centages, between this category of
enterprises and the following category (5-9 workers).

        Therefore, the minimum number of workers for small enterprises should be 5
workers. However, the statistics do not provide clear indications regarding the maximum
number of workers. The per centage of enterprises with 5-19 workers (11.7 per cent) is
not significantly lower than that of enterprises with 5-49 workers (12.9 per cent).
Therefore, the statistics do not provide sufficient justification for deciding whether the
range of Anumber of workers@ for small enterprises should be 5-19 or 5-49. It is also
necessary to analyse statistics based on gross receipts/sales before a decision can be
made. This will also help to determine what should be the minimum number of workers
respectively for medium and large enterprises. These statistics are provided in Table 6.
Table 6 shows that the gap in terms of receipts per establishment is very large between
enterprises with 20-99 workers or 50-99 workers, and those with over 100 workers.
Therefore, the level of 100 workers or more should be used for classifying large
enterprises.

         On the other hand, the classification of small and medium enterprises is not so
obvious. A number of options are analysed: 5-19 and 5-49 workers for small enterprises,
and 20-99 and 50-99 workers for medium enterprises. Although a gap does exist for each
of the two options, the difference between the two gaps is not large enough to justify the
selection of one option rather than the other. The receipts per establishment is 10 times
higher for medium enterprises in one case, and seven times higher in the other case. The
same applies to value-added per establishment.

        Under these circumstances, it is tentatively proposed that small enterprises be
defined as those having 5-19 workers, and medium enterprises be defined as those
having 20-99 workers. It would be useful to verify the validity of these classifications by
looking into the value of fixed assets for various sizes of enterprises, if these can be made
available by NSO.

ii)      Tentative classification based on the Avalue of receipts@

        There are no statistics on the Avalue of receipts@ for microenterprises. Using an
upper limit of 1 million Baht is suggested, taking into consideration the ranges of the
Avalues of receipts@ for the other larger categories of enterprises. Based on the statistics
in Table 6, the following ranges for Avalue of receipts@ are proposed for the other
categories of enterprises: 1 million to less than 20 million Baht for small enterprises; 20 to


33
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



less than 140 million Baht for medium enterprises; and over 140 million Baht for large
enterprises.

iii)   Proposed classification of enterprises based on both the Anumber of workers@
and the Avalue of receipts@

           The proposed classification of enterprises in the business sector is, therefore, as
follows:

        Microenterprises: 1-4 persons engaged, and value of receipts of less than 1
million Baht.

Small enterprises: 5-19 persons engaged, and value of receipts of 1 million Baht up to 20
million Baht.

Medium-sized enterprises: 20-99 persons engaged, and value of receipts of 20 million
Baht up to 140 million Baht.

Large enterprises: 100 persons engaged and above, and 140 million Baht of receipts and
above.

iv)        Recommendations for improving the classification of business establishments

        !        The NSO should produce tables providing the number of establishments
for each pair of values of the classification criteria (Anumber of persons engaged@ and
Avalue of receipts@). It is hoped that statistics are available for the Avalue of receipts@ for
establishments with 1-4 persons engaged. This would help in the classification of
microenterprises according to both criteria. If these statistics are not available, it is
recommended to collect them in future surveys.

        !      Similar tables should also be produced in relation to the two criteria for the
Anumber of persons engaged@ and Avalue of registered capital@. Comparisons between
these two sets of tables will indicate whether the proposed classification of business
establishments is appropriate.

        !      Finally, it is suggested that future surveys include both formal business
establishments and informal sector enterprises, in view of their importance in the retail
trade and services sectors.




34
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




35
   Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



  Table 5: Number and per centage of enterprises per size of enterprise


Business        Total      Number of persons engaged (size)
sub-sector      number of
                           36250       36407      36451                                   20-49   50-99   100-199   200-499   500-999   >1,000
                businesses
Total per       510726     441736      44331      15551                                   6142    1742    766       340       96        22
size
                                  Percentages
Total per
Wholesale       100               86.5               8.7               3                  1.2     0.3     0.15      0.07      0.02      ....
size
trade

Retail trade                                                                                                                            ....
Wholesale
trade
Hotels &
restaurants                                                                                                                             ....
Retail trade
Services                                                                                                                                ....
Hotels &
restaurants


                                                                                                                                        ....
Services




   36
               Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




               Source: AReport of the 1996 listing of industrial and business establishments - Whole
               Kingdom@, NSO, Bangkok, 1998

               Table 6: Value of gross receipts and value added per size of enterprise


                     Size of establishment (number of persons engaged)
                     292                20-49                       50-99             100+                  36298   5-49     20-99
ablishments        716.8          6.7            1.4             1.5             90.4          97.1                        8.1
                   3
ersons engaged       130044       113335         51103           383177          406044        519379                      164438
                   .
                   5
mployees           6113088        107702         50530           381340          309117        416819                      158232
                   -
 establishment     925145000
                   2
                   6              58194000       127437000       511651000       10107000      13498000                    69337000
                   7
                   6
 per establishment 12678000       7760000        20871000        184770000       1351000       1800000                     9851000
                   6
                   7
                   9
                   0
                   0
                   2
                   6
                   4
                   0
               Source:@Report of the 1995 business, trade and services survey - Whole Kingdom A,
                   0
                   8
                   0
               NSO, Bangkok, 1996
                   2
                   0
                   0
                   9
                   0
                   0
               3.       The informal sector


               3.1      Defining the informal sector


               3.1.1    Definitions used by the NSO


                       A number of studies on the informal sector in Thailand have been carried out over
               the past few years, notably by the ILO. These studies describe the importance of the
               sector and its main characteristics, but no clear definition is provided. In 1994, the NSO
               carried out a national survey of the informal sector in all economic spheres, including
               agriculture, manufacturing, trade and service. The same survey covers both the formal
               and informal sectors, as defined by NSO. The definition used by NSO for these two
               sectors is based on a number of qualitative characteristics of the firms, as well as on the
               number of workers. These definitions are quoted below:


               Formal sector: AIt consists of organizations which have defined management and
               administrative systems, including both government and private agencies, which employ
               at least 10 persons@.


               Informal sector: AIt consists of enterprises typically operating with a low level of

               37
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



organization on a small scale, low and uncertain wages, and no social welfare and
security@.


        The NSO definition implies that enterprises in the informal sector employ one to
nine workers. The definition does not also refer to the legal status of the enterprise
(registered versus not registered enterprises). Under these circumstances, it is not clear
whether the statistics provided clearly differentiate formal from informal sector
enterprises, using registration as a differentiating criterion.


         Nevertheless, the census survey is useful from many points of view. First, it
should include a good per centage of informal sector enterprises (i.e. those which are not
registered) in view of the sampling procedure used (the issue of registration was not
considered when building up the sample). Second, the survey provides a wealth of
statistics on the characteristics of both informal and formal sector enterprises (i.e. less
than 10 workers and more than 10 workers), in areas such as: work status, hours worked,
wages and salaries, educational level, age groups, use of family labour and migrants, etc.


3.1.2    Proposed definition for the informal sector




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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



        Considering that informal sector enterprises are made up mostly of
microenterprises of 1-4 workers, their characteristics should be similar to those of formal
microenterprises covered by NSO surveys. Therefore, what is the difference between
microenterprises in the informal sector and those in the formal sector? The answer is
clear: microenterprises in the informal sector are those which are not formally registered
with any public authority (see in Annex B for the various types of registration applied in
Thailand).

        More generally, any enterprise which is not registered with one authority or
another should be defined as an informal sector enterprise, whatever its size. Thus, it is
plausible that a certain proportion of Asmall enterprises@ are part of the informal sector.

        It is recommended that future surveys carried out by NSO include questions on
the registration of enterprises with a view to obtaining a precise estimate of the number of
informal sector enterprises.

         This information is very important for the following reasons. Microenterprises in
the informal sector face the additional constraint of not having a legal status. Thus, they
may not be able to benefit from some support programmes available for microenterprises
in the formal sector (e.g. financial services), or they may be subjected to harassment from
some local officials. If statistics show that the per centage of informal sector enterprises is
high, it will be useful to find out why this is the case through sample surveys of various
categories of informal sector enterprises. Findings from such surveys may shed light on
the reasons which induce informal sector operators to avoid joining the formal sector of
the economy. For example, the informal sector operators may perceive - rightly or
wrongly - that the costs of formalization are much higher than the potential benefits.
Knowledge of these costs and benefits could help decision-makers to adjust policies and
regulations and induce informal sector enterprises to join the formal sector of the
economy - i.e. by making the benefits of Aformalization@ higher than the costs of
remaining informal.

3.2      Size of the informal sector


        Using the NSO definition of the informal sector (i.e. enterprises with 1-9 workers),
and the 1994 NSO Survey of the Informal Sector, we can get an estimate of the number
of informal sector enterprises in Thailand, as well as the contributions of the sector to job
creation and other economic objectives. Table 7 provides selected statistics on the size of
the informal sector and on some of its contributions to the national economy. A number of
interesting findings are yielded by these statistics, especially when compared to those
yielded by other NSO surveys discussed earlier.


Altogether, over three quarters of the employed labour force is in the informal sector. This
per centage reaches 97 per cent for the agricultural sector.

39
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




The three sectors covered by this report (manufacturing, trade and services sectors) are almost equally represented in the formal and informal
sectors: 49 per cent in the formal sector, against 51 per cent in the informal sector. If we add the construction and transport sectors, the share
of the informal sector increases to 52 per cent.
Table 7: Employment in the formal and informal sectors


         % of total employed                       Formal               Informal
labour force                            sector                          sector


 Total employed                                    100%                            7,439,000    24,656,000
  labour force                                                                      (23.2%)               (76.8%)


 Agricultural sector                               56%                              3.2%          96.8%


 Manufacturing sector                                 12%                           2,232,000    1,619,000
       (58%)                            (42%)


 Services sector                                     12%                           2,481,000      1,379,000
       (64%)                            (36%)


 Trade sector                                       11.3%                           803,000               2,815,000
(22%)                         (78%)



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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



 Total for the sectors                             35.3%                           5,516,000           5,813,000
 covered by this report                                                                   (49%)                 (51%)


 Construction sector                                5.4%                             855,000             863,000
  (49%)                      (51%)

 Transport sector                                            2.7%                            286,000                    572,000
(33%)                        (67%)


 Total enterprises outside                         43.4%                           6,637,000            7,248,000
 the agricultural sector                                                                  (48%)                 (52%)



 Employment in all                                  43.4%                           20.7%                    22.7%
 enterprises as a % of the
 employed labour force


 % of women in total                                45.9%                           9.8%%                               36.1%
 employed labour force                                        (54.1%)                              (13.4%)                      (40.7%)
 (% of male)


 % of women in trade,                                  19.8%                                  20.5%                     24.4%


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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



manufacturing, transport,                           (24,3%)                                  (28.1%)   (27.1%)
construction & services
(% of male).


Source: NSO, ASurvey of the informal sector, 1994"




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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



        Employment in the non-agricultural sector accounts for 43.4 per cent of the total
employed labour force: 22.7 per cent in the informal sector against 20.7 per cent in the formal
sector.

 A comparison between statistics on the informal sector and those on formal sector enterprises
with 1-9 workers relating to the sectors covered by this report (manufacturing, services and
trade) shows that the employment level in the informal sector (5,813,000) is approximately 3.5
times that in the formal sector (1,600,000). This number is based on the 1997 NSO statistics
on industrial and business establishments. It was arrived at by using an average number of 2
and 7 workers per enterprise respectively for enterprises with 1-4 workers and enterprises with
5-9 workers. On the other hand, the 1994 informal sector survey indicates that employment in
the informal sector is approximately equal to that in the formal sector for the same coverage of
enterprises (5,813,000 against 5,516,000 employed persons). This raises the issue about
whether the 1994 and 1997 NSO surveys are compatible.


 The informal sector=s contribution to employment is much more important in the trade sector
(78 per cent of all enterprises) than in the manufacturing sector (42 per cent) and the services
sector (36 per cent). This is the case in most countries in view of the large number of street
vendors.

The total proportion of women employed is 45.9 per cent against 54.1 per cent for men. This
clearly shows that in Thailand women are active participants in the economy. However, they
are relatively more represented in the informal sector (36.1 per cent compared to 40.7 per cent
for men) than in the formal sector (9.8 per cent against 13.4 per cent). The sex difference
between the composition of the formal and informal sectors increases for enterprises in the
non-agricultural sector: 20.5 per cent of women against 28.1 per cent of men in the formal
sector (difference of 7.1 per cent), and 24.4 per cent women against 27.1 per cent for men in
the informal sector (difference of 2.7 per cent).


Taken together, the NSO statistics clearly show that the informal sector is important both in
terms of the number of enterprises as well as its contributions to employment, with a 51 per
cent contribution to employment in the manufacturing, trade and services sectors. These
contributions make a strong case for greater support to be provided to this sector with a view to
further increasing its contributions to employment and improving its overall productivity and
competitiveness.


3.3      Characteristics of the informal sector


        A number of sample surveys of the informal sector, particularly in Bangkok, have shed
some light on the characteristics of the informal sector. The most extensive sample survey was
one conducted in some parts of Bangkok by the ILO in 19931, based on an earlier sample
survey in 1988. Another ILO report on the informal sector was published in 1995
1. This report summarizes the findings and recommendations of a workshop on the informal

43
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



sector held in Bangkok on December 1994. The main findings from the sample survey and
report are discussed below.


3.3.1    Findings from the sample survey


        The sample survey covered a total of 300 enterprises: 131 with 1-4 workers and 169
with 5-20 workers. This latter group does not belong to the informal sector, but has been
included in order to find out whether the enterprises in this group started as informal sector
enterprises. This method allows for the study of the growth dynamics of the informal sector.
The sample covers six production sectors and a service sector: garment making, metal-
working, artificial flower making, jewellery making, electric and electronic assembly and repair,
and motor vehicle and cycle repair.


        Contrary to expectations, competition is of little intensity in most sectors where a large
variety of products and services are offered. Differences are important between the micro sized
firms and the larger ones in terms of the sophistication of the produced goods. Competition is
most intense in the garment, jewellery and artificial flowers groups which are dominated by
sub-contracting activities.


        The survey also shows that the clientele is not made up, as might be expected, of
mostly low income groups. A significant proportion of the goods are sold to medium income
groups and tourists, or are exported. However, the sources of demand for the goods of the
larger enterprises are somewhat more diversified than those of the microenterprises. Direct
sales to consumers account for 58 per cent of the goods produced by these enterprises,
against only 31 per cent for the larger ones. The entrepreneurs in the survey (including the
owners of microenterprises) are very quality conscious: quality, rather than price, is considered
the most important factor for 48 per cent of the small enterprises, and 39 per cent of the
informal sector enterprises.


                 The survey also yielded interesting information on the use of capital by micro and small
        firms. Investments in tools and equipment do not exceed, on average, 5,000 Baht for 84 per
        cent of informal sector microenterprises. While only 16 per cent of these enterprises reported
        investments larger than 50,000 Baht, this per centage increases to 40 per cent for the small
        formal enterprises. However, these overall seemingly low investment levels by
        microenterprises are mostly due to the presence of enterprises in the garment and flower
        making sectors. The average value of tools and equipment is generally higher in the other
        sectors (e.g. 164,000 Baht for metal-working in the informal sector, and 1,176,000 Baht for
        electric/electronic assembly and repair in the formal small enterprise sector). Thus, contrary to


1 ILO & Ministry of Labour and Social Welfare: AStrategic approaches toward employment
promotion-Enabling policy framework for urban informal sector, Thailand@, ILO, September
1995


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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



common wisdom, the argument of easy entry into the informal sector is not supported by facts
for a number of production sectors. Furthermore, graduation from an informal microenterprise
to a small formal enterprise does require substantial additional investment: from 2 to 14 times
the investment required to establish a microenterprise, depending on the sector under
consideration.


        The sample survey also provides interesting information on the respective contributions
of informal and formal sector enterprises to employment. The total sample of 300 enterprises
created 2,060 jobs: 396 jobs created by the informal sector microenterprises (or an average of
3 jobs per enterprise), against 1,661 jobs by the formal small enterprises (or an average of
approximately 10 jobs per enterprise). From the total figure, 1,474 jobs are comprised of hired
workers (approximately 75 per cent of all jobs), while the rest is made up of family members
(25 per cent). The proportion of family members is much higher for micro than small
enterprises - 40 per cent for microenterprises against 12 per cent for small enterprises.


        The sample survey yields interesting findings on the growth dynamics of informal
sector microenterprises and small formal enterprises respectively. First, in terms of
employment it can be shown that small enterprises have created most new jobs during the year
preceding the survey: net expansion of employment (450 jobs) by small enterprises against a
net loss (a loss of 5 jobs) by microenterprises. This is indicative of the well-known high birth
and mortality rates of microenterprises in the informal sector.


         Second, the data shows that in most cases the formal small enterprises in the sample
started as formal enterprises rather than graduating from the informal sector. It was mainly the
relatively larger informal sector enterprises which graduated into formal small enterprises. This
finding is in line with those of other studies which show that the graduation rate is fairly low,
usually less than 5 per cent. However, it is significant in terms of its impact on employment and
growth, since small enterprises create many times more jobs and wealth than micro, informal
sector enterprises.


        Third, in addition to employment, the findings from the sample survey show that the
small formal enterprises also performed better than the informal microenterprises, particularly
with respect to marketing strategies, product development and technological change.


3.3.2    Findings from the report of the December 1994 workshop


         The findings from the 1994 workshop may be summarized as follows.

        !          Informal sector enterprises are found in most production, trade and services
sectors.


         !         They face the following major constraints:


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     Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




     -      They are not registered because many informal sector operators do not live in fixed
     premises. The lack of registration prevents them from benefiting from many support
     programmes initiated by the government in favour of micro and small enterprises (e.g. financial
     assistance and training programmes).


            -        They face restrictions in operating their business. They are not allowed to set
     up shop in some areas of the city, are fined in some cases, or must pay a parking fees. Many
     informal sector operators complain of harassment by local officials.


            -       They are looked down on by society, especially those informal sector operators
     involved in garbage collection or recycling.


            -           Those involved in subcontracting complain of unfair treatment by the
     contractors.


             -         Those forced to rely on money-lenders must pay very high interest rates,
     leaving little for their daily expenses.

            -      Working conditions are usually poor. Health hazards, long working hours,
     unstable income and fierce competition are often the norm.

             !       Some specific contributions of the informal sector in Bangkok are of particular
     use and benefit to the local population. Some examples are provided in the report. Vendors as
     a group contribute 1,800 million Baht to the city economy. More than 7,500 middle-income
     employees from the public and private sectors are serviced every day by street vendors
     through the sale of cheap food and other consumer goods. The garbage collectors in Bangkok
     collect 1,000 tons of garbage daily, saving up to 112 million Baht of tax payers= money.


              !       The government recognizes the importance of the informal sector and its
     contributions to the urban economy. A number of government agencies and NGOs have
     initiated programmes in favour of this sector. However, the impact of these programmes is still
     limited. Much larger interventions are needed in the form of financial assistance, training and
     the offer of a wide range of business services. Recommendations for promoting associations of
     the informal sector were made by many of participants in the workshop.


     3.4    Recommendations for improving the potential socio-economic contributions of the
     informal sector


      Findings from the NSO statistics and the two studies on the informal sector in Thailand
may be summarized as follows.


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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




        !       Although there is no clear definition of the informal sector, its importance in
terms of the number of establishments (over 90 per cent of all establishments) and
contributions to employment (52 per cent for enterprises in the manufacturing, trade, services,
construction and transport sectors) is significant and justifies special support to this sector.


        !       Contrary to the formal small enterprise sector (defined, according to the
reviewed sample survey, as enterprises with 5-20 workers), the informal sector is characterized
by a lack of dynamism. This may be explained by high birth and mortality rates which prevent it
from achieving its full job creation potential. By comparison, most new jobs seem to be created
by the formal small enterprise sector.

         !         Women are relatively more numerous in the informal sector than men.


        !       Informal sector enterprises face more severe constraints than formal sector
enterprises, including difficulties in availing of government incentives and support
programmes. These constraints are partly the result of their informal status.


        !       Despite these constraints, informal sector enterprises play a very useful role in
offering services, perhaps not available from formal sector enterprises, to lower and middle
income groups. They also play an important role in subcontracting activities which helps to
increase the overall competitiveness of Thai enterprises involved in exports.

        !       The graduation of informal sector enterprises into formal small enterprises is
very limited. Most small enterprises start as formal rather than informal enterprises.

         These findings lead to the following recommendations.


        i)      The informal sector plays an important role for millions of people outside the
formal labour force. It will probably continue to play this role for many years to come. Although,
it may not be considered as the main engine of growth, it should benefit from special support
which would help decrease the mortality rate of enterprises in this sector, improve the revenues
of informal sector operators, and increase the number of employed persons per enterprise.
Even a modest increase in the number of persons engaged per enterprise (e.g. from 2 to 3
persons) could create hundreds of thousands of new jobs.


          ii)     There is an urgent need to adopt a clear definition of the informal sector. It is
recommended to use a legal definition rather than one based on the characteristics of informal
sector enterprises, such as the number of workers. Definitions based on characteristics should
apply to all enterprises, both formal and informal, as proposed in the first section of this report.
It is clear that most informal sector enterprises will have the characteristics of microenterprises,
as defined earlier (1-4 workers and a registered capital of up to 500,000 Baht). The

45
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



recommended definition is provided below:


AAn informal sector enterprise is one which is not registered with any official authority,
whatever its size.@


       iii)     It is recommended that a new survey of the informal sector be undertaken,
based on the above definition. This survey would help in identifying the main characteristics
and constraints of the informal sector and will, therefore, provide decision-makers with the
information they need for designing effective policies and support programmes in favour of the
informal sector. The ILO has developed a methodology for sample and census surveys of the
informal sector which could be made available to NSO for future surveys, along with training
material on how to carry out these surveys. The methodology and training materials have been
successfully tested in a large number of countries.


         iv)      Very few enterprises will graduate into small formal enterprises. However,
support policies which will increase the graduation rate (even by 1 per cent to 2 per cent) will
have a significant impact in view of the large initial numbers of informal sector enterprises.
Taking into consideration the current structure of the production and business sectors in
Thailand, where small enterprises represent approximately 10 per cent of all enterprises, a
graduation rate of 1 per cent would increase the number of small enterprises by 10 per cent.
Methodologies for identifying growth-oriented microenterprises and for helping them achieve
their full potential should be elaborated (e.g. by DIP, with ILO assistance if needed) and
applied.

         v)      Informal sector enterprises will remain informal as long as the benefits of
formalization do not outweigh the costs (in financial and other terms). As Thailand strives to
join the industrialized economies, it is important to gradually increase the size of the formal
sector (defined as being made up of registered enterprises which apply basic labour standards
and contribute to the government budget through the payment of taxes). A number of steps can
be initiated to gradually achieve this objective. These are briefly described below.


!     To launch a national campaign to induce informal sector enterprises to register. This
campaign should emphasize the benefits of registration.

!       To simplify and facilitate the registration process. It should be possible for informal
sector operators to register at an office close to his/her business at a nominal cost and with
minimal paper work.

!      To apply a flat business tax to registered microenterprises at a rate low enough to
induce informal sector enterprises to register.
!      To train the owners of both registered and informal sector enterprises in improving
working conditions and in applying basic safety and health measures. They should be shown


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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



that the benefits derived from such improvements will often outweigh costs. The ILO has
developed a methodology and training materials for this purpose. These could be made
available to agencies involved in training and small enterprise development, such as DIP and
the Ministry of Labour and Social Welfare.

!       Informal sector enterprises should be encouraged to form associations which can offer
effective assistance and services to their members. These associations may also play an
important role in inducing and helping their members to join the formal economy. There are
currently very few such associations in Thailand. It is suggested that a study be carried out to
understand why this is the case. The ILO has developed various approaches for promoting
associations of informal sector operators. These may be made available to the concerned
government agencies, such as the DIP.


4.       Socio-economic contributions of micro and small enterprises


        The previous section provided information on the contributions of mainly informal
sector enterprises to employment, and compared these contributions to those of the other more
formal enterprises. This section will provide information on the further contributions of micro
and small enterprises (MSEs) to other economic development objectives, such as gross
output, gross receipts, value-added and foreign exchange earnings. The information is
provided separately for business establishments (trade, services and hotels/restaurants) and
industrial establishments.


4.1      Business establishments


        Table 8 provides NSO statistics on gross receipts and value added for various sizes of
business establishments, including gross receipts and value added per establishment and per
person engaged respectively. Unfortunately, statistics are not provided for microenterprises
with 1-4 workers. It was, therefore, necessary to make an educated estimate of the gross
receipts and value added per establishment for this group, by extrapolating values from the
larger size establishments. A conservative estimate for gross receipts was adopted: 1,000,000
Baht per establishment, as compared to 6,672,670 Baht for the next larger size establishments
with 5-9 persons engaged. The estimate for value added has been set at 250,000 Baht.

         These statistics yield the following findings, taking into consideration the proposed
definition of MSEs in the business sector as enterprises with 1-19 persons engaged.


58.9 per cent of the total value of gross receipts, calculated at 1,627,394.5 million Baht, is
generated by MSEs, and the rest (41.1 per cent) by medium and large enterprises.


47.5 per cent of the total value added, calculated at 381,461.5 million Baht, is generated by
MSEs, and the rest (52.5 per cent) by medium and large enterprises.


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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




While the gross receipts and the value added per establishment for medium and large
enterprise taken as a single group (20 to 100 and above persons engaged) are, as would be
expected, approximately 60 to 100 times larger than in the case of MSEs, the differences in
terms of gross receipts and value added per person engaged are much more narrower
(approximately 0.5 times for gross receipts and 2.5 times for value added).


        Statistics on the contributions of MSEs in the business sector to foreign exchange
earnings are not available. These earnings are mostly related to the tourism sector, including
small hotels and guest houses, small tourist operators, restaurants, entertainment industry,
enterprises involved in transport, etc. While statistics on these contributions are not available
separately for MSEs, it is considered that they are significant.




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 Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




 Table 8: Contributions to gross receipts and value added by MSEs in the business sector


                        Size of establishment (number of persons)
                        36250                36407               36451                  20-49   50-99   100+   36178    20-100+
Number of               455600               40554               9263                   3719    749     843    505407   5311
establishments

 Source: AReport of the 1995 business, trade and services survey- Whole Kingdom@, NSO, Bangkok, 1996.
Number of
people engaged


Receipts per
establishment


Receipt per
person


Value-added per
establishment


Value-added per
person


 49
Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




4.2      Industrial establishments

       The 1997 NSO Industrial Census statistics on gross output and value added are
not available for the whole Kingdom and for enterprises with less than 10 workers. It
was, therefore, necessary to use estimates of gross output and value added based on
extrapolations from the larger sizes. The following findings, therefore, apply to the whole
country (with the exception of the Northeastern region), and are partly based on
estimates for enterprises with less than 10 workers. However, they should apply for the
whole country. Comparisons are made between the contributions of MSEs (1-49
workers, according to the proposed definition) and the medium and large enterprises,
considered as a single group.

4.2.1    Gross output

       Gross output generated by all manufacturing establishments (excluding those in the
Northeastern region) is estimated at 3,469,217 million Baht, with 210,889 million Baht
generated by the MSE sector. Thus, the contribution of this sector to gross output is
approximately 6 per cent, with medium and large enterprises accounting for 94 per cent.


        As is to be expected, gross output per establishment varies widely between different
sizes of enterprises and between regions: from 600,000 Baht per establishment for
microenterprises with 1-4 workers, to between 2 and 4 billion Baht for the largest enterprises
(1,000 workers and more). On the other hand, differences in terms of gross output per person
engaged are much narrower, ranging from 300,000 Baht for microenterprises to between 1 to 2
million Baht for the largest enterprises.


         It may also be noted that gross output per person engaged for MSEs with 10-49
workers is approximately 60 per cent of gross output of medium enterprises and 40 per cent of
that of large enterprises.


4.2.2    Value added

        Value added generated by all manufacturing establishments (excluding those in the
Northeastern region) is estimated at 993,935 million Baht, with 81,264 million Baht generated
by the MSE sector. Thus, the contribution of this sector to value added is approximately 8.2 per
cent, with medium and large enterprises accounting for 91.7 per cent.


        Value added per establishment also varies widely between different sizes of enterprises
and between regions: from 120,000 Baht for microenterprises (1-4 workers), to between 300
million and 1.5 billion Baht for the largest enterprises. On the other hand, differences in terms

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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



of value added per person engaged are much narrower, ranging from 60,000 Baht for
microenterprises to between 250,000 and 700,000 Baht per person engaged for the larger
enterprises.

       Differences in value added per person between MSEs with 10-49 workers and
medium/large enterprises are much less pronounced than in the case of gross output per
person engaged. In a few cases, the average value added for MSEs is higher than that for
medium enterprises.



4.2.3    Foreign exchange earnings

         It was not possible to find separate statistics on the contributions of MSEs to foreign
exchange earnings, particularly in terms of exports and import substitution. This is mostly due
to the fact that most exports are made by medium and large firms which subcontract MSEs
(e.g. in garment making, assembly of electrical and electronic components, food processing).
Thus, exports are mostly attributed to the large firms despite the substantial inputs by MSEs.
Similarly, it is very difficult to estimate the value of import substitution attributed to MSEs.
Although statistics are not available for a precise estimate of the contributions of MSEs to
foreign exchange earnings, they are probably substantial.


4.3      Overall assessment of the contributions of MSEs

         The section on the informal sector has shown that MSEs, including enterprises in the
informal sector, generate over 40 per cent of all jobs (over 75 per cent if the agricultural sector
is included).This section shows that, while the contributions to gross output and value added
by MSEs in the manufacturing sector are relatively modest (respectively 6 per cent and 8.2 per
cent), they are substantial in the business sector: 58.9 per cent for gross receipts and 47.5 per
cent for value added.


        If the industrial and business sectors are analysed together, it can be shown that the
MSEs contribution to value added is, at 20 per cent, far from being negligible. It may also be
noted that these estimated contributions may be lower than their true values since they
probably do not take full account of non-registered enterprises, and a proportion of the MSEs=
output related to subcontracting could have been recorded in the statistics as output by
medium and large enterprises.


         Thus, contrary to current thinking, support to the MSE sector in Thailand is not only
justified for its important contributions to employment, but also for the achievement of other
important economic objectives, such as the increase in GNP and value added.
         The contributions of the MSE sector to value added per person engaged also prompts
the following remarks. Value added is partly a proxy for productivity - i.e. an increase in in value


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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



added per worker is the result of a higher productivity brought about by the use of improved
technology, larger investment in equipment and other production facilities, an improved
organization of production, etc. The statistics at hand show that value added per worker, in the
case of MSEs in the manufacturing sector, is much lower than that of the medium and large
enterprises. Therefore, support to the MSE sector aiming at increasing its productivity will
have a significant impact on GNP while helping Thai industries face the challenge of global
competition.
Annex I: Enterprise classification criteria used in Thailand


       This paper has been prepared by SASIN in the context of its research programme on
small and medium sized enterprises. It is a first draft. It is reproduced in this Annex with some
minor editing. (We hereby acknowledge this contribution from SASIN.)


Definitions of SMEs in the Thai context

         The acronym "SMIs@ (Small and Medium Industries) refers to the manufacturing sector
only, while the acronym ASMEs@ (Small and Medium Enterprises) covers the manufacturing
sector as well as the wholesale, retail and services sectors. However, there is no single
definition of SMEs in Thailand. Thus, different criteria have been used for classifying
enterprises, depending on the context and the needs of the agencies involved.


       Generally, four criteria are used for classifying SMEs: sales per annum, net fixed
assets, number of employees and registered capital. The following classifications have been
used by various agencies in the past.


        Small Private Industry Office, Department of Industry Promotion: SMEs must have a
registered capital or net fixed assets of less than 5 million Baht.


        Manual for Investor of DIP classifies SMEs as having less than 50 employees or a
registered capital or fixed assets below 2 million Baht.


       Dr. Sang Sanguanrueng's research and his colleagues, in " Small and Medium
Enterprises in Thailand (1979)" define SMEs as enterprises with 10 to 49 employees.

     Bureau of Industry Services, Department of Industry Promotion, defines SMEs as a
modem enterprise managed by the entrepreneurs only.

       Over the last decade, the definition of SMEs was related to that of supporting industries
which are a major partner of the large industry. Two classification criteria are used: size of fixed
assets and number of employees. Table A1 describes the definitions used by various Thai
organizations and agencies.


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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



Table A1: Classification of enterprises according to both the value of
fixed assets and the number of employees criteria**


                              Organization               Medium size                            Small size
                                                         Assets (million            Number of   Assets (million   Number of
                              The Small                  Baht)                      employees   Baht)             employees
                                               -                                    -           Fixed Assets:     N/A
                              Industry Finance                                                  below 50
                              The Small        -                                    -           Fixed Assets:     N/A
                              Corporation
                              Industry Credit Fixed Assets:
                              The Department              50-200            below 50
                                                                           Fixed Assets:   Below 50
                              (SIFC)
                      Guarantee
                      of Industrial
                      Corporation        20-100
                      The Federation Fixed Assets:        50-200            below 20
                                                                           Fixed Asset:    Below 50
                      Promotion (DIP) 20-100
                      of Thai
                      (SICGC)                                               below 20
                      The Industrial    *Fixed Assets: N/A                 Fixed Assets:   N/A
                      Industries (FTP
                      Finance
                      Japan
                      )                 -100-500          -                 below 100
                                                                           Fixed Assets:   Below 49
                      Corporation
                      International
                      The Bank of       Fixed Assets:     N/A               below 10
                                                                           Fixed Assets:   N/A
                      of Thailand
                      Cooperation
                      Thailand (BOT) below 500*
                      (IFCT) (JICA)                                        below 50
                      Agency
* For loans from IFTC
** The period during which definition was applied is not known
Sources: Department of Industrial Promotion, Ministry of Industry; Industry Finance Corporation of Thailand (IFCT)



Table A2: Criteria for classifying SMEs in foreign economies


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Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions




Country                                      Sector                                          Criteria       Assets (million   Number of
Japan                                        - Manufacturing and mining                      - Investment   Baht)
                                                                                                            30                employees
                                                                                                                              <300
Chinese Taipei                  - Manufacturing                                  54          funds
                                                                                                 <200
                                                                                             - Investment
(Taiwan) of Korea               - Wholesale retail &
                                - Wholesale,                    funds                            <100
                                                                                                 <50
Republic                        - Manufacturing                 - Number of      -               <300
                                - Retail
                                services                        - Annual sales
                                                                employees                        <50
Singapore                       - Wholesale, retail &
                                - Manufacturing                 - Fixed assets   330330          <20
                                                                                                 N/A
                                - Services
                                services                                                         <50
The Philippines                 - Services
                                - Manufacturing                 - Fixed assets   54              <200
                                                                                                 <200
Malaysia                        - Wholesale & retail -
                                - Manufacturing                 - Annual sales 238               <150
                                Services
USA                             - Manufacturing                 - Annual sales 185               <500
Canada                          - Wholesale & retail -
                                Small size                      - Annual sales <127              <50
                                Services
                                - Manufacturing
Indonesia                       - Manufacturing                 - Fixed assets   <1.060          N/A
Australia                       - Non -manufacturing&
                                - Wholesale, retail
                                Small size                                       127-511
                                                                - Annual sales <5.030
                                                                N/A                              <100
                                                                                                 N/A
                                services
                                Medium size
                                - Manufacturing                 - Annual sales <100
Hong Kong - Special             - Manufacturing                 N/A              N/A             <100
               Region           - Manufacturing
                                - Services                                                       50-499
AdministrativeDepartment of Industrial - manufacturing of Industry : Document for<20Conference "The APEC Congress on
       Source:                  - Non Promotion, Ministry                         the            <50
                                       -manufacturing
                                - NonShangri-La Hotel, July 30-31, 1997
                                Medium size
Entrepreneurship in the 21st Century",                                                           100-499
                                             - Manufacturing                                                100-499
                                             - Services                                                     20-499




54
 Working Paper 6:   Micro and small enterprises in Thailand - Definitions and contributions



 In foreign countries, such as Japan, Chinese Taipei (Taiwan), the Philippines, the Republic of
 Korea and USA, separate definitions are used for manufacturing, wholesale and retail trade,
 and services. In addition, other relevant indicators are used to classify enterprises, such as
 initial funds, fixed assets, or sales. However, most of them use the number of employees as a
 classification criterion. The definitions used by these countries are shown in Table A2.


         Over the past few years, structural changes have led to significant new developments
 in the use of technology by the manufacturing sector. The higher cost and scarcity of labour
 forced entrepreneurs to use more sophisticated and equipment-intensive technologies which
 required higher capital investment. Moreover, the price of land and equipment has increased
 as a result of a higher demand brought about by the previous fast growth of the economy,
 especially the price of land which escalated far beyond its real value. Therefore, it became
 necessary to review the definition of various sizes of enterprises which will reflect these
 changes.


          On December 8, 1998, an unofficial meeting was organized by the Ministry of Industry
 for the purpose of reviewing the definition of enterprises. Participants in this meeting included
 the Ministry of Finance, Ministry of Commerce, Bank of Thailand, Federation of Thai Industries,
 IFCT, SIFC, SICGC, Government Saving Bank, EXIM Bank, Bank for Agricultural and
 Cooperative and the Thai Chamber of Commerce. The outcome of the meeting, in which a
 number of experts participated, is a classification of enterprises based on the value of fixed
 assets. This classification is shown in Table A3 for enterprises in the manufacturing, services,
 wholesale trade and retail trade sectors.

 Table A3: Current classification of SMEs in Thailand (1998-99)


Sector                                  Medium-sized enterprises                     Small-sized enterprises
Manufacturing                           Less than 200 million Baht                   Less than 50 million Baht
Services                                Less than 200 million Baht                   Less than 50 million Baht
Wholesale trade                         Less than 100 million Baht                   Less than 50 million Baht
Retail trade                            Less than 60 million Baht                    Less than 30 million Baht


 Source: Ministry of Industry
 Remarks: Land price is included in fixed assets.


         In December 22, 1998, the Cabinet approved the above definition of SMEs which uses
 the net fixed asset as the only classification criterion.


         The definition of SMEs is of particular importance for entrepreneurs wishing to avail of
 current government incentives which may apply to their business. The definition is also useful

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for government agencies for a precise targeting of policies and support programmes and for
collecting statistics on SMEs.


Annex II
Business registration in Thailand


Note: This Annex reproduces with acknowledgement a paper from a DIP Website on
investment in Thailand (http://www.dip.go.th/dip97/investment/einv2bty.htm)


        Businesses with one single investor and owner, meeting the descriptions under the
Commercial Registration Act (1956), must be registered. The owner must apply for commercial
registration within 30 days from the date of commencing operation.


Registration

         Types of businesses requiring commercial registration :


Rice mills and sawmills using machinery in operation.
Sale of goods of one or more kinds with daily incomes of 20 Baht or more on each day or with
goods in stock worth 500 Baht or more.
Brokerage or commission agency dealing with one or many kinds of goods in any manner and
the total value of goods on each day is 20 Baht or more.
Handicraft or industry of any type with total sale of products of 20 Baht or more on each day
and products worth 500 Baht or more.
Marine transportation, shipping by steamship or public motor boat, train transportation, rail
transportation, coach/bus transportation.
Auction, real estate business, money lending, foreign currency trading, purchase/sale of
promissory notes, bill of exchange trading.
Pawnshops.
Hotel businesses.


Deadline for commercial registration & fee


        The business operator must apply for commercial registration within 30 days from the
date of commencing business. The registration fee is 50 Baht. Non-compliance is an offence
which carries a fine of up to 2,000 Baht and an additional fine of 100 Baht per day until
commercial registration is effected.


Types of business exempt from commercial registration



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Peddling and street vending.
Religious or charitable organizations.
Business activities of corporations established by an act or royal decree.
Business activities of ministries and departments.
Business activities of foundations, associations, and corporate business activities of locally
registered ordinary corporate partnerships, limited partnerships and limited companies.
Farmer groups registered pursuant to the Revolutionary Council's Announcement No.141.

Partnerships
4.1      Ordinary partnerships

        An ordinary partnership is one formed by two or more persons. The investors in such
partnership are called "partners with unlimited liabilities". Such partners are jointly and
unlimitedly liable to all the obligations of the partnership. An ordinary partnership may choose
to effect or not to effect corporate registration under the Civil and Commercial Code.


4.2      Corporate ordinary partnerships


        A corporate ordinary partnership is one formed by two or more persons. The investors
in such partnerships are called "partners with unlimited liabilities." Such partners are jointly
and unlimitedly liable to all the obligations of the partnership. An ordinary partnership must
effect corporate registration pursuant to the Civil and Commercial Code.


4.3      Limited partnerships


        A limited partnership is one formed by two or more persons. There are two groups of
investors, namely the investors with unlimited liabilities and the investors with limited liabilities.
The first group of partners are jointly and unlimitedly liable to all the obligations of the
partnership. The second group of partners are jointly liable to the obligations of the partnership
only up to the amount of their respective investment. A limited partnership must effect corporate
registration pursuant to the Civil and Commercial Code.


4.4      Registration of partnerships/limited partnerships


Apply for permission to use partnership name.
Request for search of records to ensure that the name intended to use does not coincide with
any existing trade name.
Enter relevant details such as the name of partnership; addresses, ages, nationalities,
investments and signatures of all partners; names of managing partners and their limitation of
power (if any).


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The application form shall be affixed with the partnership and handed in by the managing
partner. Usually, the managing partner has to sign the application form in the
presence of the Partnership & Company Registrar, but he may sign the form in the presence of
an ordinary or extraordinary member of the Thai Bar Association. Alternatively, an attorney
may be appointed to effect the registration on behalf of the
partnership.
The fee shall be based on the number of partners. For 3 partners, the fee is 1,000 Baht. The
fee for each additional partner is 200 Baht. After registration, a certificate will be issued.




Companies


5.1      Limited companies

        A limited company is one formed by seven or more persons. The investors in such
business are called "shareholders." The liabilities of the shareholders are limited to the amount
of the shares respectively held by them. A limited company must effect corporate registration
pursuant to the Civil and Commercial Code.


5.2      Public limited companies

        A public limited company is one formed by seven or more persons. The investors in
such business are called "shareholders." The liabilities of the shareholders are limited to the
amount of the shares respectively held by them. A public limited company is similar to a limited
company. They differ in the following: a public limited company may make invitation to
subscribe for shares to the public; it has more stringent articles of association; and it has to
effect corporate registration pursuant to the Public Limited Companies Act (1992).


5.3      Registration of limited companies


Apply for permission to use company name.
Request for search or records to ensure that the name intended to use does not coincide with
the name of any existing trade name.
Make a memorandum of association.
Enter in the application for the name of the company, address of principal office, nature of
business, capital to be registered, number of shares, par value; names, addresses, ages,
occupations, number of shares subscribed by promoters (each of which is to subscribe at least
one share), signatures of all promoters. An application for registration of memorandum of
association (with 200 Baht stamp duty) shall be submitted by any promoter or his attorney.
The fee for registration of memorandum of association shall be based on the capital, that is, for

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each 100,000 Baht of capital the fee shall be 50 Baht. The minimum fee shall be 500 Baht and
the maximum fee shall be 25,000 Baht.
After registration of memorandum of association, company registration may be effected. The
promoters must invite the share subscribers to attend a statutory meeting. The directors
appointed by the statutory meeting shall collect the money from the share subscribers for the
shares. First collection shall be at least twenty five per cent.
The director with authorized signature shall apply for company registration within 30 days from
the date of statutory meeting. The registration fee shall be based on the capital, that is, for each
100,000 Baht of capital the fee shall be 500 Baht. The minimum fee shall be 5,000 Baht and
the maximum fee shall be 250,000 Baht.
Usually, the promoter or authorized director has to sign the applications for registration of
memorandum of association and company registration in the presence of the registrar, but they
may also sign such applications in the presence of an ordinary or extraordinary member of the
Thai Bar Association.


5.4      Registration of limited public companies


         The status of limited public company can be acquired by 3 different methods.

5.4.1    Registration of newly established public limited company


Apply for permission to use company name; request for search of records to ensure that the
Thai and foreign names intended to use does not coincide with any existing trade name.


Make a memorandum of association. Enter in the application for registration of memorandum of
association the company names in Thai and in foreign language (Thai name must begins with
the word "Company" and ends with the words "Limited (Public)." Foreign name must end with
the words "Public Company Limited,"), nature of business, capital to be registered, value of
shares, numbers of ordinary shares and preferred shares, address of principal office; names,
dates of birth, nationalities and addresses of promoters, number of shares subscribed by each
promoter (the value of shares subscribed by all promoters must be at least five per cent of
registered capital) and signatures of all promoters.


Application for registration of memorandum of association may be made by any promoter or his
attorney. The registration fee shall be based on the registered capital. The fee shall be 1,000
Baht for every one million baht of registered capital - the fraction of a million baht shall be
rounded up to one million baht. The fee shall not exceed 25,000 Baht.

After registration of memorandum of association, registration of public limited company may be
effected. All the shares may be subscribed by promoters. The public may also be invited to
subscribe shares. Within two months from the date of complete subscription of shares, the
promoters are to call for a statutory meeting. The directors appointed at the meeting shall

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collect full payments from subscribers. Within three months from the date of statutory meeting,
application for public limited company registration shall be made. The registration fee shall be
based on the registered capital. The fee shall be 1,000 baht for every one million baht of
registered capital - the fraction of a million baht shall be rounded up to one million baht. The fee
shall not exceed 250,000 baht.


The promoter and authorized director shall sign the applications for registration of
memorandum of association and registration of company in the presence of the Limited Public
Companies Registrar, attorney at law or auditor registered with the registrar.


5.4.2    Turning a limited company into a public limited company


        A limited company wishing to turn public must hold a shareholders meeting to pass a
special resolution in favour of turning public. Then, its memorandum of association and articles
of association must be amended in line with the Public Company Limited Act of 1992. New
directors and auditor must be appointed. The articles of association of such public company
limited must cover the issuance and transfer of shares, shareholders meeting, appointment of
directors, office term of director, leaving office before end of office term, leaving office at the
time of meeting, scope of power of directors, accounting, finance, audit, issuance of preferred
shares and conversion of preferred shares to ordinary shares. Such articles of associations
must neither be in conflict with the memorandum of association nor the Public Company
Limited Act of 1992. Application for registration of public company limited must be made by
director within 14 days from the date of meeting resolution to that effect. The registration fee is
10,000 baht.


5.4.3    Merger of a limited company with a public limited company

        A limited company may be merged with a public limited company. The newly formed
company shall have the status of limited public company. The merger shall comply with the
special resolution passed by limited company pursuant to the Civil and Commercial Code and
Public Company Limited Act of 1992. Then, such limited public company must hold a
shareholders meeting. A quorum is said to be formed when holders of shares with one quarter
of voting right attend such meeting. The fee for registration of merger shall be 5,000 Baht.




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 Annex III: Table C.1 Manufacturing establishments: number of workers versus registered capital


Region              Size of establishments based on the number of persons engaged
                    Total              36451                20-49                50-99          100-199   200-499   500-999   1,000+
Southern            1736               830                  496                  158            119       79        34        20
Central             3778               1281                 938                  507            401       383       175       93
Northern            2124               1059                 607                  196            131       81             -    50
Vicinity            5543               1319                 1559                 951            700       644       230       140
Bangkok             8555               4149                 2363                 963            558       347       93        80
Metropolis
Total               21734              8638                 5963                 2775           1909      1534      532       383
Region              Size of establishments based on the size of registered capital (Million Baht)
                    Total              <1                   36403                10-49          50-99     100-199   200-499   500-999   1,000+
Southern            1736               855                  468                  289            43        38        28              -   15
Central             3778               1225                 1096                 673            245       210       182       79        68
Northern            2124               1216                 646                  182            29        18        23              -   10
Vicinity            5543               992                  2456                 1282           316       249       158             -   90
Bangkok             8553               8553                 3569                 3878           813       133             -         -   160
Metropolis
Total               21734              7857                 8544                 3239           766       515       391       79        343


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Source: NSO, AThe 1997 Industrial Census




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Annex IV
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Contents




1 ARTEP/ILO: ADynamism in the informal sector in a fast growing economy: the case of
Bangkok@, ILO, 1993




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