As a member of the U.S. delegation to the September 1997 APEC Small/Medium Enterprise Ministerial Meeting in Ottawa, Canada, I was pleased to actively participate in the formulation and submission of the recommendations contained in this report. Follow-up measures are now underway to encourage U.S. Government support for the recommendations and adoption by the 18 member countries of APEC.

FOREWORD

This report captures the results of the APEC-SME Business Forum held in conjunction with the meeting of APEC-SME Ministers in Ottawa, Canada in September 1997.

Parallel meetings of Business Associations, Youth Entrepreneurs, the Women Leaders' Network, and Export Credit Agencies took place concurrently with the APEC Business Forum.

In many instances, ideas were raised in those concurrent gatherings which are strikingly similar to those raised in the APEC Business Forum and outlined in this report. Where similar issues and recommendations have been raised in each of these parallel meetings, APEC SME Ministers should recognize the broad consensus of thought across these various groups. It reinforces the importance of taking action.

The combined results of the meetings in Ottawa present a substantive expression of views and recommendations for APEC SME Ministers to work on in the coming year and to take forward to the APEC Leaders in their meeting in November 1997 in Vancouver, Canada.

As the coordinator of this report on the Business Forum, the Canadian Chamber of Commerce wishes to thank the business representatives from the various APEC economies for their valuable contribution of ideas, comments and recommendations which are contained in this document.

ASIA PACIFIC BUSINESS NETWORK

BUSINESS SECTOR VIEWS FROM APB Net IV
Ottawa, Canada

September 16-18, 1997

EXECUTIVE SUMMARY AND KEY RECOMMENDATIONS

The meeting of APEC business leaders at APB-Net IV in Ottawa, Canada produced a substantive and forward-looking review of the roles, activities, contributions and challenges faced by the SME enterprises of the APEC Region. The growing contribution of the SME components of APEC economies requires APEC governments to review carefully the perspectives of the SME delegates at the meetings. Recommendations for governments in the short and longer term are clearly spelled out, as are recommendations for the business community itself. Taking action and working in partnership and cooperation on the priorities identified in the attached report, will lay the basis for enhancing the already remarkable contribution which SMEs make to the economic fabric of the Asia-Pacific Region.

Several cross-cutting themes emerge from this report. These are common to all economies:

• the impact of the technology and information revolution
• developing skills and knowledge
• fostering partnerships, networks and coalitions
• the emergence of standards and standardization
• the need for benchmarking and sharing of best practices
• ensuring timeliness and reduced timelines
• providing solution-oriented information
  

This report corresponds to the "tracks" within the Business Forum. However, many of the recommendations are cross-cutting to all of the track subjects. They are not mutually exclusive.

A critical cross-cutting theme of the "tracks" is documentation burden, not just paper burden. SMEs need relief. The sum total of these various burdens can be immense but it is never evaluated in total. All of the players involved in generating these burdens must work rapidly to reduce the load. Merely moving to electronic format is insufficient. Simplification and reduction are urgently needed.

Reductions will enhance the movement of goods, services, people and capital. Moreover, it is self-defeating for SMEs and governments to devote increasing efforts to train, prepare or show SMEs how to cope with documentary burden and the "system". It will be far more effective to remove or reduce the burdens so SMEs can concentrate on what they do best -- developing business opportunities and growing. Merely replacing paper requirements with electronic requirements should not be confused with the need for real reduction.

Ministers responsible for SMEs should focus on the following key recommendations from the Business Forum:

1. expand and upgrade the APEC Economy Home Pages on the Internet by September 1998, with linkages to major private sector Internet sites in the respective economies;

2. implement APEC Multiple Entry Business Visas providing stays of 90 days. At airport and other border entry points, create APEC Business Lanes or similar special procedures to assist entry of business persons;

3. accelerate negotiations for liberalized trade in financial services across APEC economies so as to stimulate competition in financing options for SMEs;

4. design information systems for SMEs so as to provide solutions to SME needs rather than merely listing offerings of more data;

5. address SME concerns on export financing, and in particular, access to financing. Key steps include: expansion of SME Finance Roundtables; review specific challenges faced by women entrepreneurs; reduce documentation requirements; increase dissemination of information on requirements and regulations; and expand SME training programs.

It is essential to note that these are only selected key recommendations. The report details many actions, ideas and steps that governments and the business community can and must take to assist SMEs grow and prosper.

The business community also considers it vital that following this meeting and the APEC Leaders meeting in November, that APEC economies appoint "champions" to take the lead on implementation of these recommendations with established time-frames and deliverables. On many of these ideas, considerable background work has been completed previously. It is now time for action.

Finally, the Business Forum recommends that in their review of this report and its recommendations, APEC SME Ministers give special consideration to the special needs of youth and women entrepreneurs.

I INTRODUCTION

Since the inception of APEC in 1989, there has been a growing focus on business opportunities among the 18 APEC economies. APEC governments, with the assistance and support of the business community, have undertaken a comprehensive program of activities aimed at ensuring continued economic growth. jobs, investment and trade.

APEC Ministers welcomed the establishment of the Asia-Pacific Business Network (APB-Net) in Jakarta, Indonesia, anticipating that this new forum could be "a vital and effective channel for promoting business to business networking". Since its creation in 1994, APB-Net has focused on the potential and needs of small and medium-sized enterprises (SMEs).

The APEC economies constitute one of the fastest growing regions of the world, offering the business community within APEC unparalleled opportunities to foster increased trade, investment and job creation, thereby stimulating improved economic prosperity.

APEC economies had a combined GDP of $US 16 trillion in 1995, comprising some 55 per cent of world income and 46 per cent of world trade. Growth rates in the rapidly developing APEC economies have grown annually by an average of 7.6 per cent.

The SME component of the business sector within APEC is impressive. There are some 40 million SMEs throughout the APEC economies. They account for over 90 per cent of all enterprises, employ 32 to 84 per cent of the workforce, contribute between 30 to 60 per cent of respective GNPs, and stimulate 35 per cent of exports in the region.

Large multinational enterprises have the capital, along with the human resources, expertise, technology and geographic linkages, to seize opportunities across the APEC region without the assistance of governments. Indeed, large companies are active across the region and make a major economic contribution.

SMEs are different and have special needs and priorities. They are smaller, adapt quickly, innovate, and respond rapidly to challenges and opportunities. But their size and often limited expertise beyond the borders of their economies have hindered ambition and growth. They may lack the human, financial, knowledge or time resources to cope with the complexities of the international business environment, regulation, "red tape" or paper burden in the same way as large companies. Service sector SMEs, those located in rural areas, and women and youth entrepreneurs, face special challenges.

To their credit, the governments of the APEC economies recognize that SMEs require special attention if their full potential is to be realized. They are attempting to assist SMEs to grow beyond domestic borders onto an international stage.

At the 1997 Business Forum, SME representatives from various economies and industry and service sectors spoke out about the challenges to further development, growth and expansion. The synopsis which follows reflects the views of business as presented in the "tracks" at the Business Forum. It identifies areas for action and the priorities that APEC Ministers responsible for SMEs should establish for the next year. When the APEC economies gather in Malaysia in 1998, the business sector sincerely hopes to see action on the recommendations below.

The SME business community applauds the work that APEC governments have undertaken to date to enhance SME economic growth and success. Nonetheless, much remains to be done, especially reducing structural and institutional barriers to SME growth and international activity.

The recommendations which follow outline ways where governments can provide assistance or facilitate SME activities. However, it is critical to stress that the private sector does not expect governments to financially assist every activity or program or individual SME activities. Governments everywhere are cutting expenditures and levels of program support, and arc increasingly relying on private sector partnerships to design and implement activities to support SMEs. While financial cuts might hurt SMEs in some economies in the short term, in the long term the benefits from increased partnership with governments can help SMEs become more competitive. Indeed, the greatest contribution APEC governments can make is to eliminate barriers and let the private sector do what it does best.

It is essential to note the wide disparities in size and structure of the APEC economies. In turn, SMEs vary in size and type. Finding universal solutions to the difficulties faced by SMEs is therefore not easy. The Business Task Force has attempted to keep the wide variations in mind as this report was constructed.

It is clear from recent APEC activities that the needs and opportunities of SMEs are receiving increased attention. The Business Task Force is encouraged by this increased focus on SMEs and hopes that policy attention by Leaders, Ministers and officials in the various APEC economies will lead to action and substantive progress. Since the Manila meeting, the APEC SME Policy Level Group (PLG) has developed a policy framework to provide a horizontal SME focus across APEC. The PLG has also undertaken the publication, "Helping Your Business Grow: Guide for Small and Medium Enterprises in the Asia-Pacific Region". This document communicates the specific measures which APEC economies are taking to assist SME growth and development. The Business Task Force welcomes this guide and recommends that it be widely distributed in both hard and electronic format.

The SME business community remains ready and willing to work with the governments of APEC to ensure success which will benefit the populace, economies and businesses of the region. If the APEC economies are able to make real progress on the recommendations which follow, the contribution of SMEs across the APEC economies will be substantively enhanced. Action on the ideas in this report will also enable SMEs to realize their own aspirations and business dreams.

II ACCESS TO MARKETS

Key Issues

International marketing is perhaps the greatest challenge faced by growing firms. SME growth can be promoted, in part, by minimizing structural barriers which impede trade and investment, particularly non-tariff barriers, regulation and "red tape". Efficient border procedures for goods and services are also essential. Reducing impediments is one of the most important contributions APEC governments can make. The world's economy is rapidly shifting towards global trade liberalization. Companies that have traditionally relied on domestic markets now face heightened competition from foreign products. Exporters face similar pressures in their traditional international markets. Since only the strongest will survive in a global marketplace, SMEs must maximize their efficiency. Government assistance has helped SMEs to expand their horizons but fiscal restraint has governments seeing partnerships with business to bring about needed change.

Considerations

• The principal of an SME is often the key person responsible for marketing a firm's product, technology, skills or services. This may limit the ability of SMEs to capitalize on opportunities. Mounting a well-structured marketing effort is expensive. For SMEs with limited financial resources, marketing expenditures can be a disproportionately greater percentage of costs than in larger enterprises.
• SMEs often rely on their customers and colleagues as a major source of marketing information. This may work initially but as the enterprise develops, more systematic and comprehensive information sources are required to sustain the marketing effort.
• SMEs compete with enterprises of all sizes and increasingly in a globalized world, from all economies. They do not just compete against other SMEs.
• Alliances, partnerships and matchmaking are essential. They enable SMEs to access capital, information, technology, markets, management expertise, customers, labor and channels. Use of the Internet can greatly assist this task, especially the linkage of databases across the APEC economies. Increasing usage of the Internet gives SMEs a previously unavailable "global reach". However, Internet access must be low-cost and efficient if SMEs are to truly benefit.
• Alliances allow SMEs to share costs. This helps reduce levels of uncertainty in a turbulent and demanding environment and allows SMEs to speed up the market entry process and increase their responsiveness to consumer markets.
• SMEs must find appropriate and complementary matches in terms of interests, capacities and objectives. Benefits must outweigh the risks and costs. As in any relationship, SMEs must monitor opportunism, trust, reciprocity and forbearance.
• There is a continuing need to ease business person movement within APEC, e.g., through such measures as "visa-less travel" or longer periods for multiple entry for business persons. ABAC has made recommendations on this matter and Action Plans from previous APEC meetings have also outlined important steps. Easier travel ensures better access to market opportunities.
• Business networking is another approach to market access. SMEs can benefit by exchanging databases, business information, sales, promotion, and purchase preference of goods and services. Participation in exhibitions can improve visibility.
• Linkages between business associations and bilateral cooperation agreements provide useful fora in which SMEs can improve their network of contacts and opportunities.
• Infrastructure and government procurement requirements are potentially important markets for SMEs. To ensure their full participation, including by women and youth entrepreneurs, improvements in procedures may be required, particularly in terms of the lead times for preparation of tender documents given that SMEs may need to develop partnerships. Open, transparent, and non-discriminatory procedures are essential.
• It is important for any business but especially SMEs, to be able to easily move across borders with samples. Programs such as the carnet system administered by Chambers of Commerce in various economies can greatly assist with cross-border movement of sample goods.
  

A: RECOMMENDATIONS FOR GOVERNMENTS

Short Term

1. Enhance Mobility of Business Persons

APEC Action plans in 1995 and 1996 took first steps towards easier travel, mobility and exchange of business persons. In 1997-98, APEC economies must take concrete steps on this issue. Specifically, the Business Task Force recommends implementation of APEC Multiple Entry Business Visas providing stays of 90 days. At airport and other border entry points, the creation of APEC Business Lanes or similar special procedures (as is being tried by Australia, Korea and Philippines) would assist entry of business persons.

2. Improve the APEC Internet Home Page

By September 1998, the APEC Internet Home Page should be expanded. Efforts should be made by each APEC economy to compile standard SME Company Profiles that identify firms looking to expand in the APEC region. The APEC Home Page should also provide an outreach vehicle for member economies' trade promotion functions by listing, again in a standard format, upcoming SME trade fairs/shows and advertising government procurement and commercial projects. APEC economies should widely communicate and promote the APEC Internet site and its potential to assist SMEs. APEC Home Pages should include linkages to appropriate private sector sites and the APEC Business Net noted below.

3. More Information for SMEs

Government support for institutions providing information for SMEs remains critical even in times of shrinking financial resources. Trading houses, clearing houses, market information centers and export promotion centers should strengthen their support of SMEs by increasing coordination on efforts to encourage SME export development. Ensuring that these arrangements assist women and young entrepreneurs is especially important, as is their availability electronically so as not to disadvantage SMEs in smaller communities or rural locations.

4. Open Government Procurement to SMEs

By September 1998, APEC member economies should formulate common measures to open more broadly public procurement to SMEs. Measures to be considered should include: breaking major procurement into smaller components on which SMEs can more easily bid; tender award criteria which give credits for consortia including SME participation in their bid proposals.

Longer Term and Ongoing

1. Continue Support and Facilitation from Government Programs

Government programs that support SME participation in international business and professional conferences, trade missions, trade negotiations should be continually reviewed, with SME input, to ensure maximum effectiveness and efficiency. The provision of matching funds may be an effective approach to make best use of limited government funds.

2. Assist SME Participation in Government Infrastructure Projects

To facilitate SME involvement in government-sponsored infrastructure projects, APEC economies should review, and where necessary, amend their respective procedures to ensure openness, transparency, non-discrimination against foreign companies (i.e., national treatment), appropriate timelines for submissions of tender documents and availability to women entrepreneurs. Other important steps would be to break major procurement into smaller components to promote bids by SMEs, and to implement tender award criteria providing credits for consortia including SME participation in their bid proposals.

3. Institute Efficient Border Procedures

APEC economies should work towards efficient border procedures to assist market access for goods, services and people. A simultaneous reduction and streamlining of data required will ensure that the "paperless" entry system now being promoted actually results in more efficient border procedures. Development of common APEC-wide electronic data entry requirements would be helpful. APEC economies should accelerate "visa-less" temporary business travel within the region to allow easy access to markets for business development, including short-term work permits for business persons.

B: RECOMMENDATIONS FOR BUSINESS

1. Establish Business-based Networks

Private sector networks and national trade associations within APEC economics must play an increasing role in the provision of services to SMEs. Such organizations might undertake to deliver governments programs through public/private partnerships. The formation of Flexible Business Networks amongst SMEs in the APEC region should be a priority for business associations.

2. Understand SME Growth Patterns

SMEs and business organizations, in cooperation with APEC governments and academia, should review existing studies on the life cycles and timelines of a typical SME. Better understanding of SME characteristics and needs is essential, especially the points at which crises occur in smaller enterprises. Greater awareness of the contribution and characteristics of women and youth entrepreneurs could assist better matching of programs to needs.

3. Facilitate Cross-Border Movement of Sample Products

Businesses are encouraged to make use of mechanisms such as carnets to facilitate the movement of products across international borders.

4. Establish Internet Linkages

Business associations should establish an export-oriented, APEC Business Net with linkages to the Home Pages of each APEC economy and those of the major business associations of individual economies. This would create a highly informative site for data and service inquiries. To ensure relevance, such sites should conform to APEC standards for content and maintenance.

Ill ACCESS TO FINANCE

Key Issues

Access to capital is critical to SME growth. However, traditional financing Systems have often not worked well. Finding financial institutions that work effectively with SMEs is a continuing challenge. improvements are occurring but it is essential that financial systems accommodate the aspirations of SMEs, particularly those run by women entrepreneurs. SMEs in the service sector face specific financing problems.

Considerations

• SMEs, like any businesses, have varying financial needs depending on their stage of development. They require capital for start-up, for expansion and then to become active internationally. Their needs at each stage are different and so are the potential sources of funds, be they from equity, bonds, loans, etc. In addition to capital, SMEs require access to other financial services, e.g., brokers, financial planners, insurance, etc.
• In many cases, access to financing is the issue, not the availability of financing. The knowledge of where and how to access financing is critical.
• SMEs cite a long list of factors contributing to financing difficulties. Examples include:
  small size; lack of financial capacity; inability to satisfy collateral requirements; risk aversion by financial institutions; limited financial know how; higher transaction costs for small loans; inability to convince financiers about market opportunities; difficulty in articulating financial needs; lack of confidence to seize financial opportunities; and, lack of receivables against which to obtain credit. Interest costs may be higher than for larger firms. If an SME does not have an adequate business plan, or has never developed a plan, obtaining financing will be even more difficult.
• In some APEC economies, financial institutions may lack appropriate financing vehicles tailored to SMEs. Service sector SMEs have special needs. The situation varies from economy to economy.
• Tax Systems and financial regulations play a critical role in the generation of surplus funds, use of retained earnings and raising venture capital.
• Venture capital raised through share issues can be important to underwriting SME needs. Stock markets across APEC economies vary in size and operation, and in their ability to allow SMEs to raise venture capital. In some cases, regulatory concerns may preclude access by SMEs to raise funds for market expansion or new product development. Cross-border venture capital facilities would help SMEs finance international ventures. In the longer term, common equity and venture capital markets across APEC could assist.
• Systematic financial management is critical to the growth of SMEs, especially during startup and expansion. Many small firms exhibit creativity with their products but financial skills and knowledge and business planning abilities may lag. This contributes to the high rate of business failure for new firms.
• Domestically, SMEs may develop a substantive and understanding relationship with a principal financial institution. For international projects, financial institutions may seek partners in order to diversify the risk. This can make it both more difficult and costly for SMEs to undertake foreign ventures.
• SMEs international ventures may be of limited interest to some financial institutions because of the time involved, level of support needed, higher risk and limited revenue potential. Other financial institutions work hand-in-hand with SMEs to assist their ambitions and are developing a new generation of specialized financial products, services and packages geared to SME needs. Financial institutions which reduce paper burden and encourage transaction funding that minimize full corporate equity requirements should be commended. Best practices should be publicized.
• Fluctuating interest rates, exchange rates and business cycles can be particularly difficult for SMEs given their lack of diversification and smaller capital reserves. Stable economic conditions across APEC economies will substantially assist SMEs.
• Franchising systems may help some SMEs gain access to otherwise unavailable financing, albeit at a cost of business independence. Governments have generally left franchising systems to private sector self-regulation. The rise of trans-national franchising gives rise to new considerations.
• Export financing, and in particular, access to financing, is a major concern to SMEs. The meeting of the APEC Export Credit Agencies (ECAs) reviewed recent studies on these issues. Each study identified common issues, including: communication; documentation burden; timelines and timeliness; cooperation with banks; and supporting service exporters.
• Each APEC economy has an ECA in some form but not surprisingly, each agency has differing requirements. As private sector financial institutions globalize, there should be opportunities for ECAs in different APEC economies to cooperate on projects or to coordinate their requirements. This could improve SME access to financial resources for growth and to support export ventures. Many ECAs have been on the leading edge of efforts to assist SME financing.
• Burdens of time and documentation imposed by public and private sector financial institutions can be inordinately heavy. Large exporters can better cope with such requirements - SMEs cannot. Increasing electronic commerce could cut down old-style paper burden and shrink time requirements if implemented in conjunction with reduced information demands.
• SMEs have access to immense amounts of information but it is not always appropriately
• structured to the user's needs or perspective. For example, newly created SME must learn the "a-b-c's" of financing and how to cope with international financial circumstances. SMEs that are growing and expanding overseas need more sophisticated training including how to match their needs to the wide range of financial instruments available in the marketplace.
• An economy's banking regulations or banking culture may make it difficult for exporters and importers to obtain foreign financing for their transactions. The length of time to obtain payments or "confirmed" letters of credit is a drain on the cash of many SMEs and may prevent them from moving on to other deals.
• Service sector SMEs have excellent international growth prospects but have different financing requirements from traditional firms.
• In many APEC economies, governments are instituting "cost recovery" for information, services and regulatory requirements. The impact on SMEs must be assessed when such measure are implemented because they can have unintended serious consequences on small firms. Moreover, where cost recovery initiatives are taken, they must distinguish between public good and the benefits to individual enterprises.
• Infrastructure development is a pressing need in some APEC economies and future projects offers tremendous opportunities for companies of all sizes. SME access to the necessary project financing for such projects may be critical element to their participation.
  

A: RECOMMENDATIONS FOR GOVERNMENTS

Short Term

1. Examine Issues Identified by Studies on Export Financing

APEC economies are urged to address the recommendations of APEC wide studies on export financing as soon as possible.

2. Minimize Documentary Requirements

APEC economies should undertake document burden and "red tape" audits to ensure bureaucratic requirements are minimized, especially with the new technologies available for information processing and transfer.

3. Provide Information on Regulations and Requirements

APEC economies must ensure that their respective regulatory frameworks involving such matters as tax, banking, investment, trade rules, etc are transparent and easily available to the business community in a user-friendly format. Such information should be readily made available on the Internet by all economies by 1998.

4. Liberalize Trade and Competition in Financial Services

International negotiations on financial service liberalization should be fast-tracked. Steps to liberalize trade in financial services across APEC economies will stimulate competition in the financial services market and benefit SMEs by creating more funding choices, particularly SME access to equity capital.

Longer Term and Ongoing

1. Improve Training Programs

In cooperation with business organizations, APEC economies should encourage the development of training programs pitched to specific needs and types of businesses and to their stage of development.

2. Review Regulatory Procedures and Requirements on Financial Institutions

Regulatory procedures in APEC economies should require financial institutions and ECCS to justify the level of costs they impose on SMEs, in order to ensure that the savings available through new technologies are be passed on to business. Regulatory agencies should also examine why the cost of capital to SMEs may be higher despite little differentiation in risk from that facing larger enterprises.

B: RECOMMENDATIONS FOR BUSINESS

1. Create Innovation in the Financial Services Sector

The financial sector must be innovative in meeting SME needs, e.g., through such approaches as "business angel" operations which improve capital matching and business equity on-line systems. ECCS are encouraged to continue their efforts.

2. Reassess Lending Requirements

Lending institutions, in consultation with APEC governments, are strongly encouraged to revise traditional lending approaches to minimize document burden and to downplay the need for collateral requirements on SMEs. Lending institutions are strongly encouraged to rely more on assessments of the merits of the transactions being financed.

3. Improve In formation Programs of Financial Institutions

Export credit agencies and private sector financial institutions must have information programs which are appropriately structured for SMEs and in a format which reflects the varying capabilities of SMEs. It is particularly important that first time exporters receive information at an appropriate level and form.

4. Benchmark Best Practices by Financial Institutions

Private sector financial organizations, in cooperation with their respective APEC governments, should benchmark and inventory best practices which help SMEs. Moreover, officials from financial institutions must be trained on the special needs of SMEs so those institutions can be customer-focused and user-friendly, one-stop Systems.

5. Expand SME Finance Roundtables

The Business Task Force supports the SME Finance Roundtables recommended by ABA. These appear to have been useful in highlighting practical and creative solutions to problems and "best practices". Future roundtables should incorporate a specific review of challenges faced by women business entrepreneurs.

IV ACCESS TO SKILLS

Key Issues

The "knowledge-based economy" represents a new and emerging order in which a principal source of competitive advantage for SMEs will continuous improvement of their most valuable asset, human resources. Management strategies, competence and technical skills require continuous improvement and maximum performance to be competitive. Human resources and personnel at all levels must be appropriately employed, trained and motivated.

Considerations

• Trade liberalization in the APEC region requires SMEs to have highly productive, well educated and innovative human resources to continually develop the new products and new markets they require to remain competitive.
• SMEs require a culture of entrepreneurship and innovation to perform to capacity. It is critical to nurture the "entrepreneurial spark" in all employees.
• Every SME needs a comprehensive development and skills building program, even in a period of rapid growth. For SMEs which started as family enterprises, it is especially critical to adopt professional business and management techniques and skills. The skills required will vary according to the stage of development and the personnel required.
• The demand for the best people and the dynamic nature of SMEs, especially in high technology industries, produces increased personnel turnover and escalating labor costs
• Levels of social and economic development vary widely across APEC. Notwithstanding these variations, a significant challenges in all economies is the shortage of management competence and business skills, especially among women entrepreneurs. Continuous improvement is essential. Unfortunately, in some economies, this situation is exacerbated by the lack of available education opportunities.
• Success for SMEs often comes rapidly and corporate managers may be unprepared to deal with "growing up". SMEs must successfully prepare for and manage corporate organizational pressures, and in the process, not restrict or undermine the culture of innovation and entrepreneurship which has brought them success.
• Providing training and skills-upgrading can be a significant financial challenge for SMEs. Unlike larger companies with in-house training and learning capacities, SMEs must purchase training products in the market-place. Moreover, the down-time through employee absences while on training adds to the burden.
• The availability of, and locating, qualified instructors can hamper the process of upgrading business skills. While official aid agencies provide bilateral programs and mechanisms for training and skills upgrading, multilateral availability is more limited.
• Business and technical skills in today's workforce are increasingly portable and applicable to the development of technology that can be applied globally. Engineering and other highly skilled professionals generally go through licensing processes which may not always be recognized in other countries. Mutual recognition of skills and qualifications across APEC economies could assist SMEs and professionals to move internationally or to attract appropriate personnel from other APEC regions.
• Increasing use of electronic communication in business means better opportunities for SMEs in rural areas. This same technology can assist rural SMEs with access to education opportunities normally present only in urban areas. This may be especially important for women and youth.
• The challenge of working across the geographic spread of APEC is compounded by immense differences in culture and business practices. Cross-cultural understanding, skills and training is essential for success in overseas markets. For example, in many APEC economies, long term personal relationships underlie vital commercial ties and business linkages. Understanding the high priority placed on personal relationships can affect how SMEs work, market and grow.
• The international language of business and trade is predominately English but more foreign language education in school curriculums across APEC economies would facilitate cultural and business understanding.
• Many students in APEC economies are exposed to business needs and thinking only in the latter stages of the education process. Earlier understanding of how business works could assist in fostering a culture of entrepreneurship amongst today's youth. This could be supported by a focus on entrepreneurship in the education system. Another means might be student venture programs with business assistance, wherein youth gain the skills of starting and running their own businesses at an early age. Specific financing directed towards youth entrepreneurial activity would be needed.
• SMEs wishing to export must often develop special skills and knowledge to cope with the demands of international trade. The need to learn these skills undermines concentration on the core business of SMEs. Steps to reduce the learning curve for international activities would reduce the time, effort and financial resources needed to be successful internationally.
  

A: RECOMMENDATIONS FOR GOVERNMENTS

Short Term

1. Disseminate Information on Best Practices

The Business Forum recommends an APEC-wide compilation of "best practices" experiences affecting SMEs, recognizing there are cultural and institutional differences across the APEC economies. Such a guide could include governments, banks, trade associations and even SMEs themselves. A booklet produced by the SME Agency of the Ministry of International Trade and Industry in Japan, "Best Practices for SMEs in APEC", could be a model on which to build. Information on Best Practices across APEC should also be put on the Internet.

2. Publicize Availability of Training Instructors

To make it easier for SMEs to identify sources of training, the APEC Internet site should contain rosters of available instructors, persons available for secondments or exchanges, internships. A project to mount such a listing should be undertaken in 1997-98. Particularly valuable would be instructors with the capabilities to engage in distance learning to minimize travel needs of SMEs.

Longer Term and Ongoing

1. Establish Mutual Recognition of Qualifications

Working together, business and APEC governments should explore the development of core criteria across APEC economies for certain qualifications or skills, or the development of processes to facilitate mutual recognition of qualifications earned in other economies. This would assist the movement of skilled persons and facilitate international partnerships and alliances.

2. Institute APEC Business Quality Awards

In partnership with business, APEC governments should study the feasibility of APEC-wide Business Development Quality Awards, perhaps through recognizing compliance with IS 9000 standards or other criteria. This would highlight best practices for improving productivity, quality, competitiveness, equality and gender-sensitivity.

3. Enhance Distance Learning Systems

APEC governments, in cooperation with private sector and academic institutions, should examine ways to make "distance learning" more available and affordable to SMEs in rural areas. Measures could include partnerships among public, private and academic enterprises and by providing financial assistance for Internet access and training. Options which minimize the absence of SME staff from the workplace are essential.

4. Upgrade Financial and Business Skills

APEC governments should encourage, and where possible, financially assist SMEs to continuously upgrade and broaden their skills, through formal and informal education, including workplace learning. A good example is the Workshop for APEC Economies to Promote Diagnosis and Guidance Skills for SMEs to be held in Japan in October 1997.

5. Enhance Language and Cultural Training in School Curriculum

Greater foreign language education in the school system would assist long-term business growth and cultural awareness and understanding.

B: RECOMMENDATIONS FOR BUSINESS

1. Use Cross-Cultural Training

Cross-cultural training should be an essential aspect of training and skills development for businesses and governments. The "Cultural Educational Program" recommended by the Youth Entrepreneurs has many merits.

2. Exchange Business Skills

Through national business associations and in partnership with APEC governments, the business community in APEC should investigate establishment of memorandum of understandings through which larger, multinational companies can partner with SMEs as a mentor and "business angel". Multinational companies should involve their supplier networks in such arrangements.

V ACCESS TO TECHNOLOGY

Key Issues

The highly competitive and dynamic APEC marketplace requires SMEs to remain abreast of the latest technology, be it through innovation, adaptation or original development. However, such technologies must be affordable to SMEs. In many economies, SMEs have been innovation leaders in technology but also in the creative use of human resources. SMEs across APEC economies use different strategies to remain technologically proficient. Some SMEs can afford their own research and development. For them, effective partnerships, networking or sharing arrangements are essential. SMEs taking their technologies beyond domestic borders have numerous concerns about the protection of intellectual property rights and technology. Unless assured of protection, this may limit their desire and ability to enter overseas markets. Firms need to strategically protect their intellectual property. APEC can take steps to assist SMEs to adopt the latest technologies by SMEs.

Considerations

• APEC economies are shifting to a more knowledge-based structure but the stage and pace of development varies. Some emerging economies are "fast forwarding" through the traditional industrial development cycle while the more industrialized economies are in a state of adaption. In each case, opportunities abound.
• Access to sophisticated information technology and telecommunications has reduced the traditional barriers impeding the growth of smaller firms and enhanced the business environment. The changes have been particularly important for SMEs.
• APEC governments are attempting to ensure a business, financial and regulatory environment which encourages private sector technology development. In some economies, the use of tax incentives, public-private partnerships, centers of excellence, etc. have been instrumental in fostering a climate of innovation and technological development. However, recent surveys have indicated that such measures are not the sole answer -- skill development is even more critical.
• The shortage of highly qualified personnel is a barrier to developing APEC economies becoming knowledge-based. Relationships with the education and training infrastructures within the developed economies can assist in the acquisition of technology.
• SMEs must continuously upgrade their technology skills and pace of innovation to remain competitive. But the rapidity of change makes it difficult for SMEs to stay abreast of the latest developments and to identify and acquire appropriate technology. Comprehensive information systems can assist technology diffusion and innovation.
• For SMEs to adapt and use the latest technologies, they need affordable and simple to use applications. Promotion of "cross border" applications within APEC would help to promote technology use by sharing experiences between SMEs on how technologies were adapted for localized circumstances. Afford ability of technology could be enhanced through economies of scale between SMEs across APEC economies and consideration of differential license fees for developing economies.
• Networking and business-business or public-private sector partnerships facilitate access to new technology or further innovation. Such linkages allow SMEs to overcome size disadvantages while maintaining their flexibility and independence.
• The creative energies and innovation skills of SMEs have produced leading edge technologies. But many SMEs lack the capability to put their discoveries into production. Partnerships with larger firms assist this process but often at the cost of control over a product, a firm's independence or safeguarding intellectual property rights. While some SMEs are forced to sacrifice ownership over their products or services to survive, others find that licensing and intellectual property partnerships provide financial resources and secure a platform for growth.
• Copyright, patent infringements and protection of intellectual property are a continuing concern for the private sector generally but especially for SMEs on the "cutting edge" of technology development. When intellectual property infringements occur, pursuing legal recourse can be time-consuming but more importantly, often prohibitively expensive for SMEs. Information on intellectual property protection should be widely available in a form useful to SMEs.
• A low-cost, rapid dispute settling mechanism to resolve conflicts between business partners and between SMEs and governments would be valuable. The need and feasibility of an APEC-wide common or Judicial Vehicle tailored to SME needs requires investigation.
• The availability of sophisticated communications and computing gives SMEs in all APEC economies the chance to be part of the global marketplace, even if they themselves are located in rural areas. This helps non-urban regions to share the benefits of SME growth.
• Governments in APEC economies play a key role in assisting technology and innovation for SMEs through national R & D policies, information programs, centers of excellence, and innovation partnered with university or government-owned research facilities. However, shrinking public budgets have led to increased focus of government support to maximize the benefits from these investments..
• The rapid growth of technology raises issues of consistency of standards internationally. If not properly constructed, technical standards and associated regulatory systems can become a non-tariff barrier to innovation, growth and trade.
• Efficient border procedures are critical. Customs clearance must take advantage of the latest technology and evolve and accommodate the movement of new goods, technologies and services. Moreover, tariff classification systems and other regulatory Systems must keep pace with technological development. It is essential that SME competitiveness and ability to adapt and innovate not be restricted by border procedures in the international movement of technology and methodologies.
  

A: RECOMMENDATIONS FOR GOVERNMENTS

Short Term

1. Ensure Standards Keep Pace with Technology

APEC economies must ensure that the rapid pace of technological innovation being driven by SMEs is matched by an equally rapid and appropriate modification of government technical standards. Adherence to WHO principles and disciplines is a must. By September 1998, it is recommended that APEC economies, on both an individual and coordinated basis, should have audited their respective regulatory systems to ensure barriers to innovation are eliminated, and no new forms of non-tariff barriers are created.

2. Examine Results of APEC Customs Seminar

APEC Ministers responsible for Customs and APEC Ministers responsible for SMEs are requested to jointly review the results of the APEC Customs seminar in terms of how border procedures affect SMEs. APEC SMEs should encourage SME representatives to work with their respective customs administration and the Sub-Committee on Customs Procedures (SCAP) to ensure that modem border procedures include the type of flexibility that SMEs require. Simplification and streamlining are essential. Moreover, trade authorities and governments must ensure that the international rules governing the movement and use of new technologies keep pace with the speed of innovation.

3. Safeguard Intellectual Property Rights

By 1998, APEC economies should investigate the modalities of an APEC filing agency for intellectual property rights, including patents. Streamlined, common and low cost filing procedures across APEC economies would greatly reduce the time, effort and cost to SMEs of pursing the safeguarding of intellectual property rights, especially in multiple languages. It would be advantageous if patent agents and other dealing with intellectual property rights could have a common template or use common documents in different APEC economies.

4. Provide Information on Intellectual Property Rights Protection

APEC institutions should ensure that "how to" handbooks on intellectual property rights in the various economies are readily available in hard copy or on the Internet. Workshops and education would also assist firms to learn how to protect their intellectual property.

5. Investigate APEC Judicial Vehicle

The Business Task Force recommends that governments, business and the legal community investigate development of an APEC Judicial Vehicle for dispute resolution, tailored to the needs of SMEs.

Longer Term and Ongoing

1. Minimize Barriers to Technology Adoption Across APEC

APEC economies must encourage and promote the use of new technologies by ensuring that tariff barriers and import duties on new and innovative technology are minimized.

2. Develop and Use Arbitration Mechanisms

In partnership with the business community, APEC governments economies should encourage the use of private sector arbitration mechanisms (e.g., through the International Chamber of Commerce) to provide appropriate alternative dispute resolution systems which are less expensive and more time effective than normal legal channels.

B: RECOMMENDATIONS FOR BUSINESS

1. Establish Business Partnerships for Technology Adoption

National business associations, chambers of commerce and funding agencies should form working relationships with sister organizations in APEC economies to facilitate innovation and technology transfers between their respective memberships. Ways of making technologies affordable for SMEs should be part of such arrangements because affordability will enhance technological uptake.

APEC SME BUSINESS TASK FORCE

Mr. John Martin
Australian Chamber of Commerce and Industry
Australia

Ms. Lorraine Martin
Lorraine Martin & Associates
Australia

Mr. Philip M. Holt
Australian Business Limited
Australia

Mr. Haji Hamdillah Haji Abd Wahab
BLNG Sdn Bhd
Brunei Darussalam

Mr. Haji Ahmad Morshidi Pehin Rahman
Gadong Properties
Brunei Darussalarn

Mr. Haji Bahazuddin Dato Talib
Baharuddin & Associates Consulting Engineer
Brunei Darussalam

Mr. Timothy E. Reid, Chair of Task Force
Canadian Chamber of Commerce
Canada

M. Michel Bergeron
Chambre de Commerce du Quebec
Canada

Ms. Andrina Lever
WEC
Canada

Mr. Curtis Whyte
Whyte Reynolds International
Canada

Mr. Alejandro Jara
Programa de La Pequena y Mediana Industria (SME)
Chile

Mr. Alberto Martinez
CEPI
Chile

Mr. Song Zhiyong
Qingdao Taifa Group Corp.
People's Republic of China

Mr. Denis Lee
Kingscore Industrial Ltd.
Hong Kong, China

Ms. Marina Wong
HK Women Professionals & Entrepreneurs Association
Hong Kong, China

Mr. Kenneth Fung
Climax International Co. Ltd.
Hong Kong, China

Mr. Krisni Murti
Dharma Bhakti Astra Foundation
Indonesia

Ms. Poppy Dharsono
Small Industry Compartment of Indonesia Chamber of Commerce
Indonesia

Mr. Hiroo Kinoshita
Japan Small Business Corporation (JCBC)
Japan

Mr. Takashi Onishi
Osaka Chamber of Commerce and Industry
Japan

Dato' Norazah Awin
Leader of Malaysian Delegation to the APEC Women Leaders' Meeting
Malaysia

Mr. Paul Kuan
Federation of Malaysian Manufacturers
Malaysia

Mr. Simon Loh
Young Entrepreneur Organization
Malaysia

Mr. Jose' Brogeras
Pequena y Mediana Empresa Concamin
Mexico

Mr. Jeremy Moon
Icebreaker Nature Clothing
New Zealand

Mr. Stefan Olson
Olsonsoft
New Zealand

Dr. Delma Natera
Papua New Guinea

Mrs. Zenaida Gordon
Gordon Enterprises
Republic of the Philippines

Mr. Federico Perlas
Philippine Electronics and Telecommunication Federation
Republic of the Philippines

Mr. Benigno Ricafort
Philippine Chamber of Commerce and Industry
Republic of the Philippines

Mr. David Chang
China Credit Information Service Ltd.
Chinese Taipei

Ms. Felice Chen
K.T.X. Finance (Taiwan) Ltd.
Chinese Taipei

Mr. Donald Weng
Sun Moon Star Group
Chinese Taipei

Mr. Viroj Phutrakul
The Federation of Thai Industries
Thailand

Mr. Chirayudh Vasuratna
Board of Trade of Thailand
Thailand

Mr. Myron Brilliant
The U.S. Chamber of Commerce
United States

Mr. Toby Malichi
Malichi International, Ltd.
United States

Mr. James Meenan
International Management & Development Institute
United States

Mr. Jon Weinstein
Apex Plastic Industries, Inc.
United States

Mr. Robert J. Keyes
Canadian Chamber of Commerce
Canada

Ms. Bronwyn Best
Canadian Chamber of Commerce
Canada